ReSolution Issue 25, June 2020 | Page 20

19 www.nzdrc.co.nz

Of course, parties have always been able to use mediation to settle their disputes, as long as they are all willing to give it a try. However, cases involving trusts are a little out of the ordinary when it comes to compromise. One of the reasons for this is that trustees’ ability to compromise is limited by statutory powers, and the court’s interpretation of those powers.

Trustees’ ability to compromise has also historically been limited by concerns that there may be pushback from beneficiaries who may not be bound by any settlement reached. Further, trust cases often involve family relationships, which can be complex at the best of times, and all parties may simply not be willing to enter into the mediation process.

The number of trust cases which have ended up before the courts, including the Supreme Court on occasion, have been a source of frustration for judges. As Dobson J said in McLaren v McLaren [2017] NZHC 161 at [93]: “I endeavoured to convey to counsel and the parties at the conclusion of the hearing my clear view that it is the professional responsibility of all advisers to apply their minds constructively and co-operatively to pursue all options for an overall settlement. Their primary task ought to be building bridges between the two sides, not preparing rockets to fire at each other”.

One of the real difficulties with trust cases is that litigation costs are usually sought from the trust fund. So regardless of the outcome of the litigation, the fund is usually depleted, sometimes substantially. That cannot be in the beneficiaries’ best interests.

Trusts Act mediation provisions

The Trusts Act 2019 will, when it comes into force on 30 January 2021, bring about a sea change on the mediation front. The court will be able to order Alternative Dispute Resolution (ADR) for internal matters regardless of whether the parties consent. Internal matters are disputes between trustees and beneficiaries, or trustees and trustees. The exception to this power is where the terms of the trust indicate a contrary intention.

My hope is that this provision will see far fewer trust cases make their way through the court system. The fact that if the court orders it, it will be mandatory, should not mean that mediation will not succeed. One only needs to look at the employment model to see how successful mandated mediation can be.

Other provisions in the Trusts Act will help to address other concerns trustees may have about compromise. For example, the Trusts Act provides a mechanism for internal matters to ensure that where a trust has unascertained or incapacitated beneficiaries, representatives for those beneficiaries will be appointed. Such beneficiaries will therefore be bound by any compromise reached.

Costs can often be a major factor in preventing compromise being achieved. When trustees apply to the court requesting mediation, they can also ask the court to order that the costs of that mediation be paid from the trust fund. If beneficiary representatives are required, their costs may also be met from the fund.

The indemnity position under the Trusts Act regarding when trustees may take their costs from the fund is essentially the same as the current position; that is, they may do so where they have acted reasonably. This is what the court will consider when being asked for an order under the Trusts Act that the trustees’ costs of mediation be met from the fund. One would think that in requesting mediation, trustees would always be acting reasonably. However, much depends on the type of dispute the trustees are engaged in.

If compromise is reached, then if it involved court appointed representatives under the Trusts Act, the court’s approval of the compromise will need to be sought. The court will not sanction the compromise

Use of mediation under the new Trusts Act 2019

By Carole Smith

ReSolution | June 2020