New Zealand: The rule against self-dealing for trustees

Dealings in trust property by interested trustees – Fenwick v Naera (SC)
An important principle in the law of trusts is that a trustee must not, with some very limited exceptions, place themselves in a position in which duty and interest conflict. This is known as the rule against self-dealing.

The Supreme Court has recently considered this rule in a decision in the context of ahu whenua trusts established under the Te Ture Whenua Maori Act 1993 (Act). While some aspects of this decision deal with the particular scheme of the Act, the decision also provides a useful illustration of how, in certain contexts, trustee can fall foul of the rule against self-dealing despite having no improper intentions.

The case involved three Maori trusts, including a trust called the Tikitere Trust. The trusts resolved to enter into a joint venture arrangement with each other and with a company owned by one of the trusts. The joint venture related to geothermal power generation and benefits to the trust parties included lease payments for the use of trust land as well as shares and/or royalty options.
As is common in the ahu whenua trust context, some trustees also held beneficial interests in, or links to, the other trust parties. Beneficiaries of the Tikitere Trust brought an action against some of the trustees alleging that their participation in decision making in relation to the proposed joint venture was in breach of the Act and of the common law rule against self-dealing.

The alleged conflicts
Three trustees were alleged to have been in a position of conflict:

  • Mrs Emery was alleged to be conflicted because her husband was a trustee of one of the other trusts involved. The Supreme Court did not consider that this was a conflict as neither she nor her husband had any beneficial interests in any of the trust.
  • Mrs Fenwick, as well as being a trustee of the Tikitere Trust, was a trustee and beneficiary of one of the other trusts (holding around 4.71% of the shares of that trust). The Supreme Court considered that Mrs Fenwick had a conflict between interest and duty and should not have participated in the decision-making.
  • Mr Eru was a trustee of the Tikitere Trust and another of the involved trusts. He also held an interest in the Tikitere Trust of 0.12%, and had a beneficial interest in a trust that held a very small interest in another of the trusts involved. The Supreme Court considered that Mr Eru may have been conflicted and remitted the matter to the Maori Land Court to determine.

The trustees' arguments on appeal
The trustees argued that the Act provided a complete scheme for dealing with trustee participation in decision making and the common law rules were therefore inapplicable. However, the Supreme Court considered that general principles of trust law were applicable in the ahu whenua context. The trustees then sought to narrow the application of the rule against self-dealing by arguing that:

  1. The rule should be confined to purchases only;
  2. A "limited beneficial interest exception" applied; and
  3. The trustees should be excused because they were placed in conflict by the terms of the Trust Deed.

Is rule against self-dealing confined to purchases?
The trustees argued that the rule against self-dealing was only applicable in contexts in which the transaction in question was a purchase. The Court rejected this argument.

The Court said that there are cases in which it had been applied more widely (for instance, loans or leases of trust property to trustees) and such a limitation was not consistent with the language in the Act. Further, there was no principled reason to limit the rule in this way: "at its most basic level, the self-dealing rule is based on the no-conflict rule: having an interest or duty on both sides of a transaction".

Does the "limited beneficial interest exception" apply?

The self-dealing rule is not applied strictly by the courts in circumstances where:

  1. The trustee has a very small minority shareholding in a company involved in the transaction or has only a limited beneficial interest in another trust involved in the transaction and is not in the position of negotiating on both sides of the transaction (i.e. is not a trustee or director of both contracting parties); and
  2. The consideration given for the transaction was adequate.

The rationale behind the exception is that, where the interested is very small, it is unlikely to have influenced the trustee in question. The Court observed, however, that cases applying this exception are hard to find and those that did exist involved specific and not easily generalizable factual circumstances. It also noted that some judges have doubted the existence of the exception entirely.

Here, the Court considered that the exception could not apply to Mrs Fenwick as she was a trustee on both sides of the transaction. This meant she was in the position of negotiating on both sides of the transaction and the rule against self-dealing was intended to prevent this type of conflict. The Court considered that the exception might apply in the case of Mr Eru and remitted this issue to the Maori Land Court for further consideration.

Were the trustees placed in a position of conflict by the terms of the Trust Deed?
Finally, the trustees argued that the conflict could be excused because they were put in the position of conflict of interest and duty either expressly, or by necessary implication by the settlor or the terms of the Trust. Here, there relevant terms were those of the Act, which the Court agreed supported owner control, meaning that trustees would often be in a position of being both a trustee and beneficiary under a Trust.

The Court considered the situation was different, however, when the conflict involved a trustee who had an interest or trusteeship in another trust rather than both in the same trust). There was nothing in the Act mandating cooperation between (as opposed to within) ahu whenua trusts and the Act expressly prohibited conflicted trustees from participating in decision-making. The Court did consider though that there would need to be an assessment of whether there was a "real sensible possibility" of a conflict, which should be assessed in a practical manner.

Guidance for trustees
While these principles are long established, this case does provide useful illustration of trustees' obligations and of possible pitfalls.
Some particular points to bear in mind are:

  1. The court takes a fairly strict approach to determining whether a conflict exists. The test is objective and is designed to avoid the appearance and risk of conflict rather than any assessment of whether the trustee actually acted improperly. This means that a trustee could inadvertently breach the rule against self-dealing without having consciously turned their mind to the possibility of a conflict.
  2. When entering into any type of transaction with a third party (i.e. including loan arrangements, leasing arrangement and other transactions and not limited to purchases) it is good practice for trustees to think carefully about whether they hold any conflicting duties and/or conflicting interests and whether these are authorised by the Trust Deed.
  3. While trustees are usually aware of the obvious examples of self-dealing, such as sale of trust assets to themselves personally, an apparent conflict can sometimes be less obvious. Trustees should be particularly aware of situations in which they are involved in negotiation on both sides of the deal (e.g. trustees of two trusts involved in the transaction, or a trustee of a trust on one side of the transaction and a director of a company on the other side of the transaction), or involved as a trustee on one side of the transaction but with an interest (even if small) in one of the parties involved on the other side of the deal).
  4. Even quite small interests in parties on the other side of the transaction can be problematic for trustees. The "limited beneficial interest exception" is a high threshold to meet, particularly in the case of a major transaction.
  5. A trustee who thinks he or she might be in a position of conflict should disclose the conflict and refrain from participating in decisions relating to the conflict, unless there are very clear terms in the Trust Deed allowing for a trustee to act despite the conflict in question existing. In the absence of authorising terms in a trust deed, it is no answer to say that the transaction was at fair value.
  6. It is common for family trust deeds to include a clause in relation to dealings by "interested" trustees because of the practical reality, which is that in many cases it is both intended and desirable for beneficiaries to also act as trustees in a family trust context. Often, these clauses are drafted very broadly to authorise any and all sorts of potential self-dealing by a trustee. However, trustees should review the Trust Deed carefully to ensure that both the conflict of interest and duty in question is covered and that the particular type of transaction proposed is captured by the authorising clause.
  7. The consequences of breaching the rule against self-dealing are serious. It is likely to form grounds for removal of the trustee in question and it will also mean that the transaction in question is voidable at the insistence of any of the beneficiaries (subject to the interests of any innocent third party).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Duncan Cotterill
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Duncan Cotterill
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions