Edge v Bourke
[2020] NZHC 1185
•2 June 2020
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IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV 2019-419-259
[2020] NZHC 1185
UNDER the Trustee Act 1956 and in the inherent jurisdiction of the High Court IN THE MATTER
of the HJ BOURKE FAMILY TRUST
BETWEEN
RICHARD OWEN EDGE and MARY
LOUISE BOURKE as trustees of the HJ BOURKE FAMILY TRUST
Applicants
AND
JOHN HENRY BOURKE
First Respondent
MARY ANNE BOURKE
Second RespondentLOUISE RITA BOURKE
Third RespondentCAITLIN ANNE BOURKE
Fourth Respondent
Hearing: 22 April 2020 Appearances:
W M Patterson for the Applicant
S Hughes QC for the First Respondent
K Sullivan for the Second and Third Respondents M D Peploe for the Infant GrandchildrenJudgment:
2 June 2020
JUDGMENT OF DUFFY J
This judgment is delivered by me on 2 June 2020 at 2.15 pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
EDGE v BOURKE [2020] NZHC 1185 [2 June 2020]
[1] The applicants are the trustees of the H J Bourke Family Trust (the Trust). They seek directions from the Court on the proper interpretation of cl 2 of the deed establishing this trust (the Trust Deed).
[2] The Trust was settled by the late Henry John Bourke. The beneficiaries are the children and grandchildren of the settlor. The first, second and third respondents are the children of the settlor. The fourth respondent is an adult grandchild of the settlor. There are six other grandchildren who, at the time the proceeding was commenced, were all minors and are represented by counsel, Mr Peploe. Since then one of those grandchildren, Taylor Mary Bourke, has turned 20 however, at the hearing she continued to be represented by Mr Peploe.
[3] Clause 2 of the Trust Deed provides for the distribution of the Trust funds after the expiration of the settlement period, which expired in May 2019. Those funds comprise a dairy and cattle farm, live and dead stock and other assets, all of which have a net value of approximately $4,450,000.
[4] The trustees have been unable to agree with Mr Peploe on the correct interpretation of cl 2, hence this proceeding. The first respondent supports the interpretation taken by the trustees. The second and third respondents abide the decision of the Court. The fourth respondent has chosen to take no part in the proceeding.1
[5]Clause 2 of the Trust Deed reads as follows:
AFTER the expiration of the settlement period to stand possessed of the trust fund (including the said accumulations if any) being so much of the trust fund as has not previously been paid applied or appropriated pursuant to the foregoing provisions of this deed UPON TRUST for such of the children of the marriage of the said HENRY JOHN BOURKE and MARY LOUISE BOURKE and the children of the children of the marriage of the said HENRY JOHN BOURKE and MARY LOUISE BOURKE living at the expiration of the settlement period in a course of distribution in equal shares according to the stocks and not the number of individuals and if there are more persons than one under any one stock then for those persons in equal shares AND if there are no such children or grandchildren entitled to take under this deed then to stand possessed of the trust fund (including the said accumulations if any) being so much thereof as has not previously been paid applied or appropriated
1 The fourth respondent is the daughter of the first respondent.
pursuant to the foregoing provisions of this deed UPON TRUST for JAMES DANIEL BOURKE, MARY ELIZABETH BENNET, MARGARET RITA LUND, ANNE MONTGOMERY BENNETT, THOMAS ALISTER
BENNETT and HENRIETTA MARY BOURKE as tenants in common in equal shares.
[6] The trustees acknowledge that cl 2 could have three possible meanings: They are:
(a)The trust fund vests only in the first, second and third respondents being the children of the late Henry John Bourke and Mary Louise Bourke, all of whom were living on 31 May 2019.
(b)There is a division at that date into thirds, but each third is then shared equally between one of the respective children of the settlors and their respective grandchildren. In this regard the first respondent has three children and the second and third respondents each have two children.
(c)There will be a division at the distribution date into six parts and as to three of those parts the first, second and third respondents will each receive one part. Of the remaining three parts each will go to the three respective groups of grandchildren and be divided equally as between the members of each group.
[7] The applicants contend that the correct interpretation of cl 2 of the Deed is that set out at [6](a) above.
[8] Mr Peploe contends that the interpretation set out at [6](b) above is the correct one.
