Fidelis Trust Limited
[2024] NZHC 2740
•20 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1614
[2024] NZHC 2740
UNDER sections 122, 124, 133 and 144 of the Trusts Act 2019 and the inherent jurisdiction of the High Court of New Zealand IN THE MATTER OF
an application for directions and approvals under the Trusts Act 2019
BY
FIDELIS TRUST LIMITED
Applicant
Hearing: on the papers Counsel:
A S Butler KC, N L Walker and J B C Trezise for applicant
W Aldred KC and P Cassin, P Dale KC and J Ewart, D Grove and G Halse, S Robertson KC and A Gilbert, and R Thompson for the beneficiaries
Judgment:
20 September 2024
JUDGMENT OF JOHNSTONE J
This judgment was delivered by me on 20 September 2024 at 4pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Russell McVeagh, Auckland Paul Cassin, Auckland Ewart & Ewart, Auckland Foy & Halse, Auckland Brookfields, Auckland
FIDELIS TRUST LIMITED [2024] NZHC 2740 [20 September 2024]
[1] By originating application dated 8 July 2024, Fidelis Trust Limited seeks three types of orders, pursuant to the Trusts Act 2019, facilitating the settlement of family negotiations relating to substantial assets held in trust.
[2] On 19 July 2024, I granted leave to commence by originating application, appointed Richard Thompson, barrister, as counsel for minor and unascertained beneficiaries, and made directions as to service, the filing of papers in opposition, and otherwise for the purpose of progressing the proceeding. The application has been served as directed. Albeit Mr Thompson’s position for the minor and unascertained beneficiaries requires further explanation below, no papers were filed in opposition.
[3] Counsel for all interested parties filed joint memoranda dated 12 August 2024 and 17 September 2024, setting out the basis on which they propose that the Originating Application should now be determined on the papers, and granted, subject to amendment of the terms in which one of the order types is made.
[4] I agree it is appropriate that I should determine the application on the papers, and proceed to do so.
Background
[5]James Victor Davern (James) is 94 years old. He has three families:
(a)his ex-wife Daphne Fay Kingston (Daphne) and his children and grandchildren from that marriage (Family No 1);
(b)his son from a relationship outside his marriage to Daphne, Samuel James Middlemiss, Samuel's wife Tori Ovedal Middlemiss, and their children Johanna and Annika (Family No 2); and
(c)his current wife, Jeanette, and her children from a previous marriage (Family No 3).
[6] Throughout his life, James built up significant personal wealth. In December 1965, he settled the James Davern Family Trust (No 1 Trust). James also built significant wealth in the No 1 Trust. Fidelis is the sole trustee of the No 1 Trust.
[7] James no longer has capacity. Some years ago, James and Jeanette began looking to arrange James’ affairs before his death.
[8] James (through Jeanette and independent counsel), Jeanette, Fidelis, Family No 1 and Family No 2 entered a period of negotiations, including two mediations, which resulted in agreement on how the assets owned by various entities linked to him (including the No 1 Trust and companies it owns shares in) should be allocated between them, including after James’ death. This agreement is recorded in a deed, styled Deed Recording Family Arrangements and Interparty Transactions (DRFAIT).
[9]The DRFAIT provides for:
(a)the assets of the No 1 Trust, James and companies owned by the No 1 Trust and James to be restructured on a value neutral basis;
(b)James' personal assets and estate to pass according to an amended will that Jeannette will sign on his behalf for, in broad terms, the benefit of Family No 3;
(c)the No 1 Trust to be solely for the benefit of, and controlled by, members of Family No 1; and
(d)Samuel and Family No 2 being provided for out of the No 1 Trust and by James personally.
The originating application in more detail
[10]The originating application sought orders of the following types:
(a)blessing orders under s 133 of the Trusts Act 2019, directing that it is proper and lawful for the applicant to exercise its powers as trustee of the No 1 Trust to:
(i)enter into the DRFAIT and implement the restructure (Restructure) set out therein; and
(ii)enter into the DRFAIT and implement the transaction / settlement with Samuel and Tori set out in cl 6.1A of the DRFAIT (the Family No 2 Settlement);
(b)an order pursuant to s 124 of the Trusts Act, approving,1 on behalf of Jeanette, Tori, Johanna, Annika and any unascertained beneficiaries of the No 1 Trust (Unascertained Beneficiaries), variations to the No 1 Trust Deed set out in Schedule Seven to the DRFAIT and reproduced in Schedule 1 to the originating application; and
(c)orders under s 144 of the Trusts Act 2019, approving the DRFAIT on the basis that it represents an alternative dispute resolution (ADR) settlement, and permitting Mr Thompson (or any other barrister or solicitor as required) to sign on behalf of Johanna, Annika and the Unascertained Beneficiaries a deed binding them to the terms of the DRFAIT.
