NEW ZEALAND Law and Practice Contributed by: Brent Wicks, Violet Yu, Jonathon Russell and Sandy Chen, Cone Marshall Limited
The Trusts Act 2019 (which came into effect in 2021) made changes to how trust disputes are potentially heard and resolved. Section 145 of the Trusts Act 2019 gives the court discretion to compel trustees and ben - eficiaries to use alternative dispute resolution (ADR) to resolve matters. The court has exercised this power in a number of cases, whereby arbitration, mediation or other methods of disputes resolution have been used, with the benefit of resolving sometimes sensitive fam - ily matters in private. Other common forms of trust disputes include chal - lenges such as: • whether trustees are complying with their duty of care; • whether trustees should be indemnified for various forms of costs and liabilities; and • disputes leading to the removal of trustees. In relation to estate disputes, common forms include challenges such as those concerning the following: • the interpretation of wording in a will; • the testamentary capacity of the deceased when the last will was made, in order to invalidate the last will; or • testamentary promises made to a party not named in the will. 5.2 Mechanism for Compensation In relation to wealth disputes involving trusts or estates that go through the New Zealand’s court system, compensation for the aggrieved parties may come in various forms. In trust disputes – for example if a trustee is challenged for breach of its duties, and should such breach cause loss to the trust property or interest to beneficiaries which is not covered by the trustee’s indemnities – the trustee may be ordered to restore such losses from their own pocket back to the trust fund. In cases where property has been disposed to a trust to avoid obligations to third parties in circumstances such as those outlined in the Property Law Act 2007 or Property (Relationship) Act 1976, the court has the discretion to make orders to “claw back” this property
to the transferor, and any obligations the transferor tried to avoid would apply accordingly; the aggrieved party would be entitled to such share of the property as they would have been had the property not been disposed to the trust. The court may order compensa - tion to the aggrieved party whose claim or right was defeated by the disposition, such as a lump sum of money or a regular payment of income from the trust property. In cases where the court considers that it would be unconscionable for an individual to be denied ben - eficial interest attached to a property held by another party, the court may find that the legal owner in fact is holding such property on constructive trust for the individual being denied beneficial interest. The court may give effect by order to transfer or pay a propor - tionate amount for compensation. When property is transferred to a “trust” that is invalid, the invalidity may lead to a finding of resulting trust, where the transferee holds such property for the trans - feror as beneficial owner. A resulting trust may also be found when the payer pays to the recipient a sum of money to contribute to a purchase of property but such payment bears no characteristics of being a gift: the recipient of the payment will then hold a propor - tion of the purchased property on resulting trust for the payer. For estate disputes, such as challenging the interpre - tation of a will, the court may order variation of the will in order to clarify, and order the administrator to give effect to the varied will. In some situations, the court may adjust the division of the property in dis - pute to reflect what the court thinks fit. In the event a trustee or administrator is found to not be adhering to their duties, the court may order specific performance and demand that a specific obligation be fulfilled. The court generally has wide discretion to award compen - sation, and may take into consideration the parties’ conduct in the matter and the reasonableness of the parties, when determining the amount of compensa - tion or the terms to be attached to the court order.
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