[9] All counsel were of the view the interpretation at [6](c) above is not sustainable. I agree, I am satisfied that the real dispute as to the meaning of cl 2 is between that set out at [6](a) and (b) herein.2
2 Clause 2 must be read in its entirety. For the interpretation in [6](c) to work clause 2 would need to be read in a way that divides the clause into two parts the first of which would deal with a distribution in three equal parts as between the children of the settlors and the second part would then deal with how the balance of the Trust Funds was to be distributed as between their respective
[10] There is some measure of agreement between the trustees and Mr Peploe. They are all agreed that the reference in cl 2 to “…according to the stocks and not the number of individuals…” means there is to be a per stirpes division rather than a per capita division because the use of the words “according to the stocks” is synonymous with “per stirpes”. Further that it is the generation comprising the children of the settlors who form the stirpes or the stocks. The point of difference is whether it necessarily follows from a per stirpes division that during the life time of their parents the members of a more remote generation do not take in competition with those parents.
[11] The applicants contend that this is a typical and integral part of a per stirpes division. In support of this proposition the applicants refer to a series of texts on wills and relevant case law. They contend that had the settlors wanted to achieve a different outcome they would have specified for this.
[12] On the other hand, whilst Mr Peploe accepts as a general principle that a stirpes division precludes members of a more remote generation from taking in competition with their parents he contends that such operation will always hinge on the language of the gift, and that here the meaning of cl 2 does not support it.
Discussion
[13] Two legal questions underlie this proceeding: (a) how wills and trusts should be construed; and (b) the general effect of a stirpes division and the language required to displace this general effect.
Construction
[14] The applicants and Mr Peploe agree that the relevant principles of construction are set out in Marley v Rawlings3 and Powell v Powell.4 In short, these hold that the
groups of children. Such division is a clumsy way of reading cl 2, and it does not readily fit with the language of the clause.
3 Marley v Rawlings [2014] UKSC 2, [2015] AC 129.
4 Powell v Powell [2015] NZCA 133, [2015] NZAR 1886.
construction of wills and trusts should be approached in the same manner as the construction of contracts. They are conveniently outlined in Powell v Powell:5
[53] Moreover, in ascertaining the settlor’s intentions, the Court is guided by the words of the trust deed and the context in which the trust was created. This Court’s decision in Boat Park Ltd v Hutchinson, adopting what was said by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society, emphasised the necessity of a contextual approach to the interpretation of contractual provisions.6 Such an approach has also been applied to the construction of trust deeds in Manukau City Council v Lawson and Gailey v Gordon.7 In the former, having referred to Boat Park Ltd v Hutchinson, Paterson J said:8
The meaning to be ascertained is that which the trust deed would convey to a reasonable man having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time the trust deed was entered into.
[54] O’Regan J adopted that approach in Gailey v Gordon,9 but it does not appear to have been previously endorsed in this Court in relation to the construction of deeds of trust. We consider that it should be applied to such deeds. The adoption of a contextual approach to interpretation in the present context may be seen as part of a wider recognition of the relevance of context to the construction of documents. This is reflected in cases such as Marley v Rawlings, in which the United Kingdom Supreme Court held that the same approach to construction should be taken with wills as would apply in a commercial contract, notwithstanding the fact that a will is made by a single party.10 Having referred to the principles for construction of contracts, Lord Neuberger observed:
[20] When it comes to interpreting wills, it seems to me that the approach should be the same. Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context. …
[15] Although not addressed in any of the above cases, it seems to me that the application of construction principles taken from the law of contract would also permit consideration of subsequent action as an interpretative aid. That is now permissible in contract and it would be consistent with the reasoning in Powell v Powell and the line of cases referred to therein if subsequent conduct could be considered in the
5 At [53]-[54].
6 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81–82 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28, [1998] 1 WLR 896 at 912–913.
7 Manukau City Council v Lawson [2001] 1 NZLR 599 (HC) and Gailey v Gordon [2003] 2 NZLR 192 (HC).
8 At [13].
9 At [51].
10 Marley v Rawlings [2014] UKSC 2, [2015] AC 129.
construction of wills and trusts as well. This has real effect here because the settlor subsequently executed two memoranda of wishes, which in my view help to reveal his intent for the distribution of the trust funds.
