The original purpose of the self-dealing rule, which dates from at least 1725 was to enable a beneficiary of a trust to avoid any transaction involving a trustee’s purchase of trust property. The rule is rooted in a fiduciary’s duty of loyalty to his or her principal and is intended to apply “whenever a fiduciary enters a transaction and is on both sides of the transaction.”
In his text Account of Profits, Peter Devonshire usefully summarises the duties relating to self-dealing and unlawful profit as follows:
“The profit and conflict rules impose strict duties, which are not dependent on a requirement that the defaulting fiduciary acted in bad faith or consciously committed any wrongdoing. The mere fact of being placed in a position where duties are, or may be compromised, will suffice. The fiduciary is accountable regardless of whether the principal has suffered any loss. Nor does it matter that the principal would not, or could not, obtain the profit or that the conflict was more hypothetical than real. Liability arises regardless of whether the fiduciary’s conduct could have been ratified by the principal, or that the principal, if fully informed, would have proceeded with the transaction in any event.”
Fair dealing is arguably a sub-set or carve out of self-dealing where a transaction that involves the purchase of a beneficial interest by a trustee. The transaction is not voidable only because of an element of fair dealing but can be voided at the suit of the beneficiary unless the trustee can show that full disclosure has been made to the beneficary and that the transaction is fair and honest.
Walters v Wikiriwhi is a practical reflection of the issues that flow from self-dealing in the context of a Maori land trust, in a factual background that could just as easily arise within many discretionary family trusts. Walters v Wikiriwhi relates to a sale at an undervalue, in circumstances where there were multiple opportunities for the trustees to reflect on their duties and the obligations owed to the wider beneficiaries. As noted at [65] to [68]:
[65] The Court held s 227A was designed to reflect the prohibition against self-dealing in equity by trustees. It was no answer to say that the breach had no effect because the decisions in question could have been made by a majority of other trustees. Section 227A was designed to avoid the appearance of risk of conflicts of interest and improper influences, whether conscious or unconscious.
[66] Mr Walters’ absence from the trustee meeting on 10 January, when the remaining trustees reaffirmed the sale of Lot 1 to Mr and Mrs Walters, did not remedy the significant breaches of duties by the trustees that occurred in this case, because, as the evidence which we have summarised at [11] to [30] demonstrates, at all stages Mr Walters was fully involved in the plan whereby he and his wife would acquire Lot 1 from the Trust. The fact Mr Walters absented himself from part of the trustees’ meeting on 10 January did not counterbalance the vast volume of evidence that shows he was intricately involved from beginning to end in the Trust selling Lot 1 to himself and his wife.
[67] Mr Withers, Mr Trevelyan and Ms Satchell must also share responsibility for the very clear breaches of trust that occurred. In particular: (a) They knew Mr Walters and his whānau would benefit from acquiring Lot 1. (b) They agreed to Mr Walters playing the lead role in the arrangements that led to him and his wife acquiring Lot 1.
[68] All trustees had a duty to avoid the appearance, and risk, of Mr Walters personally benefitting from his role as a trustee. All trustees failed by a considerable margin to discharge that duty.
…
[73] We acknowledge that the purchase of the Corrigall block was beneficial to the Trust and that, ultimately, the Trust was able to avoid the challenges it would have faced if it had been required to either move or restore the farm house. Nevertheless, as we have already noted, the trustees needed to base their decision to sell Lot 1 to Mr Walters and his wife on sound evidence, and not base that decision on their sense of loyalty to Mr Walters.
The reference made in Walters v Wikiriwhi to an improper sense of loyalty resonates with similar observations made by the Supreme Court in Lambie Trustee Limited v Addleman at [97] regarding the independent trustee’s inappropriate alignment with one of the two beneficiaries:
[97] We have some sympathy for this position. Lambie Trustee Ltd has aligned itself entirely with Ms Jamieson. Part of its rationale for doing so – that the trust was a sole purpose trust for her benefit – was rejected by the Court of Appeal. The other – that the trust had been solely funded by her – is distinctly questionable. Lambie Trustee Ltd’s argument that the joint interest has come to an end rests in part on its possibly inappropriate decision to align itself so closely with the interests of Ms Jamieson.
References
- Walters v Wikiriwhi [2022] NZCA 93
- Lambie Trustee Limited v Addleman [2023] NZSC 7
- Lambie Trustee Limited v Addleman [2021] NZSC 54
- New Zealand Māori Council v Foulkes [2015] NZHC 489
- McCallum Jnr v McCallum [2021] NZCA 23
Matters of Trust 
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