Gavin v Gavin
[2021] NZHC 550
•17 March 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-52
[2021] NZHC 550
UNDER Trusts Act 2019 IN THE MATTER OF
an application to vary the Racecourse Trust, Headstart Trust, Charlotte Powell Family Trust, Daniel Powell Family Trust and McKenzie Family Trust
BETWEEN
CHARLOTTE TERESA GAVIN AND NIGEL JOSEPH GAVIN
Applicants
AND
CHARLOTTE TERESA GAVIN
First Respondent
AND
NIGEL JOSEPH GAVIN
Second Respondent
AND
JESSICA AMY GAVIN
Third Respondent
AND
DANIEL POWELL, JOHN WILLIAM POWELL, LYNDA MAREE POWELL, LEONARD THOMAS GAVIN, JOY MURTLE GAVIN, TIMOTHY JOHN GAVIN AND CONSUELLA DENELZA GAVIN
Fourth Respondents
CIV-2021-409-53 BETWEEN
CHARLOTTE TERESA GAVIN AND JOHN WILLIAM POWELL
Applicants
AND
CHARLOTTE TERESA GAVIN
First Respondent
AND
NIGEL JOSEPH GAVIN
Second Respondent
GAVIN v GAVIN [2021] NZHC 550 [17 March 2021]
AND JESSICA AMY GAVIN
Third Respondent
AND
DANIEL POWELL
Fourth Respondent
CIV-2021-409-54 BETWEEN
CHARLOTTE TERESA GAVIN AND JOHN WILLIAM POWELL
Applicants
AND
CHARLOTTE TERESA GAVIN
First Respondent
AND
JESSICA AMY GAVIN
Second Respondent
AND
DANIEL POWELL
Third Respondent
CIV-2021-409-55 BETWEEN
DANIEL POWELL AND PAUL JOSEPH DORRANCE
Applicants
AND
DANIEL POWELL
First Respondent
AND
HAYLEY KIM POWELL
Second Respondent
AND
CHARLOTTE TERESA GAVIN
Third Respondent
AND
JESSICA AMY GAVIN
Fourth Respondent
CIV-2021-406-61 BETWEEN
LYNDA MAREE POWELL AND PUBLIC TRUST
Applicants
AND
CHARLOTTE TERESA GAVIN AND
NIGEL JOSEPH GAVIN
First RespondentsAND
CHARLOTTE TERESA GAVIN AND JOHN WILLIAM POWELL
Second Respondents
Hearing: 11 March 2021 Appearances:
J Moss for Racecourse Trust, Charlotte Powell Family Trust and Headstart Trust
S Caradus for Daniel Powell FamilyTrust S J Jamieson for McKenzie Family Trust
M J Wallace on behalf of Minor and Unborn Beneficiaries Descended from Charlotte Powell
G D Jones on behalf of Minor and Unborn Beneficiaries Descended from Daniel Powell
Judgment:
17 March 2021
JUDGMENT OF MANDER J
This judgment was delivered by me on 17 March 2021 at 4 pm pursuant to Rule 11.5 of the High Court Rules 2016
Registrar/Deputy Registrar Date: .
[1] The Court has before it five applications to approve proposed variations to a number of separate trusts on behalf of minor or unborn beneficiaries of the respective trusts.1 The applications are made as part of a settlement that is contingent upon the orders sought in the application being obtained from this Court.
Background
The Trusts
[2] Charlotte Gavin (née Powell) (Charlotte) and Daniel Powell (Daniel) are the children of John and Lyn Powell. In 1998, John established a trust for each of his two adult children. The trusts mirrored each other. The Daniel Powell Trust (DP Trust) was intended to benefit Daniel and his immediate family, and the Charlotte Powell Trust (CP Trust) Charlotte and her immediate family. John and Charlotte were co-trustees of the CP Trust and John and Daniel co-trustees of the DP Trust. Both trusts also provided for the other sibling and their family to be discretionary beneficiaries as to income in the event the other sibling died and had no surviving children, or should their trust fail and be unable to provide for their family, in which case they could have recourse to the other’s trust.