The general form of a stirpes division
[16] In general, a stirpes division of gifts (under either a trust or a will) has two elements: (a) in a group of multi-generational descendant beneficiaries it operates to preclude a beneficiary who is member of a more remote generation from taking in competition with his or her own living ancestor; and (b) it determines the proportions in which the various participating descendant beneficiaries share in the gift by first nominating a generation that determines the stirpes and then apportioning the gift as between the descendant beneficiaries of each stirpes; see Sidey v Perpetual Trustees, Estate, and Agency Company of New Zealand Limited and Anor:11
In the first place, as is conceded by both sides on this appeal, it qualifies the generality of the expression “my then surviving descendants” and operates to preclude a remoter descendant from taking in competition with his own living ancestor so that in a particular line, for example, a great grandchild could take no share if his parent being a grandchild of the testator was living at the date of the distribution. But in the second place it may operate to alter the proportions in which the participating descendants share in the estate. For the provision demands that the division should be not according to the number of capita but according to the number of stirpes and as the present case illustrates the participating descendants may take in different proportions according to the generation which is determined to be the stirpes.
[17] The authorities helpfully supplied by the applicants show that the use of the term per stirpes or its English equivalent “by stocks is generally understood to exclude members of a more remote generation from taking in competition with their parents, without the need for any express provision to that effect.
[18] The Australian text Hutley’s Australian Wills Precedents explains the use of a stirpital clause as follows:12
The Latin phrase per stirpes (that is, by stocks or roots) is used to indicate that issue are to take by representation… because per stirpes has an established meaning. Attempts to translate the Latin by using English phrases such as “by
11 Sidey v Perpetual Trustees, Estate, and Agency Company of New Zealand Limited [1944] NZLR 891 (UKPC) at 895.
12 Charles Rowland Hutley’s Australian Wills Precedents (6th ed, Lexis Nexis, 2004) at 309.
the roots” may be more confusing than the Latin. The only other alternative is to include an express, detailed, provision. This is complicated, and the use of the phrase per stirpes is justified on the ground that it constitutes legal shorthand. (emphasis added)
Similarly, in Laws of New Zealand, the writer states:13
361 Substitution of Issue
Where in a testamentary gift issue are substituted for or take after their respective ancestors, the members of each set of issue prima facie take per capita as between themselves the share that is distributed per stirpes to them. But the context may show that the substitution is distributive throughout and a distribution per stirpes is intended. A characteristic of a distribution per stirpes is that remote descendants do not take in competition with a living immediate ancestor of their own who takes under the gift. (emphasis added)
(footnotes omitted)
In Re Rawlinson the court said of a per stirpes division:14
Where property is bequeathed simply to the issue or to the descendants in equal shares per stirpes it is quite settled as is mentioned by James LJ in Ralph v Carrick15 where, it being held that the effect of the will was to give the residue to descendants per stirpes and not per capita his Lordship adds: “so that children do not take concurrently with their parents.”(emphasis added)
Later in Re Rawlinson the court said:16
Therefore there must be a declaration that, according to the true construction of the will, the gift on the death of the survivor of the wife and daughters to the issue then living of the four daughters in equal shares according to the parent stock and not to the number of the individual objects is a gift to such issue per stirpes throughout children not taking concurrently with their parents.(emphasis added)
[19] The above comments from the supplied authorities satisfy me that in general a stirpes division will have the effect of precluding more remote generations from taking in competition with a living ancestor. Moreover, a stirpes division will only come into effect once a distribution is to be made in a multi-generational context and where substitutionary gifts are involved. Until then, if the only beneficiaries who will take
13 W M Patterson Laws of New Zealand Wills at [361].
14 Re Rawlinson [1909] 2 Ch 36 at 37.
15 Ralph v Carrick (1879) 11 ChD 873, 884.
16 Re Rawlinson at 39.
on a distribution are those who determine the stirpes they will necessarily take on a
per capita basis.
Has clause 2 displaced the general rule against multi-generational competition between living beneficiaries
[20] Mr Peploe submits that: (a) the natural and ordinary meaning of cl 2; (b) the overall purpose of the Trust Deed; (c) the other provisions of the Trust Deed, and
(d) the facts known or assumed by the settlor at the time he executed the Trust Deed all suggest that cl 2 was intended to displace the general rule that with a per stirpes division successive generations do not compete with their living ancestors. I reject that submission. For the reasons given below, I consider that before this general rule is displaced there must be explicit expression to the contrary, none of which is to be found in cl 2.
