Contents

Chapter 13
Resolving disputes outside of the courts

Alternative mechanisms for dispute resolution

Proposal
P52 New legislation should not introduce a new mechanism for dispute resolution.
Please give us your views on this proposal.

Current law

13.2There is currently no decision-maker or supervisory body for trusts outside of the courts.

Issues

13.3The Fifth Issues Paper311  discussed the option of introducing a new mechanism for trusts dispute resolution and decision-making. This idea had been posited by some commentators and the media. The options looked at were an ombudsman, a tribunal and a commission. The issues that the options for an alternative mechanism for trusts were intended to address are the practical difficulties and disadvantages that can arise for beneficiaries in trying to hold trustees to account, such as cost, complexity, time and the adversarial nature of a court proceeding. The Fifth Issues Paper conceded that in the current fiscal environment the government is unlikely to introduce any of these mechanisms raised as options. Consequently, the purpose of this consideration is more to present the advantages and disadvantages of the different options rather than to recommend one for inclusion in our package of reforms.

Options for reform

13.4The options considered were to introduce:

Discussion

Ombudsman

13.5Introducing a trusts ombudsman would provide an informal procedure for addressing trust disputes that is less adversarial than the courts. The investigation and resolution of complaints by the ombudsman would be cheaper and quicker than having these matters determined by a court. The ombudsman would become an expert in trust law, which would mean the ombudsman’s guidance and recommendations would carry considerable weight. An ombudsman could provide guidance to trustees to help them carry out their role better and improve the management of trusts.

13.6There is a risk that if a trusts ombudsman were introduced that it would not provide sufficient resolution for disputes because its recommendations would be non-binding and would not prevent parties from going to court. Because trust law is complex and not fully settled in some areas, the ombudsman may be required to effectively develop the law, something that is likely best left to a court.

Tribunal

13.7A tribunal would have binding decision-making authority, so could provide more conclusive decisions than an ombudsman. Like the ombudsman, it would have a more informal and less adversarial procedure than the courts. It is likely that a tribunal would provide speedier access to decision-making than the courts also. The tribunal would focus solely on trust law so would become an expert in this complex area of law.

Commission

13.8A commission would be a body with responsibility for supervising the use of trusts. It would provide guidance which would assist trustees in being aware of their duties and the management requirements for trusts. For effective supervision of trusts by a commission, a trusts register would probably be needed, something that is unlikely because of the significant costs it would entail with few benefits.

General arguments

13.9Introducing a trusts-specific mechanism for dispute resolution can be seen as singling trusts out unnecessarily. Trusts are one of many different ways of structuring property. Other structures or entities, such as companies or incorporated societies, do not have their own decision-making or dispute resolution bodies.

13.10The biggest barrier to introducing one of these mechanisms is the cost. There would be considerable expense in establishing any of the three options and funding one would require some or all of the government, complainants or all trusts to bear the costs, which markedly decreases their desirability.

Assessment

13.11Most submitters were not in favour of introducing a new dispute resolution mechanism for trusts for pragmatic, cost-related reasons. The New Zealand Law Society (NZLS) considered that with the current fiscal realities this type of reform is unlikely to be a government priority. Its view was also that a registration system would need to operate for a supervisory mechanism to be effective. The Trustee Corporations Association has noted the merit of these ideas in the past but does not consider them viable at present. Its view is that the ombudsman and commission would have questionable utility, and the cost of the tribunal is unlikely to be justified by the benefits. Greg Kelly Law’s view was that it is unwise to recommend these options when government expenditure is under pressure. Taylor Grant Tesiram’s view is that dispute resolution should remain solely with the High Court as the other options are not viable. They consider that as trusts are private, the state should not subsidise their administration or dispute resolution.

13.12The New Zealand Trustees’ Association (NZTA) and KPMG were in favour of the introduction of a new mechanism. The NZTA preferred an ombudsman, while KPMG felt that the public element to trusts justifies an ombudsman or commission and a tribunal.

13.13While the options all have some merit, we have not found that there are such strong factors in their favour or such a strong need for an alternative mechanism to the courts that the serious concerns about their cost and value can be overcome. There is not really a case for a special mechanism for trusts when none is provided in other areas of civil law. Furthermore, if the proposals we made in chapter 12 for expanding the District Courts’ jurisdiction under trusts legislation are introduced, the concern about the cost and accessibility of a court proceeding may be somewhat alleviated. We therefore consider that new legislation should not include an ombudsman, tribunal or commission for trusts.

311Law Commission Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts – Fifth Issues Paper (NZLC IP28, 2011).