Farmers Trading Company Limited v Persons Directed to be Served
[2019] NZHC 2987
•15 November 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1680
[2019] NZHC 2987
UNDER Part 18 of the High Court Rules and Sections 66 and 73 of the Trustee Act 1956 IN THE MATTER
of the Laidlaw Brothers Memorial Trust
BETWEEN
FARMERS TRADING COMPANY LIMITED
Plaintiff
AND
PERSONS DIRECTED TO BE SERVED
Respondent
Hearing: 13 November 2019 Appearances:
M Morrison and Y Wen for the Plaintiff
GP Blanchard QC for Plaintiff’s Employees
Judgment:
15 November 2019
JUDGMENT OF WALKER J
This judgment was delivered by me on 15 November 2019 at 3.00 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
FARMERS TRADING COMPANY LIMITED v PERSONS DIRECTED TO BE SERVED [2019] NZHC 2987
[15 November 2019]
Background
[1] Farmers’ Trading Company Limited (Farmers) is one of New Zealand’s most well-known companies, with a long and successful history. Today it employs around 4,098 people with branches across New Zealand.
[2] Mr Robert Laidlaw founded Farmers in 1917. In 1927, he established the Laidlaw Brothers Memorial Trust (the Trust) in memory of his two brothers, Arthur and Jack, who lost their lives in the First World War. He gifted 5,000 shares in the company to be held by Farmers as trustee for the benefit of employees of its then Head Office. The benefits originally included cash gifts on the retirement of female staff members to marry, and on the birth of children of employees, and loans to employees.
[3] The Trust was administered by a Committee established under the Trust Deed until 1971 and thereafter by Farmers Company Secretary.
[4] Thirty-two years after the Trust’s formation, Farmers broadened the benefits of the Trust and made them available to all permanent employees of Farmers and its subsidiaries. Between 1955 and 1982, Farmers also advanced funds into the Trust significantly increasing the total accumulated funds. In 1982 the proceeds of shares held by employees that were forfeited when they resigned were settled into the Trust. These shares would otherwise have reverted to Farmers. This step significantly improved the financial position of the Trust.
[5] In 1993 or thereabouts, Farmers received legal advice that the Trust as originally established was in breach of the rule against perpetuities and therefore invalid. It applied to the High Court for orders to validly reform the Trust with a legitimate perpetuity period. Consequential orders were also sought.
[6] Interested parties were represented in those Court proceedings, including, materially, Mr Laidlaw’s surviving family members and permanent employees of Farmers. A representative of the Laidlaw family deposed that the family was concerned to see that their father’s wishes were carried out as far as legally possible
and they, as a family, did not wish to make any claim to the fund held by the Trust or any part of it.
[7] Tompkins J made orders in an interim judgment dated 9 February 1995. Those orders:
(a)confirmed the 1959 variation that the Trust was for the benefit of all of Farmers’ employees;
(b)included a perpetuity period calculated by reference to the life of William Calder McKay, an employee at the time the Trust was established. This meant that the Trust terminated on or before 18 June 2011, being 21 years less one day after the date of the death of Mr McKay;
(c)provided for the establishment of an Incorporated Society not later than one year prior to the expiry of the perpetuity period, with rules in the form annexed to the Deed of Trust, and with the express provision that on the date of expiry of the perpetuity period, the Trust Fund (being the balance of Trust assets) was to be vested in the Incorporated Society.
[8] Notably, the Rules of the proposed Incorporated Society were broadly consistent with the purposes of the Trust. The principal object of the Incorporated Society was to provide benefits to the employees of Farmers.
[9] Unfortunately, Farmers did not establish the Incorporated Society on the requisite date and failed to vest the Trust assets into it. The reasons why this did not occur are not now known. Farmers continued to administer the Trust as if it remained on foot and valid. It continued to provide benefits to employees of Farmers from the Trust assets. It never obtained or sought to obtain any benefit from the assets of the Trust.
[10] The consequence of this omission was that the Trust was invalid from 18 June 2011. Farmers submits that, from this date, the Trust assets were held by
Farmers as trustee on resulting trust for the benefit of (and at the direction of) those parties who had settled assets into the Trust. Those parties were the Laidlaw family in respect of what remained of the original shares settled in the Trust and any remaining interest earned on those shares, and Farmers, in respect of the balance of the Trust assets.
