Brown v Hallet

[2016] NZHC 2861

IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY

CIV-2016-435-16 [2016] NZHC 2861

IN THE MATTER

of Section 64A Trustee Act 1956

BETWEEN

THOMAS DAVID MALCOLM BROWN, DONALD GRAHAM DOBSON AND DAVID OʼBRIEN BAKER

Applicants

AND

ROSEMARY SHONA HALLET, VICKY SHONA ORDISH AND ALISTER DOUGLAS MALCOLM BROWN Respondents

On the papers
Counsel:	I R Millard QC for Applicants R L Roff for Minor and Unborn Grandchildren
Judgment:	29 November 2016

JUDGMENT OF CLIFFORD J

[1]      This is an application under s 64A of the Trustee Act 1956 (the Act).  The applicants,  the  trustees  of  the Waihi  Station Trust  (the Trust),  seek  the  Court’s approval on behalf of a number of minor beneficiaries and potential (unborn) beneficiaries to changes to the trust deed.  Those changes would regularise past, and provide for future, payments of income and, limited, capital to their grandfather, the original settlor of the Trust.

Law

[2]      Section 64A of the Act gives the Court power to approve, on behalf of infants and unborn persons having direct or indirect vestable contingent interests in a trust,

BROWN v HALLET [2016] NZHC 2861 [29 November 2016]

variations to the trust and enlargement of the powers of the trustees.  That power is, however, subject to the following limitation:1

… provided that … the Court shall not approve an arrangement on behalf of any  person  if  the  arrangement  is  to  his  detriment;  and  in  determining whether any such arrangement is to the detriment of any person the Court may  have  regard  to  all  benefits  which  may  accrue  to  him  directly  or indirectly in consequence of the arrangement, including the welfare and honour of the family to which he belongs …

[3]      The  ambit  of  the  Court’s  power  under  s  64A has  been  summarised  by

Winkelmann J in Ewington v Schulz in the following terms:2

(a)       A trust can be varied with the consent of all beneficiaries, actual or contingent.

…

(c)       The court’s discretion is very wide and is to be exercised in the interests of the person on whose behalf it is asked to consent.  The court should ask if that person would have approved the variation if of full capacity and properly advised.

(d)       When   considering   the   arrangement,   the   court   must   start   by recognising that under the rule in Saunders v Vautier, beneficiaries who are sui juris and together absolutely entitled to the trust property have the right to defeat the intention of the settlor by varying or revoking the trust as they see fit.

(e)       The court may not consent to an arrangement that is detrimental to the person not legally able to consent, that is to say in this case the minor, the contingent beneficiaries or the potential unborn beneficiaries.

(f)       But the court is to take a wide approach to benefits and detriments in arrangements.  It is not simply a matter of actuarial calculation.  The arrangements must be considered as a whole.  Indirect and intangible benefits  and  detriments  are  relevant,  including  the  welfare  and honour of the family.

(g)       The court approaches the arrangement in a practical and businesslike way, including assessment of the total amounts of the advantages and the various parties’ bargaining strength.

1      Trustee Act 1956, s 64A(1).

2      Ewington v Shutz High Court, Auckland CIV-2008-404-6596, 30 March 2009 at [20], citations omitted.

Proposed variation

[4]      The Trust was established in 1966 as an estate and income tax mitigation arrangement.  Thomas David Malcolm Brown (Malcolm) was the settlor.  Malcolm sold the “family farm” to the Trust at its then valuation, and gifted the purchase price back  to  the Trust  over  time.   As  required  for  the  arrangement  to  be  effective, Malcolm was not a beneficiary.  The beneficiaries were his then wife (Shona), their three children (Rosemary, Vicky and Alister) and his grandchildren.

[5]      Malcolm has a total of seven grandchildren: five are adults, two are minors. Ms Roff was appointed to act for the minor and unborn grandchildren.  Ms Roff has filed a helpful memorandum, supporting the proposed deed of variation.

[6]      Malcolm’s marriage to Shona and his second marriage, to Pauline Brown, were each dissolved.  At the time of Malcolm’s marriage to Pauline, the trust deed was varied to substitute her for Shona, and to provide the children with the power of appointment of one trustee.