[3] In 2002, two further trusts were settled. The Headstart Trust was settled by John. Charlotte’s children, Jessica, now aged 19 years, and Jacob, now aged 17 years, and her unborn grandchildren are the primary beneficiaries. The default beneficiaries are Daniel’s children, Trinity, aged 12 years, and Aston, aged 10 years. The second trust, the Racecourse Trust, was settled by Charlotte herself for the benefit of her family. The beneficiaries are Charlotte, her husband, Nigel Gavin, Jessica and Jacob, and her unborn grandchildren. Daniel is a default beneficiary, along with Charlotte’s parents and Nigel’s parents and siblings.
[4] The fifth trust in respect of which approval is sought is the McKenzie Family Trust (the McKenzie Trust). This Trust was established by Lyn Powell in 2017 to provide her with income and capital and to make provision for each of her grandchildren, Jessica, Jacob, Trinity and Aston. Lyn had, in 2013, previously
1 Trusts Act 2019, s 124.
established the Angel 01 Inheritance Trust and the Angel 02 Inheritance Trust (together the Angel Inheritance Trusts) for the benefit of Trinity and Aston respectively. Lyn provided that on the vesting date of the McKenzie Trust, 25 per cent of the trust fund would pass to each of the Angel Inheritance Trusts. The remaining 50 per cent of the trust fund would pass from the McKenzie Trust to the Racecourse Trust, in respect of which Jessica and Jacob are beneficiaries.
The family falls into dispute
[5] A dispute between John and Daniel as co-trustees of the DP Trust led to John taking proceedings to remove both of them as trustees and replace them with the Public Trust. This Court ordered that John alone should be replaced by an independent professional trustee, and a partner in a local law firm was approved as a suitable independent trustee in 2015.2 Just under a year later that person resigned. The vacancy was filled by a partner from another law firm but without notice to John or to the beneficiaries on Charlotte’s side of the family and without Court approval.
[6] In 2017, the CP Trust ran into financial difficulties. Charlotte looked to the trustees of the DP Trust for a distribution of funds. Disputes arose that culminated in Charlotte issuing proceedings to remove Daniel and the replacement trustee as trustees of the DP Trust. However, as a result of a successful mediation in November 2020, a settlement was agreed that seeks to bring an end not only to the current litigation but to resolve the wider family issues relating to the trusts that may create difficulties in the future.
A settlement is agreed
[7] Broadly, the settlement agreement proposes to separate Daniel’s interests from John and Charlotte by partitioning the trusts and fixing the interests in Lyn’s trust. When effected, the settlement will remove Daniel and Charlotte’s families as beneficiaries of the other sibling’s trusts and thereby separate the trust property and the need for the estranged families to be involved in each other’s trusts. It is anticipated that this will not only resolve the extant litigation but avoid further disputes
2 Powell v Powell [2014] NZHC 476, (2014) 3 NZTR 24-011.
relating to the trusts. The family has been embroiled in litigation for many years and the partitioning of the trusts is viewed as a sensible and pragmatic way of ending the present disputes and avoiding such difficulties in the future.
[8] In addition to ending the two sides of the family’s involvement in each other’s trusts, it has been agreed that the DP Trust will make a capital distribution of
$2.5 million to Charlotte as an existing beneficiary prior to the variation of the trust deed. This distribution appears to have been made in recognition of some disparity between the respective values of the trusts and to achieve an approximate balancing of their assets.
[9] Aside from the necessary variations to facilitate the settlement, the trustees have also taken the opportunity to make other variations to the trust deeds that are of an administrative or modernising nature.
The application for approval
[10] The trustees and the adult beneficiaries of each trust support the settlement agreement and consent to the variations to the trust deeds. However, under s 124 of the Trusts Act 2019 (the Act), approval of the proposed variations is required on behalf of beneficiaries who lack capacity and/or whose interest is contingent on a future event. It follows that execution of the settlement agreement and resolution of the matter is conditional upon the Court approving the variations of the respective trusts on behalf of beneficiaries who lack capacity to consent or are otherwise unable to consent. There are five applications for approval of variation on behalf of beneficiaries who fall into that category:
(a)An application for approval to vary the Racecourse Trust (CIV-2021- 409-52).
(b)An application for approval to vary the CP Trust (CIV-2021-409-53).
(c)An application for approval to vary the Headstart Trust (CIV-2021-409- 54).
(d)An application for approval to vary the DP Trust (CIV-2021-409-55).
