the relevant beneficiary grievance must involve the exercise (or intended exercise) of a trustee power in a manner that is ultra vires, vitiable on the basis of relevance of considerations or bad faith, or unreasonable in a Wednesbury sense. In other words, the ordinary means of review of the exercise of a statutory power.
10.32We consider that on balance a new provision should specify the standard against which the court will review trustees’ decisions. If the new provision is silent there will be continued uncertainty about the standard expected of trustees when exercising their powers. As discussed, there is currently some uncertainty as to whether trustees are required to exercise powers sourced from the Trustee Act reasonably or risk review under section 68. To make the position clear, and to alleviate concern that extending the range of powers that may be reviewed under the provision to include those in the trust deed as well may result in excessive intervention by the courts with trustees’ decision-making, the new provision should specify the standard against which trustees are to be reviewed. We are concerned that simply leaving it to the courts to develop the grounds for intervention without any legislative guidance would be unhelpful.
10.33Some submitters argued that review under the provision should be limited to reflect the grounds developed by the court under its supervisory equitable jurisdiction which are that the trustees acted ultra vires or in bad faith. This reflects the court’s role as a corrector of fundamentally flawed decisions and not a de facto trustee. There was favour from some submitters for new legislation clarifying that trustees’ decisions cannot be overturned on the grounds of unreasonableness. Other submitters favoured the standard in option (b).
10.34The NZLS argued against option (c) as it considered the word “reasonably” to be imprecise and various forms of noncompliance by a trustee can fall within the meaning of “unreasonable”. It can also give the impression that the merits of a trustee’s decision can be examined for reasonableness. The NZLS considered that the term “irrational” (in the sense that no reasonable trustee could make the decision) was more precise and should be used instead. However, it favoured the grounds on which the court may interfere with a trustee’s decision being left open for the courts to continue to develop. They argued that many of the grounds for intervention overlap and that trying to specify the grounds in legislation would be too complex and that there is also potential for unintended outcomes.
10.36We consider that the standard of whether the action or decision of the trustee was one that was not reasonably open to the trustee in the circumstances strikes an appropriate balance between these considerations. Option (b) is preferred to a less precise test of whether the decision is unreasonable.
10.37We also consider that the court’s inherent jurisdiction to supervise and review the action of trustees’ should be unaffected by any new provision. A number of submitters agreed. Thus it would be possible to apply to the court either under the replacement for section 68 or the inherent jurisdiction or both. The preservation of the case law would enable New Zealand courts to benefit from decisions in other common law countries as the law develops.