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Trustee liability

Learning about trustee liability the hard way

Trustees act personally.  If a trustee does not limit his or her liability by agreement the trustee has no right to a limitation of liability by virtue of the trustee not being able to benefit from the trust.

This position has been confirmed in numerous decisions.  The most recent involves one Mr Hunt and the Bank of New Zealand. 

Background

Mr Hunt is a trustee of the Emerald Trust.  Together with his co-trustee, one Mr Khidirbekov (the Emerald Trust was settled by Mr Khidirbekov for the benefit of himself and hs family), Mr Hunt and Mr Khidirbekov guaranteed the borrowings of a related company.  The company defaulted and in due course the gurantee was called up.  Summary judgment  followed.  When BNZ tired of fruitless negotiations it indicated its proposal to commence bankruptcy proceedings against Mr Hunt.  Presumably proceedings against his co-trustee were not considered due to his no longer being resident in New Zealand.  At this point Mr Hunt applied to have the summary judgment order varied or set aside.

Miscarriage of Justice?

The first ground was that Mr Hunt is not personally liable for the debt as he entered into the guarantee as a trustee.  The court was not moved noting that it is settled law that trustees can incur liability by contract and that a trustee “normally incurs unlimited personal liability, unless liability is expressly limited by the contract.”

Mr Hunt’s second argument was that BNZ should have provided a gurantee that limited his liability to the assets of the trust.  Professional trustees commonly limit their liability in this way.  However, unless a gurantee specifies that liability is limited to the assets of the trust is the trustee cannot benefit from the trust (or similar), an express limitation is required.  The court’s view in this regard was that it was not open to Mr Hunt to claim this far after the event that such a limitation should have applied. Or to paraphrase the court didn’t allow the argument of I would have done it differently if I knew then what I know now.

The final argument, which was also unsuccessful was that Mr Hunt entered into the gurantee under a mistake.  See comments above about what he would have done if he knew then what he knows now.

The case is another reminder that trustee appointments are not for the novice player. Trusteeship is a serious job with serious risks attached. 

Note too, when accepting appointment as a trustee where your co-trustee is not a New Zealand citizen as was the case here, if your co-trustee departs New Zealand you can be left facing all the liability alone.

References:

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