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Beneficiaries, Cases, constructive trusts, General, Limitation Act, Trustees, Trusts

Identifying a trust relationship can provide an out of time remedy

The dispute over Huka Lodge (see the Fight Over Huka Lodge) highlights an element of certain trust-based relationships  that can be overlooked.  This is the ability for subsequent trust-related disputes to survive time-barring due to the passage of time.

Michael Kidd and Alexander van Heeren were former partners in a successful partnership that amassed significant wealth prior to the partnership’s dissolution in 1991 – some 23 years ago.

However, now in 2014 the partners are locked in an ongoing dispute over how the partnership’s assets were divided on its dissolution and whether one partner took advantage of the relationship.

Partnerships and joint ventures are classic examples of fiduciary relationships where the partners are held to a higher obligation of good faith due to the nature of the relationship.

Kidd claims he got less than US$5 million ($6.3 million) when they split, while van Heeren allegedly held on to assets worth at least US$47.5 million – including Huka Lodge, Fiji’s Dolphin Island retreat, and 32kg of gold.    Kidd claims an interest in half of these assets and the partnership’s other assets when they went their separate ways – a claim he has chased since 1996.

So how can it be that the matter is still before the courts?

While the writer has no personal knowledge of the matter, it is a useful example of a case where perhaps the nature of the relationship has allowed the consideration of remedies that survive the passage of time in ways that, say, matters arising from a contractual breach cannot.

Relevantly in matters such as those raised in this case, the provisions of the Limitation Act 1950 (the Act) apply to acts or omissions occurring prior to 1 January 2011 (the Limitation Act 2010 has application to subsequent acts and omissions).  Subject to certain exceptions, proceedings in contract and tort cannot be brought after the expiration of six years from the date on which the cause of action accrued. However, s 4(9) of the Act applies to  exempt claims in equity from the limitation period, save in those cases where the equitable claim is sufficiently analogous to the statute-barred claim to make it inequitable to allow the plaintiff to proceed.

So what does that mean in practice?

Section 21(1) of the Act provides that no period of limitation prescribed by the Act shall apply to an action by a beneficiary under a trust, in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy.  This means that where a fiduciary relationship can be shown to exist, in the event of  fraudulent breach of that relationship, the Limitation Act will not prevent proceedings being heard that would otherwise be out of time.

Section 28 of the Act can  also have application in some cases where a proceeding is based upon the fraud of the defendant; and the period of limitation does not begin to run until the plaintiff has discovered the fraud, or could with reasonable diligence have discovered it.

What kind of fraud is required?

To succeed in a claim for breach of fiduciary duty it is necessary to show:

  • the existence of a fiduciary duty or trust relationship;
  • a breach of that duty;
  • a loss arising out of a transaction or circumstance to which the breach was material, and
  • that the breach was fraudulent.

A finding of equitable fraud, requires proof of dishonesty. In Armitage v Nurse  Lord Justice Millett stated:

 “Viscount Haldane in Nocton v Ashburton [1914] AC 932 explained “in Chancery the term “fraud” thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction.”

Note the use of the expression “actual fraud” to distinguish cases of common law fraud or deceit from these other cases. Lord Dunedin did the same when he said at p. 963 “…if based on fraud, then, in accordance with the decision in Derry v Peek, the fraud proved must be actual fraud, a mens rea, an intention to deceive.”

Derry v Peek established that nothing short of a fraudulent intention in the strict sense will suffice for a case of deceit or fraud properly so called. It requires proof of dishonesty. Nothing less will do. Gross and culpable negligence is not enough.

However if a Trustee pursued a course of action knowing it was contrary to the interests of the beneficiaries, or being recklessly indifferent whether or not it was so contrary, then there would be dishonesty, and thus, actual fraud. There is no need for the Trustee to personally benefit. The narrow definition of “wilful default” in Re Vickery, Vickery v Stephens [1931] All ER Rep 562 was directly in point.”

What constitutes dishonesty in the context of trustees acting in breach of trust such that the protection of an indemnity in a deed of trust will not apply is considered at length in the Court of Appeal decision of Spencer v Spencer, the court concluding at para [131] that:

 “… in New Zealand, the assessment of a trustee’s honesty comprises both subjective and objective elements. A critical first step is to establish what the trustee actually knew about the terms of the trust relevant to the breach alleged and whether the trustee knew that the impugned conduct amounted to a breach of trust. The trustee’s knowledge might include constructive knowledge arising from wilful blindness in the sense described in Westpac although we do not need to determine that in this case. The second step requires an assessment of whether, in the light of what the trustee knew, he or she acted in the way an honest person would in the circumstances. This is to be assessed on an objective basis. A trustee who believes his or her actions or omissions were in the best interests of the beneficiaries will not necessarily be entitled to protection.”

Is a formal trust required?

Trust relationships can arise outside formally documented trusts. For example, a Quistclose trust can arise where a trust is found on account of funds held for a specific purpose.  While such a trust is not remedial as such, where funds can be identified as having being held for a purpose the identification of such a trust can be sufficient to hang subsequent remedies on.

Identification of a  constructive trust will also suffice.   A constructive trust is an equitable remedy imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding legal right to property which they should not possess due to unjust enrichment or interference.  The finding of a trust, and the relevant trust relationships, are sufficient to form a basis for a claim out of time – provided a sufficient breach is identified.

Are there other barriers by reason of delay?

Section 31 of the Act provides that nothing in the Act affects any equitable jurisdiction to refuse relief on the ground of acquiescence or otherwise.  This raises the closely related concepts of acquiescence and laches.

Acquiescence gives rise to a defence in the nature of equitable estoppel in those situations where a plaintiff stands by while he or she sees the violation of his or her rights in progress and takes no steps to interfere.

Similarly, the doctrine of laches may provide a bar to relief, despite the provisions of the Act. In equity, where there has been unreasonable delay, relief may be refused in the exercise of the Court’s equitable discretion.  However, for the doctrine of laches to apply, mere delay is insufficient.  It is also necessary to point to some prejudice to an opposing party; delay alone may be insufficient to give rise to a laches defence.

This is because the doctrine of laches requires a balancing of equities in relation to the broad span of human conduct. In the abstract, facts and the weight to be given to them are infinitely variable. But in any particular case they have to be identified and weighed for what they are, as a singular exercise.

So what does all this mean?

Delay can be the enemy of relief through court action.  For obvious practical reasons the passage of time can make a fair fight harder, if not impossible.  Memories dull; evidence is lost; laws change; assets are dissipated; decisions are made; life moves on.  Where for one party it does not, delay can deny a remedy, even one that is rightfully due.

However, if the relationship that spawned the dispute arose from a recognised fiduciary relationship, or if a trust element can be divined, the passage of time may not diminish rights that would otherwise be lost due to the statutory time bars imposed by the Limitation Act.


  • Beckers v Anderson & Ors [2013] NZHC 2798
  • Limitation Act 1950
  • Limitation Act 2010
  • Johns v Johns [2004] 3 NZLR 202
  • Inca Ltd v Autoscript (NZ) Ltd [1979] NZLR 700
  • Eastern Services Ltd v No.68 Ltd [2006] 3 NZLR 335
  • Zhong v Wang [2006] NZCA 242
  • Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4
  • Everist v McEvedy [1996] 3 NZLR 348
  • Armitage v Nurse [1997] EWCA Civ 1279
  • Derry v Peek (1889), 14 App. Cas. 337
  • Nocton v Ashburton [1914] AC 932
  • Re Vickery, Vickery v Stephens [1931] All ER Rep 562
  • Spencer v Spencer [2013] NZCA 449


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