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Trustees and Powers of Attorney

December 2015

Trustees’ Obligations & Breach of Trust with Power of Attorney

A recent High Court decision considered a claim for breach of trust in the context of the use of a General Power of Attorney by a Trustee. A Trustee had made a capital distribution to himself by use of a Power of Attorney on behalf of another Trustee so that the decision of the three Trustees was unanimous.

The basic facts are as follows:

  • G, D & M were Trustees of the D H & K Family Trusts.
  • G was appointed as Attorney for D under a General Power of Attorney.
  • The Court was required to determine whether G breached his obligations as Trustee when he entered into certain transactions on D’s behalf.
  • The transactions involved the transfer of properties to other Trusts of which G was also a Trustee and beneficiary.
  • These Trusts then owed the balance of the purchase price to the D H Trust. G & M then distributed that debt to G by way of a capital distribution made by the D H Trust.
  • The net result of these transactions was that the D H Trust disposed of both the property and the equity previously held in that property.
  • G & M were able to undertake these transactions without D’s direct involvement. G signed all necessary documents on D’s behalf using the Power of Attorney. The Power of Attorney contained an express delegation under the Trustee Act 1956 permitting G to act as D’s Attorney during D’s absences from New Zealand in respect of the exercise and execution of all powers and discretion vested in D as Trustee of the D H & K Trusts.

The Court found as follows –

“That fact does not necessarily mean, however, that G did not breach his obligations as a Trustee when he used the Power of Attorney to give effect to the capital distribution. I have no doubt that G could have signed the resolution as D’s Attorney if D had agreed to the capital distribution. However, I do not consider the fact that G held the Power of Attorney negated or affected the requirement under clause 7.1 that all Trustees should have the opportunity to vote on or express their views in relation to decisions to be made by the Trustees. Clause 7.1 is an extremely important provision. It ensures that the Trustees do not exercise their powers and directions under the Trust Deed without first ensuring that all Trustees have an opportunity to vote or express their view. That type of safeguard was particularly important in respect of decisions that affected the Trust’s assets. G accepted in evidence that he was in regular contact with D when D was living in Ireland. It would therefore have been a simple matter for G to have raised the issue of the proposed capital distributions with D so that D could provide his input into that issue. In failing to do so G breached the requirements imposed by clause 7.1.”

The High Court held that although there was no restriction on the purposes for which G could exercise the General Power of Attorney this did not negate or affect the requirement under the Trust Deed that all Trustees should have the opportunity to vote on and express their views in relation to decisions made by the Trustees. The Court found that this safeguard was particularly important in respect of decisions affecting the Trust assets, and in failing to seek D’s views on the issue, G breached this requirement.