Trustees of Māori Land Trusts – Be aware of your trustee obligations

When acting as a trustee of a Māori Land trust, it is important to understand and uphold your obligations to the trust. A Māori Land Court case confirms the expectations on trustees, and the standard required to meet trustee obligations.

In this case, the Trustees were involved with a proposed development, which would involve partitioning and changing the status of a section of the land held by the Trust.

An application was made by a beneficial owner to the Court for the enforcement of the Trustees’ obligations. The application alleged that the Trustees had acted in breach of their obligations by:

• failing to carry out the business of the trust in a prudent manner;
• failing to inform, provide information to and consult with beneficiaries; and
• failing to hold an election for further trustees in breach of the trust order.

The Trusts Act 2019 details the duties and obligations of all trustees, and applies to Māori Land trusts in the same way as it applies to family trusts.

The applicant argued that the proposed development required borrowing to a level that would put the land at risk, which was in breach of their duty to invest to the standard of a prudent business person.

The Court held that Trustees need to manage the business of the Trust to the standard of an “ordinary prudent person of business.” It was up to the Trustees to decide how they would achieve the best outcome for the beneficiaries of the trust, while remaining very aware of their obligations and seeking good advice about the development. The Trustees were not found to be in breach of the duty to act as an ordinary prudent person of business.

It was also submitted that the Trustees had not provided information to beneficiaries about the makeup of the Trust’s expenditure on development costs and had not consulted with beneficiaries on this matter.

The Court found that while Trustees have a duty to provide information to beneficial owners, this has limits and, as provided in the Trusts Act, Trustees can refuse to release information if it is not in the interest of the beneficiaries as a whole, or may prejudice the Trustees’ ability to discharge their obligations. The Court noted that while it may be best practice, there is no obligation on Trustees to consult with the beneficiaries before making decisions for the Trust.

Finally, the beneficial owner argued that the Trust had not held an election for a new Trustee, despite there only being six trustees. The Court found that the Trustees were required to do so under the Trust deed, which required the Trust to have a minimum of seven Trustees.

Trustees have an obligation to know the terms of the trust and adhere rigidly to those terms. The Trustees were in breach of their duties in not holding an election to fill the vacant trustee position, and were directed to hold an election to fill the trustee vacancy with six months.

If you are a trustee, it is vital that you understand your obligations, especially with the increased obligations put in place under the Trusts Act 2019.