Until recently, there was no New Zealand appeal court authority on whether powers of appointment and removal of trustees are fiduciary in the hands of a non-trustee.
In Carmine v Ritchie,1 the High Court found a general fiduciary flavour where the powers had been conferred on a person who was a trustee, but in her personal capacity. Harre v Clark2 relied on Carmine, as well as commonwealth precedent,3 to reach the same result where the powers had been retained by the settlor. In The New Zealand Māori Council & Ors v Foulkes & Ors4 (NZMC), the Court of Appeal confirmed the High Court approach to non-trustees, subject to the particular trust deed.
NZMC arose out of Crown Forestry Rental Trust (CFRT) litigation. CFRT was established by deed in 1990 as part of the machinery resulting from the settlement of litigation between Māori interests (including New Zealand Māori Council) and the Crown, over the Crown’s proposed sale of cutting rights in Crown-owned exotic forests.
Cutting rights could be sold, but ground rent would be paid to CFRT. Under the settlement, CFRT would hold all rental payments in respect of forests pending resolution of Treaty claims to the land beneath them. Interest on accumulated rentals would be expended on funding claimant participation in the claim process.5 CFRT evolved into the primary funder of claimant participation in the processes by which claimants prosecuted all their historical claims.
CFRT had six trustees; three appointed by the Minister of Finance for the Crown and three Māori Trustees appointed by an entity referred to in the deed as the Māori Appointor. Clause 6.2 of the deed described the Māori Appointor and its power (as relevant) in these terms:
“The power of appointment of Trustees to be appointed under clause 5.3 shall be exercised by the New Zealand Māori Council and the Federation of Māori Authorities Incorporated, (the Māori Appointor) ...”
Under clause 6.4, the Māori Appointor had power to remove any Māori Trustee at any time and from time to time; to replace such removed trustee and to appoint a new trustee at any time.
NZMC and the Federation of Māori Authorities Inc (FOMA) were unable to agree on trustee appointments. In an attempt to break the deadlock, they attended two mediation hui and reached agreement in January 2014 that a panel would be appointed comprising five delegates from each organisation. The panel’s job was to agree a list of primary appointments and alternates. For that purpose, both sides agreed that their respective delegates would have the authority to bind the organisations they represented.
In a nutshell, the agreement (at )set out to achieve the following:
- to authorise the panel to act as the Māori Appointor for the purpose of selecting trustees;
- to require the panel, in making its selections, to focus co-operatively on accentuating mana Māori in the work of CFRT;
- to allow the panel to make its selections independently of any distinctive preferences of either NZMC or FOMA.
The February hui
The panel met on 8 February 2014.
Two FOMA panel members had to leave the hui before it had finished. The remaining panel members (five from NZMC and three from FOMA) purported to remove and appoint trustees and alternates. The outcome was something of a surprise to those FOMA attendees who had left early (at ).
A majority of FOMA’s executive revoked its support for the decision made by the Māori Appointor hui. NZMC applied to the High Court to affirm (at ) the appointments and removals with appropriate orders. FOMA opposed on the basis that the January agreement was a breach of the no-delegation rule.
Not a trustee
Trustees, at least, must act unanimously and cannot delegate their fiduciary powers (or duties) even to a co-trustee unless such delegation is specifically permitted by the trust instrument, specifically permitted by statute or practically unavoidable and is usual in the ordinary course of business and a particular agent is employed in the ordinary scope of his or her business.6 The Māori Appointor was not a trustee, so the question for the High Court was whether there was a fiduciary power.
Relying on TMSF v Merrill Lynch Bank & Trust Co Limited,7 Justice Williams noted (at ) that where a trust deed contained a specific delegation power, that power was effective. In addition, where the powers in a trust deed were so wide that they tended to amount to ownership, then a power to delegate could be read into the constituting deed. But where the donor had reposed personal trust and confidence in the donee of the power to exercise the donee’s own judgment and discretion, then the power so given could not be delegated unless the trust deed expressly allowed it.
Because TMSF concerned the powers of a trustee, the Judge applied Carmine (at ) which held that specifically designated trustee appointors were bound to act in the best interests of beneficiaries when performing that function. Carmine concluded8 that the power to appoint new trustees was generally acknowledged to be a fiduciary power even though it might not have been conferred on trustees or the holder of any other office.
Equally, a power to remove a trustee and replace him/her with a new trustee was almost always considered to be a fiduciary power to be exercised in the best interests of the beneficiaries. This was because the subject matter of the power was the office of the trustee which lay at the core of the trust and carried fundamental and onerous obligations to act in the best interests of the beneficiaries as a whole.
In this context, Justice Williams found that the donor of the power to appoint was likely to have expected the appointor under the CFRT deed to exercise judgment and discretion. The political and litigation background that led to the CFRT’s creation very much supported such a conclusion. FOMA was likely to have been specifically chosen by the parties to the 1989 Crown forest litigation because it represented those entities administering Māori land blocks (see note 6 at ).
Justice Williams reluctantly concluded that the decision of the panel had no validity (at ). NZMC and FOMA had created a third party as a mechanism for working around their impasse. That they could not do (at ).
Court of Appeal
The Court of Appeal applied9 Carmine, Harre and In Re Skeats noting that the power to appoint new trustees was of a fiduciary nature because the subject matter of the power was the office of the trustee. That office lay at the core of the trust and carried fundamental and onerous obligations to act in the best interests of the beneficiaries as a whole to the exclusion of the trustee’s own interest. And, as it reposed the settlor’s personal trust and confidence in the donee to exercise its own judgment and discretion, the power could not be delegated to a third party.
The Court of Appeal was quite clear that it did not matter that the party exercising the power was not itself a trustee; it was the object and purpose of the power taken from the deed that was decisive. It did not matter whether the power was properly conceived as property in any given case.
What mattered was that in every case the power was to be exercised according to the best interests of the beneficiaries and could not be delegated (at ). Clause 6.2 of the trust deed was unequivocal. The Crown had directed that the power be exercised jointly by NZMC and FOMA acting in accordance with their respective constitutions.
FOMA was likely to have been chosen along with NZMC because it represented entities which administered Māori land, especially forestry blocks. The terms of the deed confirmed the Crown’s expectation as settlor that each of the parties would exercise its own judgment and discretion when exercising the power of appointment in the best interests of the beneficiaries (at  (b) and (c)).
The Court of Appeal said that any decision about appointing or removing trustees was always to be made on a measured evaluation by reference to the deed, consistent with the fiduciary nature of the power, and not for any collateral purpose. The Court approved the High Court’s summary of qualities required by a CFRT Māori Trustee and, in that respect, offered guidance not present in the CFRT deed (at ).
Subject to the wording of the trust deed, the Court of Appeal has said that powers of appointment and removal of trustees in the hands of non-trustees will be fiduciary.
Nicholas Burley is a director at Johnston Lawrence Limited and appeared for the fourth respondent FOMA.
- Carmine v Ritchie  NZHC 1514 at  and .
- Harre v Clark  NZHC 2533 at .
- Including In Re Skeats Settlement (1889) 42 Ch.D. 522.
-  NZCA 552.
- New Zealand Māori Council & Ors v Foulkes & Ors  NZHC 747 at  – .
- Niak v McDonald  3 NZLR 334 at .
-  UKPC 17;  4 All ER 704; at -.
- See note 2 at .
-  NZCZ 552 at .