Purpose of this originating application – to put matters right
[11] Having now discovered the oversight, Farmers comes to this Court to rectify matters. It seeks to do that which ought to have been done by 18 June 2011. In short, this is to vest the remaining assets of the Trust into an Incorporated Society to ensure that these assets continue to be available for the benefit of employees of Farmers and its subsidiaries. It has therefore established and registered the Laidlaw Brothers Memorial Employees Society (the Society) with objects which largely mirror those the Court approved in 1993 (with minor adjustments to reflect modern day conditions).
[12] The members of the Society are all affiliated with Farmers: three members are directors of Farmers and the remaining twelve members hold senior positions within Farmers.
Directions under s 66 Trustee Act 1956
[13] Farmers seeks directions under s 66 of the Trustee Act 1956 (the Act) that the assets of the Laidlaw Brothers Memorial Trust shall vest in the Society. This would mean that the Society becomes the absolute legal and beneficial owner of all such assets. It also seeks a consequential order under s 73 of the Act that Farmers be wholly relieved from any liability in respect of any inadvertent breaches of trust that have occurred to date.
[14] Materially, without an order in the terms sought, the employees of Farmers would have no entitlement to any benefits from the property held on trust.
[15] This application was brought to the notice of interested parties in accordance with directions made by Muir J on 27 August 2019. First, Farmers appended an explanatory notice on all staff kitchen facilities. That notice provided an email address
by which any interested employee might request copies of the papers filed in this proceeding. Secondly, it forwarded the same explanatory notice to the survivors of the Laidlaw family.
[16] In addition, out of an abundance of caution, and wishing to proceed with the utmost transparency, Farmers appointed Senior Counsel, Mr Blanchard QC, to independently represent the interests of employees. Mr Blanchard’s costs are being met by Farmers and not out of the Trust assets. Leave was reserved to any staff member or members to instruct their own counsel if they considered it appropriate.
[17] By memorandum dated 24 October 2019, Mr Blanchard advised the Court that it was in the employees’ interests for the Court to make the orders sought by Farmers.
[18] Only one response was received from a Laidlaw family member and this expresses support for the application made by Farmers.
[19] Having reviewed the material provided to me, I have no doubt that the orders sought by Farmers will best ensure that the original intentions of the settlor will continue to be met and that it is in the best interests of all employees of Farmers that the orders are made. The question before me is only as to the proper route to achieve the just result.
[20] In a nutshell, Farmers submits that when it omitted to establish the Society and vest the Trust’s assets into that Society by 18 June 2011, the Trust became invalid. The assets were then held on resulting trust: the remainder of Mr Laidlaw’s original contribution for the surviving members of the Laidlaw family and the balance of the Trust assets for Farmers. It is clear from the evidence of Mr Power, Chief Financial Officer of Farmers, that the value of what remains (if anything) of the proceeds of the 5,000 shares originally settled in the Trust by Mr Laidlaw is minimal. As at 25 May 1955, the total value of the assets of the Trust after all of the 5,000 shares had been sold and the proceeds realised, was $10,968 (in terms of dollar value as calculated in the 1993 proceeding).
[21] It is possible, but need not be determined, that when Farmers continued to pay benefits to employees, this amounted to a breach of the resulting trust in favour of the surviving members of the Laidlaw family. If so, it would have been an inadvertent breach of no material consequence.
[22] By way of starting point, I accept Mr Morrison’s submission that as at 18 June 2011, the Trust assets were held in a resulting trust by Farmers.1
[23]Section 66 of the Act reads:
66 Right of trustee to apply to Court for directions
(1)Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee.
(2)Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the Court thinks expedient.
[24]A trust for the purposes of the Act is defined in the following terms:
2 Interpretation and application
trust does not include the duties incidental to an estate conveyed by way of mortgage, but with this exception it extends to implied and constructive trusts, and to cases where the trustee has a beneficial interest in the trust property…and trustee has a corresponding meaning.
[25] Is a resulting trust an implied or constructive trust for the purposes of s 66 of the Act? The proper conceptual basis for constructive trusts has been the subject of much academic comment and debate. Some learned commentators consider that there are three categories of trust imposed by law: statutory trusts, resulting trusts and constructive trusts.2 In other instances, it is said that:3
All trusts imposed by law are constructive trusts, and resulting trusts are a sub- set of constructive trusts which conform to a particular fact-pattern, so that the two are effectively interchangeable whenever these facts are encountered.