[21] Mr Peploe submits that the 40-year settlement period, which is much less than the 80-year limit that then applied, indicates the settlor intended to make some provision for grandchildren. In this regard he submits it was reasonably foreseeable and indeed probable, that at the end of the settlement period the settlor would have grandchildren in the process of leaving home and establishing independent lives, or about to do so, and thus needing financial resources. Accordingly, he views the 40-year settlement period as an indication of an intention to make some provision for grandchildren. I consider the 40-year life of the Trust to be a neutral factor. There are other inferences that can be drawn from this circumstance.
[22] At the time the Trust was created death duties and gift duties were in force and their financial effect was significant. Many farming families took legitimate steps to avoid those taxes. Here the settlor would have transferred what was a valuable farm to the Trust, which would have avoided death duties, and he could have done so in a way that avoided gift duties.17 I was told at the hearing that the settlor was in his thirties when he settled the Trust and I note that the 40-year settlement period neatly coincides with the typical working life of a farmer, all going well for him. The settlor may have considered the use of a 40-year trust was a better means of dealing with how
17 The usual method was to sell the real estate with a mortgage back to the vendor and then to forgive the mortgage debt at the permitted annual rate for gifting without incurring gift duty.
the farm would be treated on his retirement or death than would have happened had he maintained ownership of the farm up until either of those eventualities.
[23] Clause 1 of the Trust Deed expressly gives the trustees, which include the settlor’s wife, a broad discretion to use the Trust Funds (which include the farm and income therefrom) to assist his wife, children and grandchildren during the life of the Trust. This provision serves to replace how the settlor may otherwise have provided for those persons, had he personally retained ownership of the Trust’s assets. With cl 2 whether it is read to apply only to the settlors’ children (the applicants’ construction) or for the children to each receive their third share, which they then share equally with their children (Mr Peploe’s construction) either way its presence is consistent with an outcome the settlor might have sought in preference to him retaining ownership of the Trust’s assets and then facing the tax consequences following disposal, either on his death or at the end of his farming life. Given there is more than one available inference it would be speculative to attempt to decide which of them influenced the choice of the 40-year settlement period. Moreover, there may be other explanations such as that it was the choice of the solicitor and the settlor went along with that choice. Accordingly, I do not consider the choice of a 40-year settlement period throws any light on the proper construction of cl 2.
[24] Mr Peploe refers to the use of the conjunction and between the reference in cl 2 to the “children of the marriage of the settlor” and the “children of the children of the marriage of the settlor” and contends that this reference to children and grandchildren indicates that both were intended to benefit from the Trust. He then argues that the construction difficulties with cl 2 arise from the second half of the clause starting from the words, “in a course of distribution in equal shares” to the end of the clause. As he would have it, cl 2 falls into two parts, the first of which expressly and unambiguously provides for benefits to both children and grandchildren, and therefore any change to that outcome must result from the second part of the clause. Mr Peploe accepts the second half of the clause must have been intended to have some effect. He contends that the conjunction in cl 2 of children and grandchildren works to preclude the general operation of a stirpital division because that deals with the substitution of “issue”, whereas, here the natural and ordinary meaning of the initial words of the clause indicate that both children and grandchildren should share in the
Trust fund. I reject the argument; it begs the question as to how the grandchildren should share.
[25] Obviously, cl 2 refers to children and to grandchildren, however, that reference on its own simply identifies the scope of the persons who are intended to benefit under the Trust Deed. Such reference cannot be relied upon to show how the settlors intended the children and grandchildren would share on distribution. For that cl 2 needs to be read in its entirety; and when read this way it is clear from the use of the words “according to the stocks” the settlor did not intend a per capita division between all beneficiaries. Mr Peploe accepts this much.
[26] A division per stirpes is generally understood to include the prohibition on members of a younger generation competing with their parents. So, when a settlor directs a division per stirpes this means that, unless there is explicit language to the contrary, the settlor intended a division that fully accords with this rule. It follows that unless the language used in cl 2 is enough to displace this general understanding there is no reason why it should not apply to cl 2.
[27] Here the only language to the contrary to which Mr Peploe can point is the use of the word “grandchildren” rather than the more generic term “issue” and the absence of express statement that any substitution of grandchildren for children should not occur if it would allow a grandchild to take in competition with his or her living parent. However, those are not enough in my view to displace the general understanding of a stirpital division. Grandchildren are issue. Because no provision was made for generations beyond grandchildren it is understandable the drafter used a more specific description like grandchildren rather than a more generic description that would capture grandchildren and successive generations. There was no need to expressly exclude competition between grandchildren and their living parent because the term per stirpes conveys that effect. To use a stirpital clause and then to state grandchildren shall not compete with their living parents would be tautologous; whilst to do so out of an abundance of caution may serve to boilerplate a distribution clause, it is unnecessary.
