Trustees fail to escape liability on basis of no personal liability, no consideration and not every party signed

In a case heard recently in the High Court at Auckland, the court decided that trustees who had given an indemnity could not escape liability under that indemnity.

The case1 involved a home bond given by NZHB in respect of deposits due under certain agreements for sale and purchase. The trustees signed an indemnity in favour of NZHB, under which they agreed to indemnify NZHB for any losses it incurred in relation to the home bonds.

When NZHB claimed against the trustees personally for amounts of unpaid deposits, the trustees argued that they weren’t liable because:

• as trustees, they were not personally liable;
  
  
• the indemnity wasn’t enforceable because it was not signed by every party to it; and
  
  
• the document was not a deed, so for lack of consideration it was not enforceable.

The court decided that:

• The document was a deed. Justice Baragwanath noted that while calling a document a “deed” is a “powerful pointer”, it is not conclusive.
  
  
• The document did not need to be signed by all of the parties. Justice Baragwanath noted that the law provides that guarantors are only liable under a guarantee if all parties sign because the guarantors only agree to be liable if all of the others are liable. However, express words can refute this general principle. In this case, the deed provided that any purchaser or covenantor who signs the document was bound whether or not any other purchaser or covenantor signed.
  
  
• The trustees were personally liable because the words “as trustee of [ ] Trust” do not automatically mean that the trustee is not personally liable. The liability of a trustee must be clearly limited by express provision in the document.
  
  The basic rules for contracting with trustees were set out in the Spring 2003 issue of Financial Services Quarterly.

1 NZHB Holdings Limited v Bartells & Ors (Baragwanath J, High Court, Auckland 10/06/2004)

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