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General

Back to Benjamin

Triple A Trustees Limited relates to a practical aspect of trusteeship, which is, the transfer of assets from one trustee to another without subsequent liability arising from doing so.

The Triple A Trust (the Trust) is a foreign trust with a New Zealand resident trustee. Parties associated with the Trust were subject to United Kingdom Serious Fraud Office allegations. As then set out in the judgment:

[7] The Ahsani family and the Group deny the allegations. The applicant understands the Ahsani family required funds from the Trust to help meet their legal expenses. Further, that as a result of the allegations and the UK SFO investigation, the Ahsani family decided to remove the applicant as trustee and appoint a replacement trustee with experience in dealing with distressed assets and the threat of litigation with government authorities. FFP, the intended new trustee, was established by the directors of FFP Cayman Ltd which is a specialist fiduciary services provider based in the Cayman Islands. The applicant was comfortable with the proposed new trustee’s appointment. The applicant was not aware of there being any specific investigation into, or adverse claims or potential claims, contemplated against the Trust’s assets. The possibility that proprietary claims by third parties such as foreign based regulatory authorities (against the Trust assets) could not, however, be ruled out.

Where a trustee is aware of adverse or potential adverse claims, the trustee must act with caution. Where there is a “reasonably arguable claim” (See Guardian Trust v Public Trust) a trustee will not be able to safely distribute assets unless able to form a view that the claim is indisputably a bad one (Lewin, 19th ed at 26-031).

It is also appropriate for trustees to exercise caution where they have notice of circumstances that could give rise to a claim. See for example Finers v Miro where no claim had been made, but the Court acknowledged the trustees’ potential liability based in constructive trust was on the basis that the trustees had knowledge of a potential fraud claim against beneficiaries. However, there must be an element of realism. In  S and S Limited v XYZ Limited, where a trustee unsuccessfully sought to upheld uphold caveats that had been lodged against former trust property to support an equitable lien where the liabilities referenced were potential liabilities (described as novel) that had not crystalised.

A trustee can seek directions regarding the transfer of trust assets to a new trustee, pursuant to the Trustee Act 1956 or the Court’s inherent jurisdiction. As set out at [13]:

“Here, the applicant relies on the Court’s inherent equitable jurisdiction to supervise the administration of trusts, including in appropriate cases to permit or direct a trustee to distribute trust assets notwithstanding the existence of claims or potential claims against the trust fund by third parties. Where a trustee is faced with a practical difficulty in establishing the existence of possible beneficiaries or other claimants the trustee can, in reliance on the principle established in Re Benjamin, apply to the Court for a direction to the trustee enabling it to distribute trust property on the assumption of fact that there is no such beneficiary or claimant. Such direction has come to be known as a Benjamin order, the making of which is a function of the inherent jurisdiction of the Court to supervise and administer trusts.”

Benjamin orders are explained at [14] as follows:

“Originally the principle in Re Benjamin was applied to allow a trustee to
distribute trust assets in circumstances where a beneficiary was missing or could not be identified. However, over time this principle has been extended to apply, for example, to trust creditors rather than just beneficiaries. The requisite basis for a Benjamin order being “evidence of the practical impossibility of proof of the fact or event sought to be established”. When the Court makes such an order it does do not
“have the effect of destroying any proprietary rights of third parties but may afford protection against personal claims against trustees from third parties.””

See further Re Benjamin.

In Triple A Trustees Limited the orders sought were made on the basis that:

  • the UK SFO was fully informed of the application
  • the transfer of assets to the new trustee would not prejudice the position of the UK SFO
  • the new trustee was also resident in New Zealand and the effect of the transfer would create ” no additional impediment to bringing proceedings against the trustee of this Trust”

Orders for a “blessing order” under s 66 of the Trustee Act were declined on the basis that the Benjamin orders made did not need to be further bolstered.

The decision is a useful and practical reminder of the the need to balance the protection of the out-going trustee where there are potential claims of sufficient weight to warrant protection, against the propriety of the transfer of assets to the incoming trustee and the mechanisms to do so.

References:

  • Re Triple A Trustees Limited NZHC [2019] 1336
  • Triple A Trustees Limited NZHC [2020] 1341
  • Lynton Tucker Lewin on Trusts (19th ed, Sweet and Maxwell, London, 2014) at 26-031
  • Guardian Trust and Executors Company of New Zealand Ltd v Public Trustee of New Zealand [1942] AC 115 (PC) at 127
  • Finers v Miro [1991] 1 WLR 35 (CA)
  • S and S Limited v XYZ Limited [2016] NZHC 26
  • Re Benjamin [1902] 1 Ch 723
  • In Re MF Global UK Ltd (in special administration) (No 3) [2013] EWHC 1655, [2013] 1 WLR 3874 (Ch) at 3881
  • In Re Gess [1942] Ch 37
  • Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160

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