The Trusts Act 2019: keeping it in the family

No-one likes to have their dirty laundry aired in public. Sadly, it has been all too common for parties in family trust and estate disputes, to find their private family affairs made public and become the topic of law journal articles and gossip at parties. The Trusts Act 2019 (Act) has, hopefully, helped put an end to that.

The Act contains provision for the private resolution of disputes through mediation and arbitration (or other non-juridical dispute resolution processes) where the matter would otherwise be headed for the courts. It is a further acknowledgement by Parliament that the court system is not the only, and may not be the most suitable, way for parties to resolve problems.

When reviewing the law of trusts, the Law Commission[1] compared the benefits of private dispute resolution with a court hearing. It said these included lower costs, quicker resolution, achieving finality, maintaining confidentiality and privacy, and being less adversarial. The last is possibly the most important when it comes to maintaining relationships. Given the impacts of the COVID-19 pandemic on the courts’ caseloads, quicker resolution is also a significant benefit.
Author(s): Maria Cole
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The green light for ADR processes

Under the Act, private dispute resolution is referred to as an “ADR process” and defined[2] as meaning “an alternative dispute resolution process (for example, mediation or arbitration) designed to facilitate resolution of a matter”.  A “matter” is defined as a legal proceeding, or a dispute that could give rise to a legal proceeding, but excludes any legal proceeding or dispute about the validity of all or part of the trust (that remains for determination by the High Court).  

The starting point for resolution of disputes will remain the terms of the trust. If the trust is silent on this issue, the Act[3] provides for ADR as a default mechanism for the resolution of “internal matters” (between trustees and/or beneficiaries) and “external matters” (between a trustee and a third party). 

A close-up photo of a green pedestrian traffic light showing a walking person symbol. The background is slightly blurred, highlighting the signal. The greyish tones in the surroundings contrast with the illuminated green light, resembling how The Trusts Act 2019 brings clarity and focus, keeping it in the family.

What about the roadblocks?

Practitioners will know that in the past, parties often ended up in the High Court when they had trust issues to resolve. This was due to two main reasons: the inability to be able to obtain the consent of all parties to engage in an ADR process, or to agree to be bound by the terms of any settlement. The first was because the interests of beneficiaries could not be considered or safeguarded where they were discretionary, or not yet born, or lacked capacity. The second was due to the duty of trustees to actively consider the decisions they take as trustees and not fetter the future exercise of their discretion.  If the terms of a settlement required trustees to commit to a future course of action, that may have caused them to breach these duties. The Act has expressly addressed these issues and removed them as roadblocks. 

When an internal matter is subject to an ADR process and has “unascertained” beneficiaries, or beneficiaries who lack capacity, then the court must appoint representatives for them. The Act[4] provides that representatives may agree to an ADR settlement, or agree to be bound under an arbitration agreement or any arbitral award under it, on behalf of the beneficiaries they represent.  

The duty upon trustees not to bind or commit trustees to a future exercise of discretion remains but there is an exception.[5] A trustee may give binding undertakings in relation to their future actions as a trustee, for the purposes of an ADR settlement or arbitration agreement or any arbitral award under that agreement. 

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Is consent of the parties always required?

As indicated above, the terms of the trust will be the starting point. For internal matters, the court has a discretionary power to enforce ADR provisions in a trust. It may also submit a matter to ADR unless that would be contrary to the terms of the trust. The court can do this at the request of a trustee or a beneficiary, or on its own motion.[6]  For external matters, if the terms of the trust require or empower a trustee to go to ADR, the trust’s terms apply. However, if the trust is silent on this issue, the default provision is that a trustee may refer an external matter to ADR if all parties consent to it.[7]
Two individuals are shaking hands over a desk. The desk has a laptop, a cup of coffee, a pen, a pair of glasses, and documents. One person is wearing a white shirt, and the other is in a black sleeve, possibly indicating a formal agreement or business deal.

Relationships are the winner  

When relationships are at stake, using an ADR process can often be the difference between maintaining or mending them, and irreparably harming them. When they are family relationships, the harm can last for generations. The new Trusts Act has removed the “road-blocks” to the private resolution of trust disputes.  It means families with grievances about a family trust or testamentary trust are now able to resolve their problems through a private forum of their own choice and their business will remain their own, dirty laundry and all. 

References

[1] Law Commission|Te Aka Matua O Te Ture, Review of the Law of Trusts, August 2013, Wellington, Report 130, Chapter 14, page 197 at [14.2].

[2] In section 142 of the Act.

[3] Section 143 of the Act.

[4] Section 144 of the Act.

[5] Section 146 of the Act.

[6] Section 145 of the Act.

[7] Section 143 of the Act.

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