(e)An application for approval to vary the McKenzie Trust (CIV-2021- 409-61).
[11] At the request of all parties, independent counsel were appointed to advise on the matters set out in s 124(4) of the Act regarding the variations to the trusts as they may affect minors and unborn grandchildren. Mr Wallace was appointed to represent the interests of Jacob and the unborn beneficiaries of the CP Trust who are descended from Charlotte and Nigel Gavin. Mr Glenn Jones was similarly appointed in relation to Daniel and Hayley Powell’s children, Trinity and Aston, and their unborn grandchildren.
Relevant legal principles
[12] The trustees of all the trusts seek to vary each trust with the consent of all beneficiaries.3 To that end, the Court’s approval has been sought on behalf of beneficiaries who lack capacity to consent, or who do not yet have a beneficial interest. Section 124 of the Act 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.
3 Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482 (Ch).
(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.
[13] The power of the court to vary a trust was previously provided by the Trustee Act 1956. Under s 64A of that Act, the court did not have the ability to approve variations of beneficial interests that were detrimental to the beneficiary on whose behalf approval was sought.4 This limitation was adversely commented upon by the Law Commission in its Review of the Law of Trusts.5 The requirement that any varying arrangement must not be to the “detriment” to those beneficiaries on whose behalf the court’s consent was being sought was described as restrictive, and that it “arguably [did] not give the court sufficient discretion to consider the broader consequences of any proposed variation and its potential effect on all the beneficiaries of the trust”.6
[14] Section 124 of the new Act seeks to ameliorate that limitation. While the court must not make an order approving a variation if the effect would be to reduce or remove a beneficiary’s vested interest in the trust property, detriment to a person with an interest in the trust property that may result from the making or refusal of the proposed order is now only a mandatory consideration and is not determinative of the application.7
4 Trustee Act 1956, s 64A(1): “… the court shall not approve an arrangement on behalf of any person if the arrangement is to his [sic] detriment”.
5 Law Commission Review of the Law of Trusts: A Trust’s Act for New Zealand (NZLC R130, 2013) at ch 10.
6 At [10.9(c)].
7 Trusts Act 2019, s 124(4)–(5).
[15] In McKnight v Craig, French J distilled from past authorities the principles to be applied in considering an application whether to consent to an arrangement on behalf of minors, unborn and unascertained beneficiaries who are not able to consent themselves.8 Those principles, as now modified by s 124 of the Act, can be summarised as follows:
(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 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.
8 McKnight v Craig [2010] 3 NZLR 860 (HC) at [7]–[8], citing Re Greenwood [1988] 1 NZLR 197 (HC); Re Byrne HC Wellington CIV-2003-485-167, 25 May 2004; and Ewington v Schulz HC Auckland CIV-2008-404-6596, 5 May 2009.
(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.
Proposed variations
CP Trust and Headstart Trust
[16] The main variation sought is the removal of Daniel and his children and remoter issue from the CP and Headstart Trusts as part of the partitioning sought to be achieved by the settlement agreement. The trustees of the CP Trust also seek to remove any charitable trust or purpose as a class of beneficiary. To date, the trustees have not nominated any charitable trusts or purposes and there is no realistic prospect of that occurring.
[17] The trustees of the CP and Headstart Trusts seek to vary their powers when dealing with both capital and income to provide a power of accumulation within six months of the end of the income year. The purpose of this change is to streamline the processing of tax returns and other filings.
[18] A further variation sought is to John Powell’s power of appointment to include a trustee corporation. Previously the deeds only permitted appointment of a solicitor or accountant. The current trust deeds do not allow the trustees to vary their terms. A power to amend the trust deeds has now been included. This will avoid the need to make applications to this Court on what are likely to be straightforward administrative provisions that may require updating from time to time. The remaining amendments are administrative in nature and focus on updating the terms of the trust deed in light of, and in accordance with, the recent coming into force of the Trusts Act 2019.
The Racecourse Trust
[19] As already noted, the Racecourse Trust is a family trust established by Charlotte for her nuclear family. The only reason it is included in the consolidated applications is that Daniel is a default beneficiary. He is to be removed as part of the
settlement, although Daniel’s children, grandchildren and remoter issue remain as members of the class of default beneficiaries.
