Argus v Barber

[2013] NZHC 3010

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-004394 [2013] NZHC 3010

UNDER  section 64A of the Trustee Act 1956

AND UNDER                   Part 19 of the High Court Rules

BETWEEN  VASILIKI KOULA ARGUS, Trustee of

Sydney, Australia and

AND  PAUL FRANKLIN BARBER, retired

District Court Judge of Wellington

On the papers

Judgment:                13 November 2013

JUDGMENT OF GILBERT J

This judgment was delivered by me on 13November 2013 at 4.30 pm

Pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:………………

In the matter of an application under s 64A of the Trustee Act 1956 between Argus & Anor

[2013] NZHC 3010 [13 November 2013]

Introduction

[1]      The trustees of the Mitika Trust apply for an order pursuant to s 64A of the Trustee Act 1956 approving variations to the Trust Deed on behalf of the infant, unborn and unascertained beneficiaries.

Proposed variations

[2]      The most significant variation sought is to extend the current distribution date of 12 July 2014.  The trustees seek this variation because they have received advice from Deloitte that any distribution now made from the Trust may attract tax at the penal rate of 45 per cent.   In Deloitte’s view, this is the result of an unintended legislative change when “qualifying trusts” under the Income Tax Act 1994 were replaced with “complying trusts” under the Income Tax Act 2007.  Deloitte considers that although the Trust met the definition of a “qualifying trust” under the 1994 Act, it may not meet the definition of a “complying trust” under the new Act because of minor changes in the wording of the definition.  Deloitte has sought to clarify this issue which might require legislative change to resolve.  The trustees therefore seek to amend the distribution date to 29 June 2045 or such earlier date as they may appoint in their absolute discretion.

[3]      The other proposed variations are less significant.  The first is to amend the current requirement that any unallocated or undistributed income in each year must be paid to Mrs Argus, the first named applicant, or her issue if she is not then living. Mrs Argus, who is now aged 65, is in a comfortable financial position and does not want  the  trustees  to  be  obliged  to  pay  this  income  to  her.    Accordingly,  an amendment is sought enabling Trust income in any particular year to be added to the capital of the Trust rather than being distributed.

[4]      Mrs Argus is currently a fixed beneficiary as to capital, contingent only on her being alive on the distribution date.   She would prefer to be a discretionary beneficiary as to capital save that if the trustees do not distribute the capital on the distribution date then it must pass to her if she is alive or, if not, to her issue.  The second variation is sought to accommodate her wish.

[5]      The  third  variation  is  to  confer  on  the  trustees  a  specific  power  of advancement of capital so that they do not have to rely solely on the statutory power in this respect.

[6]      The fourth variation concerns the power to appoint and remove trustees.  The proposal is that Mrs Argus will have these powers during her lifetime but that she may nominate someone else to hold and exercise these powers in her place.  In the event of Mrs Argus’ death or mental incapacity, the appointment and removal powers would pass to her husband, Angelos Argus.   In the event of his death or mental incapacity, these powers would then pass to their son, George Argus.

[7]      The last variation is to remove the requirement for the Trust’s accounts to be audited every six months following the death of the last surviving trustee named in the Deed.  The trustees consider that this is an unnecessary and unwarranted expense that the Trust should not have to incur.

Approach to the application

[8]      The  proper  approach  in  dealing  with  applications  under  s  64A  was summarised by French J in McKnight v Craig.1 The Court’s discretion is exercised in the interests of those who are unable to give consent themselves.  The Court should therefore consider whether such persons would have given their approval if they were of full capacity and properly advised and will not approve an arrangement that is to their detriment.  The Court will not lightly approve variations that conflict with

the intentions of the settlor but will consider Trust provisions afresh if unforeseen circumstances have arisen.

Should approval be given?

[9]      The current beneficiaries are Mrs Argus, her only child, George, who is now aged 31, his wife Chrystal, and their newborn son, Angelo.   Future unascertained beneficiaries would include any future children, grandchildren or remoter issue and

their spouses.

1 McKnight v Craig [2010] 3 NZLR 860 (HC).

[10]     The  adult  beneficiaries,  George  and  Chrystal,  consent  to  the  proposed variations, having received advice on the effect of these.

[11]     The current trustees, Mrs Argus and Mr Barber, who is a retired District Court Judge, consider that the proposed variations are in the best interests of the existing and any future beneficiaries.

[12]     I am satisfied that the proposed variations are in the best interests of Angelo and any future beneficiaries.   Plainly, it is not in the interests of any of the beneficiaries for the trustees to be forced to make distributions of trustee income that will be subject to tax at the penal rate of 45 per cent.  The beneficiaries’ interests are best served by deferring the distribution date until this issue can be clarified.  This could take some time, particularly if an amendment to the legislation is required.

[13]     I am satisfied that the other proposed variations also benefit the beneficiaries on whose behalf the Court’s approval is sought.  The variation permitting trustees to add income to the capital of the Trust, rather than distributing it to Mrs Argus, can only disadvantage her to the benefit of the other beneficiaries.  The same applies to the proposed variation enabling trustees to treat Mrs Argus as a discretionary beneficiary as to capital on the date of distribution.

[14]   The proposed variation conferring on the trustees an express power of advancement of capital, freed of the limitations contained in s 41 of the Trustee Act, also appears to be in the interests of the beneficiaries, including those on whose behalf the Court’s approval is sought.

[15]     It is desirable, particularly if the distribution date is extended, that the power of appointment and removal of trustees meets the present and future needs of the Trust. This is in the interests of all beneficiaries, present and future.

[16]     The  current  provision  in  the  Trust  Deed  requiring  six  monthly  audits following the death of the last surviving trustee named in the Trust Deed is unnecessary and will impose a financial burden on the Trust to the detriment of the

beneficiaries.  If the distribution date is extended, it is desirable that this provision be amended.

[17]     In all of the circumstances, I am satisfied that the Court should approve the proposed variations in the exercise of its discretion under s 64A of the Act.

Result

[18]     The trustees’ application to vary the terms of the Trust Deed in the manner

recorded in the first schedule to their application dated 4 October 2013 is granted.

[19]     The costs of this proceeding are to be paid out of the assets of the Trust.

M A Gilbert J