A recent High Court decision (Paton v Acropolis Holdings Ltd & ors [2024] NZHC 43) helpfully reviewed, and shed light on, the factors a court will consider when reviewing a trustee’s decision-making under the Trusts Act 2019. Fee Langstone acted for the trustees.

Background

The trustees proposed a distribution of funds to the settlor’s grandchildren, in accordance with the settlor’s memorandum of wishes. The proposed distribution meant that some grandchildren would receive more than others.

The father of those grandchildren receiving the lesser share applied to the court for review of the trustees’ proposed decision under ss 126 and 127 of the Trusts Act 2019. These sections permit the court to review a trustee’s decision where it is not “reasonably open to the trustee in the circumstances”. The father (himself a beneficiary) also sought review of whether an agreement he had made with the trustees under which he agreed to meet tax and interest charges was enforceable. The trustees sought corresponding directions from the Court under s 133 in respect of both decisions.

The law

The Court considered that the application for review of a trustee’s decision under ss 126 and 127 was a two-stage process.

First, the applicant must establish a “genuine and substantial dispute” as to whether the decision was reasonably open to the trustee. This is a low threshold, and an applicant only needs to show the issue is “not trivial”.
Second, it is for the trustee to then demonstrate the decision was “reasonably open” to them. The established grounds for a decision to be not reasonably open include where the trustee acted ultra vires, took into account irrelevant considerations or failed to take into account relevant considerations, acted in bad faith or with improper motives, or reached a decision that was “perverse, capricious or irrational”.

As for the trustees’ application for directions under s 133, the Court noted that a trustee is entitled to seek the court’s direction where a proposed course of action falls within four recognised categories. These included asking the court “whether some proposed action is within the trustees’ powers”, and where there is no real doubt about the nature of trustees’ powers, but the trustees’ wish to obtain the court’s “blessing” to a decision that is “particularly momentous”.

The decision

After closely examining the background facts, the Court found that both decisions were reasonably open to the trustees. The Court also found that as the decision to distribute to the grandchildren was reasonably open to the trustees, it should also be ‘blessed’ under s 133. Similarly, as the trustees’ decision surrounding the tax and interest charges was reasonably open to them, it was also within the scope of their powers.

Comment from Edward Fox

The Court’s decision contains useful restatements of the authorities defining the scope of a court’s role in reviewing a trustee’s decision-making, and the factors a trustee must consider when exercising a discretion. The decision also illustrates the limited role of a court on applications under ss 126 and 127, and s 133. As the Court states in the decision, even if it had decided the decision was ultra vires or unreasonable, it would not have substituted its own decision for the trustees. Instead, it would have restrained the trustees from acting in accordance with the course of action proposed. Fundamentally, the discretion is for the trustees to exercise, not the court.

Resources

The High Court considers trustee’s decision-making

Fee Langstone