[20] The trustees of the Racecourse Trust have also taken the opportunity to seek some additional amendments to update the administrative provisions of the trust deed to accord with similar changes to the CP Trust and the Headstart Trust. Other material variations include a power to accumulate, changes to the power to appoint and remove trustees, and provision for Charlotte to provide a memorandum of wishes.
DP Trust
[21] The most significant changes to the DP Trust are the removal of Charlotte and her family as beneficiaries, and the removal of any charitable trust, charitable purpose or charitable institution as beneficiaries. The purpose of the trust, namely, to grow the investment portfolio for the benefit of the beneficiaries and to serve as an inheritance for Daniel’s family, is confirmed.
[22] Most of the other proposed changes to the trust are administrative in nature and do not affect the underlying powers or beneficial interests. As with the changes to the other trust deeds, they are made to reflect modern practices and the current legislation. Power is provided to the trustees to distribute both capital and income, as is an additional power to amend the trust deed that does not extend to altering beneficial interests. Daniel or his nominee is provided with the fiduciary power to appoint and remove trustees. Daniel’s consent is required to resettle or amend the trust. Counsel for the applicants emphasised that these amendments reflect the settlor’s intention “to allow the family of the child after whom the Trust is named to have some responsibility in managing and growing the Trust assets”.9
The McKenzie Trust
[23] The deed of variation of the McKenzie Trust provides that Lyn shall remain an income beneficiary, although her access to capital as a beneficiary shall be limited to that reasonably required for her care and maintenance. Apart from the requirement
9 Powell v Powell [2014] NZHC 476 at [109].
that Lyn’s needs be recognised as paramount, the remainder of the trust fund is to be for the benefit of the Racecourse Trust and each of the Angel Inheritance Trusts.
[24] The power to further vary the trust and to resettle the trust prior to Lyn’s death is removed by the deed of variations, as is the power to remove beneficiaries or to appoint additional beneficiaries. Lyn also surrenders her power to appoint a person or persons to replace her as protector of the trust, and, while she is able to remove and appoint trustees, she is not permitted to appoint anyone in that role who is known by her to be a family member or related person.
[25] It is submitted that the proposed deed of variation to the McKenzie Trust reconfirms Lyn’s intent to provide for her grandchildren and gives certainty to Lyn and to the parties that the assets of the trust will be held and used in support of her and then for the benefit of her grandchildren equally.
Reports of counsel for minor and unborn beneficiaries
[26] Counsel were appointed to represent the interests of minor and unborn beneficiaries of the various trusts. Reports were received from Mr Wallace regarding the interests of minor and unborn beneficiaries descended from Charlotte and Nigel Gavin. At present that category comprises Jacob and unborn grandchildren of Charlotte. Mr Jones was appointed to represent the interests of Daniel Powell’s children, Trinity and Aston, and unborn grandchildren and their spouses.
Jacob and Charlotte’s unborn grandchildren
[27] Jacob and Charlotte’s unborn grandchildren are discretionary beneficiaries of the CP Trust and the DP Trust, together with Jacob’s sister (Jessica) and, relevantly, Daniel Powell and Daniel’s children and grandchildren. Both trusts currently provide that only income may be distributed to discretionary beneficiaries, with capital distributed to discretionary beneficiaries on vesting day, being 27 August 2078 for the CP Trust and 15 October 2078 for the DP Trust.
[28] The DP Trust includes assets that generate income which is available to the trustees to distribute to the discretionary beneficiaries, including an extraordinary
dividend available in the 2018 year of some $2.8 million. The CP Trust assets do not generate income that is available to the trustees to distribute to discretionary beneficiaries.
[29] After variation, Jacob and Charlotte’s grandchildren will be discretionary beneficiaries of only the CP Trust, having been removed as discretionary beneficiaries of the DP Trust. That will result in Jacob and Charlotte’s grandchildren no longer being discretionary beneficiaries entitled to be considered in respect of the $14 million trust fund in the DP Trust, namely, a capital fund that creates income available for distribution to the discretionary beneficiaries.
[30] In addition, further changes will be made to the DP Trust. Trustees will be able to distribute capital to discretionary beneficiaries during the trust period and the trustees will have the ability to advance the vesting day when all capital can be distributed to discretionary beneficiaries. As beneficiaries of the CP Trust, Jacob and Charlotte’s grandchildren will be discretionary beneficiaries as to capital when the vesting day occurs, currently 27 August 2078, with no current explicit power to bring forward the vesting day.
