Anthony Grant reminds trustees that all serious decisions should be the subject of collaborative discussion in which all trustees take part

This article originally appeared in LawNews and is here with permission.

By Anthony Grant

In my experience, many trustees appear not to understand the need for trustee decision-making to be unanimous, except where the terms of a trust permit majority voting.

Frequently, a settlor/trustee will dominate a trust and make decisions without consulting the other trustees. This can lead to decisions that are subsequently challenged on the grounds that the trustees did not collectively discuss and resolve the decision that the settlor/trustee made.

In a few cases, the courts have said the settlor/trustee’s decision is binding even though the other trustees were not consulted. This has been justified on the grounds that the trustees had previously decided in principle on a topic, with the details being left to be resolved later.

It is more difficult to justify a decision of the settlor/trustee where there has been no previous decision in principle.

Typically, the “dominant” trustee will enter into a contract with a third party and the third party may then want to sue the trustees for payment or other relief. The claimant will commonly be told that the commitment was not made by all the trustees so the settlor/trustee has no liability, and the “contract” is not binding.

The third party may then try to rely on a claim that a constructive trust can be superimposed over the express trust or, alternatively, that there might be a claim against the “dominant” trustee for making false representations concerning his or her authority to authorise the transaction.

The situation is messy and claims for a constructive trust or other relief can be difficult to establish.

This is, of course, a reminder to trustees about decision-making, and how all serious decisions should be the subject of collaborative discussion in which all trustees take part.

Contract set aside

I drive to Warkworth most weekends, and when I get to the end of the motorway, I sometimes think about an airstrip only a short distance away, which was the subject of an important decision on this subject.

Two of the three trustees of a trust that had responsibility for the land on which an airstrip was based authorised the extension of a lease for the local Aero Club. But the contract was set aside by the High Court on the grounds that the trustees had not been unanimous in their decision to grant the club a renewed lease for the airstrip and the contract was set aside.  The case was Rodney Aero Club Inc v Moore [1998] 2 NZLR 192.

I suspect that just as the lease was set aside for lack of unanimity, many other decisions could be set aside on the grounds that all the trustees had not actively participated in the decision-making process.

Anthony Grant is an Auckland barrister specialising in trusts and estates law.  This article originally appeared in LawNews and is here with permission.