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I am a beneficiary of a family trust. The trustees have given a large amount of money to my sibling but nothing to me. Are they allowed to do this, and can I challenge their decision?
Kain v Public Trust [2023] NZHC 2535
Sherwin v JKA Holdings Limited [2024] NZHC 920
Yes, trustees of a family trust can make distributions to beneficiaries that are not equal, but their ability to do so is subject to their duties, and you can challenge their decision.
Trustee's Duty of Impartiality
Trustees have a duty to act impartially towards all beneficiaries. However, this does not mean they must treat every beneficiary equally. The Trusts Act 2019, s 35 clarifies that while a trustee must not be unfairly partial to one beneficiary to the detriment of others, this does not oblige them to make equal distributions. All beneficiaries must be treated in accordance with the terms of the trust deed, which may grant the trustees wide discretion in how they distribute trust funds. The courts have affirmed that trustees are not required to ensure all beneficiaries receive equal amounts from a trust (Kain v Public Trust [2021] NZCA 685; Public Trust v Kain [2021] NZHC 1000). The trustees' primary obligation is to exercise their discretion in a way that is reasonable and considers all relevant factors, as outlined in the trust deed and at law.
Challenging a Trustee's Decision
You can challenge the trustees' decision by applying to the High Court. The Trusts Act 2019, s 126 gives a beneficiary the right to ask the court to review a trustee's decision on the basis that it was not "reasonably open to the trustee in the circumstances".
To succeed, you would need to raise a "genuine and substantial dispute" about the decision (Trusts Act 2019, s 127). The burden would then be on the trustees to demonstrate to the court that their decision was one that a reasonable trustee could have made.
The court will not simply substitute its own judgement for that of the trustees. It will only intervene if the trustees have:
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Our client entered into a service agreement with TechCorp Ltd in March 2023. TechCorp has now terminated the contract early, claiming our client breached a material term. Based on the contract documents in our vault and relevant New Zealand law, what are our client's rights and potential remedies?
Service Agreement — TechCorp Ltd.pdf
Contract dated 15 March 2023, clauses 8.2, 12.4
Email correspondence — termination notice
From: legal@techcorp.co.nz, 22 August 2024
SCC (NZ) Limited v Samsung Electronics New Zealand Limited [2014] NZHC 2692
Wensley Developments The Marina Limited v Lawlor HC Invercargill CIV-2009-425-542, 23 September 2010
Travel Managers Group Limited v 123Kiwi.com Limited (in receivership and in liquidation) (formerly Travel Cafe Limited) [2015] NZHC 2989
1. Right to Cancel for Breach or Repudiation (Contract and Commercial Law Act 2017)
Under the Contract and Commercial Law Act 2017 (CCLA 2017), s 37, a party may cancel a contract if:
- They were induced to enter the contract by a misrepresentation made by the other party.
- A term in the contract is breached, or it is clear that a term will be breached.
For such a breach to give rise to a right to cancel, one of the following conditions must be met:
- The parties expressly or impliedly agreed that the performance of the term is essential to the cancelling party Contract and Commercial Law Act 2017, s 37(2)(a).
- The effect of the misrepresentation or breach is, or will be, to substantially reduce the benefit of the contract to the cancelling party, substantially increase the burden of the cancelling party, or make the benefit or burden substantially different from that contracted for Contract and Commercial Law Act 2017, s 37(2)(b).
The term "material breach" in a contract is generally understood to have the same meaning as a breach giving rise to a right to cancel under the CCLA 2017 (formerly the Contractual Remedies Act 1979) (SCC (NZ) Limited v Samsung Electronics New Zealand Limited [2014] NZHC 2692). The service agreement in your vault (clause 8.2) defines material breach as a failure that "substantially deprives the innocent party of the benefit of the contract." The test for "substantiality" under the CCLA 2017 is a matter of fact, degree, and impression, akin to "significantly" and "considerably" (Tinnock v Birkenhead Heights Ltd [2004] 6 NZCPR 1, Wensley Developments The Marina Limited v Lawlor HC Invercargill CIV-2009-425-542, 23 September 2010).
A party may also cancel a contract if the other party repudiates it by making it clear, through words or conduct, that they do not intend to perform their obligations under the contract Contract and Commercial Law Act 2017, s 36. Repudiation is a "drastic conclusion" requiring an unequivocal intention not to perform the contract (Clode v Sullivan [2016] NZHC 1561). The test for repudiation is objective: would a reasonable person conclude that the party no longer intends to be bound by the contract (Travel Managers Group Limited v 123Kiwi.com Limited (in receivership and in liquidation) (formerly Travel Cafe Limited) [2015] NZHC 2989, NZ Superfood and Company Limited v Ad International Co Limited [2023] NZHC 2191).
2. Effect of Cancellation
Cancellation takes effect when it is made known to the other party, or when the cancelling party shows a clear intention to cancel if communication is not practicable Contract and Commercial Law Act 2017, s 41. Once cancelled, neither party is obliged to perform the contract further Contract and Commercial Law Act 2017, s 42(1).
3. Client's Potential Rights and Remedies
If TechCorp Ltd's termination of the contract was wrongful (i.e., your client did not breach an essential term, the breach was not substantial, or your client did not repudiate the contract, or TechCorp did not follow proper contractual or statutory procedures for cancellation):
- Damages: Your client would likely have a right to claim damages for TechCorp's wrongful termination and breach of contract Contract and Commercial Law Act 2017, s 42(3). The right to recover damages for repudiation or breach is not affected by the cancellation of the contract (Hayman Haulage Limited v Havoc Haulage Limited [2021] NZHC 282). Damages aim to put the innocent party in the position they would have been in had the contract been performed (Wensley Developments The Marina Limited v Lawlor HC Invercargill CIV-2009-425-542, 23 September 2010). This could include lost profits or other losses flowing from the wrongful termination. The law relating to remedies in contracts is recognised as being in a state of development (Accident Rehabilitation and Compensation Insurance Corporation v Kelly [1997] ERNZ 193).
- Restitution: If your client conferred any benefit on TechCorp before the termination, they might also seek restitution for the value of that benefit (Wensley Developments The Marina Limited v Lawlor HC Invercargill CIV-2009-425-542, 23 September 2010).
- Reliance Interest: Compensation for loss due to steps taken in reliance on the contract (Wensley Developments The Marina Limited v Lawlor HC Invercargill CIV-2009-425-542, 23 September 2010).
Key Considerations:
- Contractual Terms: The service agreement (clause 8.2) defines material breach, and clause 12.4 specifies notice requirements before termination. The contract also includes cure rights in clause 12.5, which may supplement or modify the statutory provisions. Based on the contract documents, TechCorp's termination notice dated 22 August 2024 should be reviewed against these contractual requirements.
- Good Faith: In some contexts, a contractual obligation to act in good faith can qualify the exercise of an express contractual right to terminate. Assessment of good faith is based on contemporaneous knowledge (Smith & Davies Limited v Auckland Council [2017] NZHC 999).
- Affirmation: If TechCorp's actions amounted to repudiation, your client had a choice to either accept the repudiation and cancel, or affirm the contract. Affirmation requires a clear choice with full knowledge (Travel Managers Group Limited v 123Kiwi.com Limited (in receivership and in liquidation) (formerly Travel Cafe Limited) [2015] NZHC 2989).
Based on my review of the service agreement in your vault (dated 15 March 2023) and the termination notice from TechCorp (22 August 2024), your client should review whether TechCorp complied with the notice requirements in clause 12.4 and whether the alleged breach meets the material breach definition in clause 8.2 before determining the appropriate course of action.