Craig

[2019] NZHC 2386

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2019-419-248

[2019] NZHC 2386

UNDER

Part 19 of the High Court Rules, The Trustee Act 1956 and the Court’s inherent
jurisdiction

IN THE MATTER

of a without notice application by PETER JOHN CRAIG and JAMES COLIN

GORDON COCHRANE as trustees of the JC JOHNSON FAMILY TRUST

Plaintiff

Hearing:	On the papers
Appearances:	P Cornegé for Applicants
Judgment:	20 September 2019

JUDGMENT OF LANG J

[on application for orders under s 64A of the Trustee Act 1956]

This judgment was delivered by me on 20 September 2019 at 2.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

In the Matter of PETER JOHN CRAIG [2019] NZHC 2386 [20 September 2019]

[1]                This proceeding concerns the JC Johnson Family Trust (the Trust). The Trust was constituted by Deed dated 29 October 1979 and its current date of distribution is 29 October 2019. The trust deed does not contain any provision permitting the terms of the trust to be varied.

[2]                The principal if not only asset owned by the Trust is a 5.2 hectare block of land near Hamilton. If the land is not sold prior to the date of distribution the Trust will incur a significant tax liability. This will occur because the land will be deemed to have been distributed to the beneficiaries under the Trust.

[3]                The trustees could sell the land now but there is uncertainty as to its current value because of zoning issues could affect it. The trustees consider it is quite possible that future zoning changes could cause the value of the land to rise significantly. They therefore wish to retain the land to enable the beneficiaries to take advantage of any increase in value that may occur over the next few years.

[4]                This means the terms of the Trust need to be varied to provide for a later date of distribution than is currently the case. The trustees consider it would be appropriate for the date of distribution to be postponed for a further ten years from 29 October 2019. All of the adult beneficiaries of the Trust consent to the proposed variation. The trustees now apply to the Court for an order under s 64A of the Trustee Act 1956 (the Act) approving the proposed variation on behalf of three potential beneficiaries who are currently minors. Those persons will only become beneficiaries if their mother passes away before the trust assets have been distributed.

Procedural issues

[5]                The trustees also seek orders on a without notice basis granting leave to commence the proceeding by way of originating application, dispensing with service of the proceeding on any party and for a direction that no litigation guardian be appointed to represent the potential beneficiaries who are minors. I am satisfied for the reasons that follow that all three orders should be granted on a without notice basis and I make orders and directions accordingly.

The substantive application

[6]Section 64A provides as follows:

64A Power of Court to authorise variations of trust

(1)Without limiting any other powers of the Court, it is hereby declared that where any property is held on trusts arising under any will, settlement, or other disposition, or on the intestacy or partial intestacy of any person, or under any order of the Court, the Court may if it thinks fit by order approve on behalf of—

(a)       Any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting; or

(b)       Any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the application to the Court; or

…

[7]                In Argus v Barber, Gilbert J described the approach taken by the courts in dealing with applications under s 64A as follows:1

[8]                  The proper approach in dealing with applications under s 64A was summarised by French J in McKnight v Craig.2 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.

[8]    The situation that has arisen in the present is in all fours with that in Argus v Barber. In that case the trustees sought to extend the date of distribution by just over

30 years. As in the present case, the variation was necessary to prevent tax consequences arising out of a deemed or forced distribution on the existing date of distribution. Gilbert J observed:

1      Argus v Barber [2013] NZHC 3010.

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

[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.

[9]    The interests of the potential beneficiaries who are minors in the present case are plainly enhanced by the proposed variation because it will enable the Trust’s sole or principal asset to be sold at a time when its value has been maximised. I have no doubt that, if the minor beneficiaries were of full capacity, they would make exactly the same decision as the adult beneficiaries have made. It makes no sense whatsoever to sell the land now when its value may be significantly greater in a few years time. Nor does it make any sense to appoint a litigation guardian to represent the interests of potential beneficiaries who are minors or to serve the proceeding on any other party because this would cause needless expense in circumstances where the correct outcome is so clearly obvious.

[10]   I  therefore  make  orders  as  sought  in  the  originating  application  dated   9 September 2019.

Lang J

Solicitors:

McBreens, Hamilton Counsel:

P Cornegé, Hamilton