Barham
[2023] NZHC 2762
•3 October 2023
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2023-441-040
[2023] NZHC 2762
UNDER Parts 3 and 5 of the Charitable Trusts Act 1957, section 133 of the Trust Act 2019 and Part 19 of the High Court Rules 2016 IN THE MATTER OF
Amendment to Trust deed and directions
BETWEEN
MICHAEL DAVID BARHAM, MARCUS OCTAVIUS BOUSFIELD, EDWARD ANTHONY BOSTOCK AND ANNA LEITH APATU AS TRUSTEES OF THE JOAN FERNIE CHARITABLE TRUST BOARD
Plaintiffs
Hearing: 25 September 2023 Appearances:
M J Hammer and L E Robinson for Plaintiffs
Judgment:
3 October 2023
JUDGMENT OF GRICE J
Introduction
[1] The plaintiffs are the trustees of the Joan Fernie Charitable Trust Board (the Trust). They apply by originating application for approval under pts 3 and 5 of the Charitable Trusts 1957 (the CT Act) to ratify an amendment to the trust deed; and for directions concerning the exercise of trustees’ powers under s 133 of the Trusts Act 2019 (the application).
[2]The application is made to regularise:
(a)amendments made to the trust deed in 1977 without a Court order; and
RE BARHAM & ORS [2023] NZHC 2762 [3 October 2023]
(b)the appointment and reappointment of all current and past Trust board members during the period 2007 to 2023 and as a flow on, the validity of the powers exercised by the board members during that time.
[3]The orders sought (as amended on 26 September 2023) are:
(a)Leave to permit the application as it relates to directions under the Trusts Act to be filed by way of originating application;
(b)Directions under r 19.5A of the High Court Rules 2016 that a statement of claim be filed;
(c)Approval to vary the “scheme” / trust deed dated 9 September 1976 (1976 Trust Deed) to the trust deed dated 9 February 1977 (1977 Trust Deed) under ss 33, 35(2) and 53 of the CT Act.
(d)The Court waive compliance with advertisement requirements under ss 36 and 54 of the CT Act. Declarations approving the trustees’ exercise of powers to correct irregularities in the appointments of trustees by implementing the:
(i)Deed of Retirement of Board Members and Appointment of New Board Members dated 23 June 2023;
(ii)Deed of Nomination dated 23 June 2023; and/or
(iii)Deed of Ratification dated 22 June 2023.
(f) Declarations that the past non-compliance with the 1977 Trust Deed does not invalidate the appointments of past and present trustees / Trust board members and their consequent exercises of power.
(g) If a Deed of Nomination, or other form of nomination, is subsequently located the Court's directions remain in force, and no further application to the Court is required.
(h) All reasonable costs and expenses of and incidental to the preparation and perusal, and submission of it to the Attorney-General and to the Court (including a contribution of $750 to the costs of the Attorney-General) and any costs of solicitors acting are to be paid out of the trust fund.
Background
[4] The 1976 Trust was established by deed of trust for charitable purposes made on 9 September 1976 and incorporated on 15 September 1976. However, some five months later, on 9 February 1977 a further trust deed was made for the Trust, the 1977 Trust Deed. This deed did not refer to the 1976 Trust Deed. Since it was made the Trust has regarded the 1977 Trust Deed as the deed governing the Trust.
[5] The 1976 Trust Deed did not include any terms or powers allowing the trustees to vary or replace the trust deed. Accordingly, if the 1977 Trust Deed was intended to amend or replace the 1976 Trust Deed, the trustees were required to seek the Court’s approval for the trust deed’s replacement or amendment by applying the Court in accordance with s 33 of the CT Act. No record of any Court order or application for an amendment to the 1976 Trust Deed has been located.1
[6] The 1977 amendment was not discovered until a legal review undertaken recently. The trustees have been unable to locate any records about why the donor Joan Fernie replaced the 1976 Trust Deed so promptly.
[7]Other errors were also identified during the legal review including:
(a)First, the appointment documentation of trustees/Trust board members in relation to the nomination of the power of appointment.
(b)Secondly, is the overlooking of a clause in the 1977 Trust Deed that required reappointments every four years, which has not occurred. The current trustees have applied to the Court for approval of the scheme to amend the errors.
1 Affidavit of Michael Barham, dated 6 September 2023, at [17].
[8] The originating application procedure is well-suited for the present application. It is noncontentious in nature and has no factual disputes. Accordingly, I grant leave to bring the application by way of originating application.
