Webb Duncan; Rurawhe AdrianDr DUNCAN WEBB (Labour—Christchurch Central): Tēnā koe e Te Mana Whakawā. It is fair to say that the law of trusts has become layered by cases which have created a lack of clarity. But I must say that this bill brings back the underlying clarity in trusts law. Trusts are not in essence complicated things. In any situation when one party holds property for the benefit of another we have a trust. Really from that flow the duties of a trustee. There are trusts—as has been said by many speakers—throughout our society and they are of critical importance because there are numerous situations where people hold assets and property of one kind or another and they have duties as to how they deal in that property relating to the ultimate beneficiaries.So anywhere where we have that trust property as set out in clause 13 of the bill—it's very good that we see in this bill that there's actually a statutory definition of a trust which is that where that trust property is held by one person for the benefit of another all of these duties flow. So what is created and is set out in this excellent piece of legislation which has really been herded through the House by both parties in a very cooperative way is a fiduciary relationship: a relationship of care a relationship of trust and a relationship where one party's in a position of power and the other's in a position of vulnerability.Now importantly by passing this piece of legislation when it gets assent we've brought the law really up to date by recognising the diversity of trusts. One way in which this bill does that is by splitting off the duties into mandatory trust duties which are duties of trustees which always exist and default duties which are duties which we expect to exist but which the settlor of the trust—the person who creates that trust—can either do away with entirely or dilute in some way or another. We can see that the core duty set out in clause 24 is the duty of honesty and good faith. That is to say that any trustee of any trust in any situation must bring to the work of a trustee good faith. They must act for the purposes for which the trust was set up and not seek to thwart the trust or use those trust funds for a purpose other than that which was intended by the settlor and to do that honestly.The other central core duty is to know the terms of the trust. As the most excellent Mr Greg O'Connor was saying when he was a trustee it was a duty that perhaps he wasn't entirely au fait with. It's a pretty basic duty to read the trust deed and understand it. In fact because trusts are so diverse—from large commercial trusts down to farmers and mum and dad trustees—sometimes trustees aren't quite up to speed with that. Also probably the most fundamental duty found in clause 25 is the duty to act in the interests of the beneficiaries—that is to say to exclusively act for those beneficiaries without taking into account the interests of others. Now there will be situations where trustees are paid or even where trustees are themselves beneficiaries of the trust. Those matters are dealt with throughout this bill.But the guiding principle in terms of those duties is set out in clause 19 and it really recognises that the duties of a trustee have to be seen—sorry clause 19A have to be seen in context—Kieran McAnulty: I was going to say!Dr DUNCAN WEBB: Sorry Mr McAnulty. Thank you for picking me up on that. I knew you knew this bill inside out. So it's about those duties being determined in context and in light of the objectives of the trust. So if we have a family trust where we might have the family home and some other assets probably in the hands of the parents and the beneficiaries being the children and perhaps grandchildren then the way in which those duties are imposed is going to be significantly different from say those of a highly professional trustee who's a trustee of a superannuation fund investing millions or tens of millions or hundreds of millions of dollars because the objectives for the trusts are different and the nature of the trustees are different. The professional trustee is a different thing.I really wanted to talk a little bit about the exemptions and indemnities. So the settlor within the trust can alter the default duties. They can in fact exempt a trustee from liability or provide an indemnity which might say something like If you breach one of these duties and you're liable to a beneficiary the trust will pay." That's how an indemnity would work.Kieran McAnulty: That's fair.Dr DUNCAN WEBB: Well it would be fair in some situations Mr McAnulty but one of the really important things is that we can't have an indemnity or an exemption for dishonest conduct.Kieran McAnulty: No we can't.Dr DUNCAN WEBB: No. That would be entirely wrong. So in providing that these indemnities and exemptions which exist are permitted the bill in clauses 37 and 38 says those clauses can exist but not in respect of trustee dishonesty in respect of wilful misconduct or in respect of gross negligence.Angie Warren-Clark: Sounds good.Dr DUNCAN WEBB: You're quite right Ms Warren-Clark. It is a good idea but gross negligence is a concept which the law has not clarified well. So one of the things that the select committee did—and I must just mention Mr Finlayson for his work there—was they looked very closely at this idea of gross negligence and discussed exactly what it might mean. There was considerable discussion as to whether it was the best term whether we should in fact not have it in there at all or whether perhaps it should just be negligence. But it was thought that no gross negligence was the right term but we needed to give some guidance to the courts if they come to determine that and I have no doubt that the courts will look at that.That's where we've got clause 40A which sets out a number of factors which need to be taken into account when considering what gross negligence means including things like whether the trustee is remunerated the characteristics of the trustee—so is it a mum and dad trustee or is it a professional trustee like a lawyer or accountant because we can rightly expect a lawyer or accountant who is being paid for their work to be much more diligent much more knowledgable. Also the purposes of the trust—whether the trust is simply a trust to hold property or whether it's a trust which is expected to invest—because a trustee who's asked to invest might have a warrant to take much more significant risks than a trustee for example in respect of a will trust who's expected to hold assets simply there for the benefit of the trustees and for the income from them. So they are entirely different things. So gross negligence is a term which hasn't got a settled meaning in the law but that clause very much directs the court to that.The other thing is the idea of dishonesty and I want to note that the law of dishonesty is relatively well-developed and it doesn't simply mean criminal conduct or outright lying. It can have a sliding scale and it's worth remembering that in some cases not inquiring or turning a blind eye to something you ought to know—Angie Warren-Clark: Wilful blindness.Dr DUNCAN WEBB: —or a wilful blindness—yes the case of Baden I think is the case on wilful blindness Ms Warren-Clark. That's what we're talking about. So that also can be dishonest to not make inquiries when an honest person would. We won't be giving any indemnities or exemptions for that.Just one further point which I think is a really good innovation is a recognition of alternative dispute resolution (ADR) processes for trustees because it's always been a bit unclear whether disputes between trustees and beneficiaries or even trustees and third parties could be resolved using mediation or arbitration. What this does is it makes very clear that that is permissible. But it does identify an interesting problem which is that in some cases some beneficiaries will be perhaps minors or will be lacking capacity or may even be unascertained—someone who might not even yet be born. So what this bill sets out in clauses 137 to 142 is that in those situations a representative is to be appointed for those beneficiaries and any settlement will have to be approved by the court.So we absolutely want to endorse ADR but we need to have these kinds of protections in place to make sure that the trustee doesn't sort of hijack the entire process. So once again we see here an excellent piece of legislation where this Government is tidying up—ASSISTANT SPEAKER (Adrian Rurawhe): Order! The member's time has expired.Bill read a third time."