Trustees – the need for unanimity in decision making
Unless they are authorised by the settlor to act by a majority, trustees must act unanimously.
Martin and Vanessa Cadman settled a trust of which they and their accountant were the three trustees. They entered into an oral contract with a company to supervise the construction of a house. I will call the construction company, Company A.
Several years after the house was completed, the accountant trustee told the Cadmans that he wanted to retire. A Deed of Retirement was prepared and a corporate trustee was appointed to take the accountant’s place. But the Cadmans’ signatures were not witnessed and the “Deed of Retirement and Appointment” did not constitute a valid Deed.
The Cadmans decided to sue Company A for the defective construction of the house.
Company A said in defence that a claim would only be effective if all three trustees sued, and as the accountant trustee was not a plaintiff, it had a good defence to the proceeding.
When the accountant trustee learnt of the defence, he swore an affidavit in which he said that if his retirement as a trustee was ineffective, he authorised and ratified the issue of the proceeding.
Company A’s defence posed two questions: Did the unanimity rule require him to become a plaintiff for the Trust to be able to sue the builder? If it did, could his joinder as a plaintiff rectify the omission to include him at the outset?
Justice Harrison, giving a short, clear, and concise judgment for himself and Justices White and Asher, held that the accountant did not have to be added as a plaintiff to the proceeding for the unanimity rule to be complied with (Visini v Cadman [2012] NZCA 122 (29 March 2012)).
Rule 4.24 of the High Court Rules provides that: “One or more persons may sue ... for the benefit of, all persons with the same interest in the subject matter of a proceeding … with the consent of the other persons who have the same interest.” Two trustees can, in accordance with this rule, sue on behalf of the others so long as the others have signified their consent to the action being taken.
It was argued that rule 4.24 would not allow retrospective authorisation by the accountant trustee. The Court of Appeal sensibly rejected this claim (at [20]):
“There is no warrant for reading a temporal limit into [rule] 4.24 so as to exclude a retrospective consent. The rule does not require that consent be given before the proceeding is issued.”
In reaching this decision, the Court invoked rule 1.2 of the High Court Rules – the stipulation that the High Court Rules are intended to “secure the just, speedy and inexpensive determination of any proceeding.” In Justice Harrison’s words, rule 1.2 is “designed to avoid unnecessary and prejudicial expense, delay and technicality”.
It is good to see the Court of Appeal putting its foot down on the kind of technical and unmeritorious arguments that smart lawyers use to delay litigation. If the High Court is to increase its attraction as a forum for dispute resolution, there needs to be more of this.What are the lessons from this case?
First, in a trust that requires unanimity of decision making, all trustees must agree to a decision to issue proceedings.
Second, the unanimity rule does not require all the trustees to be named as parties to the court proceeding.
Third, a trustee can give retrospective consent to the issue of a proceeding and thereby convert an unauthorised proceeding into an authorised one.
Fourth, the proactive use by the judiciary of rule 1.2 of the High Court Rules is to be encouraged.
For more information about Anthony Grant, see www.anthonygrant.com.
NZLawyer \\ issue 186 \\ 15 June 2012