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Acknowledgement of Debt, alter ego trust, appointment and removal of trustees, Appointor; power of appointment, breach of trust, Contracting with trustees, Corporate trustee, Discharge, GST, Powers of attorney, Removal of trustees, Review of the Law of Trusts, trust, Trust review, Trustee Act, Trustee retirement, Trustees, Trusts, Trusts Bill, Vesting order

Two trustees go down to the woods … one is discharged, one is not

The use of corporate trustees is a common response to trustee liability.  However, where one of two natural person trustees retires and a corporate trustee is appointed, it is important to consider whether the retiring trustee has been discharged.  See ss 43, 45 and 46 of the Trustee Act 1956, which provide:

Relevant Legislation

43 Power of appointing new trustees

(1) Where a trustee (whether original or substituted, and whether appointed by the

court or otherwise)—

(a) is dead; or

(b) remains out of New Zealand for the space of 12 months during which no delegation of any trusts, powers, or discretions vested in him as such trustee remains in operation under section 31; or

(c) desires to be discharged from all or any of the trusts or powers reposed in or conferred on him; or

(d) refuses to act therein; or

(e) is unfit to act therein; or

(f) is incapable of so acting; or

(g) being a corporation, has ceased to carry on business, is in liquidation, or is dissolved, then—

the person nominated for the purpose of appointing new trustees by the instrument (if any) creating the trust, or if there is no such person or no such person able and willing to act, then the surviving or continuing trustees for the time being, or the personal representatives of the last surviving or continuing trustee, may by deed appoint a person or persons (whether or not being the person or persons exercising the power) to be a trustee or trustees in the place of the first-mentioned trustee.

(2) On the appointment of a trustee or trustees for the whole or any part of trust property—

(a) the number of trustees may be increased; and

(b) a separate set of trustees may be appointed for any part of the trust property held on trusts distinct from those relating to any other part, and whether or not new trustees are or are to be appointed for other parts of the trust property; and any existing trustee may be appointed or remain one of the separate set of trustees; or if only 1 trustee was originally appointed, then 1 separate trustee may be so appointed for the first-mentioned part; and

(c) it shall not be obligatory to appoint more than 1 new trustee where only 1 trustee was originally appointed, or to fill up the original number of trustees where more than 2 trustees were originally appointed; but, except where only 1 trustee was originally appointed, a trustee shall not be discharged under this section unless there will be either a trustee corporation or at least 2 individuals to act as trustees to perform the trust; and

(d) any assurance or thing requisite for vesting the trust property, or any part thereof, jointly in the persons who are the trustees shall be executed or done.

(3) Where a trustee has been removed under a power contained in the instrument creating the trust, a new trustee or new trustees may be appointed in the place of the trustee who is removed, as if he were dead, or, in the case of a corporation, as if the corporation had been dissolved, and the provisions of this section shall apply accordingly.

(4) The power of appointment given by subsection (1) or any similar previous enactment to the personal representatives of a last surviving or continuing trustee shall be and shall be deemed always to have been exercisable by the executors for the time being (whether original or by representation) of that surviving or continuing trustee who have proved the will of their testator or by the administrators

for the time being of that trustee without the concurrence of any executor who has renounced or has not proved:

provided that a sole or last surviving executor intending to renounce, or all the executors where they all intend to renounce, shall have and shall be deemed always to have had power, at any time before renouncing probate, to exercise the power of appointment given by this section, or by any similar previous enactment, if willing to act for that purpose and without thereby accepting the office of executor.

(5) Where a sole trustee is or has been originally appointed to act in a trust, or where, in the case of any trust, there are not more than 3 trustees either original or substituted and whether appointed by the court or otherwise, then and in any such case—

(a) the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust; or

(b) if there is no such person, or no such person able and willing to act, then the trustee or trustees for the time being—

may, by writing, appoint a person or persons (whether or not being the person or persons exercising the power) to be an additional trustee or additional trustees, but it shall not be obligatory to appoint any additional trustee, unless the instrument, if any, creating the trust, or any statutory enactment provides to the contrary:

provided that an additional trustee or additional trustees shall not be appointed under this subsection without the consent of—

(a) the trustee or trustees for the time being; or

(b) the court.

(6) Every new trustee appointed under this section as well before as after all the trust property becomes by law, or by assurance, or otherwise, vested in him, shall have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust.

(7) The provisions of this section relative to a trustee who is dead include the case of a person nominated trustee whether sole or otherwise in a will, and who dies before the testator; and those relative to a continuing trustee include a refusing or retiring trustee, if willing to act in the execution of the provisions of this section.

