Francis v Mortlock
[2024] NZHC 3220
•1 November 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-317
[2024] NZHC 3220
UNDER the Trusts Act 2019 BETWEEN
DEBORAH ANNE FRANCIS
Plaintiff
AND
SIMON GEORGE MORTLOCK AND CRAIG PAUL BURROWES
Defendants
Hearing: On the papers Appearances:
J W A Johnson and D J Pine for Plaintiff H G S Douch for Defendants
T C Weston KC and G Angus for H Francis S C I Jefffs for J F Blaxall and N F Norris
N L Walker and J B C Trezise for Wayne Francis Charitable Trust
Judgment:
1 November 2024
JUDGMENT OF DUNNINGHAM J
This judgment was delivered by me on 1 November 2024 at 10 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
FRANCIS v MORTLOCK [2024] NZHC 3220 [1 November 2024]
Introduction
[1] The defendants (the Applicants) have filed an interlocutory application for joinder and for orders under the Trust’s Act 2019. They, along with counsel for the other parties to the proceedings, have also provided a joint memorandum seeking the following orders to be made by consent:
(a)Pursuant to r 7.43A(1)(e) of the High Court Rules 2016 (Rules), for joinder of Simon George Mortlock (Simon) and Craig Paul Burrowes (Craig) in their capacities as trustees of the Family Trust, trustees of the Property Trust, and executors/trustees of the Estate as interested parties to these proceedings (Joinder Application);
(b)Pursuant to s 133 of the Trusts Act 2019 (Act) and/or the inherent jurisdiction of the Court, directing that it is proper and lawful for the Applicants to exercise their powers under the Wayne Francis Charitable Trust deed dated 22 June 1999 (WFCT Deed), W J Francis Family Trust deed dated 31 May 1992 (Family Trust Deed), Francis Property Trust deed dated 11 April 1993 (Property Trust Deed) and the will of Wayne James Francis dated 22 June 1999 (Will), respectively to enter into the settlement agreement dated 29 August 2024 (Settlement Agreement) and implement the settlement with Deborah as set out in the Settlement Agreement (Blessing Application); and
(c)Pursuant to s 124 of the Act, approving the variations to the WFPBT Deed, Family Trust Deed and Property Trust Deed set out in Schedule 1 to the Applicants’ interlocutory application (Variation Application) to take effect after the Applicants have transferred to the sum of
$15,000,000 (Settlement Sum) pursuant to the Settlement Agreement.
[2]I must consider whether it is appropriate to make the orders as sought.
Factual background
[3] Wayne James Francis (Wayne) passed away on 28 June 1999. Wayne was survived by his widow, Deborah Anne Francis (Deborah), and only child Helena Francis (Helena) from his first marriage to Sandra Francis. Helena has two children, Jamie Francis Blaxall (Jamie) and Nicholas Francis Norris (Nicholas).
[4]Throughout his lifetime Wayne settled a number of trusts, namely:
(a)the Family Trust, settled on 31 May 1992;
(b)the Property Trust, settled on 11 April 1993; and
(c)the WFPBT;
(together, the “Francis Group Trusts”); and
(d)the Wayne Francis Charitable Trust (WFCT), settled on 22 June 1999.
[5] At 31 March 2023, the Francis Group Trusts and the Estate had net assets totalling $187,267,773. The parties have agreed for the purposes of mediation and settlement, that the assets of the Francis Group Trusts and the Estate are worth approximately $200 million.
Procedural background
[6] There have been several previous proceedings relating to the Trusts and the Estate, namely:
(a)In 2000, Deborah filed a proceeding against the Estate under the family Protection Act 1955 for increased annuity;
(b)In 2020, Simon and Craig filed a proceeding in their capacity as trustees of the Family Trust and Property Trust seeking directions as to interpretation of the Trust deeds;
(c)In early 2024, Deborah and the trustees of the WFPBT failed to reach agreement on a proposal from Deborah that a portion of the WFPBT trust capital be settled on a trust for her and her descendants. On 2 July 2024, Deborah, in her capacity as a beneficiary of the WFPBT, filed these proceedings.
(d)The substantive proceedings, filed in July 2024, seek:
(i)removal of the trustees of the WFPBT on the basis of a breach of their fiduciary obligations to Deborah;
(ii)orders for the production and disclosure of WFPBT documentation;
(iii)a review of the trustee’s decision to reduce the annuity payment to Deborah pursuant to s 126 of the Act; and
(iv)an interim injunction restraining the trustees from reducing annuity payments to her, by way of interlocutory injunction.
