The case of Dever v Knobloch is not especially new. However, it is surprising how many times I have looked back to refer to it. The facts of the case are not particularly interesting – essentially no more than another family dispute where the existence of a discretionary trust does not forestall expectations of equal sharing and equality in the face of clear evidence as to why this should not be the case.
In this particular case there are a number of memoranda of wishes culminating in a memoranda explaining why equal sharing is not appropriate given the earlier assistance given to one beneficiary. The beneficiary in question still sought an equal distribution of trust assets and was not moved by the fact of earlier trust assistance in his sole favour as a reason for this not being the case.
The case arises by way of a summary judgment by the trustees to strike out Mr Dever’s claim. Although not successful, the Court is clearly unmoved by Mr Dever and equally clearly guides the trustees as to how to overcome the defects in their case.
In particular – that relating to the primary weakness – lack of unanimity, which is why this case is so interesting, well to me anyway. The deed of trust did not contain a clause addressing the conflicts that might arise when a trustee is a beneficiary, as is more commonly the case with modern trusts. However, through ostensibly “doing the right thing” the fact that a conflicted trustee did not join the trustees in their decision-making (although he did confirm his acceptance of the decision” meant that the validity of the decision came under attack.
Unless the deed of trust provides otherwise, decisions must be unanimous (see Garrow and Kelly, Law of Trusts and Trustees (6th ed) at 19.3.8), also see Rodney Aero Club Inc v Moore. Further a trustee must “bring to bear a mind unclouded by contrary interest: Re Thompson’s Settlement. The unanimity rule is a corollary of the non-delegation principle so that if trustees cannot delegate, it follows that they must all perform the duties attendant upon execution of the trust.
A decision that is not reached by all the trustees may not be a proper one as the beneficiaries are entitled to have all of the trustees individually consider the relevant proposal.
The other question is whether a conflicted trustee (for example a trustee whose wife is a beneficiary as was the case in Dever) is tainted by conflict and that this conflict comes within the scope of the rule against self-dealing. In this regard it is clear that “the self-dealing rule is an application of the wider principle that a [trustee] must not be in a position where duty and interest conflict or where .. duty to one conflicts with his duty to another …” The self-dealing principle is applied stringently in cases where a trustee concurs in a transaction that cannot be carried into effect without the trustee’s concurrence and where the trustee also has an interest in or holds a fiduciary duty to another in relation to the same transaction: Re Thompson’s Settlement. also see Chellew v Excell  1 NZLR 711 (HC) at 718.
However, note the distinction between a beneficiary acquiring property from the trust, purportedly for value, i.e. a dealing, rather than a distribution. Although there are some superannuation cases where the self-dealing rule has been whittled down: In re Drexell Burnham Lambert UK Pension Plan it is not clear the same would apply in the context of a discretionary family trust. However this may be inferred: see Dever at :
“I do not accept that the rationale applying to the appointment of trustees in a superannuation trust situation can be applied without further consideration to the position of trustees in family trust situations. If one family member participates in decisions as to the disposition of property held for members of the family to that person’s own benefit, then the spectre of conflict between the trustees’ personal interest and the duty to all beneficiaries must arise, irrespective of the circumstances in which that trustee was appointed. Involvement in a family trust context is clearly distinguishable from, say, an employee-trustee participating in decisions affecting competing interests of different classes of members of a superannuation fund. Often, a certain number of such trustees are required to be chosen from members of classes of beneficiary. In the family trust context, it may be that appointment of trustees by a settlor including family member/beneficiaries could be taken to infer recognition of the prospect that such trustees will participate in decisions in which they have a personal interest. If that inference is not sustainable, then, in the negative sense, appointment as a trustee and the obligation for unanimous participation may require exclusion from benefit as a beneficiary, unless the trust deed permits otherwise. This trust was not set up with any trustees who were also beneficiaries. Mr and Mrs Dever were added many years after the Trust was settled, but it appears that no variation to the terms of the Trust Deed was made to accommodate the conflict that has subsequently arisen.”
That said the practice of including settlors and beneficiaries of trustees of family trusts is widespread.
The Court notes then at  that “Certainly, the prospect of a conflict does not disqualify a candidate from appointment as a trustee: 48 Halsbury’s Laws of England (4ed, reissue), Trusts, para . That cites the decision in Isaac v Isaac  EWHC 435 (Ch) which involved an internecine battle where family trusts held parcels of shares in a family owned company and control of voting decisions for the trusts effectively controlled the outcome of shareholder voting in the company. A challenge to appointment as a trustee of the managing director of the company held that the appointment was not improper, and an order would not have been made for his removal. The judgment of Park J includes the following:
“Numerous trusts exist in which one or more of the trustees has or have one or more of the additional capacities which [the contested trustee] had in this case. If an actual conflict arises the law will expect the trustee to handle it carefully and appropriately in the circumstances, but no one suggests that such persons cannot be validly appointed as trustees. ()”
In conclusion the Court found that an argument might be made out but that the trustees could have sought orders in accordance with s 64 of the Trustee Act 1956. As the matter was a summary judgment application, the threshold of certainty was not reached. However, it was open to the trustees to revisit the decision with a view to correcting the procedural errors.
The other matters raised?
Trustees’ alleged failure to act reasonably. The fact that the trustees’ decision was in accordance with the memoranda of wishes meant that any argument of unreasonableness had a very high threshold to reach.
Equitable estoppel of Mr Dever’s expectation to share equally with his siblings was subject to “numerous difficulties”. Mr Dever had no evidence and moreover, any discussions from which such an estoppel might arise were not with the trustees.
Breach of trustees’ obligations excluding Mr Dever. Never going to fly. The trust was discretionary and accordingly “there was therefore no entitlement for any of them to participate, let alone participate equally, in any distribution the trustees resolved to make. Discretionary beneficiaries have no more than an expectation to be considered.”
- Dever v Knobloch (2009) 2 NZTR 19-042
- Rodney Aero Club Inc v Moore  2 NZLR 192 at 195 (HC)
- Chellow v Excell  1 NZLR 711 (HC) at 718
- In re Drexell Burnham Lambert UK Pension Plan  1 WLR 32
Re Thompson’s Settlement  2 All ER 720