[31] Jacob and Charlotte’s grandchildren will no longer be “competing” with Daniel, nor with Daniel’s children and grandchildren, when the trustees of the CP Trust exercise their discretion in relation to distribution from the trust fund. Jacob and Charlotte’s grandchildren gain from the settlement of the disputes between Charlotte and Daniel, and indirectly from the settlement fund that Charlotte will receive. While the settlement of that fund is the product of the agreement reached between the parties rather than the variation of the trust, such variations are only to be implemented in order to perform the terms of the settlement and are therefore intrinsically linked.
[32] In relation to the Headstart Trust, Jacob and Charlotte’s grandchildren are currently discretionary beneficiaries, together with Daniel and any of his children. After variation, Daniel and his children will be removed from the class of discretionary beneficiaries. There is no detriment to Jacob and Charlotte’s grandchildren.
[33] In relation to the Racecourse Trust, currently Jacob and Charlotte’s grandchildren are discretionary beneficiaries, without Daniel or his offspring being members of that class, although they are default beneficiaries. After variation, Daniel will be removed as a default beneficiary, although his children, grandchildren and remoter issue will remain as members of that class. For completeness, it is also noted that the class of discretionary beneficiary will be reduced by removing any corporation or legal entity in which a discretionary beneficiary holds a beneficial shareholding.
[34] Jacob and Charlotte’s grandchildren are not beneficiaries of the McKenzie Trust, nor is Charlotte or Daniel. However, they are discretionary beneficiaries of the Racecourse Trust, the trustees of which are discretionary and final beneficiaries of the McKenzie Trust. After amendment, the classes of discretionary beneficiaries are reduced, leaving only the Racecourse Trust and the Angel Inheritance Trusts. Jacob and Charlotte’s grandchildren’s interests are therefore enhanced by the variation.
[35] None of the proposed variations sought by the trustees of any of the trusts would reduce or remove any vested interest in trust property on the part of Jacob and Charlotte’s grandchildren.
The interests of Daniel Powell’s children, grandchildren and their spouses
[36] The discretionary beneficiaries of the DP Trust include Daniel, his spouse and children, and Charlotte and her children. Under the present deed of the DP Trust, Daniel’s children (Trinity and Aston), his unborn grandchildren and their spouses have a mere discretionary interest in the income of the trust fund, along with Charlotte’s children and grandchildren, until vesting day when the capital will vest in Daniel’s surviving children or grandchildren. If none of Daniel’s children or grandchildren have survived until vesting day, the capital vests in Charlotte’s surviving children or grandchildren.
[37] The major implications of the proposed variation to the trust deed for the DP Trust are that Charlotte, her children, grandchildren and any charitable trusts are removed as discretionary beneficiaries. That will be to the benefit of Daniel’s children, grandchildren and spouses because there will be fewer potential beneficiaries sharing the income and capital of the trust fund. It is also noted the amendments include a
power to the trustees to pay or apply part of the capital of the trust fund for the maintenance, education, advancement, or benefit of discretionary beneficiaries prior to vesting day. That express power to apply capital prior to vesting day does not appear in the existing trust deed. Therefore, that amendment will also benefit Daniel’s children.
[38] Mr Jones has analysed each of the proposed changes set out in the new deed of trust and has concluded that these variations do not prejudice the interests of Daniel’s children, grandchildren and spouses. To the contrary, he considers the proposed changes would benefit those persons, particularly the reduced number of discretionary beneficiaries and the ability for the trustees to apply capital for the beneficiaries prior to vesting day. Mr Jones confirms that the effect of the proposed changes would not be to reduce or remove any vested interest in the trust property of the persons who were unable to consent to the variation, and he has no concern that those proposed changes to the trust deed would be to their prejudice in any way.
