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Directions, Trustees

Are two heads better?

Advisory trustees can provide useful assistance to trustees. However, where an advisory trustee is a professional, this advice can be expected to come at a price. Oldfield v Oldfield explores the balancing of cost and utility regarding the proposed appointment of an advisory trustee. The appointment of an advisory trustee and the utility of this ebbed and waned through the Oldfield proceedings.

Ultimately, the sole professional trustee’s views changed regarding supporting the appointment of an advisory trustee due to concerns that the Trust’s resources would be “unnecessarily reduced by the costs of an advisory trustee.” Further, the trustee was of the view that it was “… able to manage the trust assets with a far greater degree of confidence than it had when … [first appointed].”

As noted at [10]:

“Mr Oldfield contends there is a clear need for an advisory trustee who is independent of Perpetual. However, other than arguing that two heads are better than one Mr Oldfield has provided no solid reason to support this contention. Whilst initially attracted to this idea (in the January judgment) I now reject it.”

The matter is interesting as the role of advisory trustee gets limited airtime and, although commonly referenced in trust deeds, the role is perhaps not well understood and warrants more consideration perhaps than is given with more focus on trustee appointment, removal and retirement and less on this “intermediate” position.

By way of background regarding the advisory trustee role, Advisory Trustees are a creature of statute. Advisory Trustees can be a practical appointment to allow a Trustee or Trustees to consult someone who may have more expertise knowledge without risking an improper delegation of the Trustee’s duties.  This means that the Trustee can avoid some liability for acting on the advice of the Advisory Trustee. The Advisory Trustee is not an “actual” trustee and does not have ownership of property.

The current scope of the role of Advisory Trustee is set out in section 49 of the Trustee Act 1956.

The role of Advisory Trustee has been renamed Special Trust Advisor in the Trusts Act 2019, which will come into full effect on 30 January 2021. The use of the new name is intended to more clearly express the fact that an Advisory Trustee is not an actual or “responsible” Trustee.

The Law Commission reviewed the role of the Advisory Trustee in 2011 as part of the review of the Law of Trusts. The Law Commission outlined the role as defined by the 1956 Act and made the following observations:

  • The trust property remains vested in the responsible trustee who retains sole management and administration of the trust. The responsible trustee may consult the advisory trustee who may advise on any matter relating to the trust or the trust property. The advisory trustee is not a trustee. The responsible trustee may, but is not required to, follow the advice and is not liable when following the advice. The responsible trustee may apply to the court for directions if he or she thinks the advice conflicts with the trusts, is contrary to law, exposes the trustee to liability, or is objectionable. There is no obligation to apply. The court’s decision is binding on the responsible trustee and the advisory trustee. The responsible trustee may also apply to the court if the advisory trustees are not unanimous and give conflicting advice, but there is no obligation to apply. If the responsible trustee is entitled to be paid, the advisory trustee may also be paid.
  • In its report Some Problems in the Law of Trusts, the Law Commission recommended that a responsible trustee should have to apply to the court for directions if the responsible trustee intends to follow the advice of the advisory trustee but considers the advice conflicts with the trust or the law or would expose the responsible trustee to liability. The Trustee Amendment Bill 2007 contained an amendment to section 49 to this effect but had an additional provision that there would be no requirement to apply for directions if the advisory trustees are not unanimous and give conflicting advice, or are unanimous but the responsible trustee considers the advice objectionable. The proposed changes met with opposition and the select committee recommended omitting the mandatory requirement and retaining the status quo. It considered imposing an obligation on responsible trustees to apply to the court would be onerous, expensive, and time-consuming. It has been said that in practice these situations can usually be resolved without resort to the High Court.
  • The select committee did, however, recommend that the responsible trustee should not be able to escape liability for following advice of an advisory trustee if the responsible trustee would have been liable for taking the action he or she took in the absence of advice. The select committee also recommended including a statement to clarify that a responsible trustee is not protected from a breach of trust or failure to comply with general duties in law by following the advisory trustee’s advice or direction, which arguably just emphasises the existing position.
  • The role of advisory trustees and their impact on the responsibility and liability of responsible trustees may need to be considered against the nature of the trust and the duties of trustees. Advisory trustees under section 49 are potentially problematic because it is possible that a responsible trustee would not be liable even for breaching one of the trustees’ core duties. The question then needs to be asked whether a trust is in place at all at that point. This is an issue that can be seen as going to the heart of the concept of the trust. If it is accepted that an irreducible core of trustees’ duties are necessary for a trust to exist, does the situation of an advisory trustee warrant an exception such that there is a trust despite the trustees potentially escaping liability for actions taken on advice of the advisory trustee?

Hills v Public Trust & Ors provides some useful consideration of the rule of Advisory Trustee at [153] to [156] as follows:

“[153]     There was no obligation on Mr Gannon (and Mr Eagle) to make inquiry of the plaintiff regarding the instructions given to them by Norah Hills. The trustees acted at her request and direction, she being an advisory trustee under the Trust and also the settlor who had provided all the assets of the Trust.

[154]     Section 49(3)(c) of the Trustee Act 1956 provides that where the responsible trustee (in this case Mr Gannon and Mr Eagle) acts on advice or direction tendered or given by the advisory trustee he is not liable by reason of following that advice or direction.

[155]     Under s 49(3)(d) if the responsible trustee is of the opinion that such advice or direction conflicts with the trusts or any rule of law or exposes them to any liability or is otherwise objectionable, he may apply to the Court for directions in the matter.

[156]     In this case, where Norah Hills was the advisory trustee and it was she who made the request for the distributions, where the trustees took all reasonable and proper steps to ensure that Norah Hills was properly advised and further, that she was seen by a doctor who certified as to her mental capacity, there can be no breach of trust by the responsible trustees, Mr Gannon and Mr Eagle.”

References:

  • Oldfield v Oldfield [2020] NZHC 1401
  • Oldfield v Oldfield [2020] NZHC 8
  • Oldfield v Oldfield [2019] NZHC 492
  • The Duties, Office and Powers of a Trustee [NZLC IP26, 2011] at 5.51
  • Hills v Public Trust [2010] NZHC 400

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