RH & JY Trust, Brown and Perpetual Trust v WorkSafe
Trust structures are common across New Zealand businesses, particularly in sectors such as agriculture, construction, property and family-owned enterprises. Yet a fundamental question has remained unresolved under the Health and Safety at Work Act 2015 (HSWA): when a trust operates a business and a serious incident occurs, who can WorkSafe prosecute?
The answer carries significant consequences. It affects who may be held accountable for health and safety failures, whether trustees face personal exposure to penalties, and the maximum fines available to the courts. It also raises a broader tension between traditional principles of trust law and the policy objectives underpinning New Zealand’s health and safety regime.
The issue came into focus following a tragic workplace fatality on a farm owned and operated by the RH & JY Trust. What followed was a series of decisions in the District Court, High Court and Court of Appeal, each taking a different approach to the question of whether a trust can itself be prosecuted as a PCBU.
The matter is now before the Supreme Court, which provides an opportunity to provide much-needed clarity on how trusts fit within New Zealand’s workplace health and safety framework.
What happened?
The boy, who was a grandchild of an employee of a sharemilker working on the farm, unfortunately became caught on a piece of machinery and was pulled in, sustaining fatal injuries as a result.
The farm on which the incident occurred was owned and operated by a trust, the RH & JY Trust (the Trust).
WorkSafe brought criminal charges under HSWA against the sharemilker, the Trust itself, and in an alternative to the Trust, against the trustees personally.
District Court ruling
The trustees challenged the validity of the prosecution against the Trust itself. They argued that a trust is not a legal person. Rather, it is a legal relationship involving obligations held and administered by trustees. As trusts do not have separate legal personality, the trustees submitted that only individuals could be prosecuted.
The District Court accepted this argument. It held that a trust is not a “person” and therefore could not be held liable for the acts or omissions of its trustees.
Appeal to the High Court
WorkSafe then successfully challenged this decision to the High Court, which found that while the Trust could be charged under HSWA, the correct approach was to name the trustees of the Trust as the defendants.
The High Court came to this conclusion on the basis that section 17(1)(b) of HSWA sets out a range of express exceptions to the definition of PCBU, such as a volunteer association. However, trusts are not included in this exception.
The High Court considered that given the widespread and well-known use of trusts in business in New Zealand, it could be expected that if Parliament had intended to exclude trusts from the definition of a PCBU, this would be expressly stated in HSWA.
Appeal to the Court of Appeal
In the Court of Appeal, the Trust and trustees argued that a trust is not a legal person, but rather a set of obligations held by the trustees. Given that the trust is not a legally recognised person, the trustees and Trust argued that criminal liability was essentially irreconcilable with the way that trusts operate, as criminal liability attaches to an individual person.
The Court of Appeal disagreed with the Trust and trustees, finding that when a trust exists to make decisions on a collective basis, it is more appropriate for the trust to be the defendant, not each individual trustee.
Penalty considerations
One of the key reasons for this was the difference in maximum penalties available to the court when prosecuting a natural person versus a body corporate under HSWA.
Under HSWA, bodies corporate are subject to a significantly higher maximum penalty than natural persons, where a breach of duty is established.
The Court found that it is contrary to Parliament’s intent to conclude that the maximum penalty under section 48(2)(c) of the Act ($1.5 million for a breach of primary duty) is not available when the collective decision-making body is a trust rather than a company, partnership or similar body.
Indemnity issues
The Court of Appeal also examined the interaction between trust law and section 29 of HSWA.
Section 29 of HSWA prohibits insurance or indemnification for fines imposed under HSWA. Ordinarily, trustees are entitled to be indemnified from trust assets for liabilities properly incurred while performing their duties.
The Court considered, however, that this traditional trust law right would conflict with section 29 where a HSWA fine is involved. As a result, if trustees were prosecuted in their individual capacity as trustees and fined, they could not rely on trust assets to meet those penalties.
The Court viewed this outcome as inconsistent with established trust law principles and as supporting the conclusion that the trust itself should be treated as the defendant.
“ The Court of Appeal disagreed with the Trust and trustees, finding that when a trust exists to make decisions on a collective basis, it is more appropriate for the trust to be the defendant, not each individual trustee.”
Enforcement – against who?
Another argument raised by the Trust and trustees was practical enforceability. If a trust is not recognised as a separate legal person, how can a fine against the trust be enforced? Similarly, who receives a conviction for the offence?
The Court was not persuaded by this concern. It held that enforcement could occur through the trustees acting as representatives of the trust. In other words, it found that the law of enforcement could operate in the ordinary way notwithstanding the Trust’s legal status.
Who should be the defendant then?
The final point for the Court of Appeal to consider was whether the Trust, or alternatively, the trustees collectively, were the correct defendant in the proceedings.
The Court considered that once it is recognised that it is the body of persons acting collectively is the person (or the PCBU under the HSWA), the trustees could be named in their capacity as trustees of the trust acting collectively, or the trust itself could be named.
However, importantly, if trustees are named to identify the trust, the trustees are not defendants in their individual capacity.
Justice Whata’s dissenting judgment
A dissenting judgment was delivered by Justice Whata, who took the distinct view that a trust cannot be a person; it is an equitable obligation undertaken by the trustees.
His Honour also reiterated that trustees are entitled to be indemnified for expenses paid or liability incurred while discharging, reasonably, trustee responsibilities.
His Honour highlighted that “trusts” do not carry out business as a person or body of persons; rather, individual trustees, and only individual trustees “conduct” business using trust assets. Further, as a trust or the body of persons cannot include liabilities as separate entities, they cannot and do not conduct business.
Justice Whata also acknowledged the issue of indemnity, highlighting the established principle of trust law that a trustee is indemnified by trust assets for liabilities incurred while acting as a trustee.
His Honour did not consider that this principle conflicted with section 29 of the Act – highlighting that section 29 only prevents indemnification of the fine “by another person”. Indemnification of a fine out of trust assets is not the same as this: a trust is not a person.
Justice Whata’s overall position was that WorkSafe may prosecute the defendant as “trustee” with payment of the fine out of the assets of the trust.
His Honour considered that this approach fit better with the fundamental principles of criminal and sentencing law, attaching to individual responsibility and individual culpability. This approach also allows fines to be imposed proportionately, depending on the level of culpability for each of the trustees.
Supreme Court decision
The Trust and trustees have appealed the matter to the Supreme Court.
With the District and appellate courts all having reached somewhat different conclusions on the issue, it remains to be seen whether the Supreme Court will favour an approach that fits the regime of criminal procedure in New Zealand, or an approach that treats trusts as PCBUs and affords the regulator the benefit of a significantly higher penalty.
The Supreme Court’s decision will be worth watching closely.
It will provide important, definitive guidance on who WorkSafe can prosecute when a trust operates a business, whether trustees face personal exposure to health and safety fines, the availability of trust assets to cover penalties, and how the HSWA penalty framework applies to trust operated businesses.
If you have any questions, please contact a member of our national health and safety team at Duncan Cotterill.
Special thanks to Partner Rob Coltman and Associate Olivia Skelton for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