[28] Mr Peploe submits that the rule that issue do not take in competition with a living ancestor, needs to be implied if it is to apply. I reject this argument. It is contrary to the general understanding of a per stirpes division. The use of this term conveys the effect that younger generations do not take in competition with a living ancestor. Because this effect is expressed through use of the term per stirpes no implication is required.
[29] Mr Peploe submits that the texts and decisions referred to in the applicants’ submissions only support implying the rule against younger generations taking in competition with a living ancestor in those cases where an “explicitly substitutionary gift is made to a multi-generational group such as issue or descendants”. Whereas here, cl 2 refers specifically to the children and grandchildren, thus it does not use generic terms such “issue” or “descendants” and the clause does not specify that the grandchildren should only be included in the event of the death of a child of the settlor before the end of the settlement period.
[30] I reject this argument; it repeats the fallacies of the earlier arguments. The authorities referred to herein make it clear that a per stirpes division includes the effect that members of a younger generation cannot take in competition with a living parent. That is a generally understood component of a stirpital division, from which it follows that there is no need to specify that grandchildren should only be included in the event of the death of a child before the end of the settlement period. This argument also relies on the understanding that because cl 2 identifies two specific groups of beneficiaries rather than identifies the persons comprising the “stocks” and then simply refers to a successive generation as “issue” this affects the general application of the per stirpes rule. The fact there is only one specific successive generation rather than multiple such generations provides no reason for departure from the general understanding of a per stirpes division. The better view is that if the settlor had wanted to depart from the general understanding of a per stirpes division he would have used explicit language to outline the form of this departure. In other words, he would have clearly stated in the Trust Deed that the children set the primary division of the Trust Funds and after this division each of his children shared his or her share in equal parts with his or her children. This was not done, which in my view indicates the settlor intended the generally understood per stirpes division to apply.
[31] Mr Peploe refers to the authorities on which the applicants rely and cites examples that state in express terms “if any of my children predecease me surviving issue of that child will take per stirpes” and then goes on to argue that cl 2 has no similar substitutionary requirement and no use of the generic terms issue so it should be interpreted differently from the example clauses. This is simply revisiting arguments made earlier. I have already explained why express substitutionary reference in addition to the phrase per stirpes is tautologous and I have explained why I see no difference in result flowing from use of the term “issue” rather than the specific use in this Trust Deed to grandchildren. The specific reference in cl 2 to “the children of the children of the marriage” of the settlors naturally and logically follows from the settlors’ decision to limit the class of beneficiaries to two generations.
[32] Mr Peploe refers to the commentary in the Australian text Hutley’s Australian Will Precedents in which it states that the phrase “per stirpes” in the case of a substitutional gift to issue is used because it has an established meaning. Mr Peploe submits this comment from Hutley confirms that although the phrase “per stirpes” may imply the rule that no issue should take in competition with a living ancestor this applies in the context of a specific substitutional gift to issue. Mr Peploe goes on to state that cl 2 does not include any substitutionary wording or a gift to “issue”. From this he argues that the Hutley text does not establish that the rule “no issue should take in competition with a living ancestor” should be implied in the absence of substitutory provisions or where a gift is to specific identified generations and not to generic multi- generational issue. Once again this is circular reasoning. Excluding competition between successive generations is one of the aspects of the per stirpes rule. The other is to determine how trust funds are to be apportioned when they are being shared between successive generations. It is fallacious to say that cl 2 says nothing about substitutionary gifts because if the general understanding of a per stirpes division is applied to cl 2 then this clause does make provision for substitutionary gifts. It is fallacious to focus on the absence of express words stating that grandchildren shall only take if their respective parent is not living at the time of distribution and to reason from this that because cl 2 does not contain those words it makes no provision for a substitutionary gift, and then to reason that because a per stirpes division is applied in the case of substitutionary gifts it follows that the generally understood effect of a per stirpes clause does not apply here.
