Law Commission releases fifth issues paper on trusts

Press Release – Law Commission

Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts – Fifth Issues Paper MEDIA RELEASE 19 December 2011 Hon Sir Grant Hammond KNZM

President

Law Commission 19 December 2011 9.00am

Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts – Fifth Issues Paper

The Law Commission seeks views on a range of trusts matters that focus primarily on ways to make it easier for beneficiaries to hold trustees accountable. Court Jurisdiction, Trading Trusts and Other Issues is the Commission’s fifth and final Issues Paper in a series that asks questions and raises options on different aspects of trust law.

The paper addresses practical issues regarding mechanisms for enforcing trustees’ obligations. The Commission is concerned that the only way of resolving disputes between trustees and beneficiaries is for parties to go to the High Court. The paper asks whether it may be appropriate for the District Courts or Family Courts to exercise more powers under the Trustee Act 1956.

President of the Commission, Sir Grant Hammond, said that the High Court may not be the best place for the resolution of some trust disputes. “High Court cases can be costly, and may exacerbate damage to family relationships. On the other hand trust law issues can be complex and the High Court may continue to be the best option.”

“We are interested in people’s views about whether there would be benefits to expanding the jurisdiction of the District Courts or Family Court to consider trust matters.”

The Commission also looks at whether an approach that takes some of the powers to resolve disputes in trust matters out of the hands of the courts is possible. “A trusts ombudsman or tribunal may have considerable benefits as a lower-level, more accessible decision-maker” said Sir Grant, although the Commission recognises that the costs of such an option may prove prohibitive.

The paper also covers trading trusts, another area where reforms may be needed to enforce trustees’ obligations. Trading trusts are used to operate a business and often the trustee is a limited liability company. Sir Grant said there is scope for the trading trust model to be used to frustrate creditors.

“Creditors may not even be aware that the company they are dealing with is a trustee, a fact which may affect their prospects of recovering their debt. Also, beneficiaries may be left out of pocket when there is a breach of trust as the corporate trustee may have insufficient funds to compensate the beneficiaries.”

The Commission asks whether reform is required or whether the obligation should remain on creditors to protect themselves.

The Issues Paper has chapters covering:

• The High Court’s general supervisory jurisdiction in respect of trusts, including the powers exercised in breach of trust cases and the Court’s intervention where trustees exercise discretionary powers;

• A possible expansion of the District Courts’ and Family Courts’ jurisdiction in respect of trusts;

• A new mechanism for trust dispute resolution, such as an ombudsman, tribunal or commission;

• Facilitating greater use of ADR in trusts;

• The interaction of trading trusts, creditors and beneficiaries, and insolvent corporate trustees;

• The possibility of a register of trusts; and

• Trustee service providers. The next stage in the Commission’s trusts project will be a paper next year outlining its preferred approach across the range of possible reforms to trust law, based on submissions comments on the Issues Papers, consultation and further research. The paper will invite submissions.

“Given the wide-ranging, complex nature of this project, we think it is appropriate to provide the public with further opportunity to comment on concrete proposals for reform of the law of trusts before the Commission releases its final report and recommendations.” said Sir Grant.

Submissions can be sent to trusts@lawcom.govt.nz and close on 2 March 2012 ENDS

This media release and a copy of the publication will be available from our website at http://www.lawcom.govt.nz on 19 December 2011 at 9.00 am.

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