The Trusts Bill and the “Preferred Approach” to the PRA – what’s in it for ADR?

1. The Trusts Bill and the “Preferred Approach” to the PRA – what’s in it for ADR? Carole Smith FortyEight Shortland Barristers 9 April 2019

2. The Trusts Bill (as reported from the Justice Committee) • Set out clear and accessible core trust principles • Ensure more efficient trust administration • Simplify and clarify the role of the courts in relation to trusts • “A trust should be administered in a way that avoids unnecessary cost and complexity”

3. The Trusts Bill • Mandatory duties – s22-s26 (numbering will change) • Default duties – s27-s36 (note exception to exclusion of DOC re s64) • Note s5(3A) and Schedule 2 • Slightly odd • s36A – Adviser must alert settlor to modification or exclusion of default duty • Duties in common law/equity still apply

4. The Trusts Bill • S37 – restriction on trustee exemption clauses • s40A – gross negligence • An attempt by Justice Committee to keep matters from going to court

5. The Trusts Bill • s45 “trust information” • “reasonably necessary for the beneficiary to have to enable the trust to be enforced”? • Reasons for trustees’ decisions definitely out • s46 – purpose to ensure beneficiaries have sufficient information to enable the terms of the trust and the trustees’ duties to be enforced

6. The Trusts Bill • Note s47(3)(d) basic trust information – right to request not the same as right to receive • Note s47(4) – this obligation cannot be excluded • s48 presumption and s49 compulsory consideration • s49(h) family trusts – effect of giving the information on relationships within the family

7. The Trusts Bill • S77 – usual trustee indemnity • But s78 – can also be indemnity where indemnity “impaired” but all beneficiaries agree • Even where it involves gross negligence • s78A • s78B • Overall a belts and braces approach – if trustees doing their best, probably ok

8. The Trusts Bill • s97 Trustee removal by person nominated in trust deed • s97A compulsory removal where incapacity (could be some arguments here) • s97B optional removal of a trustee – where trustee no longer suitable to hold office because of conduct or circumstances • Justice Committee has provided examples of conduct and circumstances although may not be that helpful in practice • But overall again – trying to reduce amount of litigation

9. The Trusts Bill • ADR s137-142A – ADR examples given are mediation/arbitration • s138 – gives trustees power to refer matter to ADR with agreement of each party • Applies where legal proceedings already on foot, or where a dispute between a trustee and beneficiary, between trustee and third party, or between the trustees

10. The Trusts Bill • Internal matter – where parties are trustees or beneficiaries • s139 – court will appoint representatives for unascertained or incapacitated beneficiaries in respect of internal matters • s140 – court can submit any internal matter to an ADR process • s142 – trustee not liable to beneficiary in relation to ADR settlement if acted honestly and in good faith

11. The Property (Relationships) Act (PRA) • Preferred approach subject to final report • Will finally be Relationship Property Act (RPA) • Ridiculous situation currently viz a vis PRA and trusts • PRA only applies to property owned by separating partners • Clayton (Vaughan Road) current s44C, s182 FPA, constructive trust …

12. PRA • Amended s44C • Where relationship in early stages onwards, if any property put in trust, and disposition frustrates application of PRA, then PRA will apply • Applies to separate and relationship property • (Because separate property will be classified as relationship property where used to acquire property for common use or common benefit of partners)

13. PRA • s44C also to apply before relationship begun where: • Trust property preserved (sustained) by application of relationship property or actions of partners; or • Any increase in value of trust property is attributable to application of relationship property or actions of partners • Essentially saves on constructive trust arguments

14. PRA • Court can require trustees to pay a sum of money or transfer trust property • But appreciation that other factors may be at play e.g. interests of other beneficiaries • So decision needs to be “just” and guidance will be provided • S21 agreements will probably need separate agreement with trustees – watch that space • S182 FPA to be repealed

15. PRA • Widely believed that PRA does not facilitate inexpensive, simple and speedy resolution • Recommends including in the PRA statutory endorsement of voluntary dispute resolution • Recommends including pre-action procedures in the Family Court Rules 2002 requiring a genuine effort to resolve PRA matters out of court prior to making an application to court • Likely some state funded mediation will come in – lets hope there’s a distinction from FDR

16. PRA • “PRA matters often involve complex legal and factual issues, such as valuation issues, disputes over the classification of property, and issues to do with trust property. But PRA matters also have an emotional component that is often not present in other civil cases, and “all too often one [party] is intent on causing financial or psychological harm to the other””. (para 10:53 Preferred Approach paper)

17. PRA • Disclosure a key issue • Likely PRA will include express duty of disclosure • Could extend to third parties e.g. trustees • Pre-action procedures in Family Court Rules will contain disclosure requirements

18. So what’s in it for ADR? Trusts Bill … • Specifically refers to ADR • Doesn’t matter if no provision in trust deed allowing trustees to settle • Trustees given express permission to give binding undertakings in respect of future actions • Trustees able to reach binding agreements and protected from claims by disgruntled beneficiaries • Not liable only by reason that settlement not consistent with terms of trust • Court can appoint mediator etc

19. So what’s in it for ADR? PRA … • Huge shift in focus on ADR • Much will depend on what is classified as being a “genuine effort” • If state funded, needs to be very different to current state funded FDR • Privately funded negotiations/mediation likely to be at the forefront

20. Qualifications/background • Graduate Diploma in Dispute Resolution • STEP Diploma in Trusts and Estates (Dist) • Extensive experience of trusts litigation • Extensive experience of mediation • Formerly negotiation lecturer at AUT • Currently negotiation adjunct instructor at College of Law • Please visit www.carolesmith.co.nz and www.fortyeightshortland.co.nz for more information