[33] Mr Peploe refers to commentary in Laws of New Zealand in which it is stated under the heading “substitution of issue” that “a characteristic of a distribution per stirpes is that remote issue do not take in competition with a living immediate ancestor of their own who takes under the gift.” Mr Peploe says this raises the question whether grandchildren are remote issue under a gift that specifically identifies both the children and grandchildren as beneficiaries. He submits that grandchildren are not remote issue because they have been specifically included in the beneficiary class. He contends that the term “remote issue” must refer to beneficiaries not immediately within the donor’s contemplation, but included to allow for a gift over in the event of the death of an intended beneficiary. He submits the absence of any substitutionary wording and the inclusion of both children and grandchildren in the wording of cl 2 indicates the settlor did not consider his potential grandchildren to be remote issue. This argument hinges on the Court seeing a distinction between the phrase “issue” or “remote issue” and the use of specific reference to the grandchildren in cl 2.
[34] However, if the grandchildren are not treated as remote issue (being of a successive generation) it is difficult to see what else they may be. If they are treated alongside their parents as first ranking beneficiaries rather than successive beneficiaries, it becomes more difficult to read cl 2 as a stirpital clause and not as a per capita clause. Mr Peploe recognises this because he states that “the stock” in cl 2 could be interpreted to mean the children and the grandchildren, as that would be consistent with the general rule that the “stocks” effectively means the “first takers”. He seeks to avoid this conundrum by arguing that such interpretation would be nonsensical because it would effectively result in a per capita distribution amongst children and grandchildren and so the second half of cl 2 would then have no significance. To this extent he is correct, but the balance of his argument would leave the grandchildren as neither “stocks” nor “issue”, which is not possible. The reference to grandchildren must be capable of characterisation, either they are first takers with their parents and so are part of the “stocks” / “stirpes” or they are removed from their parents in which case they logically then must become the only class of issue for which the Trust Deed makes provision. The remaining question being whether they should be treated in the way a per stirpes division generally treats issue.
[35] Mr Peploe submits that Re Rawlinson is distinguishable on the basis the question to be resolved in that case was how to divide relevant assets amongst the general multi-generational group “issue” and whether any distinction needed to be made between different generations within that class. Here in contrast, he says, the gift in cl 2 specifically refers only to the children and the grandchildren, and it is therefore not necessary to make any determination of priority between the two generations referred to because both generations are included in the gift. He argues that although in Re Rawlinson the Court held:18
Where property is bequeathed simply to the issue or to the descendants … per stirpes it is quite settled … that children do not take concurrently with their parents.
that the key point is that the rule was applied to distinguish between different generations falling within the general multi-generational class of issue of descendants. He contends that there is no indication in Re Rawlinson that the rule also applies where particular generations are specifically named as part of the beneficiary class as is the case with the children and grandchildren in cl 2. I reject this argument. It hinges on treating the grandchildren as in a category which is neither first taker nor issue. Mr Peploe provides no authoritative example where such has been recognised. Nor does it fit with the per stirpes rule, which is based on the existence of first takers and those who take under them.
[36] Mr Peploe then refers to Hawkins on Wills, which is another text on which the applicants rely, and where the authors note that “a gift to issue prima facie includes descendants of every degree.” Mr Peploe submits this point is significant as it indicates why a rule is required to prioritise those descendants when a gift is to be made to them. The rule that in a gift to issue per stirpes children never take concurrently with their parents, he says, recognises that a gift maker would arguably give priority to the descendants closest in degree to them, not equally to all descendants regardless of degree of remoteness.
[37] I agree in principle with the notion that the per stirpes rule serves to resolve priorities between multiple generations of beneficiaries and that a gift maker would
18 At 38.
arguably seek to give priority to his or her closest descendants. However, I see no reason why this rationale should not also be applied to the present circumstance. Something is needed to resolve the competing claims between the children and the grandchildren if they are all not to share per capita. I cannot see why the general application of the per stirpes rule should not provide the resolution. As mentioned earlier if the settlor wanted some partial application of the per stirpes rule, which is essentially what Mr Peploe argues for, with the Trust Funds divided into three and then each third being shared equally between a parent and their children, given that would be a departure from the typical application of the per stirpes rule, I would expect such an outcome to be explicitly stated in the Trust Deed.
[38] Mr Peploe submits there is a fundamental difference between a substitutionary gift to the multi-generational class of “issue” and a specific gift to identified classes, in this case children and grandchildren, with no specific provision for substitution. Mr Peploe says the difference lies in the universality of the terms “issue” or “descendants” and the rule is therefore intended to impose limits on such universal terms by finding recipients who can represent the rest. I reject this submission. Whilst the per stirpes rule is usually seen in cases where there are multiple generations I see no reason why the rule cannot apply fully in circumstances where there is only one such generation.