(e)On 29 August 2024, Deborah, the Applicants, Helena, Jamie and Nicholas and the WFCT attended a mediation, which resulted in a settlement agreement agreed and executed by all parties (Settlement Agreement) and a deed of renunciation agreed and executed by Simon and Craig in their capacity as trustees and executors and by Deborah (Deed of Renunciation).
Settlement agreement
[7] The purpose of the Settlement Agreement is to resolve the proceedings and settle all claims that Deborah has, or may have, against the Francis Group Trusts and/or under the Estate, to settle assets on a new trust (the Deborah Francis Trust) for the benefit of Deborah and her issue, and to achieve a “clean break” between Deborah and the Francis Group Trusts/the Estate.
[8]Relevantly, under the Settlement Agreement:
(a)cl 2.1(i): the trustees will settle the Settlement Sum on the Deborah Francis Trust within 90 calendar days of the High Court’s s 133 “blessing”, if granted.
(b)cl 2.1(iii): Deborah will sign the Deed of Renunciation relinquishing and renouncing any and all present and future interests in the Francis Group Trusts and the Estate.
(c)cls 2.1(iv), (v) and 2.2: the Trustees will forgive a loan that Deborah owes, will continue to pay Deborah a set amount until the Settlement Sum is paid in full and transfer $300,000 to Deborah within three working days of the execution of the Settlement Agreement.
[9] The Settlement Agreement was executed by all parties. It is (save for cl 2.2) subject to a condition subsequent, being the granting of the Blessing Application by this Court.
Deed of renunciation
[10] Pursuant to the Deed of Renunciation, Deborah relinquishes and renounces any and all interests she had, has or may have in the Francis Group Trusts and Estate. In addition, the Applicants sought to exercise powers under the Francis Group Trusts’ deeds to remove Deborah as a beneficiary of the Francis Group Trusts. Deborah consents to her removal as a beneficiary, and it is common ground that this is what was intended by all parties to the Deed of Renunciation.
[11] The Deed of Renunciation is to have effect from the date upon which the Settlement Sum is settled in full on the Deborah Francis Trust. The relinquishment, renunciation, waiver, release and removals in the Deed of Renunciation take effect from the same date.
Joinder application
[12] Rule 7.43A(1)(e) of the Rules provides a catch-all provision relating to the conduct of proceedings, namely that a Judge may, by interlocutory order “make any other direction or order that the court may make under [the Rules]”.
[13] Capital and Merchant Finance Ltd (in rec and in liq) v Perpetual Trust Ltd distilled the following propositions from the authorities on the joinder of interveners/interested parties:1
(a)An applicant must show that its legal rights against or liabilities in relation to the subject matter will be directly affected. Commercial, financial, or reputational interests in the outcome will only be sufficient in exceptional circumstances.
(b)If the intending intervener’s presence before the Court will not improve the quality of information before the Court, that will count heavily against its addition to the proceedings.
(c)A relevant consideration is the extent to which the proposed intervener can rely on one of the parties to protect its rights and obligations.
(d)If either party would be prejudiced by the intervention, or if the intervention would create an impression of partiality, the application will not be granted.
(e)In cases where development of the law is likely, the application is more likely to be granted if the proposed intervener has special expertise to assist the Court on wider public policy issues.
(f)The underlying issue is whether it would be unjust to adjudicate on the matter in dispute without the intervener being heard. Several of the factors mentioned above tie into this issue.
(g)Where intervention is justified, the degree of participation granted to the intervener should be the minimum necessary to protect the intervener’s interests.
1 Capital and Merchant Finance Ltd (in rec and in liq) v Perpetual Trust Ltd [2015] NZHC 3205, 2015] NZAR 228 at [41].
Analysis
[14] As Deborah is a beneficiary of each of the Francis Group Trusts and the Estate, the parties submit, and I agree, that it is necessary that any settlement with Deborah occurs on a global basis, and that each of the Applicants (including Simon and Craig) be parties to and execute the Settlement Agreement and be joined to the Proceedings, to ensure the terms of the settlement can be effected as contemplated and to improve the quality of information before the Court.
