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.
Contact
Tony
Johnson
Lewis
Grant