Wilkinson Kate: Trustee Amendment Bill — First Reading 
Wilkinson Kate: Trustee Amendment Bill — First Reading 
[Volume:642;Page:12360] 
KATE WILKINSON (National) 
: 
 This Trustee Amendment Bill of which National supports the first reading and referral for some scrutiny in the select committee process is as has been mentioned the result of a 2002 Law Commission report entitled  
Some Problems in the Law of Trusts 
. It is puzzling that this somewhat technical and probably non-controversial bill has taken 5 years to reach this House following the pattern of other similarly technical and non-controversial bills such as the Wills Bill and the Property Law Bill that have also arrived some 5 years after the Law Commission reports recommending changes. It is also puzzling that not all the problems highlighted by the Law Commission report have been addressed. 
The problems highlighted in the report included the trustees’ power of delegation which has I have to say sort of been dealt with. I think my colleague Dr Worth has mentioned some aspects in relation to that. Other problems included the exculpating of trustees which has not been dealt with; the remuneration of trustees which has probably been dealt with; the protectors which has sort of been dealt with; the trustees’ power to insure which has been dealt with; the trading trusts which have not even been mentioned; the power of appointment of trustees which has not been mentioned; and the obligation to give information which has sort of been dealt with. 
I want to talk firstly about the role of advisory trustees and protectors. The practice has been growing over some years to make use of advisory trustees and protectors. The major question outstanding was—and actually still is—what the actual obligations and liabilities were of such roles. The Law Commission report noted that the term “protector” is not a legal term of art; it is commonly used to describe a person who is neither a trustee nor a beneficiary but on whom the trust deed confers certain powers. There has been a substantial increase in the provisions in trust deeds for protectors. So we now have the term “protector” included and defined in the bill in new section 49B(1) inserted by clause 8 as “a person who by virtue of the terms of the trust instrument may give a trustee … (a) a direction that the trustee is obliged to follow …” or who may give a “(b) consent that permits and that is necessary to enable the trustee to exercise a power …”. This of course is no different from what could have been provided in the trust deed itself without the necessity for this bill and indeed does not even have to be defined in law. However it is there and I have no issue with that. It does clarify the role of a protector for the good of all and if it does that then it is worth while. 
But we do have to be careful—and this is where I would like the select committee to give some thought—that the bill does not unnecessarily also restrict the role of protectors. This bill limits the role to two functions only but in some existing trust deeds protectors may have been given extended roles. I have two questions which I hope will be duly considered at the select committee level in relation to this question of protectors. Firstly what happens to all the existing protectors who have been appointed under existing trust deeds and who may as I have said have different roles as prescribed by those trust deeds or who may have wider or lesser roles than contemplated by this bill? What happens to things that the protector has already done but that will not be permitted under this bill? Will those things be rendered null and void or be rendered unlawful? This provision and the transitional provisions of the bill must certainly be carefully considered and scrutinised by the select committee. 
Secondly and perhaps most important is the question of the liabilities and obligations of the trustee. The Law Commission report noted: “The Law Commission’s concerns in considering this topic are that the promotion to centre-stage of a player who is neither trustee nor beneficiary necessarily creates uncertainty as to the precise obligations and liabilities of a protector and as to the effect of the protector’s role on the obligations and liabilities of the trustee. Because there is not much litigation on this topic it is sensibly arguable that in the interests of certainty there should be statutory intervention.” There is no mention in the bill of the liability of protectors and consideration should certainly be given to whether in the very words of the Law Commission “in the interests of certainty there should be statutory intervention”. 
 A further omission I believe in relation to this bill is the lack of any mention or clarification regarding trading trusts. Again the use of trading trusts is increasing. It is a sign of the times. Again I repeat the words of the Law Commission: “There is established a trust of which the sole trustee is a limited liability company. It is that company that trades but the assets to which the company has title are beneficially owned by the beneficiaries of the trust so that if the company fails the only assets available to the creditors of the company in liquidation are the trustee’s right to indemnity out of such assets of the trust as may still be available. While it is probable that this right of indemnity may not be lawfully limited or excluded by the trust instrument the risks to unsecured creditors remain substantial: ‘This is especially so when persons dealing with the trustee of such a trust do not realise that a trust is involved at all or that the trustee has no beneficial interest in the assets which he apparently owns. The problems are exacerbated when the trustee is a company of negligible paid-up capital…’ There are also risks to beneficiaries whose only recourse in the event of the failure of the business is against an assetless trustee.” 
The major questions relating to trading trusts concern the uncertainty in law: firstly whether the trustee has that right to indemnity out of the assets of the trusts—that right to indemnity being the only asset of the corporate trustee that may be available to creditors—and secondly whether the directors of the corporate trustee should have the same obligations to the beneficiaries of the trust as if they were trustees. Those questions in relation to trading trusts are questions that I believe should be at least asked and at least considered at the select committee level. 
Dr Worth has also mentioned the trustees’ power of delegation. This is one aspect that has been addressed in this bill and should be included in the bill. The general rule is that trustees can delegate or appoint agents for more administrative functions but not for fundamental decision-making powers. The difficulty is in drawing a definitive and certain line between what is an administrative or ministerial function and what is a fundamental decision-making function. This is especially important as fiduciary discretions of trustees previously could not be delegated but with prudent trustee tests and investment powers and responsibilities becoming more and more sophisticated and increasingly specialised the obligations of trustees have been becoming more and more onerous. 
This bill authorises the appointment of agents or in other words it delegates for those administrative functions. In this respect administrative function is defined in new section 29A(1) inserted by clause 5 as “any function (other than a trustee function) that it is necessary or desirable to perform in executing the trust administering the trust property”. The Law Commission report recommended however that those functions included others including the power to decide whether any fees were payable the power to decide whether payments received should be appropriated to income or capital and the power to appoint a person to be a trustee etc. So unless I am mistaken on a cursory glance of this bill I believe that while the Law Commission recommends that trustee functions should be delegated the bill provides only for administrative functions and not trustee functions to be able to be delegated. 
Just before I conclude I will consider what the honourable member Peter Brown stated in relation to the raising of the gift duty limit from $27000—the amount of which has been in effect for a long time. Unfortunately that provision is under the Estate and Gift Duties Act and it is certainly doubtful whether it is within the scope of the Trustee Act to consider the implications of the Estate and Gift Duties Act. 
Trustee law is important. This is an important bill; it is an important issue. The bill should be scrutinised at the select committee and National supports it at its first reading.