11.27Section 75 confers powers on a trustee for the dual purposes of facilitating the prompt distribution of an estate and also for managing claims that the trustee considers ill-founded. Where a trustee has received a claim but is not prepared to pay it or agree to a compromise with the claimant he or she can utilise section 75. Also, where the trustee anticipates a claim that has not been made yet he or she can use section 75 to give notice to the prospective claimant.
11.28Under section 75 the trustee may serve upon any claimant or potential claimant a notice requiring him or her to take legal proceedings (within three months from the date of service) to enforce and prosecute his or her claim through court proceedings. At the expiry of the notice period the trustee may apply to the court for an order barring the person’s claim. The claimant or prospective claimant must be served with the application seeking to bar his or her claim. The court may make an order barring the claim or allowing the trust property to be dealt with without regard to the claim.
11.29For the purposes of section 75, a claim or potential claim means any claim in respect of any estate or trust property or against the trustee personally where the trustee is entitled to be reimbursed out of the trust fund. The section can be used whether the claim is made under the Law Reform (Testamentary Promises) Act 1949 or as a creditor, or next of kin, or beneficiary under the trust. Section 75 expressly does not apply to any claim under the Family Protection Act 1955.
11.30Relevant here also is the power of the Public Trust to bar small claims (under $10,000) against itself under section 127 of the Public Trust Act 2001. If the Public Trust rejects any claim or potential claim covered by section 127 it may serve notice calling on the person bringing the claim to take legal proceedings within three months to establish or enforce the claim. If proceedings are not commenced by the person within the three month period the claim is barred on the expiry of the three month period and the Public Trust may proceed to administer and distribute the estate disregarding the claim.
11.31The power of the Public Trust under section 127 can be contrasted to the power of trustees under section 75 of the Trustee Act 1956. Under section 75, trustees are required to apply to the court at the expiry of the notice period for an order barring a claim, even where proceedings have not been commenced by the prospective claimant. The prospective claimant must then be served with the application seeking to bar his or her claim. Under section 75, an application to the court is required regardless of whether the claim is pursued and regardless of the value of the claim.
11.33Under option (b) a trustee would still be required to give three months’ notice to prospective claimants. However, if proceedings are not commended by a prospective claimant by the expiry of that period, the trustee could apply to the Public Trust for a certificate barring the claim. The Public Trust’s role here would be an administrative rather than adjudicative. It would ensure that proper notice had been given by the trustee to the potential claimant and that the trustee had complied with the obligations under the provision. If satisfied that the necessary steps had been taken, the Public Trust would issue a certificate confirming this. The claim would be barred from the date of the certificate and any money claimed would be unrecoverable. The trustee would then be free to deal with the trust property disregarding the claim.
11.34The certificate process proposed here would only be available where the potential claim was a small claim (under $15,000) and proceedings have not been commenced. If proceedings have been commenced (irrespective of the value of the claim) the trustee would be required to apply to the court under section 75.
11.35A trustee would also be free under option (b) to choose to make application to the court in respect of any small claim if he or she considered this a better alternative to seeking a certificate from the Public Trust.
11.36An alternative to option (b), which we did not develop, would be to simply bar any small claim where notice has been given by the trustee to the potential claimant and where the claimant has failed to commence proceedings within the three month notice period. We dismissed this option because of the potential for abuse by trustees. We consider that the oversight of a public authority like the Public Trust is an essential safeguard for potential claimants.
11.37Only a handful of submitters commented on section 75. All supported the retention of this provision. Submitters considered the section to be useful where there are doubtful claims by supposed creditors. In practice it is used mostly in relation to estates, but on rare occasions in relation to lifetime trusts as well.
11.38Some submitters said that it seemed inconsistent that the section extended to claims under the testamentary promises legislation but not to Family Protection Act claims. It was suggested that section 75 should be extended to cover Family Protection Act claims also. After considering this suggestion, we have decided not to proceed with it. The Family Protection Act seems to be a different type of legislation from the Testamentary Promises Act. It has more of a social welfare intent rather than the semi-contractual nature of claims under the Testamentary Promises Act, and people cannot contract out of it, meaning there is less of a case for allowing the barring of claims.
11.39The issue of whether a simplified procedure involving an application to the Public Trust for small claims was not included as an option in the Fifth Issues Paper so has not generally been consulted on. However, the Commission has undertaken consultation with the Public Trust on this and the other proposals that relate to possible functions new legislation might give to the Public Trust. The Public Trust’s view is that it is well suited to undertaking this type of function under a new Trusts Act.
11.40We have decided to use this paper to “test the waters” further on option (b). Some alternative process is needed for barring small value claims. The expense and time involved in applying to the court means that it is not worthwhile for trustees to apply to bar small claims at present. However, such outstanding claims can impede a final distribution of the trust assets. We consider that an alternative is needed. We have therefore proposed the simplified procedure involving an application to the Public Trust. The upper limit of $15,000 has been proposed because this is the upper limit of the Dispute Tribunal’s jurisdiction. It would therefore seem an appropriate figure to use to define a small claim.