Buczkowski v Attorney-General

[2014] NZHC 2885

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-2161 [2014] NZHC 2885

IN THE MATTER

of an application pursuant to sections 64

and 66 of the Trustee Act 1956

BETWEEN

MICHAEL JOSEPH BUCZKOWSKI, WILLIAM CAIRNS, JAMES ALBERT CHARMICHAEL, WARREN JAMES KYD and KAREN ANNETTE SHERRY, Trustees of Auckland

Applicants

AND

THE ATTORNEY-GENERAL for and on behalf of the Ministry of Energy Respondent

Hearing:

17 November 2014

Counsel:

DR Bigio and RM Cederwall for applicants
GM Illingworth QC for the income beneficiaries of the

Auckland Energy Consumer Trust

Judgment:

20 November 2014

JUDGMENT OF FAIRE J

Solicitors:           Lowndes Jordan, Auckland

To:  GM Illingworth QC, Auckland

Buczkowski v the Attorney-General [2014] NZHC 2885 [20 November 2014]

Table of Contents

The application .......................................................................................................[1] Directions as to service and representation ............................................................[5] Background ............................................................................................................[8] The purpose of the AECT and the nature of its beneficiaries ..............................[16] The trustees’ concerns ..........................................................................................[17] The law .................................................................................................................[23] Orders ...................................................................................................................[33] Costs .....................................................................................................................[34]

The application

[1]      The trustees of the Auckland Energy Consumer Trust (AECT) apply for relief in the following form:

A  declaration   that   the  class   of   beneficiary   defined   as   an   “Income Beneficiary”  in  the  Deed  of  Trust  dated  27 August  2013  (Trust  Deed) includes persons which are liable to pay for services in relation to the lines of Vector Ltd’s electricity business, regardless of whether they are liable for such payment under a direct contract with Vector Ltd, or they make payment under a contract with a third party, such as an electricity retailer, for those services

or, in the alternative, an order authorising the amendment to the trust deed.

[2]      The declaratory relief is sought pursuant to s 66 of the Trustee Act 1956.  The amendment to the trust deed is sought in reliance on the court’s jurisdiction pursuant to s 64 of the Trustee Act.

[3]      For reasons which I will explain, counsel consider that relief by way of an amendment to the trust deed is appropriate in this case.  If that relief is granted, the declaratory relief sought would be superseded.

[4]      The proposed amendment seeks to amend subparagraph (c) of the definition

“income beneficiary” contained in clause 1.1 of the trust deed by:

(a)       Deleting the present subcl (c); and

(b)      Replacing it with:

(c)       Is liable to pay for electricity and/or lines services supplied to the Point of Connection for that ICP regardless of whether that liability arises pursuant to a contract with the Company or indirectly pursuant to a contract with a third party or otherwise.

Directions as to service and representation

[5]      On 4 September 2014, Fogarty J made orders permitting the application to proceed by way of an originating application, appointing Mr Grant Illingworth QC to represent the income beneficiaries of AECT and gave directions as to service of the originating application and supporting documents on the parties, including those appointed to represent the parties.

[6]      Counsel   for   the   Attorney-General   advised   by   memorandum,   dated

30 September 2014, that the Attorney-General abided the decision of the court on the application.

[7]      Counsel for Auckland Council advised the court, on 17 September 2014, that the Auckland Council would abide the decision of the court on the application.

Background

[8]      The AECT was established by deed of trust dated 27 August 1993.   The AECT is the major shareholder of Vector Ltd, with a 75.1 per cent shareholding. The income of AECT comprises largely of the dividends accruing from its shareholding in Vector Ltd.  Approximately 300,000 household and businesses are customers of Vector’s lines business in parts of Auckland.  Those customers are the “income beneficiaries” of the trust.  The trustees distribute the trust income annually to the income beneficiaries.

[9]      Initially the trustees made distributions to persons defined as “consumers” who  were  people  or  entities  who  had  a  contract  for  supply of  electricity  from Mercury Energy Ltd.   Following the electricity industry reform in 1998, Mercury Energy Ltd sold its retail business and limited its business to ownership of electricity lines.   It changed its name to Vector Ltd.   Changes were required to some of the provisions of the AECT trust deed, including to the definition of “consumer” because consumers were no longer receiving power from Vector.  They were only receiving lines services.

