Contents

Chapter 3
The new Trusts Act

The proposal for a new Trusts Act

3.2We are proposing a Trusts Act that is not simply an updated, revised and reformulated Trustee Act 1956, although such updating or reformulation is keenly needed. Rather, we are proposing an enlarged statute that, in addition to covering the matters currently dealt with in the Trustee Act, will cover such matters as the duties of trustees and the circumstances in which liability for such duties can be avoided. We have set out a more comprehensive characterisation of what a trust is and recommend expressly confirming that the courts ought to have the power, as they now have, to declare that what purports to be a trust is in fact not a trust.

3.3Once enacted, the new Trusts Act will therefore include important matters that are not covered by the current Trustee Act. However, it is not our intention, in recommending the enactment of a new Trusts Act, to create a code which completely supplants the common law, principles of equity, or the creative role of judges.

The “codification” critique

3.4In general our proposals have been well received. Submitters and consultees have provided comments and suggestions on most of the particular proposals, and we have taken these into account in formulating this Report. Some of the more critical comments have related to our proposal to set out in statute the characteristics of an express trust, and the mandatory and default duties of trustees. Some of the criticism has related to matters of detail, and we have tried to incorporate responses to that criticism within the recommendations we have made. Other criticism has been focused on the general wisdom of providing a definition of trust or explication of duties at all. This criticism is concerned that something would be lost in the translation of general equitable principles into statutory form, and that what we are proposing will stultify and freeze notions of the trust and trustees’ duties.

Response to the “codification” criticism

3.5The Commission, however, is determined that the new Trusts Act should contain both the characteristics of an express trust and duties, both mandatory and default, that are owed by trustees. There would be, in our view, real costs in not taking the opportunity provided by a new Trusts Act to set out basic matters that all settlors, trustees and beneficiaries ought to know. Indeed, it is the very popularity of the trust in New Zealand, and the democratic nature of its use, that have led us to this conclusion. Trusts in New Zealand are not settled or administered by only a learned few, but by many New Zealanders, who are entitled to know what legal obligations they owe and are owed, and what their rights are. Moreover, we firmly believe that the main threat to the institution of the trust comes not from the articulation of the characteristics of express trusts or of duties, but from the general lack of appreciation of what those characteristics and duties are.

3.6We have been somewhat reassured about our position through discussions of our proposals with our reference group and through consultation meetings. Initial concern has often dissipated into a degree of acceptance, and the reflection that these general provisions are of real value. We are providing indicative drafting of the first part of the proposed Act to show how we believe that the necessary balance of certainty and flexibility in the provisions can be maintained.

3.7Some of the criticism that has been directed at the articulation of the characteristics of the express trust, or of the duties, is not dissimilar to the criticisms that common lawyers make of codification exercises in general.101 There is always the fear that statutory interpretation will replace legal reasoning, or settled, if flexible, legal principle. In the end, such criticism misunderstands what we have attempted to do, and the likely way that we would expect lawyers and judges to respond to the new provisions. Rather than being words intended to stand completely on their own, the characteristics of the trust and the duties will be read against that history of flexibility and principle that has given rise to them. Moreover, we are not proposing a code. Courts will continue to have flexibility to deal with situations that do not fit neatly within the terms of the new statute. As we explain below, there is likely to be a complex relationship between the existing law and the statute that we have proposed. We do not intend to create a code to be interpreted simply on its own terms without reference to the judge-made law, as the Commission did in relation to the law of evidence (leading to the enactment of the Evidence Act 2006).102

3.8In any event, there are important limitations both on how the new Trusts Act will operate and in its scope. The articulation of the characteristics of the trust, and the articulation of trustees’ duties, will make the Trusts Act the primary source of trust law in New Zealand, but it will not contain everything that conceivably needs to be known about the law of trusts. For example, we have taken the view that little would be gained, and much would be complicated, by the attempt to articulate remedies that might flow from the finding that there is no express trust, or the finding that a trustee’s obligation has been breached. Equity in this area has, in our view, developed a sophistication that will be extremely difficult for a statute to match.

101See, for instance, Jack Beatson “The Role of Statute in the Development of Common Law Doctrine” (2001) 117 LQR 247; Reinhardt Zimmermann “Statuta sunt Stricte Interprentanda? Statutes and the Common Law: a continental perspective” (1997) 56 Cambridge LJ 315; Catherine Skinner “Codification and the Common Law” (2009) 11 Eur JL Reform 225.
102Law Commission Evidence Code and Commentary (NZLC R55, 1999).