"The fiction of beneficiaries “rights” and what should be done about it"
1. Although New Zealand may have the largest number of Trusts per capita of any country in the world , very few beneficiaries are able to challenge the management of the Trusts that were created for their benefit or for their potential benefit. There are several reasons for this. These are some of them.
- Most Trusts in New Zealand are wholly discretionary and a discretionary beneficiary can have no confidence that a successful challenge to the management of a Trust will result in a distribution in his or her favour. On a cost-benefit analysis there is insufficient prospect of a benefit to justify the expense of the challenge.
- The High Court has been given jurisdiction to deal with the proper administration of Trusts, but actions in the High Court are expensive, uncertain and cumbersome.
- Although laws relating to Trusts go back several hundred years, there is a remarkable degree of uncertainty in some important aspects of Trust law.
- There is a huge volume of case law on Trusts and practitioners and Judges are often unable to find the most relevant authorities.
2. The most notable recent decisions in England and New Zealand on the rights of beneficiaries are probably Schmidt v Rosewood Trust Ltd and Foreman v Kingstone. These cases are quite untypical of Trust disputes in that:
- both were concerned with wealthy Trusts, where the expense of litigation justified the potential reward; and
- both involved Plaintiffs with substantial financial resources who could afford to engage in serious litigation.
4. There are two particular draw-backs with this. The first is that few of the Judges of the Family Court were appointed to the Court for practices that focused on the law of Trusts. The second is that few of the advocates who regularly appear in the Family Court have specialist knowledge of Trust law.
5. The problem is not confined to the Family Court. If one takes a case of the prominence of Wong v Burt – which dealt with the important doctrine of a “fraud on a power” - the decision of the Court of Appeal has been “criticised”, albeit politely, by the authors of Lewin on Trusts for the fact that the Court was apparently unaware of a highly relevant authority – Re Hampden Settlement Trusts [1971] TR 177. Although Lewin does not refer to it, the older decision of Re Turner’s Settled Estates (1884) 28 Ch. D 205 was also of particular relevance. Lewin suggests that if the Court of Appeal had been aware of this law, it would not have allowed the appeal and criticised the Trustees as it did. It appears that neither the counsel who appeared in that case nor the Judges in the Court of Appeal, were aware of these authorities.
What is the solution?
6. I consider that the radical changes that were enacted in England to transform disputes about patents provide a useful guide to what might happen in New Zealand. Patent disputes were confined to the High Court and the complexity of the law and procedure became so great that only a handful of people could afford to litigate patent disputes. The Government decided to create a new Court at a lower level to operate in parallel with the High Court’s patent jurisdiction. The intention was to provide a Court that had procedures that were designed to reduce costs and increase the speed of patent litigation.
7. The Court had its teething problems. The Judge who was initially appointed was over-ruled too often and the Court did not have the confidence of its intended users. A highly experienced intellectual property lawyer – Michael Fysh QC – was subsequently appointed to the Court as its Judge. The Court has introduced a simplified patent litigation procedure that is designed to deal with simple patent cases quickly and with lower associated costs. The procedure is focussed on providing a single day trial which takes place within about 8 months from the commencement of proceedings, involves no automatic discovery of documents, no experiments, and limits cross-examination to specific topics.
8. The procedure is not suitable for litigation involving complex findings of fact but the Court fulfils a need for simpler cases.
9. I see little purpose in the Law Commission recommending changes to various aspects of the laws concerning Trusts unless radical changes are made to the Courts that are to hear Trust disputes. I therefore recommend the creation of an Equity Court. New South Wales has had a long history with its Equity Court and as a consequence that State has produced some of the finest jurists in Equity in the common law world. Similarly, England has had a specialist Equity Division in its High Court and a group of highly specialised lawyers and Judges has evolved there for the benefit of all those who have Trusts and Equity disputes. Our new Court could either be a stand-alone Court that has jurisdiction in all Equity matters (which is my preference) or alternatively, it could be like the Patents County Court, and have jurisdiction in less complicated Equity matters.
10. The experience of the Patents County Court in England shows that it is vital that the Judge(s) who is appointed to that Court should be competent not only in the areas of law that will come under consideration but also in matters of procedural reform and administration.
11. In view of New Zealand’s relatively small population, the Court would be accessible nationally and would be able to conduct much of its interlocutory work by audio and video meetings.
12. The procedures of the new Court would be modified to simplify dispute resolution - just as the District Court is doing with its own procedures.
13. I cannot emphasise too strongly the significance that I place on a specialist Court with cheap and simple procedures. If I use an analogy of a motor vehicle, it seems to me that the Law Commission is being asked to re-design the car called “Trusts” by adding new gadgets; by enabling it to drive faster and more safely; and by removing its perceived deficiencies. But what is the use of any of this if only a few thousand New Zealanders can afford to buy the new car?
14. Rights that are only available to those who have unusual wealth are irrelevant to the ordinary citizen.
15. A specialist Court will streamline disputes because its Judges and those who practice there will acquire knowledge and skill that will simplify dispute resolution. Counsel will not need to educate Judges, and Judges will not be burdened by the need to conduct unnecessary research themselves. If procedures can be simplified in the way that the Patents County Court has done and the District Court is doing, both beneficiaries and trustees will benefit because their “rights” will have substance and not be confined to the empty shell of “form”.
16. In recent months the Hon. Justice David Hayton has criticised the Court of Appeal’s decision in OA v Wilson ; Donovan Waters QC has used trenchant language to criticise the High Court’s decision in Harrison v Harrison ; the authors of Lewin have criticised the Court of Appeal’s decision in Wong v Burt ; and the Supreme Court has validated a Trust in Kain v Hutton with language that is usually used to describe an invalid Trust.
17. Not all criticism is valid but when it compounds like this it suggests that the time has come for New Zealand to relinquish its generalist approach to Equity and allow a greater degree of specialisation at the judicial level in this area of the law.
18. The absence of a sufficient degree of specialisation at both the Bench and the Bar can be seen as a serious problem for (a) the development of good Trust law, and (b) the international reputation of our legal system.
19. The law is too complex these days for a generalist Court like the High Court to be able to cope with it all. For this reason, laws relating to children and families have devolved to a specialist Family Court; town planning and associated work has devolved to a specialist Environmental Court; and employment work has devolved to a specialist Employment Court. Maori land disputes go to a specialist Maori Land Court. A lot of other work has devolved to numerous specialist tribunals that are staffed by Members who have developed levels of expertise which could never be achieved in a generalist Court. Each of these Courts and Tribunals has attracted a body of lawyers who have acquired specialist skills – to the benefit of the users of the Courts and their Judges.
20. The Government should recognise that the time has come for Equity to have its own specialist Court with its own specialist Bar and stream-lined procedures.