The new Trusts Act
Relationship of the Trusts Act with other statutory trusts
3.42The new Trusts Act goes further than the current Act by recommending the statutory restatement of the characteristics of a trust and the duties of trustees, aspects of trust law that have previously only existed in case law. The case law status of these characteristics and duties has made it clear that where there are specific standards and features of trusts in particular statutory schemes that differ from general trust law, the specific scheme overrides the general trust law. When the characteristics and duties will have a statutory status under the new Act, it will be important to ensure that the interrelationship between the new Trusts Act and other statutory schemes involving trusts continues to be clear.
3.43Our general principle is that the general trust law presented in the new Act will act as a baseline of the obligations that apply wherever the express trust form is used, but that specific legislation or case law can establish a context-specific approach to particular duties, obligations or procedures. There are several ways that the interaction between a new Trusts Act and other statutory schemes may play out:
(a) Other statutes involving trusts may set out higher or more specific obligations for trustees or an alternate procedure. There is nothing in our recommendations that will prevent this.
(b) The default duties and default positions included in the new Trusts Act may be overridden by alternative approaches in other statutory schemes. In relation to the duties of trustees, this means that while the mandatory duties will apply to every express trust created under any statute, if the trust is to be considered a trust for the purposes of the Trusts Act, the default duties may not apply.
(c) The trust deeds or trust orders of particular types of trusts may also depart from the default duties and default positions, in the same way that any trust deed of an express trust may differ from the default positions in the new Trusts Act.
(d) Because of the different policy contexts of the trusts established under other statutes, specific statutory regimes may address matters covered in the new Trusts Act in an alternative way. The particular policy contexts may justify departures from the general law of trusts. Statutory schemes are likely to set up alternative approaches to the retention and disclosure of information to beneficiaries and the appointment and removal of trustees if, for example, there are large numbers of beneficiaries and a democratic process for the appointment of trustees.
3.44We discuss the two main areas where it is particularly important to note and understand this interaction because of their widespread use: trusts under the Financial Markets Conduct legislation; and Māori land and Treaty settlement trusts. There may be other types of trust where the interaction is similarly important.
Financial Markets Conduct legislation
3.45The trust form is used in a variety of circumstances, including commercial and financial investment contexts. The basic point of difference between commercial and non-commercial trusts is that in non-commercial trusts, the assets are usually bestowed gratuitously by the settlor, while in commercial trusts, the assets are held in trust as part of a contractual transaction for the purpose of meeting the contractual objectives. As a point of principle:
[T]he use of rules developed in the context of gratuitous trusts may need to be carefully considered for “fit”. At the same time, however, it should be recalled that often the motivation for use of the trust structure is precisely to obtain the benefit of the efficiency of certain trust rules and principles and the flexibility to split ownership and management – accordingly the use of trusts in a commercial context is often a vote of confidence in those rules.
3.46One of the reasons identified for using the trust form is the management standards that apply with trustees being bound to act prudently, preserve trust property and act impartially between beneficiaries: “[t]his approach can be attractive for investment vehicles such as unit trusts, superannuation trusts and so on”.
3.47These types of trust have their foundation in general trust law. However, additional layers of regulation apply through tailored forms of trust deed (invoking contract law), and through the operation of the financial markets legislation. This consists of statutes such as the Securities Act 1978, the Units Trusts Act 1960, the Superannuation Schemes Act 1989 and the KiwiSaver Act 2006. At the time of writing, however, this legislation is subject to major reform under the Financial Markets Conduct Bill. Under the Bill, debt securities, KiwiSaver and retirement schemes must be governed by a trust deed, while other forms of managed investment scheme have the option of adopting a trust form or other legal form such as a partnership or corporate form.
3.48The Financial Markets Conduct Bill contains provisions that mirror, overlap and in some cases extend the obligations and regulation of those acting in the position of a trustee, for the protection of investors. There are particular supervisor or manager duties that are mandatory. The standard of care imposed is to exercise the degree of care, diligence and skill that a prudent person engaged in the business of acting as a licensed supervisor or professional manager would exercise. There are limits on clauses in governing documents such as trust deeds that exempt or indemnify supervisors and managers. In some respects these are more restrictive than the provisions we recommend for the general trust law context. There are particular limits on the delegation of functions, the contracting out of management functions and the appointment of investment managers that are also stricter in certain respects than our recommendations.
3.49In general, the specific regulation of the financial markets legislation will take precedence over trust law. However, because these provisions do not completely overlap with general trust law, trust law will remain the back-stop for those financial instruments structured as trusts. It will therefore be necessary for specialist trustees to analyse both layers of regulation and their interaction to appreciate the complete regulatory environment.
Māori land and Treaty settlement trustsTop
Te Ture Whenua Maori Act 1993
3.50 Te Ture Whenua Maori Act 1993 (TTWMA) provides a specific statutory regime for land owned by Māori, including land held in Māori land trusts. Māori land trusts are generally not created by settlors, but by order of the Māori Land Court. The orders are based on standard Court precedents which tend to be relatively prescriptive. The Court also appoints the responsible trustees for all trusts constituted under Part 12 of TTWMA.
