Trustee discretion after Perpetual Trust Ltd v Cooke: what the Court of Appeal expects of a professional trustee
The decision
The Court of Appeal has confirmed that s 29 of the Trusts Act 2019 does not let a court review the merits of a trustee’s discretionary decision. In Perpetual Trust Ltd v Cooke, the Court held that s 29 governs the manner in which a trustee gives effect to a decision, not whether the decision was the right one.1 This is the first time an appellate court has addressed how the general duty of care sits with the principle of non-intervention.
The trustee won on every issue concerning one estate property and lost on most issues concerning another. The difference had nothing to do with the quality of the outcomes it achieved. It turned on whether the trustee had asked itself the right questions, and on whether it could show that it had.
What happened
Naomai Cooke died on 30 March 2017. Her will required a property at Orewa to be sold, and the proceeds divided between her two children, Anne and Brian. It gave Mr Cooke a life interest in a property at Wellsford on conditions requiring him to pay the rates, the insurance premiums, and the other outgoings, and to keep the home in the condition it was in at his mother’s death. His daughters were the final beneficiaries.2
Mr Cooke moved into Orewa and refused to leave. In 2019, the High Court removed both siblings from office and appointed an independent corporate trustee, which became Perpetual Trust Ltd. Perpetual had Orewa tested for methamphetamine contamination, decontaminated it, and sold it privately for $1,027,300. It later concluded that Mr Cooke was breaching the conditions of his life tenancy, evicted him from Wellsford, and resolved to sell that property as well.3
Perpetual Guardian applied for directions under s 133 of the Trusts Act. Mr Cooke opposed the application and counterclaimed for breach of trust. Powell J found largely for him, calling the sales process “woeful” and holding that the methamphetamine testing was undertaken on “the flimsiest of pretences”.4 No damages followed, because Mr Cooke proved no loss. The sting lay in the indemnity. Most of the trustee’s costs were held not to have been reasonably incurred, so it could not recover them.
Section 29 is not a back door merits review
Section 29 requires a trustee administering a trust to exercise the care and skill that is reasonable in the circumstances. Framed in the language of reasonableness, it carried an obvious risk. A court might read it as authorising review of whether the decision itself was reasonable. That is close to how the High Court approached the case.
The Court of Appeal shut that door. Section 29 is not a vehicle for undertaking a back door merits review of discretionary trustee decisions. It addresses how trustee powers and discretions are exercised. It does not bear on whether a trustee chooses to exercise a discretion. Once the trustee decides to exercise a power, s 29 directs the manner of its exercise.5
The four established grounds of intervention survive. A court will interfere only where the trustee acted outside its powers or misinterpreted the deed, acted in bad faith or for an improper motive, engaged in inadequate deliberation, or reached a decision that is perverse, capricious, or irrational. The statutory test in s 126, that the decision was not reasonably open to the trustee, was intended to capture those grounds rather than to replace them.6
Why the trustee won on Orewa
The High Court had held that testing and decontaminating Orewa breached s 29. The Court of Appeal held that this was a full merits review conducted under the wrong standard, and looked at the question again through the lens of inadequate deliberation.7
Two findings matter to trustees. The first is that a trustee who takes advice from an apparently competent professional adviser and follows it will not ordinarily be criticised for inadequate deliberation. Perpetual’s methamphetamine testing contractor advised that NZS 8510:2017 remained the best practice guide, and based its recommendations on that Standard. The High Court treated reliance on the Standard as flawed, because the 2018 report of the Prime Minister’s Chief Science Advisor had recommended a different measure.8
The Court of Appeal disagreed. Faced with a conflict between a current standard promulgated by the national standards body and an advisory report, it was open to the trustee to adopt the more conservative view its own expert recommended. The Court recorded that the higher level acquired legal recognition only in 2026.9 In my view this is the most useful passage in the judgment for trustees in practice. The High Court had in substance required the trustee to go behind a current New Zealand Standard and to weigh published criticism of it. That asks a great deal of a trustee acting in real time on expert advice.
The second finding concerns the method of sale. Sections 14(6), 16, and 28 of the Trustee Act 1956, which applied at the time, together created what the Court called a statutory safe harbour. A trustee who obtains a registered valuation and sells at or above the valued figure is not in breach by reason only of an alleged inadequacy in price. There is no obligation to run a tender or an open market campaign to obtain the best price.10
Perpetual received an unsolicited offer of $1,050,000, obtained a registered valuation of $1,025,000 days later, and settled at $1,027,300 after a building inspection. The valuer had tentatively suggested auction or tender, but warned of severe market disruption from the COVID pandemic. The Court held the private sale was reasonably open. The valuer did not know of the offer on the table, only the trustee had the full picture, and a private sale saved agency commission. In a volatile market there were real risks in letting an above-valuation offer go.11 While those provisions from the Trustee Act 1956 are now repealed, the position under the Trusts Act is likely unchanged.
