Trustee Amendment Bill — First ReadingText is incorporated into the Bound VolumeTrustee Amendment Bill — First Reading[Sitting date: 11 October 2007. Volume:642;Page:12335. Text is incorporated into the Bound Volume.]Trustee Amendment BillFirst ReadingHon NANAIA MAHUTA (Minister of Customs) on behalf of theAssociate Minister of Justice: I moveThat the Trustee Amendment Bill be now read a first time. At the appropriate time I intend to move that the Trustee Amendment Bill be referred to the Justice and Electoral Committee for consideration. This bill amends the Trustee Act 1956 in light of the recommendations made by the Law Commission in its report entitledSome Problems in the Law of Trusts. The bill implements five statutory amendments proposed by the Law Commission report. It also contains one change to the Administration Act 1969 and the Wills Act 1837 and one technical change to the District Courts Act 1947.Trusteeship has become an increasingly specialised task often requiring in-depth financial and administrative skills. The bill addresses this need by making important improvements in the administration of trusts while protecting beneficiaries’ legal entitlements. The bill promotes the effective discharge of the obligations of trusteeship. The current limits on the actions by agents or attorneys of fiduciary discretion are too restrictive. The bill expands trustees’ collective power to authorise their agents or attorneys to administer aspects of the trust including powers of investment and management. However certain key powers are reserved to the trustees and cannot be delegated such as the power to appoint trustees or to decide how the capital or income of a trust is to be distributed.A responsible trustee is the legal owner of the trust property and retains control over the trust’s management and administration. An advisory trustee assists or advises the responsible trustee. Currently responsible trustees can legally challenge a direction of the advisory trustee by applying to the High Court for directions if they believe that the advisory trustee’s advice is objectionable or wrong. However responsible trustees are not obliged to do so and are not liable if they choose to follow any objectionable advice or direction given by an advisory trustee. For example if an advisory trustee advises a responsible trustee to invest moneys in a manner that created a conflict of interest by favouring one beneficiary over another and the responsible trustee followed this advice knowing it to be wrong he or she would not be liable. This is wrong in principle. A responsible trustee should not be able to shrug off the fact that advice from an advisory trustee is wrong or objectionable. The bill obliges the responsible trustee to seek a direction from the High Court where the trustee considers that such advice or discretion conflicts with the trust any law or exposes the trustee to any liability. Failure to do so will make a responsible trustee liable for following objectionable advice given by the advisory trustee.In some trusts trustees are obliged to act on the directions of a protector of a trust. Trustees have no statutory provision to challenge a protector’s direction if it is fundamentally objectionable. This places responsible trustees in a precarious position. A responsible trustee should be able to challenge a problematic direction from a trust protector. This bill authorises a trustee to apply to the court for directions where a trustee knows or reasonably believes that the protector’s direction or refusal to consent to exercise of a power conflicts with a trust any law or both or exposes the responsible trustee to any liability.The bill also simplifies a trustee’s ability to obtain insurance cover for trust property. Under the current Act a trustee seeking to obtain insurance cover on a replacement basis for a trust property needs the consent of the life tenant who occupies the property. If consent is withheld it may result in a situation where a property is not adequately insured. This not only affects the life tenant of the trust property but it affects thebeneficiary who stands to inherit the property. The bill simplifies the ability to obtain insurance by removing the need for trustees to obtain the consent of the life tenant and insures that the property can be properly insured for the benefit of both the life tenant and the trust beneficiaries.Finally the bill will help ensure that beneficiaries of a trust are informed of their legal entitlements. At present the law is uncertain whether a trustee is obliged to notify beneficiaries of their right to transfer or terminate the trust once the beneficiaries become entitled to do so. Often trustees take the paternalistic view that beneficiaries need not be informed of their right to end the trust or call for its transfer. This bill creates an obligation on trustees to notify beneficiaries of their right to end the trust or to call for a transfer of trust property so that beneficiaries are informed of their legal entitlements. If trustees do not do so they will be liable for damages for either a breach of trust or a breach of fiduciary duty or both.This bill which has been developed on the basis of the Law Commission’s recommendations makes the law clearer in relation to trusts and trustees by amending a number of specific provisions in the Act that have caused difficulty. The bill will improve the administration of trust property by reducing administration costs to trustees while continuing to protect the interests of beneficiaries. I want to thank all members for their consideration of the bill prior to its introduction and for their expressions of support for it. I would also like to thank the Law Commission for its report and recommendations. I commend the bill to the House.SIMON POWER (National—Rangitikei): The Associate Minister of Justice the Hon Clayton Cosgrove in his usual delicate and gentle way approached me some months ago about the Trustee Amendment Bill and whether National would be prepared to support it. In this day and age it is becoming an increasing trend for the Government to ask the Opposition about its view on a bill prior to it coming to the House. I have noticed this interesting emergence over the last 1½ to 2 months in particular.In respect of this bill the Hon Nanaia Mahuta has done a good job of outlining the general policy statement and provisions. At first glance of course it is easy for those speaking to legislation such as this to use that commonly coined phrase that the bill is simply a technical one of a mechanical nature and accordingly should pass through the House. Indeed as the Minister said the bill is based on proposals in a 2002 Law Commission report—one of the reports that with recent changes to the commission’s role have taken on a more significant meaning for this House and create an interesting relationship with the Ministry of Justice which used to do this sort of work. I think too it is worth just saying that the purpose of the bill is to make the law clearer in relation to trusts and trustees by amending a number of specific provisions in the Act that have caused difficulty.Essentially the legislation makes four key changes. The first of those is to expand the trustees’ collective power to delegate decision-making powers. Of course it does not permit delegation of certain fundamental powers such as the