3.51There are a number of provisions under TTWMA that differ from the proposed new Act and general trust law. The Act grants the Court the power to authorise trustees in most types of Māori land trust to apply money for Māori community purposes in general, which means it can be used for purposes beyond the immediate beneficiaries. Trustees of Māori land trusts are, subject to any limitations in a trust order, already given broad powers in a way that is framed differently to the powers of a natural person provision in our recommendations (such powers as “may be necessary for the effective management of the trust and the achievement of its purposes”). The Act requires the Court to make provisions as to the keeping of accounts in trust orders where it considers it necessary or desirable, which means that an alternative to the information retention provisions we recommend for the new Trusts Act will apply. Trustees of Māori land trusts may act by majority as a default position, which is the opposite approach to the one we have taken in this Report. TTWMA includes provisions regarding the use of advisory trustees and custodian trustees in this context, with the key differences being that only the Court may appoint such trustees and that any individual or body corporate may be appointed as a custodian trustee. It also includes provisions on variation and termination of a trust that are expressed more broadly and simply than those under general trusts legislation. The rule against perpetuities does not apply to Māori land trusts (and we recommend the new maximum duration rule ought not to apply also).
Māori Land Court
3.52In addition to its jurisdiction over the Court-made trusts under TTWMA, the Māori Land Court has jurisdiction over any inter vivos express or implied trust over Māori land or General land owned by Māori and in respect of testamentary trusts over Māori land and General land owned by Māori. The Court has the same powers and authorities as the High Court, including its inherent jurisdiction, in relation to trusts, except as expressly provided in TTWMA. The Court first applies the relevant part of TTWMA and, by way of a backstop, relies upon the jurisdiction of the High Court and general trust law. The Māori Land Court’s powers in relation to Māori land trusts have been described as “the most extensive supervisory powers” by the Court of Appeal. When the Māori Land Court exercises its discretionary powers, such as the power to vary or terminate trusts, it does so having regard to the Preamble, general interpretation section (section 2) and general objectives (section 17) in TTWMA.
3.53The scheme of TTWMA means that trustees in this context have obligations to the beneficiaries to administer the trust property in accordance with general trust law, the requirements of the Trustee Act and the provisions of TTWMA. In the recent case of Rameka v Hall, the Court of Appeal has said that these “trustees are subject to traditional trustee duties with the statutory overlay of particular obligations arising from the context of [Māori land trusts].” The Court of Appeal noted that the duties of trustees in TTWMA are not exhaustive and that general trustee law principles were relevant, before endorsing the settled approach of the Māori Appellate Court to assess the standard trust law duties together with “the broader approach having regard to the special nature of Maori land trusts and the provisions of [TTWMA].”
3.54The deference shown to the special context of Māori land trusts is also evident in decisions relating to the removal of trustees for the failure “to carry out the duties of a trustee satisfactorily”. In Ellis v Faulkner – Poripori Farm A Block, the Māori Land Court recognised that powers under TTWMA are to be exercised “in a manner that facilitates and promotes the retention, use, development and control of Māori land as taonga tuku iho by Maori owners, their whanau, their hapū, and their descendants.” In Hart the Court stated:
Given the special nature of a Māori land trust, the Court may take into consideration the views of the owners and the nature of the trust in judging whether there has been satisfactory performance.
3.55Within its particular context, there are unique legal, policy and cultural issues which the Māori Land Court must balance. For instance, a common issue is the perceived tension between resident beneficial owners and absentee beneficial owners. The Court’s extensive powers reflect the multiplicity of interests of owners, beneficial owners and beneficiaries and the need for effective ways for these groups to be able to progress issues of land management, ownership, improvement and use. Aspects of general trust law, including the duties of trustees, also reflect cultural values. The Court is able to give appropriate weight to the purpose and context of TTWMA, which adds a distinct “flavour” to how the general trust law is applied. We expect this to continue when there is a new Trusts Act. It is our intention that the new Trusts Act proposed in this Report will not alter the Court’s current jurisdiction in relation to trusts, and would continue to apply general trust law in a way that reflects this particular context, just as the other courts will look to the context of the particular trusts. In order to ensure the Court’s role is preserved we are recommending the inclusion of the following wording:
Nothing in this Act shall detract from or affect any provision of Te Ture Whenua Maori Act 1993 and the jurisdiction of the Māori Land Court over trusts created under that Act.
Treaty settlement trusts
3.56Trusts are also commonly used as the mechanism for holding and managing property following a Treaty settlement, and are in fact one of the only types of “post settlement governance entities” currently accepted. These trusts are established by deed, but the settlements are enabled by legislation. Many of the settlement Acts disapply the rule against perpetuities and the Perpetuities Act 1964, and we are recommending that the maximum duration rule that will replace those also not apply to these settlement trusts. In other respects, these trusts reflect traditional trust law principles and much of the new Act will be applicable to them.
3.57Because these trusts have large numbers of beneficiaries, however, there are some aspects of the new Trusts Act that will not apply because their trust deeds will include an alternative process that is more applicable to the context. For instance, in relation to the provision of information to beneficiaries, the general disclosure of information obligation will apply, while the more specific presumptions may not apply because of the terms of the trust deeds. These deeds normally involve significant information being made available to registered beneficiaries. The Office of Treaty Settlement’s post-settlement governance entity template trust deed includes a registration process through which individuals can apply for membership.
3.58 We intend that, as with Māori land trusts, the courts and those involved in the administration of the trusts will continue to be able to apply general trust law to Treaty settlement trusts in a manner that acknowledges and incorporates cultural values and the particular purpose of these types of trusts. We do not intend that the new Trusts Act would cut across this.