[10]     The trustees applied to the High Court to amend the definition of “consumer” to clarify that “consumers” were not simply customers of Vector and to distinguish between income and capital beneficiaries.  The definition was changed to “income beneficiaries”.1

[11]     The current definition of income beneficiary is contained in clause 1.1 of the

AECT trust deed. That provides:

“Income Beneficiary” means a person who:

(a)       is an end-consumer shown in the records of the Company as the holder of an ICP;

(b)      has the Point of Connection for that ICP located within the District;

and

(c)       is liable in respect of that ICP for payment of any amount payable for services in relation to the lines of the Company’s electricity lines business.

[12]     That  definition  must  be  read  in  conjunction  with  the  definition  of  ICP

contained in clause 1.1, which is as follows:

“ICP” means an Installation Control Point number, or other unique identifier, assigned by the Company to the Point of Connection with a premises.

[13]     A further definition in clause 1.1 completes the picture.  That is the definition

of “Point of Connection”. The deed provides:

“Point of Connection” in relation to any premises means the point at which the electricity lines and fittings of the Company used or intended to be used

1      Sherry v Attorney-General HC Auckland M517-sd02, 21 June 2002.

for the purposes of supplying electricity to those premises are connected to lines serving and entering those premises.

[14]     At the time the current definition of income beneficiary was introduced, Vector’s relationship with its customers was a direct contractual one.   Retail companies collected the revenue from those contracts on behalf of Vector.  This has been described in the papers as a “conveyance” model of contract.

[15]     Vector has now moved to an “interposed” model of contract where its only contractual relationship for the provision of line services is now with the electricity retailers themselves, who in turn contract with consumers.   Vector has no direct contractual relationship with its customers.

The purpose of the AECT and the nature of its beneficiaries

[16]     Mr Bigio, in his helpful memorandum, set out the position which I now quote:

17.The primary purpose of the AECT and the duty of the trustees is to distribute the net income of the AECT to “Consumers” (otherwise defined as the “Income Beneficiaries”).

18.The income of the AECT consists largely of the interim dividends (usually paid in April of a given year) and final dividends (usually paid September of a given year) accruing from the parcel of shares they own in Vector, plus interest thereon and any previous distributions still unbanked after two years.

19.About 300,000 households and businesses are customers of Vector’s lines business in those parts of Auckland City comprising the former Auckland  and Manukau  cities, and  part  of  Papakura.   This area coincided with the district of the Auckland Electric Power Board, and is referred to as the “District” under the Deed.  These customers are the sole “Income Beneficiaries” of the Trust.

20.To ensure that they, and they alone, are recipients of income, the trustees require Vector to compile a “Distribution Roll” for the purpose of each distribution by the trustees.

21.The trustees distribute the income of the Trust, usually on an annual basis, to the Income Beneficiaries.

The trustees’ concerns

[17]     With the modification of the contract model, the trustees quite properly are concerned to ensure that the move to the interposed model will not affect their ability to identify the income beneficiaries for the purposes of making distributions under the trust deed.

[18]     The trustees foresee a situation in which a party might allege ambiguity in the definition.  They are concerned that a later court’s analysis of the factual matrix in which to interpret paragraph (c) of the definition of income beneficiary would lead to a conclusion that a direct contractual relationship was required.

[19]     Mr Illingworth agreed with the first concern identified by the trustees.   He considered that there was a second concern as well.  It arises once the “interposed” model comes into play.   It is possible for an energy retailer to enter into contracts with its customers under which no payment whatsoever is made for line services and the customer pays only for energy supplied.  He submitted that it is arguable under a contract of that kind, not only would there be no direct contractual relationship but the consumer would not be liable for payment of any amount “for services in relation to the lines of the company’s electricity lines business”.  He submitted it would be necessary to stretch the definition of “income beneficiary” in order to bring the holder of the ICP within its scope.   He submitted it might be concluded that a contract of that kind would have the effect of disenfranchising the holder of the ICP in relation to the benefits of the trust deed.

