Contents

Chapter 10
Reviewing the exercise of trustee discretion

What should an applicant be required to prove?

Options for reform

10.13The options regarding what an applicant should be required to prove in order for the court to review a trustee’s decision are:
(a)requiring an applicant merely to apply and satisfy the court that he or she has standing to bring the application. The onus would then shift to the trustees to substantiate their decision;
(b)requiring an applicant to put forward evidence that raises an issue about the trustees’ exercise of their power. The onus would then shift to the trustees to substantiate their decision; or
(c)requiring an applicant to show on the balance of probabilities that the trustees breached the appropriate standard of conduct required of trustees. Only then could the trustees be required substantiate their decision.
10.14Option (a) is essentially the approach taken in Rossiter v Wrigley & Alves, while option (c) is more akin to the approach taken by the courts under the Queensland provision.266  Option (c) is also, of course, the standard more normally applied by the courts under their general equitable jurisdiction to supervise trustees’ decision-making and was the approach recently taken by the High Court in Jaspers.267  Option (b) is something of a compromise. It is based on a proposal for reform presented by Jeff Kenny in Equity and Trusts in New Zealand.268

Discussion

10.15The risk with option (a) is that the bar is set too low and that trustees may end up having to respond to frivolous time and resource wasting applications. All submitters considered that there should be some obligation on an applicant to raise at least a tenable issue. Most also expressed concern that trustees could be subject to nuisance claims by beneficiaries who merely disliked their decision or had a general sense of grievance.

10.16Under option (c) an applicant would have to produce evidence about the trustees’ reasons in order to proof that the trustee had not lawfully exercised his or her discretion. However, the applicant is not entitled to disclosure of those reasons unless the applicant can show that the trustee has not lawfully exercised the discretion. There was support for option (c) from five of the seven submitters that commented on this issue. They considered that the applicant should bear the onus of demonstrating that a trustee’s decision or action should be interfered with by the court. They favoured the approach taken in Queensland and argued that the presumption should be that a trustee has appropriately exercised his or her discretion unless it is proven, on the balance of probabilities, that this is not the case.

10.17Our concern with option (c) is that it sets too high a threshold for beneficiaries to overcome given the information asymmetry between trustees and beneficiaries. A trustee is not required to give reasons for the exercise of his or her discretions. Without knowing the reasons, it may be difficult for a beneficiary to challenge the exercise of a trustee’s discretion as improper. This rather defeats the purpose of a review provision – which is to provide a mechanism to allow beneficiaries to hold trustees to account. This concern was shared by the other two submitters and led them to suggest a different approach. The New Zealand Law Society (NZLS) said option (c) risks becoming a “haven for trustees”. It proposed that where an applicant produced evidence that a trustee may not have exercised a power lawfully, the trustee’s reasons should be disclosed to the court. The court could then review that decision to determine whether it complied with the law.

10.18Law firm Taylor Grant Tesiram submitted that it could be too difficult for a beneficiary to challenge the exercise of a trustee’s discretion if the onus is on him or her to prove a breach. Its suggestion that an applicant should instead have to raise a tenable issue and then the onus would rest on the trustees to satisfy the court that their discretion was properly exercised on the balance of probabilities was similar to option (b).

10.19We favour option (b) because it will prevent trustees being subject to nuisance claims by beneficiaries who merely dislike a decision reached by a trustee or beneficiaries who are perpetually aggrieved. The proposed provision broadens the ability to have trustees’ decisions reviewed, although this is subject to a clear threshold of evidence that is needed before an application is considered by the courts. We consider that this reform is beneficial for beneficiaries in that it provides a clear and workable mechanism for holding trustees to account.

266See the discussion contrasting the two approaches in Rickett, above n 264, at 78.
267Jaspers v Greenwood [2012] NZHC 2433 at [23] (comments in obiter).
268Kenny, above n 250, at 192.