[9] The events giving rise to the applications before the Court date back nearly 50 years, and the 1977 Trust Deed has been made publicly available online as well as being registered with the Charities Commission without any objections by any party. Therefore, I see no useful purpose be served by advertising in the circumstances and I consider it appropriate to waive the advertising requirements for the proposed scheme under ss 35 and 54 of the CT Act.
[10] The advertisement has been served following the usual procedure on the Attorney-General. The Attorney-General has filed a report noting that the difficulties with the 1977 Trust Deed date back to 9 February 1977.
[11] The donor first transferred farming properties into the Trust in 1979, three years after its incorporation. Ms Fernie died on 19 August 2007 and further assets under her will were vested into the Trust. In total the Trust holds approximately 8,134 hectares of productive farming land (valued at around $118 million) and $700,000 in cash assets. The farm has been built up over the last 15-and-a-half years since Ms Fernie’s death. The profits have been reinvested into productive land assets for farming and proceeds (by grants) have been donated into projects and organisations within the Hawke’s Bay Region.
[12] The Trust is in the process of a modernisation project which will see it redistributing more of its revenue to benefit the community. It was during the review of governance and the modernisation project, that the independent legal review identified the errors which the trustees now seek to correct in this application.
Legal position
[13] The Attorney-General has not objected to the various orders and declarations sought. He is satisfied that the scheme is: a proper one, should carry out the desired purpose or proposal, is not contrary to law or public policy or good morals, and that the scheme can be approved by this Court under pt 3 of the CT Act. He further submits
that every proposed purpose “is charitable” within the meaning of pt 3, can be carried out and the requirements of the scheme up to the giving of the report have been complied with according to pt 3.
[14] The Attorney-General in his report notes that the jurisdiction under s 33 of the CT Act is intended to deal with problems of administration faced by charitable trustees in giving effect to the trustees’ intended purpose. It provides:
[15]Section 33 of the CT Act provides:
In any case where it is made to appear that any property or income is given or held upon trust, or is to be applied, for any charitable purpose, and the administration of the property or income or the carrying out of the trust could be facilitated by extending or varying the powers of the trustees or by prescribing or varying the mode of administering the trust, the powers of the trustees may be extended or varied, and the mode of administering the trust may be prescribed or varied, in the manner and subject to the provisions hereafter contained in this Part:
provided that nothing in this section shall restrict the powers that are or may be conferred on the court or the trustees by or under the Trusts Act 2019 or any other Act or by law.
[16] I am satisfied that the administration of the Trust would be facilitated by approving the 1977 Trust Deed under s 33 of the CT Act. The charitable purposes of the 1976 and 1977 Trust Deeds are broadly similar. The 1976 Trust Deed list 34 charities or charitable organisations and contained a catchall provision of “any other charity or charitable organisation within the definition of ‘charitable purposes’ in Section 38 of the Charitable Trusts Act 1957.
[17] The 1977 Trust Deed does not list any charitable organisations but cl 4 provides for the Trust board to decide what part of the Trust property and the net annual income (or part thereof) shall be applied in New Zealand (or any other part of the world) “for any charitable purpose or purposes”.
[18] The charitable organisations listed in the 1976 Trust Deed remain eligible, although not specified under the 1977 Trust Deed. Application of the funds in the Trust outside New Zealand would need to fall within the definition of “charitable purposes” in cl 32 of the 1977 Trust Deed, which relates to “charitable purposes”
within New Zealand and which should be regarded as charitable by the law of New Zealand under the general law relating to income tax estate duty, gift duty or any other revenue statute for the time being. Unlike 1976 Trust Deed, the 1977 Trust Deed contains a power of amendment under cl 23.
[19] Most of the Trust assets were transferred to the Trust after the 1977 Trust Deed was made. The 1977 Trust Deed allows for the distribution of capital which the 1976 Trust Deed does not.
[20] The Attorney-General considered the possibility that rather than intending to amend the 1976 Trust Deed, the donor intended to establish a second trust. He concludes this is unlikely as the Trust board has not regarded itself as the trustee of two separate trusts.
[21] I am satisfied that the approval of the 1977 Trust Deed as the operative trust deed replacing the 1976 Trust Deed will facilitate the operation of the Trust.
[22] The 1977 Trust Deed vests the power of appointment of trustees to Ms Fernie (or her nominee) or to her executors (on her death). Given Ms Fernie’s death, Ms Fernie’s executors have the power of appointment of trustees.
[23] There is no deed of nomination allowing the continuing trustees on the Trust board to appoint replacement trustees under the 1977 Trust Deed. However, the continued trustees on the board have appointed replacement trustees (listed in the affidavit of Mr Barham in support of the application) by deeds of appointment.