[39] Mr Peploe then moves from arguments based on the language of the Trust Deed to considering other factors relevant to interpreting cl 2. He points to the overall purpose of the Trust Deed which he submits was to provide for the Bourke family over time. He repeats the submissions that the 40-year settlement period indicates an intention to provide benefits to the settlor’s children and grandchildren, which is consistent with all of them receiving some benefits on distribution. I have already rejected this argument.
[40] Further, as to other provisions of the Trust Deed Mr Peploe refers to the trustees’ wide-ranging discretionary powers including in cl 1 of the Trust Deed powers to distribute capital and income to any one or more of the beneficiaries at any time during the settlement period. Thus, he submits the trustees could have distributed the entire trust fund to the children in equal shares at any time before the end of the
settlement period or exclusively to the grandchildren or even to a single child to the exclusion of all other beneficiaries. He submits all such options were available to the trustees given their wide-ranging discretionary powers provided that they complied with their general fiduciary obligations. He characterises cl 2 as simply providing a default distribution mechanism in the event of a failure by the trustees to distribute the Trust Fund during the settlement period. I reject this submission for being speculative. There is no basis for assuming that the settlor intended the bulk of the Trust Funds to be distributed under cl 1 during the life time of the Trust with cl 2 coming into effect only if the trustees failed to achieve distributions under cl 1. It is just as likely he intended the trustees use cl 1 powers to distribute income for the benefit of the beneficiaries during the life of the Trust with the capital assets of the Trust (being the farm property and stock) being distributed either at the end of the settlement period or earlier should he and his wife die beforehand.
[41] Mr Peploe then refers to the memorandum of wishes signed by the settlor dated 17 November 1980. This memorandum which was executed by the settlor and his wife (who was also a trustee) provides:
MEMORANDUM TO THE TRUSTEES OF THE H.J. BOURKE FAMILY
TRUST
While realising that we cannot impose any binding trust on you we would like you to know that it is our wish that the trust fund should after the death of the survivor of us be distributed to such of our children as survive both of us and attain the age of twenty-five years and so that if any child should die before the date of distribution leaving a child or children who survive him or her then such issue should take and if more than one equally between them the share which his her or their parent would have taken had he or she survived the date of distribution.
[42] This memorandum of wishes records that at least in 1980 the settlor’s intention was that following the death of the settlor and his wife the remaining trustees were to distribute the Trust Fund by dividing it equally amongst his children and any grandchild would only take if his or her parent had died before the date of distribution. Thus, the effect is the same as a standard stirpital division.
[43] Mr Peploe contends the 1980 memorandum of wishes was only to provide guidance to the trustees in relation to the exercise of their discretionary powers of distribution in cl 1 of the Trust Deed. He maintains the memorandum of wishes could
not be relevant to the interpretation of cl 2, which as he sees it provides default fixed entitlements on distribution, which are only necessary if the trustees have failed to distribute the Trust Funds before the expiry of the settlement date. He argues that the memorandum of wishes confirms that the settlor was aware cl 2 provided for a default distribution to the children and grandchildren, and on that basis in 1980 the settlor instructed the trustees, in the event the settlor and his wife died before the end of the settlement period, to distribute the trust fund equally to his children using the trustees’ discretionary powers so as to avoid the wider distribution to children and grandchildren provided for in cl 2. Further, Mr Peploe argues that unlike cl 2 the 1980 memorandum of wishes provides explicit substitutionary wording. Mr Peploe also argues that when the 1980 memorandum of wishes was completed there were no grandchildren and the first grandchild was not born until 1997. It was therefore reasonable for the settlor at that time to express a desire for the Trust Fund to be divided only amongst his children, if at that time he and his wife were to die before the expiry of the settlement period.
[44] I am not persuaded by Mr Peploe’s arguments. I think the better view is that the language of the 1980 memorandum of wishes was intended to ensure any final distribution pursuant to the trustees’ discretionary powers in cl 1 aligned with the form of the distribution under cl 2. Whilst the 1980 memorandum of wishes uses explicit substitutionary wording, which conveys the meaning that in a distribution under cl 1 no grandchild competes with his or her living parent, cl 2 uses the phrase “according to the stocks” which is the English equivalent of per stirpes and is generally understood to have the same effect as the explicit substitutionary language used in the 1980 memorandum of wishes. Thus, each document has been drafted using alternative forms of expression for achieving the same outcome.
