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Further warning to passive trustees

By Tony Johnson - 29 Apr 2013

Recently the High Court again highlighted the importance of trustees taking an active role in the administration of his or her trusts. The recent High Court decision in Selkirk v McIntyre further highlighted the folly of being a "passive trustee". In that case GST was not paid by the trust and as a result the IRD obtained a $200,000 payment from the passive trustee.

There were no assets left in the estate. The passive trustee then sought full contribution from the active trustee who had failed to file the GST return (as promised) and had also dissipated the assets of the trust.

The Court held the passive trustee was entitled to a $100,000 contribution from the active trustee but was personally liable for the other $100,000. As the judge stated:

A "passive" trustee is not entitled to simply delegate their responsibilities to the "active" trustee.  In this case the Trust deed required that the trustees act unanimously (as is the norm).  The names of both trustees were presumably recorded as the legal owners on the various properties which formed part of the Trust assets.  The relationship between Mr  Selkirk and Mr McIntyre was not solely a solicitor-client relationship, but also one of co-trustees.  There was no evidence before me, however, of any systems or procedures aimed, for example, at ensuring that as properties were sold GST was appropriately accounted for.  I acknowledge Mr Selkirk's evidence that he trusted Mr McIntyre to attend to this.  However, the case law is clear that such reliance will not give rise to an entitlement to an equitable indemnity from a co-trustee.

Equity simply does not recognise the concept of an "active" trustee or a "passive" trustee.  All trustees are accountable to the beneficiaries of the trust and must account to them for its proper administration. 

Actions of trustees are coming under more and more scrutiny. The judgment is a reminder of the risks of being a trustee if you do not give proper attention to your duties. 

If you need advice contact Tony Johnson or Lewis Grant.


Selkirk v McIntyre


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