[20]     Mr Illingworth therefore submitted that simply granting the declaratory relief could prove an inadequate response to the problem in the long run. What is required, he  submitted,  is  an  amendment  to  the  definition  of  “income  beneficiary”  as contained in clause 1.1 of the trust deed so that it provides as follows:

(c)       is liable to pay for electricity energy and/or line services to the point of connection for the ICP regardless of whether that liability arises directly pursuant to a contract with the company or indirectly pursuant to a contract with a third party or otherwise.

[21]     He  submitted  that  it  was  only  with  this  additional  clarification   and

amendment to the definition of “income beneficiary” that the court and the parties

could be sure that beneficiaries will not, in future, be disenfranchised  by some foibles in the wording in the electricity supply contracts.

[22]     Mr Bigio recognised the problem and advised that the applicants supported an amendment to the trust deed in the form proposed by Mr Illingworth.  In addition, he confirmed, as already recorded in this judgment, if an amendment in the form suggested were made by the court, that would  supersede the declaratory orders sought.

The law

[23]     I consider first the application for amendment of the trust deed because on a plain and literal reading of “income beneficiary” as it is currently defined, there is the possibility that consumers could be disenfranchised from an interest in the trust simply by virtue of the contract model adopted by their retail supplier.

[24]     Section 64 of the Trustee Act provides:

64Power of Court to authorise dealings with trust property and variations of trust

(1)       Subject to any contrary intention expressed in the instrument (if any) creating the trust, where in the opinion of the Court any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, retention, expenditure, or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons beneficially  interested  under  the  trust,  but  it  is  inexpedient  or difficult or impracticable to effect the same without the assistance of the Court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the Court may by order confer upon the  trustee,  either  generally  or  in  any  particular  instance,  the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the Court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income:

Provided that, notwithstanding anything to the contrary in the instrument (if any) creating the trust, the Court, in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent to the order, may make such an order and may give such directions as it thinks fit to the trustee in respect of the exercise of any power conferred by the order.

(2)      Repealed.

(3)       The Court may from time to time rescind or vary any order made under this section, or may make any new or further order:

Provided that no such rescission or variation of any order shall affect any act or thing done in reliance on the order before the person doing the act or thing became aware of the application to the Court to rescind or vary the order.

(4)       An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.

[25]     Both counsel referred me to the guidance given by previous cases on the principles to apply in interpreting trust deeds.   Recently in NZ Maori Council v Foulkes, Kόs J said:2

[71]      First, in essence similar principles should apply to the construction of trust deeds as to the construction of contracts. This approach has been endorsed on more than one occasion by Judges in the High Court of Australia, including Mason CJ and Deane J in Gosper v Sawyer and more recently by Heydon and Crennan JJ in Byrnes v Kendle. The latter found compelling the idea that instruments, whether statutory, contractual or trust should be construed according to broadly common rules. Particularly as to the admission of parol evidence to illuminate meaning:

The authorities establish that in relation to trusts, as in relation to  contracts, the search  for  “intention”  is only a search for intention as revealed in the words the parties used, amplified by the facts known to both parties.

[72]     In this country similar observations have been made in this Court.

The proposition that the principles of construction of wills, trusts, contracts and statements are the same is more easily expressed than

explained. Restraint in the receipt of parol evidence is even more

desirable in construing trusts than it is in the case of contracts. What, for instance, is to happen in this case where the Trust Deed is the

direct  product  of  a  unilateral  settlement  by  the  Crown,  but  the

indirect product of tripartite (or more) negotiations? That is true of trusts generally. Trust deeds are often the product of wide ranging family discussion. Whose intent is relevant? Why should it matter? Whose background knowledge is to be taken into account? Where an instrument  does  not  have “parties”, but has been the  product  of somewhat diffuse negotiation, the principles in cases such Investors Compensation Scheme v West Bromwich Building Society and Vector Gas Ltd v Bay of Plenty Energy Ltd, themselves not without complexity in the contract field, are not easy to apply.