(8) The provisions of this section relative to a person nominated for the purpose of appointing new trustees apply whether the appointment is made in a case specified in this section or in a case specified in the instrument, if any, creating the trust, but where a new trustee is appointed under this section in a case specified in that instrument, the appointment shall be subject to the terms applicable to an appointment in that case under the provisions of that instrument.

(9) In this section the term trustee does not include a personal representative as such.

 ...

45 Retirement of trustee

(1) Where there are 2 or more trustees—

(a) if one of them by deed declares that he is desirous of being discharged from the trust; and

(b) if his co-trustees and such other person (if any) as is empowered to appoint trustees by deed consent to the discharge of the trustee, and to the vesting of the trust property in the co-trustees alone— then, subject to the provisions of subsection (3), the trustee desirous of being discharged shall be deemed to have retired from the trust, and shall by the deed be discharged therefrom under this Act without any new trustee being appointed in his place.

(2) Any assurance or thing requisite for vesting the trust property in the continuing trustees alone shall be executed and done.

(3) Except where only 1 trustee was originally appointed, a trustee shall not be discharged under subsection (1) unless there will be either a trustee corporation or at least 2 individuals to act as trustees to perform the trust.

46 Discharge of trustee with assistance of court or Registrar

(1) Where any trustee is desirous of being discharged from his trust he shall be entitled to retire therefrom on passing his accounts before the Registrar, and giving notice of his retirement to his co-trustees (if any), and to such other person (if any) as is empowered to appoint new trustees.

(2) If such co-trustees, or such other person as aforesaid empowered to appoint new trustees, or any of them, refuse or neglect to appoint a new trustee or to consent to such appointment in place of the trustee so retiring, or if the retiring trustee is the sole trustee having power to appoint a new trustee, but the exercise of that power is impracticable or difficult without the assistance of the court, it shall be lawful for the retiring trustee to apply to the court for the appointment of a new trustee in his place.

(3) The court may, upon any such application, make an order appointing some proper person as trustee in place of the trustee so desirous of being discharged from his trust, and direct any accounts and inquiries to be made, and make an order discharging the trustee from the trust and from all liability in respect thereof, and may make such order as to costs or otherwise as it thinks fit, and may exercise any of the powers contained in Part 5; and the person who upon the making of the order becomes trustee shall have the same rights and powers as he would have had if appointed by judgment in an action duly instituted.

(4) If the court, on an application under subsection (2) by a trustee other than a supervisor, appoints Public Trust as the replacement trustee, Public Trust must accept the appointment.

(5) In subsection (4), supervisor means a person appointed as a supervisor within the meaning of section 6(1) of the Financial Markets Conduct Act 2013.

By contrast s 51 of the Trustee Act 1956, which provides for the appointment  of trustees (in substitution for other trustees where relevant) does not refer to discharge.  It may be that this is addressed in s 51(5).  However, there is no express statement.

51 Power of court to appoint new trustees

(1) The court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult, or impracticable so to do without the assistance of the court, make an order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

(2) In particular and without prejudice to the generality of the foregoing provision, the court may make an order appointing a new trustee in substitution for a trustee who—

(a) has been held by the court to have misconducted himself in the administration of the trust; or

(b) is convicted of a crime involving dishonesty as defined by section 2 of the Crimes Act 1961; or

(c) is a mentally disordered person within the meaning of the Mental Health (Compulsory Assessment and Treatment) Act 1992, or whose estate or any part thereof is subject to a property order made under the Protection of Personal and Property Rights Act 1988; or (d) is a bankrupt; or

(e) is a corporation which has ceased to carry on business, or is in liquidation, or has been dissolved.

(3) An order under this section, and any consequential vesting order or conveyance, shall not operate further or otherwise as a discharge to any former or continuing trustee than an appointment of new trustees under any power for that purpose contained in any instrument would have operated.

(4) Nothing in this section shall give power to appoint an executor or administrator.

(5) Every trustee appointed by the court shall, as well before as after the trust property becomes by law, or by assurance, or otherwise, vested in him, have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust.

Can a corporate trustee replace one or two natural person trustees?

In the United Kingdom case of Jasmine Trustees Limited v Wells  the England and Wales High Court (Chancery Division) needed to decide whether the word “individuals” in s.37(1)(c) of the Trustee Act 1925 (on which the Trustee Act 1956 is modelled) was capable of extending to corporations as well as human individuals.  The context of the case was whether retiring trustees had  been discharged from the trust.    As noted by way of background in that decision at [6]:

“The issues arise because of concerns over the effectiveness of the 1982 deed by which Major-General and Mrs Coaker purported to resign and IBI and Mr Thornton took over the trusteeship. It is said by the claimants in these proceedings that the closing words of s.37(1)(c) of the Trustee Act 1925 (see paragraph 11 below) mean that, while the appointment was effective, the resignations were not because if they had been effective then there would be one company and one individual, as opposed to two individuals, as trustees of the settlement. Accordingly, they say, Major-General and Mrs Coaker remained trustees at that point (they were not discharged from their trust, in the wording of s.37(1)(c) of the Trustee Act 1925). That is said to have had two unintended effects – it affected the validity of the acts of the ostensible trustees thereafter, and it affected whether the trust was on shore or not for the purposes of the capital gains tax legislation.”

