A recent decision of the High Court has identified a little-known risk for professional trustees. Trustees and their insurers will be well advised to consider the activities of the underlying trusts as a result of this judgment. 

Most professional or independent trustees accept appointments to trusts that exist to hold and administer portfolios of assets. These trusts do not operate businesses directly, but hold shares in companies that operate businesses, or hold other assets such as shares or real property. The primary work of the trustees of these investment trusts is to ensure that the assets are invested and managed in the best interests of beneficiaries. 

Some trusts, however, are so-called ‘trading trusts’ which operate businesses directly. Where this is the case, the trustees undertake wider obligations than trustees of investment trusts, as they are more directly responsible for the activities of the businesses. 

Worksafe v RH & Jury Trust 

The risks to which trustees of trading trusts are exposed were recently illustrated by the decision of the High Court in Worksafe v RH & Jury Trust, released in late December last year. The case involved a tragic incident in which a child was fatally injured after his clothing became entangled in a piece of farm machinery. The farm was owned by the trustees of the RH & Jury Trust, and farming operations were carried out in the trust’s name. One of the trustees was a professional trustee firm, Perpetual Guardian. 

Worksafe, having investigated the tragedy, charged both the Trust and the individual trustees with health and safety offences under sections 37(1), 48(1), and 48(2)(c) of the Health and Safety at Work Act (Act). In the initial proceedings in the District Court, the Judge dismissed the charges, ruling that a Trust was not a ‘person’ within the context of the Act and that the trustees could not be charged as a single “person in charge of a business or undertaking” or PCBU. Worksafe appealed this finding to the High Court, having taken the view that the relevant failings were governance deficiencies that sat with the Trust rather than with the individual trustees. The High Court confirmed that the Trust was not a “person” and could not therefore be charged, but found that, contrary to the decision of the District Court, the individual trustees as a collective were a “body of persons…unincorporate” and were therefore a “person” for the purposes of the Act and could be charged as such.

The effect of this decision was that trustees of a trading trust could be charged jointly as a PCBU and thereby held liable for fines and reparations for workplace accidents. The Court held that a breach would be the trustees’ collective responsibility so that criminal liability would be apportioned jointly to each of them. This is a significant concern to professional trustees who are not well placed to monitor health and safety compliance within businesses. 

Fortunately for the trustees, the High Court also held that they were not barred from claiming upon their trustees’ indemnity from the trust assets for fines imposed upon them. They were not affected by the statutory prohibition upon indemnities for fines imposed under the Act, in section 29 of the Act. This was because the prohibition applies only to indemnities given by a “person”, and a trust has no separate legal existence and is not therefore a “person” for the purposes of the Act. The Court observed, however, that whether a trustee will be indemnified will depend on the specific facts, the trust deed and the general law of trustee indemnity.

What this means for trustees and insurers 

This decision may have far-reaching implications for trustees of trusts that operate businesses, particularly in sectors where health and safety risks are significant. It confirms that businesses cannot avoid their health and safety liabilities by structuring their operations to be run through trusts that have no separate legal existence from their trustees.

Professional trustees may wish to consider carefully whether they wish to become exposed to the obligations and potential liabilities that accrue to those who operate businesses essentially in their own names, albeit with recourse to the trust assets. Some professional trustees may prefer not to accept appointment to trading trusts. 
This decision also carries implications for trustees’ insurers. Insurers may wish to consider whether they request more detailed information from trustees who seek trustees’ insurance or other liability insurance as to the nature of the trusts to which they are appointed. It should also be noted that the decision also confirmed that trustees face a maximum fine of $1.5 million, which is much larger than the maximum fines available for individuals ($150,000 for persons who are not PCBUs and $300,000 for PCBUs). 

The High Court observed that one of the purposes of the Act is to secure compliance with it through effective enforcement. The Judge accepted that, as a matter of policy, trusts should be capable of being prosecuted as they are commonly used to run businesses and that prosecuting trusts would reflect the collective nature of trustees’ decision-making. While His Honour considered that this argument had merit, he noted that it would need to accord with the text of the Act, and it did not. 

This decision paves the way for potential liabilities and resulting liability insurance claims that were previously not considered. As a result, it may be necessary for trustees and their insurers to consider the nature of the trusts of which they are trustees and to review and consider insurance policies to align with the implications of this case. Trustees of trading trusts should be fully aware of their responsibilities and the potential liabilities that could arise.