[11] The variation order described at [10](b) was sought to make it clear that the No 1 Trust would in future operate only for the benefit of the No 1 Family. The ADR
1 The originating application used the phrase “consenting… on behalf of…”. However, as noted, it expressly sought this order pursuant to s 124. Section 124 is directed to approval of trust termination, variation or resettlement. Section 125 is directed to waiver of beneficiary consent to trust termination, variation or resettlement. Clauses 6.10 and 6.11 of the DRFAIT contemplated an application that the Court approve the variation under s 124 and/or waive the requirement of consent to the variation under s 125. I interpret this aspect of the originating application as an application for approval under s 124.
settlement approval orders described at [10](c) were sought so as to bind Johanna, Annika and the Unascertained Beneficiaries to the DRFAIT.
Mr Thompson’s position
[12] By memorandum dated 31 July 2024, Mr Thompson carefully and responsibly set out his position as counsel for Johanna, Annika and the Unascertained Beneficiaries. In summary, he:
(a)approved of the DRFAIT on behalf of Johanna, Annika and any Unascertained Beneficiaries that are unborn children of Samuel (provided the funds to be paid to Samuel are settled on trust as proposed by Samuel);
(b)approved of the DRFAIT on behalf of any Unascertained Beneficiaries that are unborn children of Dianne, Lynda or Kenneth; and
(c)did not approve the DRFAIT on behalf of any Unascertained Beneficiaries that are a future unmarried widow of James, Sam or Kenneth or any unborn child of James.
[13] Mr Thompson explained that he could not approve the DRFAIT for parties described at [12](c), as their removal as contingent discretionary beneficiaries without adequate alternative provision would be against their interests. Implicitly, he could not approve the DRFAIT for the [12](c) parties because clause 6.10 binds the DRFAIT parties to request the variation to the No 1 Trust deed that is now sought in this proceeding, and clause 6.11 binds the DRFAIT parties to agree to support this variation application.
[14] However, Mr Thompson recognised that the Court may nevertheless take the view that implementation of the DRFAIT, including by approving the proposed variation of the No 1 Trust deed, is appropriate, and that a variation order under ss 124 or 125, and ADR settlement approval orders under s 144, should be made accordingly.
The further position of all counsel
[15] The parties conferred following the filing of Mr Thompson’s memorandum. The joint memorandum of all counsel dated 12 August 2024 consequently seeks:
(a)the blessing orders, by consent;
(b)the variation order, by consent of all counsel other than Mr Thompson; and
(c)the ADR settlement approval orders, on an amended basis described below, by consent.
The blessing orders
[16] Section 133 of the Trusts Act 2019 provides that a trustee may apply to the court for directions about the trust property or the exercise of any power or performance of any function by the trustee.
[17]The Court should consider:2
(a)whether the trustee in fact formed the opinion which the court is asked to bless;
(b)whether the opinion formed is one at which a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the trust deed, could properly have arrived; and
(c)whether the opinion is vitiated by any conflict of interest under which any of the trustees might have been labouring.
[18] Fidelis demonstrated its favourable opinion of the Restructure and Family No 2 Settlement (subject to this Court's approval) by executing the DRFAIT. Further, its directors filed a joint supporting affidavit setting out its reasons for taking the view
2 Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [56].
that the DRFAIT is in the best interests of the beneficiaries of the No 1 Trust taken as a whole. In summary:
(a)the Restructure rationalises the asset holdings of the No 1 Trust and James, and a company owned by them, which will ultimately separate the financial affairs of the three families; and
(b)the Family No 2 Settlement separates the affairs of Family No 1 and Family No 2 in a manner that advances the best interests of all beneficiaries of the No 1 Trust while also avoiding potentially protracted and costly litigation.
[19] I accept that the decision to implement the Restructure and Family No 2 Settlement (subject to this Court's approval) is one at which a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the trust deed, could properly have arrived.
[20] The extent of the parties’ agreement outlined below, including that of Fidelis' independent director, demonstrates that conflicts of interest have not vitiated Fidelis' decision, subject to the Court’s approval, to execute the DRFAIT and implement the Restructure and Family No 2 Settlement.
[21]I intend to grant the blessing orders sought.
The variation order
[22] Section 124 of the Trusts Act permits the Court to approve the variation of trusts on behalf of beneficiaries who lack capacity, and future beneficiaries such as the Unascertained Beneficiaries. The following principles apply:3
(a)The power to approve a variation is discretionary.
3 Gavin v Gavin [2021] NZHC 550 at [15].
(b)The Court may, on behalf of any beneficiary described in s 124(2) who has an interest in the property of a trust, consider any proposal to terminate, vary or resettle a trust.
(c)The Court’s discretion is to be exercised with reference to the factors identified in s 124(4) to the extent these can be ascertained.