A comparable New Zealand case, which was heard after Jasmine Trustees (but does not refer to that decision) might be Vance v Lamb where the natural person trustees retired in favour of a corporate trustee.  However, when there was a short-fall to Inland Revenue, the primary cause of action related to claims against the director (and shadow director) of the corporate trustee for breach of the duties owed.   While the question of the application of s 43 of the Trustee Act 1956 was raised, Mackenzie J noted at [64] that “The question whether any liability may continue to attach to either of the former trustees is not before me. I consider that it is preferable not to address further the possible application and effect of the Trustee Act provisions.”

Other cases, although not many, and few in New Zealand, have considered whether “individuals” includes body corporates or is limited to natural persons.  The Legislation Bill, which was introduced on 20 June 2017 and which  “rewrites and replaces the Legislation Act 2012 to implement publication and other reforms relating to the production of high-quality legislation that is easy to find, use, and understand; and updates and re-enacts the Interpretation Act 1999” regrettably does not address this definition.  Persons are defined to included body corporates.  However, there is no definition of natural person or individual.

In Great Northern Railway v Great Central Railway “Individual” is considered to mean, as Wright J notes at p 275- 276, “any legal person who is not the general public” and (relevantly to corporate trustees, and natural persons who retire to act through a corporate trustee) “Supposing a trader had a right given home for a siding or anything else, and he converted his business into  a limited company, it would be a strange thing to hold that because of that this Court lost its jurisdiction to enforce the rights which were given.”

Note that in Jasmine Trustees Limited v Wells, Great Northern is distinguished by reference to context.  However, no reason is given in Jasmine other than the observation that individuals replaced persons in precursor legislation and “it is to be assumed that a different meaning was therefore intended.”  As stated at [24]:

“The relevant words were introduced by the 1922 Act.  The technique of the draftsman was to amend the existing provision – so the words were deliberately added by amendment.  The words specifically chosen for that purpose included “individuals”.   The words were replacing a wording that included “persons”, a word capable of including corporations.  In the light of that it is hard to accept that “individuals” was intended to be a synonym for “persons”.  A different word was apparently deliberately chosen, and it is to be assumed that a different meaning was therefore intended.  This is the real legislative context of the introduction of the words, and it is particularly important.”

In Société United Docks v Government of Mauritius the Privy Council found that there was no logical distinction between an individual and a person protected by provisions in Mauritius statute. Both expressions could include a corporation when the context allowed.

In Greenpeace of New Zealand Incorporated v Electoral Commission individual was held to mean a natural person.  However, the context of that case is important in that the draft legislation referred to his and her (and not its), but that no explanation was available to explain the omission of these pronouns in the final form of the legislation.

Also see Re Greenpeace (regarding whether political purposes can be charitable) at [70] where the majority states “As well, a strict exclusion risks rigidity in an area of law which should be responsive to the way society works. It is likely to hinder the responsiveness of this area of law to the changing circumstances of society. Just as the law of charities recognised the public benefit of philanthropy in easing the burden on parishes of alleviating poverty, keeping utilities in repair, and educating the poor in post-Reformation Elizabethan England, the circumstances of the modern outsourced and perhaps contracting state may throw up new need for philanthropy which is properly to be treated as charitable.”

It is noted that the High Court does not in practice appear to be concerned with the appointment of a single corporate trustee or a corporate trustee and a single natural person trustee in place of two natural persons or two natural persons and a body corporate.   See Powell v Powell and Little v Little for example.  Note that neither of these cases considered the discharge of the removed trustees.

Also contrast s 51, compared with ss 43,45 and 46 of the Trustee Act as referred to above.

Jasmine appears superior authority for obvious reasons.  However, the basis for the position taken is supposition rather than clear reasoning and it was not applied in Vance v Lamb.  And of course, as discussed, the Legislation Bill does not address the issue.

The matter is an important one because if the position in Jasmine is adopted as correct in New Zealand there will be a substantial number of trusts where trustees have not been validly discharged. The implication is that there will be numerous trusts in New Zealand where un-discharged trustees remain liable and where subsequent decisions may be invalid as not having been made by all trustees.

References:

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