power to appoint trustees or to decide how capital or income of a trust is to be distributed. Secondly it requires trustees to apply to the court for directions where advice is received from an advisory trustee and that advice conflicts with the terms of the trust which actually makes sense. Thirdly it widens the insurance powers of trustees which also makes sense although it is limited to the trust property. Fourthly it requires trustees to notify any beneficiary of any entitlement. As the Minister said in her opening remarks that is probably a useful change.I was concerned about one matter prior to National agreeing to support this bill at its first reading and that was whether the bill had any consequences or implications for corporate trustees. I phoned Sir Geoffrey Palmer to ask him for some advice on thismatter and he was good enough to provide me with a written opinion. In that opinion he said that the matters dealt with in the bill are not likely to arise in relation to trustee companies in the context of the Securities Act. Trust deeds in this context are contracts between the trustee company and the issuer of debt securities and in this case the trustee company does not usually hold property on trust except in a liquidation situation. In this context the trustee acts as an agent of the security holders to monitor compliance by the issuer with the terms of the trust deed. He concluded by saying that he therefore would not expect the Trustee Amendment Bill to be relevant to trustee companies in their role as monitors of the performance of issuers of securities under the Securities Act. That tidied away the one concern that National had about the bill at the first reading stage.We look forward to hearing submissions on the bill and we will listen to those submissions carefully before forming our final view on it. At this stage National is happy to support the bill going to the select committee after its first reading.CHARLES CHAUVEL (Labour): I rise briefly to speak further to the informative speeches of the Minister and the Opposition spokesperson. The Trustee Amendment Bill is based as we have heard on a Law Commission report that dates back to 2002 as I recall entitledSome Problems in the Law of Trusts. The Law Commission’s report is well worth reading. It is a short report and if members who are not familiar with the work of the commission want to start with a paper that is easily digestible well explained in layperson’s terms and about an area of the law that is not a simple or everyday one they could do well to look at this Law Commission report. “There is much to be said” states the report “for the view that the Trustee Act 1956 is in important respects confused and confusing”. The Government agrees with that statement and it has taken on board the opinions of the commission hence this legislation.The bill is omnibus in its nature; it amends as we have heard the Trustee Act 1956 the Administration Act 1969 the District Courts Act 1947 and the wills legislation. Clearly these amendments will have to be divided into three separate but related bills at the Committee stage.There are four key features of the bill that I think are worth mentioning. As a result of the Law Commission’s report there are changes to what trustees can lawfully do including a provision allowing them to insure against loss or damage due to any event. As we have heard from the Minister there is a provision permitting advisory trustees to work alongside ordinary trustees in the administration of a trust property. That provision will be of enormous use to ordinary trustees. The legislation will allow trustees to employ an agent or attorney and in doing so be exempt in certain circumstances for liability for acts or defaults of that agent or attorney. That is a departure obviously from the current state of the law. Finally the bill will move proceedings taken against a trustee from the District Court to the High Court which is probably consistent with the sorts of matters that are dealt with by trusts these days and the quantum of disputes that arise.Mr Deputy Speaker you kindly allowed me in my third reading speech on the Willis Bill earlier this week to speak of the Government’s record in enacting Law Commission legislation and I am grateful for that opportunity to do so. I wonder whether I might just take a minute or two to finish the observations that I began on that occasion because this is one of the last bills that will come before the House in a non-systematic way from Law Commission proposals. From now on projects for the Law Commission will be able to be proposed by any Minister. Each year the Minister responsible for the Law Commission will present a Cabinet paper putting forward those projects—supported by portfolio Ministers—including their resource implications. IfCabinet approves a project departmental resources will be made available for close collaboration during the life of the project so that officials can be kept in touch with developments and provide advice. Where consensus cannot be reached and differences of opinion remain these will be identified and discussed.The Law Commission will then complete its recommendations give a report to the relevant Ministers and seek their views. A draft Cabinet paper will be prepared and unless the Minister otherwise directs the Law Commission will do that on the portfolio Minister’s behalf. Once the Minister is satisfied with the draft paper he or she will present it to Cabinet and seek approval for the recommendations. If Cabinet accepts those recommendations it will invite either the Minister or the Law Commission to issue drafting instructions and there will be no further need for a Government response. The bill that ensues will be introduced in the normal way in the name of a portfolio Minister. If Cabinet rejects the recommendations the Government will continue to be required to respond formally as at present by way of a paper presented to the House.In conclusion I just note that this is the procedure that will be adopted from now on in respect of the Law Commission. It is an excellent and systematic way to deal with law reform matters. Obviously this procedure ought to be commended to the House along with this bill.Dr RICHARD WORTH (National): We are debating important legislation in the Trustee Amendment Bill but I would not be as quick as the previous speaker Charles Chauvel to give unstinting praise for the Government’s speed in implementing Law Commission reports—for as we have heard this is not one of those instances. It was in April 2002 that the Law Commission reported onSome Problems in the Law of Trusts and now 5½ years later we see this bill introduced into Parliament. If these were as the previous speaker has said important changes then clearly they were deserving of some greater expedition than that. But that said the legislation comes to the House tonight and a number—in fact most—of the Law Commission’s recommendations are picked up in it.I see that time rapidly advances and it may be that at a later opportunity I will be able to talk in detail about some of the changes that are made. Just in the order they appear in the bill the first issue that arises in a substantive way relates to the power to insure so perhaps I will take up that issue first. It is of course an important issue. As Georgina te Heuheu said the Trustee Act 1956—Debate interrupted.