(d)The Court can approve a scheme which conflicts with the intentions of the settlor but should not do so lightly.
(e)The Court considers the trust provisions afresh if circumstances have arisen which were not foreseen or may not have been foreseeable at the time the trust was established.
(f)The Court is able to approve an arrangement to the detriment of any person on whose behalf the Court is giving consent, provided the effect of the orders would not reduce or remove a vested interest in the trust property.
(g)The Court is to take a broad approach to benefits and detriments, and must consider the arrangements as a whole in a practical and business-like way. Indirect and intangible benefits and detriments are relevant, including the welfare and honour of the family.
[23] The following parties to the joint memorandum dated 12 July 2024 consent to the proposed variation:
(a)Fidelis;
(b)James (through Jeanette);
(c)Jeanette — a member of Family No 3;
(d)Daphne, her daughter Dianne Fay Davern, Dianne’s two children Kent Aspden and Cher Aspden, Daphne’s daughter Lynda May Wilson,
Lynda’s children Hayley Wilson and Brin Wilson, Daphne’s daughter Kenneth James Davern, and Kenneth’s children Jackson Davern and Mitchell Davern — members of Family No 1;
(e)any other future children of Dianne, Lynda or Kenneth (future grandchildren of James) – being any other members of Family No 1, represented by Mr Thompson;
(f)Samuel and Tori — members of Family No 2; and
(g)Johanna, Annika and any other future child of Samuel — being any other members of Family No 2, represented by Mr Thompson — provided payments and asset transfers to be made to Samuel’s nominee under the DRFAIT are made to a new trust that has the following features:
(i)Samuel is to be settlor, and to hold powers of appointment and removal of trustees.
(ii)Samuel is to be one of the original trustees, as sole director and sole shareholder of a trustee company.
(iii)There is to be an independent trustee, which on settlement is to be a corporate trustee. However, there is to be power for there to be a single (corporate) trustee.
Samuel is to be a discretionary beneficiary.
(v)Samuel’s children are to be discretionary and final beneficiaries.
(vi)There is to be a power for the trustee(s) to add and remove beneficiaries.
[24]I accept their submissions that:
(a)James as settlor consents to the proposed variation.
(b)The proposed variation does not affect any vested interest in the No 1 Trust.
(c)In respect of current and future children of Dianne, Lynda, Kenneth, and Samuel, Mr Thompson consents to the variation application.
(d)In respect of the other Unascertained Beneficiaries:
(i)notwithstanding the hypothetical detriment appropriately identified by Mr Thompson, this Court may still exercise its discretion to consent to the variation on their behalf; and
(ii)the Court should do so as the likelihood is very low of there being any unborn child of James, or any future unmarried widow of James (other than his wife Jeanette who consents to the variation), of Samuel (other than his wife Tori who consents to the variation), or of Kenneth (who is not married and consents to the variation).
[25] More broadly, I consider the effect of the proposed variation on the above parties’ interests in the property of the No 1 Trust, given their nature and the advantages of implementing the ADR settlement, which itself appears properly to have been entered in full appreciation of those interests, to be entirely desirable.
[26]I intend to grant the proposed variation order.
The amended ADR settlement approval orders
[27] Section 144(1)(a) of the Trusts Act 2019 requires the Court to appoint representatives of any unascertained beneficiaries of trusts, or of beneficiaries who lack capacity, for trust matters subject to an alternative dispute resolution (ADR)
process such as that which led to the DRFAIT. Representatives appointed in accordance with s 144(1)(a) may agree to an ADR settlement on behalf of the beneficiaries they are appointed to represent.4 However, to be binding, any ADR settlement must be approved by the Court.5
Mr Thompson’s appointment
[28] The Unascertained Beneficiaries, Johanna and Annika were not directly parties to the ADR process which led to the DRFAIT. However, Fidelis considered that:
(a)Samuel and Tori could represent Johanna and Annika's interests, as well as the interests of any unborn children of Samuel.
(b)The Unascertained Beneficiaries, other than to the extent they may in future include Tori, are likely to be James' future grandchildren in Family No 1. The interests of the latter future beneficiaries of the No 1 Trust were represented by Family No 1.
[29] In any event, the parties took further measures to ensure the interests of Johanna, Annika and the Unascertained Beneficiaries were protected. To that end, they agreed to the prospective appointment of Mr Thompson as independent counsel to represent those interests in this proceeding. Mr Thompson had been appointed by the Family Court in a similar capacity in relation to proceedings in that court, issued as an adjunct to the discussions which led to the DRFAIT. The DRFAIT renders the Family Court proceedings unnecessary. They have been discontinued.
[30] Mr Thompson was not actively involved in the ADR process but was kept up to date and copied into correspondence to assist him in his proposed independent representation of Johanna, Annika and the Unascertained Beneficiaries in this proceeding.
