From time to time we receive questions in respect of the trustee provisions in our home loan/business banking documentation, particularly around the liability of professional trustees and trustee companies. A summary of our position and our responses to frequently asked questions are set out below.
The trustee provisions in our home loan/business banking documentation have been drafted to be commercially reasonable and consistent with the law, taking into account feedback received from a number of solicitors. We will not agree to amendments to the trustee provisions, unless you can show us that we’ve got an aspect of the law wrong or your specific situation is different to an extent that amendment is required. In particular, we will agree to changes to the provisions relating to limited liability trustees only in exceptional circumstances as, in our view, the exceptions to limited liability are very limited, and are within the control of a prudent trustee.
We note that no amendments are to be made to the trustee provisions in our home loan/business banking documentation, and no attempt is to be made to alter the trustee provisions in any other way (for example, purporting to deliver the documents to us subject to any condition), unless we have expressly agreed in writing. We are under no obligation to check that you have complied with this requirement and will not be bound by any such amendment or attempted alteration unless we have expressly agreed in writing. Attempting to make changes without our consent may result in delay to drawdown.
Limited Liability Trustees
Kiwibank’s position in respect of professional trustees and trustee companies is as follows:
- Where a person does not have any interest or right in relation to the assets of the trust (including as a beneficiary) other than as a trustee of the trust, we consider that person to be a limited liability trustee. This is a test which is commonly used in the market, and is a question of fact. In most cases, a professional trustee or trustee company will clearly be a limited liability trustee under our home loan/business banking documentation. If you are concerned about particular circumstances and whether they affect your characterisation as a limited liability trustee (now or in the future) please discuss it with us.
- Subject to narrow exceptions, our home loan/business banking documentation provides that a limited liability trustee’s liability is limited to the assets of the trust.
- The limitation on a limited liability trustee’s liability does not apply where we are not able to recover all amounts owing under the home loan/business banking documentation from the trust assets due to either:
- dishonesty, wilful default or breach by the limited liability trustee in respect of its obligations under the trust or any Kiwibank document; or
- the breach of certain specific warranties or undertakings by that limited liability trustee.
The majority of queries we receive in respect of the limitation on a limited liability trustee’s liability relate to the warranties and undertakings. Specifically:
- limited liability trustees are concerned that the limitation on liability might be at risk by warranting or undertaking to do something that is outside their control or knowledge; and
- why those warranties and undertakings are required from the limited liability trustee.
In relation to the first concern, we note that a number of the warranties and undertakings given by a limited liability trustee under our home loan/business banking documentation are limited to things within that trustee’s awareness after making due enquiry. So, to the extent that these warranties or undertakings are breached by another trustee and the limited liability trustee is not aware of that breach, the limited liability trustee will not be personally liable for any loss we suffer as a result of that breach by the other trustee. If you are aware of any breach of warranty or undertaking, we would expect you to let us know.
Where we have not specifically limited a warranty or undertaking given by a limited liability trustee to matters within the trustee’s awareness, we believe that the matter being warranted or undertaken is something that a prudent limited liability trustee should know or have control over when asking Kiwibank to accept a material financial exposure to the trust.
In relation to the second concern, namely why we require those warranties and undertakings in the first place, please see our responses to the frequently asked questions set out below. We also set out why Kiwibank does not allow an independent trustee to amend Kiwibank’s documents by stamping a professional trustee stamp (or similar) on the documents or limit their liability in any other way.