[39] In relation to the terms of the deed of settlement that the DP Trust will make a distribution to Charlotte of $2.5 million, it is noted that, while Charlotte currently is a discretionary beneficiary, there is no power in the present deed for the trustees to make a capital distribution to Charlotte. However, they do have the power to resettle that sum on trust for her under the existing trust deed. Mr Jones advises that he has no objection to the proposed distribution. He considers the trustees have exercised their judgement as to what is in the best interests of all the beneficiaries and have negotiated a settlement that will resolve long running and very expensive litigation that would otherwise be an ongoing cost to the trust fund and to the detriment of the minor beneficiaries. Mr Jones considers there is significant benefit to those beneficiaries from the variations to the DP Trust and the McKenzie Trust that have been agreed in consideration for the payment. He advises there is nothing that he has seen or read in the materials that gives him any reason to doubt the trustees’ judgement in respect of that payment.
[40] In relation to the McKenzie Trust, it was noted that Daniel’s children and unborn grandchildren do not have a vested interest in the property of the McKenzie Trust. Trinity and Aston each have a discretionary interest in the respective Angel
Inheritance Trusts, and the trustees of those trusts have a discretionary interest in the McKenzie Trust. That mirrors the interest of Charlotte’s children via the Racecourse Trust.
[41] The present McKenzie Trust deed provides that the trustees have discretion to use income and capital for the maintenance of the discretionary beneficiaries and need not ensure that each of them receives the same amount of benefit. Nor does the deed expressly provide that the discretionary beneficiaries have to be treated in an even- handed manner by the trustees, with the trustees having a power to resettle the whole or any part of the capital or income of the trust fund in any manner, and upon any terms or conditions for the advancement or benefit of any one of the discretionary beneficiaries as they think fit.
[42] Under the present McKenzie Trust deed the settlor may appoint a protector who has the power to remove any discretionary beneficiary and appoint new discretionary beneficiaries. It follows that even the contingent interest of Daniel’s children and unborn grandchildren is susceptible to being extinguished by the protector deciding to remove the Angel Inheritance Trusts as discretionary beneficiaries.
[43] Under the present provisions of the McKenzie Trust, Daniel’s children and unborn grandchildren have no direct interest in the trust fund. Their only interest is as discretionary beneficiaries in the Angel Inheritance Trusts, the trustees of which are discretionary beneficiaries of the McKenzie Trust. As noted by Mr Jones, those interests are susceptible to dilution or extinguishment by the actions of the protector of the McKenzie Trust should more discretionary beneficiaries be appointed or the Angel Inheritance Trusts be removed as beneficiaries. Moreover, the protector has power to remove the Public Trust as trustee and appoint any other person of his or her choosing as trustee.
[44] Taking those matters into account, Mr Jones is of the view that the proposed changes to the McKenzie Trust can only be for the benefit of Daniel’s children and unborn grandchildren. Those benefits are identified as: a restriction on the class of discretionary beneficiaries to the settlor and trustees of the Racecourse Trust and the
Angel Inheritance Trusts; the removal of the protector’s powers to remove discretionary beneficiaries or to appoint additional discretionary beneficiaries; the requirement that any capital distribution to the discretionary beneficiaries prior to the distribution date must be made in equal proportions to the two sides of the family (25 per cent to the Angel 01 Trust, 25 per cent to the Angel 02 Trust and 50 per cent to the Racecourse Trust); and that on the distribution dates the trust fund is to be held for the final beneficiaries in the same proportions. Mr Jones concludes that the proposed changes to the McKenzie Trust deed would not reduce or remove any vested interest in the trust property of Daniel’s children, grandchildren or their spouses, and that their interests (such as they are) in the trust fund would be significantly enhanced.
[45] Turning to the CP Trust, Mr Jones confirms that the proposed variations to that trust would not result in a reduction or removal of any vested interest in the trust property held by Daniel’s children, grandchildren or their spouses. Having regard to the context of the broader scheme to partition the interests of Daniel and Charlotte’s children, Mr Jones has no concern about any adverse effects on Daniel’s children, grandchildren or their spouses from the variation to the CP Trust. Similarly, in respect of the Racecourse Trust, it is noted that Daniel’s children, grandchildren and spouses are not discretionary beneficiaries of that trust and that their status as default beneficiaries remains intact. They are not therefore affected by the proposed changes to the Racecourse Trust and will not be adversely affected by those variations.
