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
Six hands of varying skin tones are gripping each other's wrists, forming a circle. The background is a patch of green grass. Each person is wearing a gold wedding band on their ring finger.

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. 

Two people seated in conversation, with only their upper bodies visible. A glass-topped table between them holds a notebook with a pen, a pair of eyeglasses, and two glasses of water. The setting suggests a formal meeting or therapy session discussing The Trusts Act 2019: keeping it in the family.

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.

Other resources you might like

If you found this article helpful and are interested in learning more, there is a wealth of other resources available on our website. We have a wide array of articles and guides on a variety of topics, each designed to provide you with a deeper understanding of the subject matter. We encourage you to explore these resources and deepen your knowledge.

A scattered pile of U.S. hundred-dollar bills is spread across a white surface. A pair of yellow rectangular glasses rests on top of the pile, adding a splash of color to the scene.
Arbitration

Arbitration Act: Proposed amendments

On 9 March 2017, the Arbitration Amendment Bill (the Bill) was introduced to Parliament. The purpose of the bill is to amend the Arbitration Act 1996 (the Act) to:

  • ensure arbitration clauses in trust deeds are given effect;
  • extend the presumption of confidentiality in arbitration to a rebuttable presumption of confidentiality in related court proceedings under the Act;
    • clearly define the grounds for setting aside an arbitral award and bring
  • New Zealand’s approach into line with foreign arbitration legislation; and
  • confirm the consequence of failing to raise a timely objection to an arbitral tribunal’s jurisdiction.
Learn more
Four cryptocurrency coins are displayed on a black surface. The coins are Ripple (XRP), Litecoin (LTC), Ethereum (ETH), and Bitcoin (BTC), each showing their respective logos and designs with intricate details.
Arbitration

Dipping its ‘cryptoes’ in the water: poor litigation strategy ruins a valid arbitration agreement

In Beltran, Julian Moreno and another v Terraform Labs Pte Ltd and others,[1] the Singapore High Court dismissed a cryptocurrency exchange’s application to have a dispute resolved by arbitration. As Terraform Labs Pte Ltd (Terraform) found the hard way, a party can succeed in showing a valid arbitration agreement but fail because of its litigation strategy.

The decision not only demonstrates the dos and don’ts of an arbitration strategy but provides key analysis on the intricacies of agreements in the crypto world.
Learn more
Three people in business attire gathered around a table. Two are shaking hands while standing, and the third person, holding a laptop, stands nearby. A smartphone, coffee cup, and a rectangular planter are visible on the white conference table.
Arbitration

Court orders parties back to arbitration

The recent case of Sesderma, S.L. v Seeky International Limited and Golong Co. Ltd [2023] HKCFI 1619, heard in the Hong Kong Court of First Instance, examined the law of issue estoppel and the governing law of arbitration agreements.

An issue estoppel arose as a prior Hong Kong Court ruling held that the contract between the disputing parties which contained an exclusive jurisdiction clause had been superseded by the contract containing a China International Economic and Trade Arbitration Commission (CIETAC) arbitration clause.

The Court found that regardless of the issue estoppel the parties were bound by the arbitration clause and the proceedings were stayed.
Learn more

Get in touch

Contact our team today to see how we can help

Contact us

This field is for validation purposes and should be left unchanged.