“Put Up or Shut Up” – A Valuable Trustee Tool

Being a trustee is an onerous duty, particularly when someone is alleging they have a claim against you personally as a trustee or that they have a claim against the property of the trust/estate you are administering.

As a trustee, if you reject the claim, what can you do?  If the claim is not pursued in any formal way, this unresolved claim can affect the administration of the trust/estate and place you at risk if you proceed.

Section 135 of the Trusts Act 2019, formerly section 75 of the Trustee Act 1956, provides an effective, but not often utilised, solution – it enables you to require the person making the allegation to “put up or shut up”.

The “Claim” and Associated Risk

If there is an unresolved claim against you personally as a trustee, or against the property of the trust/estate that you administer, choosing to proceed to administer/distribute the trust/estate property could have significant ramifications.

This is particularly so if the claim is eventually brought before the High Court and the property in question has been distributed or the trust/estate wound up:

• You could be held personally liable;
• You could find yourself in the position of having to defend against a High Court proceeding with no trust property to indemnify yourself from if you are successful.

To protect yourself once a claim has been made the process under section 135 of the Trusts Act 2019 should be initiated.

The Notice

The first step is to serve a notice on the person making the claim.

The notice must be served in accordance with the High Court Rules 2016 and set out, pursuant to section 135 of the Trusts Act 2019:

• The general nature of the claim as you understand it to be; and
• That if they do not commence legal proceedings within 90 days of receiving the notice, the High Court may bar their claim or authorise you to administer the trust/estate property without regard to their claim.

The effect of the notice is that time begins ticking.  The person making the claim has 90 days after being served with the notice to commence a proceeding in the High Court to enforce their claim – case law refers to this as requiring them to “put up or shut up”.

The Application

If proceedings have not been commenced by the expiry of the 90-day period then you can make an application to the High Court to bar the claim.

As part of the application you can seek that the costs of the application are to be paid by the trust, if appropriate, or are to be paid by the person making the claim.

High Court Approach

The High Court’s approach to your application will in part be dependent on whether the person making the claim takes any steps following receipt of your application.

If they do nothing, then the High Court will proceed to make orders on your application, after following a particular process under the High Court Rules 2016 referred to as a formal proof hearing.  If the High Court considers your application has merit, then it may bar the claim or authorise you to administer the trust/estate property without regard to the claim.

If the person making the claim does take steps, then case law, under section 75 of the former Trustee Act 1956 (such as Poulter v Poulter [2020] NZHC 3095), sets out various principles the High Court will apply, including:

There is no requirement for the High Court to undertake a substantive assessment of the merits of the claim, however whether the claim has any merit may be taken into account when considering if it should be barred;

• A lack of action both before and after the notice being served will count against the person making the claim;
• An explanation will be required as to why no steps were taken to initiate proceedings from the time the notice was served;
• Evidence that a claim may not be progressed with all due diligence will count against the person making the claim;
• Even where the claim is meritorious, and there is an explanation for the failure to initiate proceedings, the High Court would only extend the time for bringing a claim on conditions requiring proceedings to be initiated in a specified period of time, failing which it would be barred.

What the High Court will ensure is that the claim is either brought to a head within a reasonable time or is put to rest.

Conclusion

Unresolved claims against a trust/estate can have serious implications if, as a trustee, you proceed to administer a trust/estate.

Requiring the person making the claim to “put up or shut up” is a valuable tool which can be utilised to safeguard yourself.

The experienced team at McCaw Lewis can help you navigate the legal aspects of the process required under section 135 of the Trusts Act 2019 and the High Court Rules 2016 or answer any questions you may have.

Zane is an Associate in our Disputes Resolution Team and can be contacted on 07 958 7431.