Clive Basil Cleland Public Trust v Dixon

[2013] NZHC 2700

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV 2012-419-001251 [2013] NZHC 2700

IN THE MATTER             of the Trustee Act 1956 and its amendments

AND

IN THE MATTER             of the Springdale Farm No.1 Trust and the

Springdale Farm No.2 Trust

AND

IN THE MATTER             of an application for variation and rectification

BETWEEN  CLIVE BASIL CLELAND PUBLIC TRUST Applicants

ANDGRAEME HENRY DIXON First Respondent

KAY ELIZABETH DAWN DIXON Second Respondent

Hearing:                   17 October 2013

Appearances:           D J Taylor for the Applicants

C M Earl for the First Respondent
Second Respondent in Person
A M Cook for Katherine Baldock

P M Lang for the Unborn Children and Grandchildren and on instructions for Steven and Kimberly Dixon

Judgment:                17 October 2013

ORAL JUDGMENT OF GILBERT J

CLIVE BASIL CLELAND PUBLIC TRUST v GRAEME HENRY DIXON [2013] NZHC 2700 [17 October

2013]

[1]      This is an application for rectification of two trust deeds or for a variation pursuant to s 64A of the Trustee Act 1956.

[2]      Graeme and Kay Dixon formed mirror trusts in May 1996 to purchase and operate a dairy farm in partnership.  They were then in their mid-forties and their only child, Steven, was aged14.  Their intention was to build up the capital position of both trusts to provide an income for them in their retirement.  They also wanted to provide for Steven and any future grandchildren.

[3]      Graeme and Kay separated 10 years later, in 2006, and their marriage was dissolved in 2009.  Graeme has remarried but Kay has not.

[4]      The applicants, who are the current trustees of both trusts, have received legal advice that the dissolution of their marriage means that Graeme is no longer a beneficiary of Kay’s trust and Kay is no longer a beneficiary of Graeme’s trust.  This is said to be because the final beneficiaries  are described in the trust  deeds  as including “the husband  of the settlor” and  “the wife of the settlor” rather than naming them.   The trustees have accordingly ceased making regular monthly payments to Graeme and Kay for their maintenance and support and have re- classified all payments made to them following dissolution of their marriage as loans by the trusts.

[5]      The trustees consider that Graeme’s and Kay’s clear intention was that they would each continue to benefit until death as final beneficiaries under each other’s trust.    They  have  accordingly  brought  the  present  applications  to  restore  that position.

[6]      Both applications are predicated on the basis that Graeme and Kay ceased to be beneficiaries when their marriage was dissolved.  I therefore start by examining whether this premise is correct.  The answer turns on the proper construction of the trust deeds considered as a whole in the light of the surrounding circumstances

known to the settlors at the time the deeds were executed.

CLELAND v DIXON HC HAM CIV 2012-419-001251

[7]      Graeme’s  trust  is  called  the  Springdale  Farm  No.1  Trust.    The  “Final

Beneficiaries” in Graeme’s trust are defined as follows:

the wife of the settlor;

the children of the settlor; and the grandchildren of the settlor;

PROVIDED  HOWEVER  that  the  Trustees  may  by  Deed  revocably  or

irrevocably remove any of the Final Beneficiaries from the class of Final

Beneficiaries before the Vesting Day

PROVIDED  HOWEVER  that  if  such  Final  Beneficiary  is  revocably removed the Trustees may by Deed revocably or irrevocably reappoint that

Final Beneficiary to the class of Final Beneficiaries before the Vesting Day

[8]      The “Discretionary Beneficiaries” are defined in both Trust Deeds as follows:

The Final Beneficiaries; and

Any spouse, surviving spouse, former spouse (whether remarried or not) of any of the children or grandchildren of the settlor.

...

[9]      The “Vesting Day” is 80 years less one day from the date of execution of the deeds or such earlier date as the trustees may appoint.   On the Vesting Day the trustees are to stand possessed of the capital and income of the trust fund then remaining upon trust for such of the Final Beneficiaries as shall then be living as tenants in common in equal shares.  However, if any of the Final Beneficiaries die before the Vesting Day leaving a child or children or remoter issue who are living on the Vesting Day then such child or children are to stand in their place.

[10]     Kay’s trust is called the Springdale Farm No.2 Trust.  Its provisions mirror those of Graeme’s trust except that the Final Beneficiaries are defined to include “the husband of the settlor”.

