Trustees who make big decisions without consulting their co-trustees risk having those decisions overturned. A recent reminder from Auckland barrister Anthony Grant explains why unanimity matters.
Trustees who make significant decisions without involving their co-trustees risk having those decisions set aside by the courts.
Anthony Grant, an Auckland barrister specialising in trusts and estates, has reminded trustees that all serious decisions should be the subject of collaborative discussion in which every trustee takes part. His analysis, published on interest.co.nz, outlines how New Zealand courts have repeatedly emphasised the requirement for trustees to decide together rather than allowing one person to act unilaterally.
The unanimity principle
Under New Zealand trust law, trustees are generally required to make decisions unanimously unless the trust deed explicitly permits majority voting. Grant observes that many trustees appear not to understand this requirement, and that a settlor who dominates a trust and makes decisions without consulting other trustees can find those decisions subsequently challenged on the grounds that the trustees did not collectively resolve the matter.
In some cases, courts have upheld a dominant trustee's decision even without consulting co-trustees — but only where the trustees had previously decided the matter in principle and left the details to be settled later. Where there has been no prior decision in principle, it is much harder to justify a trustee acting alone.
The Rodney Aero Club case
The principle is more than theoretical. Grant points to the Rodney Aero Club case — [1998] 2 NZLR 192 — in which the High Court set aside a lease that two of three trustees had authorised, because the trustees had not been unanimous in their decision to grant the renewed lease. The contract was voided on grounds of insufficient trustee agreement. Grant suggests that other decisions made without full trustee participation could equally be challenged.
What this means for third parties
The problem becomes acute when a dominant trustee enters into a contract with a third party — for example, a commitment to pay for goods or services on behalf of the trust. That third party may then find the contract is not binding on the trust, because all trustees had not authorised it.
The third party may attempt to rely on a constructive trust being imposed over the express trust, or pursue a claim against the dominant trustee for making false representations about their authority. Grant describes these avenues as messy and difficult to establish.
The practical takeaway
The core message is straightforward: every trustee should actively participate in decisions that affect the trust. Decisions made by a single trustee without discussion — even a trustee who has historically dominated the trust — cannot be assumed to bind the trust. This applies to matters such as property transactions, investments, and any contractual commitments made in the trust's name.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.