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insolvency, Trustee liability, Trustee retirement, Trusts

A wander through trustee liability

The background to Fawcett v Official Assignee is relatively straight-forward, as is the result.  However, the highways and by-ways the decision takes to get there are a study in why very few people should be trustees, and even less would want to be.  The case relates to a poorly constructed pedestrian bridge that was ultimately ordered to be demolished with costs against the trustee owners.  The first meander, and the first quite perplexing question starts here. At different times both trustees (Mr Fawcett, a former All Black and subsequent property developer, and his co-trustee Mr Granville, an accountant) maintained that they had retired.  However, it was not clear to the Court that either retirement was effective.  That said, while it was possible that at least one or other had retired – neither of the trustees challenged the decision of the District Court that sheeted the costs in respect of the pedestrian bridge home to each of them.

Subsequently Mr Fawcett was bankrupted and Mr Granville paid the entire costs award personally to avoid bankruptcy himself.  What is not made clear in the judgment – and it appears that the judge himself may not have had this information – was why Mr Granville paid the costs personally, rather than these being met by the trust.  While it may be that the trust was insolvent, it is not entirely clear from the decision that that was in fact the case.

Regardless, Mr Granville paid the costs and then sought to recover these in full from the Official Assignee.  It would seem that the Official Assignee was not familiar with the concept of equitable contribution that  entitles parties who share a coordinate liability to seek a contribution from each other for any payment incurred in meeting that liability, so that the burden is shared equally among those liable for it. (See  Laws of New Zealand, Equity, (online ed) at [84] and  Marlborough District Council v Altimarloch Joint Venture Limited).

It is noted that the general equitable right to contribution is based on the principles of natural justice. There is a clear risk of injustice arising if a person who is liable for the same damages or expense does not bear their share of the same.  Accordingly, if one trustee is sued, he or she may claim a contribution from any other trustee who is also liable.

While there are limited circumstances where reimbursement in full is possible, this is not normally the case.  However, the Official Assignee paid – to the extent dividends were being paid on the bankruptcy – a proportionate share of the entire costs incurred by Mr Granville.

Mr Fawcett challenged this following his release from bankruptcy.  While neither Mr Fawcett or the counsel acting for either Mr Granville or the Official Assignee could provide the court with any guidance on the matter, somewhat surprisingly given the similarity with the facts of the 2013 decision in Selkirk v McIntyre, the court got there by itself.  What is surprising is that Mr Granville did not attempt to direct the court to the authorities that might have supported his financial exoneration.  See, for example, Chillingworth v Chambers, which is authority for the proposition that where a trustee-beneficiary has benefited from a breach of trust, a co-trustee might be spared any contribution to costs.

This consideration of the decision in Fawcett v Official Assignee may seem harsh.  Perhaps the writer has not fully understood the facts.  Or worse, she has.

For a more fulsome consideration of the circumstances where a trustee can seek full reimbursement of costs see Another bad day as a trustee.

References:

  • Fawcett v Official Assignee [2016] NZHC 1272
  • Selkirk v McIntyre [2013] NZHC 575
  • Thames-Coromandel District Council v Fawcett DC Hamilton CIV-2008-019-655, 16 December 2008
  • Marlborough District Council v Altimarloch Joint Venture Limited [2012] 2 NZLR 726
  • Chillingworth v Chambers [1896] I Ch 685 at 707
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