Contents

Chapter 3
The new Trusts Act

The new Trusts Act and equity

3.15The new Trusts Act should give its readers the greatest possible opportunity to understand and apply the rules that it recognises and creates. However, we do not intend for many of the provisions we are proposing for the Trusts Act to represent a new dawn, in the sense that prior case law, learning or doctrine will be irrelevant to the interpretation of the wording of the statute. Just as judges have made use of prior case law in interpreting the code of duties owed by directors in the Companies Act 1993,107 we would expect the same of those involved in advising trustees and settlors and those involved in litigating aspects of trust law. Ultimately judges must decide whether trust law ought to make reference to pre-existing case law, learning and doctrine. We are not arguing for a wholesale displacement of the common law in the way that the Commission recommended in 1999 that the common law of evidence should be displaced.108 By setting out the characteristics of trusts and duties of trustees as we have, we are seeking to make them somewhat less mysterious to New Zealanders, but also to preserve the magic that lay behind their development.

The interaction with existing equitable principles

3.16A more complex question that has been addressed in our issues papers, and also in submissions and discussion with our reference group, is the appropriate relationship between the new Trusts Act and the case law on which it is unquestionably based. While a true code might be said to be “exclusive” in the sense that there is no need to go behind the words that the drafter has used in articulating a code, the reality is that this is not our intention in relation to the Trusts Act.

3.17Our proposed Trusts Act is not intended to supplant the law of equity. As we have explained above, it is not intended as a code that makes earlier cases and commentary irrelevant or of historic or academic interest only. We envisage that the inherent and supervisory jurisdiction of the courts will continue as it does now. Thus, where the statute does not directly cover matters, including matters that are not foreseen by this statute or where we have recommended they are best left to the courts, such as remedies for breach of trust, courts will continue to recognise obligations, and give appropriate remedies. For this reason we have included amongst our draft the following interpretation provision:109

Nothing in this Act prevents a court, in interpreting the provisions of this Act, from having recourse to the general law of trusts and equity where that law is consistent with this Act.

3.18There is no one relationship between the pre-existing law, or equitable principles that might govern the administration of trusts, and our recommendations.

3.19In some instances, the principal examples being the characteristics of express trusts and the articulation of mandatory and default duties, we have endeavoured to essentially incorporate traditional notions of what case law currently requires. The current case law and related commentary will continue to be of primary importance. During consultation, one of the recurring criticisms of our proposal to set out the definition or the duties in statutory language, was that this will somehow fix those duties and meanings, prevent development and focus attention on the words used rather than the principles they represent. This is not our intention and it misperceives the process that courts, lawyers and other readers will take when interpreting the legislation. The proper approach will be to read the words of the statute in light of the understanding of the equitable principles that gave rise to them. We have chosen the wording with care and that wording has been road tested through our consultation, but the focus should not be on interpreting them in isolation, abstracted from their context.

3.20A second way that some recommendations interact with existing case law is to use it as a reference, but to arguably modify the nature and scope of the existing obligations in accordance with our policy decisions. In relation to these provisions, the underlying case law will be important to understand, but will need to be read in light of the way in which the new statute gives effect to the different policy. Our recommendation in relation to the provision of information by trustees, serves as an example. Our recommendation is clearly based in the obligation of trustees as recognised by the Privy Council in Schmidt v Rosewood,110  to provide sufficient information to sufficient beneficiaries. Arguably, our recommendation extends it by requiring the proactive release of certain information to some beneficiaries and by recognising a default presumption that information should be provided to all beneficiaries.

3.21In a third type of provision, we have referred to existing case law but have suggested that it ought to be replaced. In relation to these provisions, the primary focus ought to be the statute, rather than pre-existing case law or statutory provisions. In this category we might put provisions such as the abolition of the law against perpetuities or the abolition of the current rules relating to the categorisation of particular receipts or expenses as capital or income. In the case of these provisions, the old law would remain of historic interest or a way of understanding the mischief which the new provisions are intended to deal with.

3.22In order to aid those who might seek to interpret provisions in the new statute, we have included a consolidated chart of those provisions that fall into each of these three categories at the end of this chapter (see table A). Another table sets out the way in which our other recommendations that currently have a statutory rather than case law character interact with existing statute law (see table B).

107Company Law (online looseleaf ed, Brookers) at [CA131.01]. In Benton v Priore [2003] 1 NZLR 564 at [46], Heath J commented that the duties provisions “should be seen as a restatement of basic duties in an endeavour to promote accessibility to the law”. In Sojourner v Robb [2006] 3 NZLR 808 at [100], Fogarty J stated: “A statute such as this does not supplant the common law when it enacts a common law standard which is of its character a principle rather than a rule. As a principle it has to be applied in a wide variety of circumstances and such application is appropriately guided by the common law cases which led to the articulation of the principle in the first place.”
108Evidence Code and Commentary, above n 102. This is discussed also in Law Commission The 2013 Review of the Evidence Act 2006 (NZLC R127, 2013) at ch 2.
109See cl 1(2) of Appendix A.
110Schmidt v Rosewood Trust Ltd [2003] UKPC 26, 2 AC 709.