[24] Rather, at the date of Mr Fernie’s death, two of the trustees (who were also her executors) made various appointments set out in the affidavits of Mr Barham and Mr Taylor. However, the deeds of appointment record those two trustees acted in the capacity as continuing trustees (on the Trust board) rather than as executors. In fact, the two trustees retired from the board and therefore did not participate in subsequent appointments.
[25] In addition, the Trust has not complied with cl 20 of the 1977 Trust Deed that requires trustees to retire every four years although they are eligible for reappointment. Again, that requirement was an oversight by the trustees and only identified in the legal review.
[26] The Attorney-General provided his report and did not object to the declarations sought under s 133 of the Trusts Act and under the Court’s inherent jurisdiction to provide for the future appointment and removal of trustees on the Trust board and to remedy errors in past appointments. The Attorney-General comments that the declarations sought are a practical and appropriate solution.
[27] I am also satisfied it is appropriate to make such declarations. The executors of the Trust will confirm they intended to make the trustee appointments and would not have made different decisions had they acted initially as executors rather than as continuing Trust board members. The second and third deeds of appointment were made by one trustee only.
[28] In McAtamney v Allen,2 the High Court discussed appointments by a trustee lacking the power of appointment but made with another trustee who had that power. The Court held that the appointment by the trustee lacking the power was ineffective but did not invalidate appointment by the trustee holding power to appoint. Therefore, by analogy I consider the trustee appointments dated 19 August 2007 and 24 November 2016 that were made by the two executors and another trustee were validly made.
[29] In relation, to the appointments made by Trust board members (other than the two executor members), the Attorney-General indicates he does not oppose a declaration that past non-compliance does not invalidate the appointment of the trustees. The executors both support the appointments made under those deeds of appointment, despite not having made the appointments. I am satisfied a declaration is appropriate that the appointment of new trustees is not invalided based on non- compliance by virtue of not being made by executors of the Trust.
2 McAtamney v Allen [2020] NZHC 1777.
[30] I consider that continuing Trust board members having the power to appoint new trustees (or remove existing trustees) is an appropriate process to address trustee appointments from here on. Appointors other than Ms Fernie’s executors will be needed and it unrealistic that only her executors hold the appointment and removal power in the future. In addition, cl 8 of the original 1976 Trust Deed provided for appointments to be made by the surviving or continuing trustees in the event of Ms Fernie’s death. Appointment by continuing trustees is therefore broadly consistent with Ms Fernie’s original intentions for the Trust.
[31] The approach provided by s 92 of the Trusts Act for appointment and removal trustees is not provided in the 1977 Trust Deed. The difference is that unanimous decision by trustees is required under s 92 whereas the proposal is that a majority may make an appointment or removal. The Attorney-General comments that requiring a majority rather than a unanimous decision will assist in avoiding deadlock of trustees disagreeing on proposed appointments.
[32] Clause 1 of the 1977 Trust Deed provides for the board to comprise not fewer than four members. Clause 11 of the 1977 Trust Deed requires a quorum of two members present in person or by proxy. That means appointment or removal of trustees could be made by a minimum of two trustees (that would be considered a majority) if only two trustees attended that meeting (to meet the quorum requirement). If all four trustees attended a meeting, a majority of three trustees would be required.
[33] The independent review of the 1977 Trust Deed also proposes the removal of cl 20 of the 1977 Trust Deed that provides resignation and the reappointment of the board members every four years. The Attorney-General does not oppose that proposal. Clause 21 provides board members liable to retire are those who have been the longest in office since appointment/last appointment. The Attorney-General points out that cl 21 also requires consideration as it refers to cl 20 but it does not appear to fit with the four yearly retirement of all board members which cl 20 requires.
[34] I am satisfied that it is appropriate to make the orders sought removing cl 20 of the 1977 Trust Deed. This will also assist in cl 21 making sense.
[35] I note the Attorney-General has indicated that in all the circumstances he considers the orders sought are a practical and appropriate solution to provide for future appointments and removal of trustees on the Trust board and to remedy past appointment processes.
[36]Accordingly, I make the orders and declarations more particularly as set out at
[3] above accordingly.
Costs
[37] The plaintiffs seek costs for the making of this application against the Trust fund. The Attorney-General has indicated that costs of $750 are appropriate for the Attorney-General’s report and the plaintiffs agree. The plaintiffs also seek legal fees in relation to the application.
[38] An order for actual and reasonable costs incurred in the making of this application (including legal costs, disbursements and the Attorney-General’s report costs) is appropriate.
[39] I direct that the plaintiffs file a memorandum setting out those costs to be filed within five days of this judgment’s date for approval.
Grice J
Solicitors:
Anderson Lloyd, Queenstown
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