[11]     Consistent with their intention at the time the trusts were formed, the trustees of the two trusts purchased a farm near Gore and converted it to a dairy farm.  They continue to operate this farm in partnership with the assistance of a sharemilker and a farm consultant.   Initially, the income was used to retire debt.   The trusts commenced paying an income to Graeme and Kay shortly before they separated. These continued until March 2012 when counsel for the applicants advised that

Graeme and Kay had ceased to be beneficiaries at the time their marriage was dissolved.

[12]     Graeme is not a beneficiary of his trust, nor is Kay a beneficiary of hers. Neither would have been prepared to settle their assets on trust for the benefit of the other unless this was reciprocated.  These were mirror trusts completed at the same time and one would not have been formed without the other.   The trusts were intended to operate in partnership to increase the value of the assets that Graeme and Kay  had  worked  to  acquire.    Graeme  and  Kay  intended  that  they  would  each continue to benefit from these assets for the rest of their lives irrespective of whether or not their marriage was dissolved.

[13]     The “mirror” arrangement underpinning both trusts would be defeated if, for example, “the husband of the settlor” was interpreted to extend to any future spouse of Kay at the time of any distribution from the trust.  If one remarried but the other did not, it would mean that the former would continue to benefit indirectly through his or her new spouse but the other would not.

[14]     Further, this interpretation would mean that a third party, outside Graeme and Kay’s family at the time the deeds were signed, would become immediately entitled to participate as a Final Beneficiary of their assets in place of Graeme or Kay.   It would  also  mean  that  whereas  this  outside  party  would  acquire  status  as  a Final Beneficiary, Graeme and Kay would no longer be beneficiaries of either trust. The fact that this was not the parties’ intention is reinforced by the fact that both trust deeds  contain  a  provision  entitling  the  trustees,  as  a  condition  of  making  any payment to a discretionary beneficiary, to require that beneficiary to enter into an enforceable contract under the Relationships (Property) Act 1976 with his or her spouse acknowledging that such spouse acquires no right to the capital distributed or any property acquired from such capital.

[15]     I consider that Graeme’s and Kay’s clear intention was captured in the trust deeds.  They were married at the time they signed them.  There can be no doubt that when Graeme signed the Springdale Farm No. 1 Trust deed and described one of the Final Beneficiaries as “the wife of the settlor”, he was referring to Kay.   Equally,

Kay was plainly referring to Graeme when she included “the husband of the settlor”

as a Final Beneficiary in her trust.

[16]     Had they intended that the Final Beneficiaies under their respective trusts would extend to any future spouse of the other, they would have made this clear in the drafting of the deeds by referring to “any spouse of the settlor” or “any surviving spouse of the settlor”.   This was the terminology they used when describing the spouses of the children or grandchildren of the settlors who would qualify as “Discretionary Beneficiaries”, namely, “any spouse, surviving spouse, former spouse (whether remarried or not)”.

[17]     For these reasons,  I consider that  the plain  intention  of the settlors  was adequately reflected in the trust deeds and was not defeated by the dissolution of their marriage.  On their proper construction, construed as a whole and in the light of the surrounding circumstances at the time the trust deeds were signed, “the husband of the settlor” means Graeme and “the wife of the settlor” means Kay.  It follows that there is no basis for the application to rectify the trust deeds or to  vary them. Graeme and Kay continue to be Final Beneficiaries of each other’s trust.

[18]     All  counsel  agree  with  this  analysis  and  are  instructed  to  support  a declaration being made to this effect.  Kay also confirms that she considers that she remains a Final Beneficiary under the Springdale Farm No.1 Trust.   In these circumstances, and by consent, I allowed the applicants to amend their statement of claim so as to seek declarations in the following terms:

(a)       a declaration that “the wife of the settlor" where those words appear at

1.11 in the deed of the No.1 Trust is a reference to Kay Elizabeth

Dawn Dixon; and

(b)a declaration that “the husband of the settlor" where those words appear at 1.11 in the deed of the No.2 Trust is a referent to Graeme Henry Dixon.

[19]     I am satisfied that declarations to this effect are appropriate and should be made.

Result

[20]     I make a declaration that the reference to “the wife of the settlor” in the definition of “Final Beneficiaries” in the Springdale Farm No.1 Trust deed is a reference to Kay Elizabeth Dawn Dixon.

[21]     I make a further declaration that the reference to “the husband of the settlor” in the definition of “Final Beneficiaries” in the Springdale Farm No.2 Trust is a reference to Graeme Henry Dixon.

[22]     The  applications  for  rectification  or  amendment  of  the  trust  deeds  are dismissed.

[23]     The parties’ reasonable costs of and incidental to this proceeding are to be paid by the two trusts in equal shares.

M A Gilbert J