1 Lynton Tucker et al, Lewin on Trusts Thomson Reuters (19th ed) 2015 at 8-004.
2 David Hayton (ed) Underhill and Hayton: Law Relating to Trusts and Trustees (19th ed, LexisNexis, Landon, 2016) at 22.2 – 22.6.
3 At 22.6.
[26] I consider that it is unnecessary to resolve an issue that, in the circumstances before me, amounts to no more than an interesting question of characterisation. On a textual and purposive interpretation of s 66 and the definition of “trust” in the Act, I am satisfied that Farmers has standing under s 66 to seek these directions or, in the alternative, to seek such directions under the inherent jurisdiction of this Court. In my judgement, the directions sought concern property subject to a trust and extend a broad discretion to achieve the outcome Farmers seeks to achieve. I find support for this approach in the judgment of Kos J in New Zealand Maori Council v Foulkes in which he stated:4
The fundamental purpose of s 66 may be in danger of becoming lost. It is after all, simply an enactment of a broad Equitable jurisdiction that has long resided in the Chancery Courts…
Section 66 is a robust, parallel source of jurisdiction to resolve any substantial question of law concerning the meaning or administration of a trust.
[27] Kos J also recognised that the inherent jurisdiction is closely related to the statutory jurisdiction under s 66 and that “the latter is really an offspring of the former”.5
[28] I am satisfied that the directions sought by Farmers are proper and appropriate in the circumstances. They are not opposed by the interested parties and Farmers has done everything reasonably in its power to ensure that the interested parties have had a say. The directions sought do no more than perfect that which ought to have been perfected in 2011, consistent with the equitable maxim that “equity regards as done that which ought to be done”. Such maxims have been aptly described as “a point of orientation” or “type of equitable compass”.6
Relief from Trust breaches – s 73 of the Act
[29] I turn to the second, consequential part of the directions sought by Farmers. Farmers’ statement of claim pleads, firstly, that the failure to vest the Trust assets in the Society in 2011 was a breach of the Deed of Variation of Trust and secondly, that
4 New Zealand Maori Council v Foulkes [2015] NZAR 1441, [2014] NZHC 1777 at [44]-[46].
5 At [56].
6 Andrew Butler Equity and Trusts in New Zealand, (2nd ed, Thomson Reuters, Wellington, 2009) at [2.7.1].
there may have been a theoretical breach of the resulting trusts on which it has held whatever Trust assets remained from the original contribution from Mr Laidlaw. This theoretical breach is only to the extent that it may have applied such assets to the benefit of employees without the express agreement of the Laidlaw family. It seeks relief from any personal liability under s 73 of the Act.
[30]Section 73 of the Act reads:
73. Power to relieve trustee from personal liability
If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed the breach, then the Court may relieve him either wholly or partly from personal liability for the same
[31]This section provides a broad discretion with four key requirements:
(a)has the trustee acted honestly;
(b)has the trustee acted reasonably;
(c)is it fair for the trustee to be excused for the breach of trust; and
(d)is it fair for the trustee to be excused from not seeking directions from the Court.7
[32] I am left in no doubt that Farmers has acted honestly and reasonably for the reasons that Mr Morrison submitted:
(a)Farmers has continued to administer the Trust as if it had remained valid by providing the benefits for employees in accordance with the objectives of the Deed of Variation of Trust and the underlying intentions of Mr Laidlaw;
7 Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees, (7th ed LexisNexis, Wellington, 2013) at 854.
(b)Farmers initiated this proceeding to rectify the issue once it discovered it and has met all its own costs rather than applying any of the Trust’s assets to fund any costs;
(c)Any delay has arisen only because of Farmers’ wish to locate and consult with surviving members of the Laidlaw family.
(d)There is no discernible prejudice to the intended beneficiaries.
I am satisfied that all the requirements of s 73 of the Act are made out.
Orders made
I make the following orders:
(a)I direct that the assets of the now invalid Laidlaw Brothers Memorial Trust shall vest in the Laidlaw Brothers Memorial Employees Society Incorporated such that the Society is the absolute legal and beneficial owner of all such assets;
(b)An order pursuant to s 73 of the Trustee Act 1956 that Farmers be relieved from any personal liability whatsoever in respect of the breaches of trust referred to in paragraphs [20]-[22] of the Statement of Claim.
[34]I record that no order for costs is sought by Farmers.
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Walker J
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