Dealing with trustees - ensuring access to trust assets

This Court of Appeal decision (Insight Legal Trustee Company Ltd v Stokes [2013] NZCA 148) highlights the principle that one trustee cannot act as agent for another trustee and emphasises the need for parties, when dealing with trusts and intending to have recourse to trust assets, to clearly designate that they are contracting with the trustees of the trust.

 

The case concerned an agreement for the sale and purchase of property. Mrs Colebrook (the purchaser) signed the agreement without mention of being a trustee. She subsequently became insolvent and failed to settle the purchase. This led Stokes (the seller) to sell the property for substantially less to another party. In seeking to recover the difference, Stokes learnt that Mrs Colebrook (along with her sister Ms Carr) was a trustee of a family trust. Stokes was initially successful in the High Court by arguing that Mrs Colebrook had acted as an agent for her fellow trustee and sister.

 

On appeal all parties accepted that one trustee cannot act as agent for other trustees. The Court of Appeal confirmed the principle that trustees cannot delegate their duties and all trustees must consent to a transaction before they are bound. This meant that despite Mrs Colebrook's intention (which was accepted on the evidence) that the trust be the purchaser of the property, she had no ability to bind the trust to the purchase on her own. The Court of Appeal remitted the case back to the High Court on the question of whether her sister, Mrs Carr, had consented subsequently to the purchase.

 

It appears that Stokes did not initially know they were dealing with a "trust". However, on the bankruptcy of Mrs Colebrook, they sought to enforce the contract against the trust (via the trustees) to have recourse to the trust assets. The case clearly illustrates that all trustees need to approve the transaction, and one trustee cannot act as an agent on another trustee's behalf when performing duties which are personal to the trustee in that capacity.

 

It is a useful reminder for parties to ensure that all trustees sign the relevant documentation. In our experience it is quite common for parties to only refer to the "trust" rather than the trustees, and this practice can lead to a failure to appreciate the personal nature of the liability of a trustee and that role of trustee is a non-delegable duty.