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Trusts

Limitation of liability lost in the fine print

The most recent version of the standard agreement for the sale and purchase of land includes a standard trustee limitation of liability clause (clause 16).  However, this clause is only available to trustees who cannot benefit from the trust.  So where trustees wish to limit their liability to the assets of a trust, and those trustees are also beneficiaries, it is necessary to amend the clause or delete it and replace it with a more appropriate clause.

It may seem self-evident that the trust in question must exist when the agreement is entered into for the limitation of liability in clause 16 to apply.  This was confirmed in Moana v Smith.  The difficulty is that sometimes what is intended has not in fact yet occured when an agreement is entered into.  When “trustees” are acting on behalf of a trust that is not yet settled, regardless of future intentions, the trustees are acting only on their own behalf and will be personally liable for any losses that arise under the contract.

References:

Moana v Smith [2013] NZHC 2754

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