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Trustee liability, Trustees

The grammar of trusts

Trusts are commonly anthropomorphised – my trust, the trust, his trust.  At the very least the trust becomes a possessive noun rather than the inchoate mix of rights and obligations that a trust really represents.  It is difficult of course, to separate out the parties.  Because most of the time – who cares?  Does it really matter, we all know more or less what we mean.  But does the other guy?

The decision in O’Connor v Law Debt Collection Limited provides a good example of the consequences of the grammatical and conceptual shorthand that surrounds trusts.

The issue in hand related to who was the correct party to a debt.

The facts are as follows:

  • a leaky home dispute arose in respect of a property that the solicitors acting in the matter understood was owned by Mr O’Connor
  • Mr O’Connor was involved with all communications regarding the scope of services to be supplied
  • the offer of service was addressed to Mr O’Connor
  • the offer of contract was accepted by Mr O’Connor’s son
  • Mr O’Connor paid the initial deposit
  • invoices were addressed to the Carrigafoyle Trust (the Trust)
  • Mr O’Connor made a settlement offer when a dispute arose over services

It does not appear that the sole trustee, a corporate trustee Overview Trustee Limited, of which Mr O’Connor was a director  until 7 August 2007 (before the  contract from which the dispute arose was entered into in November 2007), and then from 20 June 2008 was referred to in any correspondence with the creditor.

On appeal to the High Court, that Court found that the contract was with Mr O’Connor.  With respect to invoices being addressed to the Trust, the Court noted that it gave this little weight as a debt cannot be owed by a trust as a trust has no separate legal personality.  A debt can be owed by a trustee.  In this case the trustee was a corporate trustee.

However, for the trustee to be recognised as a party to a contract, the trustee must enter into a contract and clearly state the capacity on which the contract is being entered into.

One cannot help but have some sympathy for the applicant.  Mr O’Connor knew he was the director of a trustee company at some of  the relevant times.  It may well be that in his head he was contracting on behalf of that company as a trustee.  The problem is he needed to get that knowledge outside his head and on to the page.

It is similar to where trustees attempt to rely on the limitation clause in a deed of trust when the trustee has contracted or incurred liability with a third-party.  The trustee might know about and rely on the limitation.  However, the third-party stranger to the deed does not, and so cannot sensibly be bound by the same.

References:

  • O’Connor v Law Debt Collection Limited [NZHC] 2265
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