[45] Although there were no grandchildren when the 1980 memorandum was executed the express reference it makes to them shows the settlor was looking to the future and making provision for how they should be dealt with. Thus, the settlor’s decision in the memorandum to give priority to his children over his grandchildren cannot be explained by their absence at the time this memorandum was executed.
[46] The reasons Mr Peploe gives for why the settlor in 1980 would have wanted a distribution of the Trust Fund under cl 1 to prefer his children over grandchildren apply just as much to the settlor’s circumstances and knowledge in 1979 when he settled the Trust. I also consider that the settlor would be more likely to intend that a final distribution of the Trust Fund, be it under cl 1 or cl 2, follow the same form; and if the term “according to the stocks” in cl 2 is given its generally understood meaning that outcome would follow. Accordingly, I consider the 1980 memorandum of wishes is a helpful aid, which confirms the settlor intended the “according to the stocks” direction in cl 2 to have its generally understood meaning.
[47] The 1997 memorandum of wishes, which the settlor executed at a time when the settlor was expecting his first grandchild, records that the Trust is a beneficiary under his will and requests the trustees to exercise their cl 1 discretionary power to make an early distribution to the children:
MEMORANDUM OF WISHES
To: The Trustees of H J Bourke Family Trust
1. I EXPRESS the following wishes to the trustees of the Trust.
2. THESE are my wishes until they are amended by subsequent oral or written wishes made known to my trustees.
3. I REQUEST that my trustees honour my wishes set out in this memorandum but I understand that:
(a)This power to make decisions is vested in my trustees; and
(b)My trustees can only act by unanimous agreement; and
(c)My trustees must comply with the terms of the Trust; and
(d)My trustees must act prudently; and
(e)There may be a change of circumstances; and
(f)As a result, not all of my wishes may be honoured.
4. THE Trust is a beneficiary under my last will. My children are discretionary beneficiaries of that Trust. I would like them to benefit in the manner set out in the subsequent clauses.
5.a. The Trust funds are to be divided equally among my three children.
b. I would like each of my children to consider using the provisions of the Trust to best advantage for the protection of the distribution which they will receive.
[48] This memorandum is silent on the question of distributions to grandchildren. So, at a time when the prospect of a grandchild was more real than earlier on in 1979 (when the trust was executed) and 1980 (when the first memorandum of wishes was executed) the settlor confines his request to the trustees to make distributions to the children. The 1997 memorandum of wishes provides a further indication that the settlor gave priority to his children over any grandchildren.
[49] I recognise that, as with the earlier memorandum, this only applied to distributions under cl 1 however the preference given to children over grandchildren is consistent with what had gone before. The preference given to children over grandchildren is consistent throughout. The fact the requests in the memoranda of wishes are confined to the operation of cl 1 can be explained by the fact cl 1 provides discretionary powers to trustees, for which they might receive requests as to their exercise, whereas cl 2 provides directions that automatically take effect on a given date. In relation to cl 2 it would be inappropriate for the settlor to express a view on how this clause should be applied.
Conclusion
[50] In short, I am satisfied that a per stirpes direction is a substitutionary direction that has two elements, one of which is that members of a more remote generation (be they described generically as “issue” or by their exact relationship to the settlor) do not take in competition with a living parent.19 Whilst a per stirpes direction is capable of being varied by the omission of this element, explicit language is required to achieve that result. Such is not present here. Accordingly, I find the distribution of the Trust Fund should proceed in the manner of an orthodox per stirpes division,
19 See [16] herein for full description of the two elements.
Result
[51] I direct that for as long as the children of the settlor remain alive the Trust Funds be divided equally between them, to the exclusion of the grandchildren. Should this direction require alteration leave is reserved to the parties to return to Court for that purpose.
[52] The proceeding was brought because the trustees considered there was a need to obtain the direction of the court as to the meaning of cl 2 of the Trust Deed. In such circumstances it seems appropriate to me that the costs of the proceeding be met from the Trust Funds. However, if any party has a contrary view they and the other parties in response have leave to file memoranda as to costs. This should be done by the party applying for a different result filing a costs memorandum within 10 working days of delivery of this judgment. Other parties have 10 working days from receipt of that costs memorandum to file memoranda in response.
Duffy J
Solicitors/Counsel:
Patterson Hopkins, Auckland Tompkins Wake, Hamilton Harkness Henry, Hamilton Edmonds Judd, Te Awamutu
Susan Hughes QC, New Plymouth