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.
Judgment
Selkirk v McIntyre