[15] Both the Blessing Application and the Variation Application additionally concern the current and future liabilities and operation of the Family Trust, Property Trust and the Estate.
[16] Further, the Joinder Application is sought by consent, it will have no adverse effect on the existing parties in the Proceedings and the granting of the Joinder Application is in all parties’ best interests.
[17] On these grounds, I am satisfied that the Joinder Application outlined at [2(a)] should succeed, and that Simon and Craig should be joined to the proceedings as interested parties in their capacities as trustees of the Family Trust, the Property Trust and as executors/trustees of the Estate are parties to the Settlement Agreement and the Deed of Renunciation.
Blessing application
[18] The parties accept that the proposed payment of $15 million to settle the Deborah Francis Trust and for final settlement with Deborah constitutes a momentous decision. They seek the Court’s directions under s 133 of the Act. A trustee acting under any direction of the Court is protected under s 134 of the Act and must be treated as having discharged the trustees’ duties.
[19]Section 133 of the Act provides:
133 Trustee may apply to court for directions
(1)A trustee may apply to the court for directions about—
(a)the trust property; or
(b)the exercise of any power or performance of any function by the trustee.
(2)The application must be served, in accordance with the rules of court, on each person interested in the application or any of them as the court thinks fit.
(3)On an application under this section, the court may give any direction it thinks fit.
(4)This section does not restrict the availability of alternative proceedings within the court’s jurisdiction, including a declaration interpreting the terms of the trust.
[20] The Blessing Application falls within category two of the typology recognised and applied in Re Honoris Trust.2 Therefore, the Court is asked to consider the following matters:
(a)whether the trustees have in fact formed the opinion which the court is being 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.
[21] In Chambers v S R Hamilton Corporate Trustee Ltd in the context of the predecessor of s 133 of the Act, s 66 of the Trustee Act 1956, the Court of Appeal noted there are four types of directions applications: whether an action was within the trustees’ powers, a request for a blessing order for something momentous, the surrender of trustees’ discretion where they are in doubt, and a challenge to their actions.3
2 Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [56].
3 Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131 at [24] and [33].
Analysis
[22] The directions sought fall within the second category in Chambers. I am asked to bless the Settlement Agreement. What is particularly momentous depends on the facts of the case and is not limited to the financial value of the decision. As the Settlement Agreement requires the resettlement of $15 million of the Francis Group Trusts’ and the Estate’s assets on the Deborah Francis Trust for the benefit of Deborah and her issue, and the full and final settlement of Deborah’s claims as beneficiary of the Francis Group Trusts and the Estate, I am readily satisfied that these steps collectively constitute a momentous decision.
[23] Having considered the evidence before the Court and the joint memorandum of counsel dated 4 October 2004, I am satisfied that the Settlement Agreement benefits the beneficiaries of the Francis Group Trust and the Estate, for the following reasons:
(a)the Settlement Sum is a fair and reasonable amount for Deborah, and reflects Wayne’s wishes that Deborah be provided for;
(b)the Settlement Sum is to be settled on the Deborah Francis Trust, established for Deborah and her issue’s benefit;
(c)the Settlement Agreement will eliminate the prospect of future disputes between Deborah and the Applicants;
(d)the Settlement Agreement was agreed as part of a mediation, at which all interested parties had separate legal representation; and
(e)the Hon Rhys Harrison KC, having been involved in that mediation, has confirmed by way of a signed statement that he is satisfied that the terms of the Settlement Agreement provided a “fair, reasonable and practical resolution”.
[24] Further, the decision to enter into the Settlement Agreement and transfer the Settlement Sum is one that a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the Francis Group Trusts’ deeds could
properly make and that, on the information before me, the Applicants have not been impaired by any conflict of interest.
[25] The parties bring the application under s 133, with the consent of all current beneficiaries and trustees. The Court is invited to formalise the agreement under s 133 (and s 124 on behalf of the future issue and spouses) or under its inherent jurisdiction in any event. A trustee must put the Court in possession of all the material necessary to enable the discretion to be exercised. I accept there is sufficient information within the affidavits and memoranda filed to exercise the discretion in favour of the Settlement Deed.
[26] I also note that the steps to implement the Settlement Agreement are to be undertaken promptly following the Court’s blessing.