[7]      At the time of the dissolution of Malcolm’s marriage to Pauline in 2005, the trust deed was (by consent) varied again, by the Family Court under s 33(3)(m) of the Property (Relationships) Act 1976, to include Malcolm as an income beneficiary.

[8]      Since that time the Trust has made distributions of income to Malcolm.  The Trust has also made loans secured by mortgage to Malcolm to assist him to purchase a home when he retired from farming, and to provide him further assistance when that home was found to be structurally inadequate, lost half its value and had to be replaced.  More recently, the Trust has also advanced funds to Malcolm, through his beneficiaries’ current account, to meet his living expenses.

[9]      Malcolm’s children are now of an age which makes the arrival of future

grandchildren of Malcolm a possible, but less than likely, contingency.

[10]     Malcolm’s children and adult grandchildren have been concerned to make arrangements  to  provide  Malcolm  with  an  appropriate standard of living in  his retirement.  At the same time, doubts have been raised as to the power of the Family

Court to vary the Trust in the manner summarised at [7] above on the dissolution of Malcolm’s marriage with Pauline. The trustees have also relied on implied powers when advancing income to Malcolm as, without express provision in the trust deed, those advances have been made to him notwithstanding his position as a trustee of the Trust.

[11]     Against that background, the trustees, together with Rosemary, Vicky and Alister (Malcolm’s  children),  and  his  adult  grandchildren, Amanda,  Samuel  and Rebecca Gruenwald (Rosemary’s children) and Brent and Paul Ordish (Vicky’s children) have all signed a deed of variation of trust amending the trust deed (the Deed of Variation):

(a)      to provide for an immediate capital advance to Malcolm of $200,000 to meet the deficit in his current account and to reduce the Trust’s mortgage advance to him;

(b)to make further payments to him as the trustees may in their discretion determine as required for Malcolm to meet the necessities of life, provided that no such payments shall be made unless the trustees have first  consulted  with  such  of  the  children  of  the  settlor  as  are reasonably available and have had regard to their views; and

(c)      to  pay  a  sum  to  his  estate  not  exceeding  $100,000  to  meet  any Property (Relationships) Act commitment Malcolm may have to his current partner, Adrienne Hegarty.

[12]     At  the  same  time,  the  Deed  of  Variation  incorporates  confirmation  of Malcolm’s status as an income beneficiary under, and ratifies past payments made to him pursuant to, the Family Court’s August 2005 orders.

[13]     The Deed of Variation also provides for:

(a)      the  addition  of  a  new  clause,  to  require  any  trustee  who  is  a beneficiary to abstain from any decision which affects him; and

(b)for  Malcolm,  who  is  a  party,  to  “acknowledge  and  agree  not  to overdraw his current account, without agreement of the trustees and to manage his financial affairs prudently”.

Evaluation

[14]     The Trust is in a strong capital position.  It currently has equity in excess of

$6 million. At the same time, as the owner of a farm, the Trust has relatively limited income.

[15]     The strong capital position of the Trust has its source in Malcolm’s original

settlement, sale and gifting back arrangements.

[16]     The arrangements provided by the Deed of Variation, agreed to by Malcolm’s children  and  adult  grandchildren,  reflect  a  natural  and  proper  desire  to  make adequate provision for Malcolm in his retirement whilst at the same providing for Malcolm’s agreement to, in the future, live within his means.

[17]     The  Deed  of  Variation  could,  I  acknowledge,  reduce  the  income  and/or capital that might otherwise have been available to the minor grandchildren and the unlikely “unborn” grandchildren.  Putting myself in the position of those individuals, and having regard to:

(a)       the consent to these arrangements of the adult grandchildren;

(b)the very limited impact  on the interests of the minor and unborn grandchildren; and

(c)      the benefits that accrue to them relating to the “welfare and honour of the family” from provision being made for Malcolm at this time of his life,

I am satisfied that the variations proposed to the Trust are ones to which this Court should,  under  s  64A of  the Act,  consent  on  behalf  of  those  infant  and  unborn grandchildren.

[18]     There are therefore orders, as sought by the applicants, approving the Deed of

Variation.

“Clifford J”

Solicitors:

Gawith Burridge, Masterton for Applicants