4 Trusts Act, s 144(1)(b).
5 Section 144(1)(c).
[31] My order of 19 July 2024, mentioned at [2], accordingly appointed Mr Thompson as counsel specifically for Johanna, Annika and the Unascertained Beneficiaries.
Agreement and approval
[32] The DRFAIT was conditional on Mr Thompson agreeing to it on behalf of Johanna, Annika and the Unascertained Beneficiaries. Mr Thompson's memorandum of 31 July 2024 raised the possibility that the DRFAIT could be prevented from going unconditional.
[33] The amended ASP settlement approval orders sought pursuant to the joint memorandum dated 12 August 2024, as subsequently modified by the joint memorandum dated 17 September 2024, overcame that difficulty. As outlined in those memoranda, the parties have agreed that certain of the Unascertained Beneficiaries will not covenant to be bound by clause 6.10 or clause 6.11 of the DRFAIT. Thus, when agreeing, on behalf of Johanna, Annika and the Unascertained Beneficiaries, to enter an appropriately amended form of the deed which would bind them to the DRFAIT, Mr Thompson would not be binding these certain Unascertained Beneficiaries to support the variation of the No 1 Trust deed.
[34] The parties annexed an amended draft of the deed to bind Johanna, Annika and the Unascertained Beneficiaries to the DRFAIT, as Schedule 1 to their joint memorandum of 12 August 2024. Their joint memorandum of 17 September 2024 modified the proposed wording of the deed, to clarify which of the Unascertained Beneficiaries would not be bound by clauses 6.10 and 6.11 of the DRFAIT. And Mr Thompson, by endorsing these memoranda, has confirmed that he is prepared to sign the draft deed, as amended, on behalf of Johanna, Annika and the Unascertained Beneficiaries, should the Court approve the ADR settlement.
[35] As noted, Johanna, Annika and the Unascertained Beneficiaries No 1 Trust are not parties to the DRFAIT. However, it is desirable that they are bound to the DRFAIT, except to the extent identified at [33] and [34], to ensure that the overall benefits of the negotiated settlement eventuate.
[36] On that basis, I am minded to grant the application for ADR settlement approval orders.
[37] I note that, although clause 6.8B(d) of the DRFAIT makes the DRFAIT conditional upon Mr Thompson (or any other barrister or solicitor as required) having agreed it on behalf of Johanna, Annika, and the Unascertained Beneficiaries, the parties to the DRFAIT have expressly agreed, by way of the joint memorandum dated 17 September 2024, that Mr Thompson’s agreement to the draft deed annexed to the 12 August 2024 memorandum as Schedule 1, as amended per paragraph seven of the 17 September 2024 memorandum, will satisfy the above aspect of the condition set out at clause 6.8B(d) of the DRFAIT.
Result
[38] I grant the originating application by Fidelis Trust Limited (Fidelis) dated 8 July 2024, as amended by the joint memoranda dated 12 July and 17 September 2024 (the Application). I make orders accordingly:
(a)pursuant to s 133 of the Trusts Act 2019, directing that it is proper and lawful for Fidelis to exercise its powers, as trustee of the James Davern Family Trust under the No 1 Trust deed dated 16 December 1965 (No 1 Trust Deed):
(i)to enter into the deed recording family arrangement and interparty transactions (DRFAIT) and to implement the restructure set out in the final asset restructure schedule in Schedule Two to the DRFAIT; and
(ii)to enter into the DRFAIT and implement the transaction / settlement with Samuel James Middlemiss and Tori Ovedal Middlemiss (Tori) set out in cl 6.1A of the DRFAIT;
and;
(b)pursuant to s 124 of the Trusts Act 2019, approving, on behalf of Jeanette Barbara Davern, Tori, Johanna Middlemiss (Johanna), Annika Middlemiss (Annika) and any unascertained beneficiaries of the No 1 Trust (being any future unmarried widow of James Victor Davern should he remarry, any unborn child or grandchild of James and any future unmarried widow of any deceased son of James — Unascertained Beneficiaries), the variations to the No 1 Trust Deed set out in Schedule 1 to the Application; and
(c)pursuant to s 144 of the Trusts Act 2019, approving the DRFAIT on behalf of Johanna, Annika and the Unascertained Beneficiaries and permitting Richard Thompson to sign on their behalf a deed, in the form annexed as Schedule 1 to the joint memorandum of counsel dated 12 August 2024 but subject to replacement of covenant 1 of that draft deed with the covenant set out at paragraph seven of the joint memorandum of counsel dated 17 September 2024, binding them to the terms of the DRFAIT (save for, in the case of the persons described in that modified covenant 1 only, clauses 6.10 and 6.11 of the DRFAIT).
Johnstone J
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