[27] For these reasons I am satisfied it is appropriate that the Court bless the 29 August 2024 agreement in reliance on cls 4.1.2 and 5.1 of the WFPBT Deed, cls 3(b) and 4(a) of the Family Trust Deed, cls 2 and 3(i) of the Property Trust Deed, cls 11.2 and 11.3 of the Will and ss 56 and 133 of the Act.
Variation application
[28] Given the proposed arrangement impacts the future beneficiaries of the Francis Group Trusts, it is necessary that the court approve the proposed arrangement on behalf of the future beneficiaries under s 124(2)(c) of the Act. That section provides:
124Power of court to approve termination, variation, or resettlement of trust
(1)The court may, on behalf of any of the beneficiaries described in subsection (2) who has an interest in the property of a trust, approve the termination, variation, or resettlement of the trust.
(2)The beneficiaries are—
(a)a beneficiary who lacks capacity:
(b)a person who may acquire a beneficial interest at a future date or on the happening of a future event or on becoming a member of a certain class of persons:
(c)a future person who may acquire a beneficial interest.
(3)An application for an order of approval may be made by—
(a)the trustees or any one of them:
(b)any person with a beneficial interest in the trust property.
(4)On an application for an order of approval, the court must take into account each of the following factors:
(a)the nature of any person’s interest in the trust property and the effect of the proposed order on that interest:
(b)the benefit or detriment that may result to any person with an interest in the trust property if the court makes or refuses to make the proposed order:
(c)the intentions of the settlor of the trust in settling the trust, if it is practicable to ascertain those intentions.
(5)The court must not make an order of approval if its effect would be to reduce or remove any vested interest in the trust property.
(6)An order of approval binds the person on whose behalf it is made and takes effect without any further step.
[29] The principles for the exercise of the Court’s power under s 124 were summarised in Gavin v Gavin:4
(a)The power to approve a variation is discretionary.
(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), including the intentions of the settlor, 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
4 Gavin v Gavin [2021] NZHC 550 at [15].
of the orders would not reduce or remove a vested interest in the trust property.
(g)The court is to take a wide approach to benefits and detriments and arrangements 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.
(h)Difficulties may be met by amendments to the proposal or covenants by persons benefitting to make good losses to the disadvantage of other beneficiaries.
(i)An order approving a proposed variation may be conditional.
Analysis
[30] For completeness, I also record that all known living beneficiaries of the Francis Group Trusts have consented to the variations, and that the variations sought specifically include:
(a)pursuant to the Settlement Agreement, Deborah has agreed to relinquish and renounce any and all interests she may have, now or in the future, in the Francis Group Trusts (and in the Estate);
(b)the Deed of Renunciation records the exercise by the trustees of the powers contained in the Francis Group Trusts to exclude Deborah as a beneficiary of each of those trusts; and
(c)the Francis Group Trusts’ deeds be amended to reflect the terms of the Settlement Agreement and the Deed of Renunciation.
[31] I am satisfied it is appropriate for the Court to approve the proposed Variation Agreement, pursuant to s 124 of the Act, because, as the applicants acknowledge:
(a)the beneficiaries are future persons (being issue or spouses) who may acquire a beneficial interest, whose interests are adequately provided for and protected by Helena, Jamie and Nicholas and who suffer no detriment as a consequence of the variations being approved; and
(b)the Variation Application is consistent with Wayne’s intentions in settling the Francis Group Trusts, which included providing for and supporting Deborah.
[32] The settlement will enable the resolution of the trusts on terms which meet Wayne’s intention to provide for the benefit of his spouse and children. It is in the interests of the future generations of the family that there is a harmonious distribution.
Conclusion
[33] I have found there is power under the Deeds, properly construed, for the trustees to distribute $15 million of capital to Deborah and that the power may be exercised by the trustees, in accordance with the settlement deed dated 29 August 2024 to which all parties give their consent.
[34] The Court approves the settlement reached on 29 August 2024 and blesses the distributions in the Francis Group Trusts therein. The Court gives its consent on behalf of the future issue and spouses.
Result
[35] Orders are made, as sought, on the terms set out at 2(a)–(c) of the interlocutory application for joinder and other orders dated 4 October 2024.
Solicitors:
Clendon Webb, Auckland
Mortlock McCormack, Christchurch Morris Legal T/A Morris Legal, Auckland Russell McVeagh, Wellington
Copy to:
T C Weston KC, Barrister, Selwyn S C I Jeffs, Barrister, Auckland
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