Why the trustee lost on Wellsford
The eviction produced the opposite result, and on the same ground. The decision was not outside power, was not made in bad faith, and was not irrational. The deliberation was inadequate.12
The critical omission was proper consideration of the settlor’s intention and the purpose of the trust. Perpetual had not properly turned its mind to either, because it believed its discretion was entirely unfettered. A life interest coupled with a gift over to Mr Cooke’s daughters made obvious sense as a way of housing a son with a criminal and drug history while preserving the capital for his children. Failing to consider that will generally amount to a breach of the duty of proper consideration, and it was enough on its own to vitiate the decision.13
There was a second omission. The trustee had considered a deed of family arrangement, but had ignored the obvious alternative of working with Mr Cooke to fix the rates arrears and the insurance difficulty before resorting to eviction.14
The thread running through both properties
The practical lesson is about responsiveness. Reading the two judgments together, the trustee’s difficulties in the High Court had less to do with the decisions it made than with how slowly and how sparingly it explained them.
Three examples make the point. A client manager met Mr Cooke on 19 June 2020 without telling him that a conditional agreement had already been signed. He was not told the agreement had gone unconditional until 25 July 2020. No rates invoice was sent to him until after that date, and the trustee later relied on his arrears to justify eviction.15 On insurance, the trustee never asked Mr Cooke to sign the insurer’s declaration, as it assumed he would refuse.16
The Court of Appeal held that the meeting on 19 June 2020 fell short of the trustee’s own standards without amounting to a breach of trust. By the time of the High Court hearing, the Judge recorded that insufficient information had been provided about the administration of the estate, and the material subsequently filed ran to a further 1,170 pages.17
Mr Cooke’s history is relevant here. In January 2006, a newspaper reported that he had been jailed for 10 months for possessing a pipe bomb, detonator cord, an axe, and methamphetamine and a glass pipe. He threatened to smash the first client manager’s head in, and threatened to set his dog on a contractor engaged to inspect the property. The Court of Appeal treated his history as a relevant consideration the trustee was entitled to weigh, found that his refusal to allow a property inspection was unreasonable, and concluded that he was responsible for the Orewa methamphetamine contamination.18 None of that excused the trustee from engaging with him. A difficult beneficiary is a reason to document engagement more carefully, not less.
Proportionality is the last piece of context, and may explain some of the reception the trustee received in the High Court. Orewa, the estate’s principal asset, sold for $1,027,300. By June 2023, Perpetual sought to attribute $337,611.56 to Mr Cooke personally, made up of $91,236.11 in abnormal administration costs and $244,152.88 in legal costs.19 A trustee who arrives in court seeking to charge a beneficiary a sum of that order against an estate of that size probably starts on the back foot, whatever the merits of the underlying decisions.
The indemnity was the real contest
Because no damages were awarded, the money was in the indemnity. A trustee is entitled to be indemnified out of the trust property for costs and expenses properly and reasonably incurred, under s 38(2) of the Trustee Act 1956 and s 81(2) of the Trusts Act 2019. A court examines both the amount and the decision that generated it. Where a beneficiary’s conduct generated particular costs, they may be charged to that beneficiary’s share.20
The orders made track the substantive outcome. All reasonable Orewa costs were recoverable, including legal costs on an indemnity basis, pro-rated to the time spent on Orewa issues, and the methamphetamine and occupancy costs fall on Mr Cooke’s share. The Wellsford eviction costs and the associated legal fees remained with the trustee. For the appeal, the Court split the two properties at 50 per cent each.21
What trustees should do now
record the purpose of the power before exercising it. Identify the settlor’s intention, and record that you have done so;
abandon the language of unfettered discretion. It is not a defence, and relying on it may prevent you from arguing later that relevant considerations were in fact weighed;
take competent advice and follow it. That is the strongest protection against a challenge for inadequate deliberation;
consider and record the alternatives before terminating a beneficiary’s interest, or selling an asset, and give the beneficiary a documented chance to cure the default;
obtaining a registered valuation before selling is a practical shield;
answer beneficiaries promptly, and tell them what you have done when you have done it, even where you owe them no legal duty to do so; and
watch the ratio of costs to estate value from the outset, and keep contemporaneous records attributing cost to the beneficiary who caused it.
Disclosure
I was lead counsel for the appellant in the Court of Appeal. The views expressed are my own and are not legal advice.