Chapter 3
The new Trusts Act

The new Trusts Act and the nature of trusts

The new Trusts Act in the context of debate on the nature of trusts

3.9There has been much recent debate both amongst practitioners in courts and amongst academics as to the nature of the trust and how to conceptualise the place of trusts within the general scheme of English, Commonwealth and United States private law.103 There have been, for example, very active debates over the nature of the interest that beneficiaries have in their trusts, and whether it is appropriately described in terms of a property interest, or whether the interest is better described as obligations that are owed to beneficiaries by trustees.104

3.10While we have tried to take account of these more theoretical debates where they impact on the practical reforms we suggest are implemented, in some senses it is unnecessary to completely resolve those debates in our legislation. Indeed, some of those theoretical debates are probably not capable of final resolution. For instance, we suspect that the current debate over the degree to which a trust confers a property interest on beneficiaries will not be conclusively resolved either in favour of the property interest or the partially competing obligations theory. Rather, the tension between those two conceptions of the trust will continue to be worked through in particular circumstances where the difference may have real world consequences. We have not endorsed one particular theory of what a trust is, but we have tried to articulate what we believe is the fair consensus. In the rare circumstances where there are debates at the edges of that consensus, we have left the resolution of those debates to the courts. For example, our proposed statement of the characteristics of a trust does not commit New Zealand to a particular theory of whether the trust confers a property interest or an interest arising from obligations.

The importance of the restricted definitionTop

3.11While we are recommending a provision that sets out the characteristics of an express trust, that definition will be for the purposes of the new Act.105 The new Trusts Act will not preclude arguments that arrangements falling outside the definition of an express trust for the purpose of the new Trusts Act are nevertheless trusts. The courts will continue to have the flexibility to recognise arrangements that do not fit within these characteristics as trusts. One of the criticisms of our proposals referred to trusts used in a commercial or banking and finance context that may have partially departed from what we have articulated as being the core elements of the trust. The concern is that these trusts would be considered invalid under the new Act.106 We anticipate, of course, that recognition of these as trusts would first require an explanation as to why, in the absence of the characteristics specified for an express trust under the new Act, a trust nevertheless exists.

3.12We are confident that recognition by the courts of an arrangement as a trust, despite not fitting within the new Act’s characteristics of a trust, will occur only in very rare cases. Rather than preventing the courts from recognising trusts outside this Act, our definition of an express trust will act as a “gatekeeper” for access to the provisions of the Trusts Act. The advantages of falling within the scope of the Trusts Act will be considerable. Those “trusts” that fall outside the Trusts Act will have to negotiate the many difficulties that the Trusts Act resolves, without the benefit of that Act, and the various Trustee Acts that have preceded it.

Act not to include constructive or resulting trustsTop

3.13The current Trustee Act applies to express trusts, “implied trusts”, and constructive trusts. While we intend the new Trusts Act to apply to express trusts, we recommend that it not apply to constructive or resulting trusts. During the course of our considerations, we have debated whether the statute should expressly cover resulting and constructive trusts, which arise by operation of law. On the one hand making such trusts subject to the statute would have the advantage of comprehensiveness. However, while some of our proposals might be clearly applicable or useful in relation to resulting or constructive trustees, it was also clear to us that some aspects of what we are proposing might apply only with difficulty. Indeed, some of the duties that we have formulated with express trusts in mind might have to be altered or excluded in relation to some resulting or constructive trustees. The reality will be that in many resulting or constructive trust cases there is little desire for trustees to hold property for any particular length of time, and that most of the provisions of the Act will simply not be relevant.

3.14While it would have been possible to create a schedule to the statute which expressly modified or made inapplicable particular provisions that did not apply to constructive or resulting trusts, it seemed to us that the sounder approach was to leave them out of the coverage of the statute. Our expectation is that judges, when recognising resulting trusts or imposing constructive trusts, will make use of the relevant provisions in appropriate cases.

103See discussion in James Edelman “Two Fundamental questions for the Law of Trusts” (2013) 129 LQR 66.
104Edelman, above n 103.
105See cl 3 of Appendix A.
106Helen Dervan “Trustee Indemnity and Trustee Liability” (paper presented to New Zealand Law Society Trust Conference, June 2013) at 241–260.