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Less wriggle room when wrong decision made by trustee

By Tony Johnson - 28 Jun 2013

The role of trustees is becoming progressively more time consuming and complex - and sometimes mistakes happen. So, what happens if you, as trustee, have slipped up?

Under the Hastings-Bass rule trustees can argue that if their actions result in an unexpected obligation, those actions might themselves be outside the trustees' powers. In consequence, it is open to the Court to set aside the action. The unexpected obligation would then disappear. 

The recent UK Supreme Court decision in Futter and Pitt has restricted the application of the Hastings-Bass rule.

There, the trustee thought she had considered all the relevant issues.  She had also acted upon the professional advice she had obtained. Unfortunately the advice was wrong and the trust incurred a tax obligation. The assets of the trust would be diminished in meeting the tax obligation.

In the Supreme Court the trustee sought to apply the Hastings-Bass rule. The Court however said that an unexpected consequence, where the trustee was acting appropriately, could not amount to a breach of trust:

… it would be contrary to principle and authority to impose a form of strict liability on trustees who conscientiously obtain and follow, in making a decision which is within the scope of their powers, apparently competent professional advice which turns out to be wrong.

On the one hand, the result gives comfort to trustees (the trustee was not in breach of a duty).

On the other hand, the result puts in doubt trustees' abilities to utilise a relatively straightforward avenue to remedy the consequences of the tax obligation. What is now left for trustees (or beneficiaries) is to sue their professional advisors or allege a legal mistake. These options are more complex and/or potentially costly. They are likely to involve hostile litigation (not a preferred option).

If the New Zealand Courts follow Futter and Pitt it is likely there will be yet more substantial litigation involving trustees.

A trustee's position is not getting any easier.


Tony Johnson

Lewis Grant


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