No need for a statutory definition of trust, says Law Society

28 March 2011

No need for a statutory definition of trust, says Law Society

The New Zealand Law Society is not in favour of a legislative definition of a trust in any new trust legislation.

The Law Society’s position is stated in its submission to the Law Commission on the Review of Trust Law in New Zealand: Introductory Issues Paper. The submission was prepared with assistance from the Trust Law Review Working Group, formed by the Society’s Property and Family Law Sections.

In considering whether “trust” should be defined in new trust legislation, the submission identifies the advantages which would result. These would include assistance with clarifying the type of legal relationship intended to be covered, and providing the public with a better understanding of what a trust is, codifying the common law notion of trust.

Other advantages would be identifying the types of legal relationship which do not constitute a trust for the purposes of the legislation, and assisting with interpreting and administering thousands of trust relationships by providing some clear guidance on what those relationships comprise.

Disadvantages include creating a tension between the purpose and role of the legislation and what have always been private unregulated legal relationships. The submission says a legislative definition might unduly restrict ongoing developments in the common law as to what constitutes a trust for legal purposes.

“It might create difficulties for more specific statutory notions of trust that already appear in other legislation, such as unit trusts and charitable trusts,” the Society says.

A definition might also constrain judges in particular cases from finding the existence or otherwise of a trust.

“The key question is what real purpose will be served by providing a definition,” the submission says.

“There can be no doubt that the concept of a trust is already well understood by lawyers and the business community, and a definition will be of no assistance to them. To the extent that the wider public have difficulties with the notion of a trust, it is difficult to see how a statutory definition will advance their knowledge in any material way.”

The Law Society says it is not persuaded that a statutory definition of a trust is necessary in any proposed new legislation. It says the development of trust law in New Zealand has not been impeded by the absence of an adequate definition. Many other jurisdictions have also not considered a definition desirable, outside certain specific legislative contexts.

“In practice, questions of interpretation can arise at the margin around concepts like the existence of a ‘bare trust’ or ‘constructive trust’. The resolution of such questions is always fact-specific and has not presented material problems for the courts. In most respects it is better to leave the questions open for interpretation on a case-by-case basis.”