[Citations omitted]

2      NZ Maori Council v Foulkes [2014] NZHC 1777.

[26]     Investors Compensation Scheme v West Bromwich Building Society3  and the New Zealand Supreme Court decision in Vector Gas Ltd v Bay of Plenty Energy Ltd4 are the two leading authorities on the principles applicable to the interpretation of a contract.

[27]     Mr Illingworth submitted, and I agree, that applying those principles to the interpretation of “income beneficiary” in the AECT trust deed the clear intention is an income beneficiary includes persons who have no direct contract for line services between Vector and the holder of the ICP.  In the interests of clarity the issue is put beyond doubt by adding the words of clarification into the existing subparagraph (c) of the definition of income beneficiary in clause 1.1 of the AECT trust deed.

[28]     Mr Bigio referred to the judgment of Buczowski v Attorney-General.5   In that case  Lang J  reviewed  the  difference  of  approach  and,  in  particular,  whether amendments to trust deeds should be considered in terms of the court exercising its jurisdiction under ss 66 or 64 of the Trustee Act.   His Honour’s comments apply equally to the amendment sought in the instant case.

[29]     In discussing the application of s 64 at [21] he said:

Trustees often rely upon s 64 when they wish to obtain powers that are not vested in them by the instrument creating the trust. Section 64 is, however, subject  to  any  contrary  intention  expressed  in  the  trust  instrument. The proviso to the section removes that limitation where all interested persons are represented at the hearing of the trustees’ application or where they consent to the order being sought.

[30]     At [29] and following his Honour recorded the following:

It is necessary for the Court to form its own view as to whether the trustees have satisfied the cumulative criteria specified in s 64(1). I have  reached  the  conclusion  that  they  have,  for  the  following reasons.

[30]     First, the distribution of the Trust’s income to consumers clearly amounts to a disposition or transaction (or a series of dispositions or transactions) for the purposes of s 64(1).

3      Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28, [1999] 1

WLR 896.

4      Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.

5      Buczowski v Attorney-General HC Auckland CIV-2010-404-2966, 15 September 2010.

[31]     Secondly,  I  am  satisfied  that  the  two  principal  proposals  are expedient in the management and administration of the trust’s property (its income) and also that they are in the best interests of the persons beneficially entitled to that income under the Deed of Trust. The income beneficiaries are the only parties who are beneficially interested in the income derived by the Trust.

…

[35]     Fourthly, the only persons who have any interest in the outcome of this proceeding are the income beneficiaries. They are represented by  counsel,  and  he  supports  the  proposals  as  being  in  the  best interests of the income beneficiaries.  Counsel accepts that they are sensible and are for the benefit of the parties whom he represents. He does not see any disadvantage to the income beneficiaries if the proposals are approved by the Court. As a result, it is open to the Court to make orders under s 64(1) notwithstanding any contrary intention expressed in the Trust Deed.

[36]     Although the capital beneficiaries have no direct interest in the proceeding they have been served with it and each has responded by advising the Court that it either supports the trustees’ proposals or that  it  abides  the  decision  of  the  Court.  None  has  raised  any objection to the orders that the trustees seek.

[31]     Accordingly, for same reasons as Lang J, I am satisfied that the trustees have established that the court should make the orders under s 64(1).

[32]     As I have determined that it is appropriate to authorise amendment to the trust deed, I decline to make the declaration sought, as such declaration is unnecessary.

Orders

[33]     I  make  an  order  under  s 64(1)  of  the  Trustee Act  1956  authorising  the amendment of the trust deed by deleting cl 1.1(c) of the deed and replacing it with a new cl 1.1(c), to read as follows:

(a)      Is liable to pay for electricity and/or lines services supplied to the Point of Connection for that ICP regardless of whether that liability arises pursuant to a contract with the Company or indirectly pursuant to a contract with a third party or otherwise.

Costs

[34]     It is appropriate that the costs of the application and of Mr Illingworth and his instructing solicitor, if any, be paid out of the income of AECT.  Should the parties be unable to agree on the precise amounts to be covered by way of costs, I reserve

leave for memoranda to be filed.

JA Faire J