[46] Finally, it is noted that the discretionary beneficiaries of the Headstart Trust include any child or children of Daniel, who have a contingent interest in the income of the trust prior to vesting day. On that date the capital vests in Jessica and her children or grandchildren but, if none of that class survive, the trust fund vests in Daniel’s children or grandchildren. Under the proposed variation to the Headstart Trust deed, Daniel’s children and grandchildren will cease to be discretionary beneficiaries. However, the effect of such a variation would not be to reduce or remove any vested interest presently held by them. Moreover, in the context of the broader scheme of arrangements for these family trusts, Mr Jones advises he has no concerns that the proposed variations to the Headstart Trust would materially prejudice Daniel’s children, grandchildren or spouses.
[47] Mr Jones advises that he has no concerns that any of the proposed variations sought by the trustees of the DP Trust would reduce or remove any vested interest in the trust property on the part of the minor, unborn or future beneficiaries of that trust, nor would they prejudice those beneficiaries in any material respect. In respect of the same category of beneficiary, he supports the applications to the Court for approval of the proposed variation to the DP Trust, the McKenzie Trust, the CP Trust and the Headstart Trust.
Decision
[48] None of the applications before the Court are opposed. Both the parties and independent counsel for the minors and unborn children consent and approve the variations sought. The adult beneficiaries have provided their formal consent to the variations and to the applications for approval.
CP Trust and Headstart Trust
[49] Daniel has been provided with a copy of the proposed variations and has consented to the removal of his interests in the trusts. Mr Jones, in his role as independent counsel for Trinity and Aston, and for Daniel’s grandchildren and any remoter issue, has reviewed all the material and advised that their removal from the CP and Headstart Trusts will not reduce or remove any vested interest in the trust property. This is because they only have a contingent interest in the income prior to vesting day and only a vested interest in the capital in the event that none of Charlotte’s children or grandchildren survive to vesting day. Moreover, when regard is had to the wider context of the settlement and in particular to the return that Trinity and Aston will receive by the removal of Jessica, Jacob and Charlotte’s remoter issue from the DP Trust, I accept that the variations sought are in their best interests. There will be fewer potential beneficiaries sharing the income and capital of the DP Trust fund and it will bring to an end the long-running litigation.
[50] Mr Moss, on behalf of the trustees of the CP and Headstart Trusts, submitted that when viewed in light of the global settlement, Daniel’s children and future grandchildren will benefit from the fact that they will, alongside their parents, be the only beneficiaries of the DP Trust. Not only will there be a smaller pool of
beneficiaries but they will be beneficiaries to a large trust fund that is, in comparison to the other trusts, considerably wealthier. On an asset basis alone, the DP Trust has over $14 million, whereas the CP and Headstart Trusts have less than half of that.
[51] The nature of the benefits is not limited to a financial inquiry alone. Separating the trusts in the manner sought as part of the global settlement of this protracted family dispute will not only mean an end to the extant litigation, but an end to the intergenerational dispute that has plagued this family for almost a decade, and that potentially could continue into the future and affect the younger generations. There appears to be a common recognition that the effects on Charlotte, Daniel and their parents and children have to date been significant and settlement will bring an end to that. The benefit of bringing this long-running litigation to an end is an important consideration.
[52] In addition, the removal of Trinity, Aston and their future offspring from the CP Trust and Headstart Trust has to be assessed against the background of the certainty that they will now receive as a result of the variations to the McKenzie Trust. They will receive a certain and fixed share of the trust property of the McKenzie Trust via the Angel Inheritance Trusts, whereas their current position potentially enabled the settlor to resettle the whole or part of the capital or income of the trust fund in any manner and upon any terms she wished for the advancement or benefit of any of the other discretionary beneficiaries as she saw fit. The risk of dilution or extinguishment by the actions of the protector will be removed. Subject only to dilution of trust income and capital for the specific “care and maintenance” of Lyn, the variations result in a certain and fixed half share of the trust fund becoming available to them. The McKenzie Trust has assets of somewhere in the vicinity of $3.7 million, and those two trusts will receive 25 per cent each of the distribution of trust property. As Mr Jones has observed, the interests of Trinity and Aston in the trust fund via them being beneficiaries of the Angel Inheritance Trust will be significantly enhanced.
[53] The position of the minors and unborn grandchildren of Charlotte and Nigel Gavin are unaffected and, indeed, are considerably enhanced. Mr Wallace has recorded his approval of the variations.
The Racecourse Trust
[54] The only reason that the Racecourse Trust is involved in the consolidated applications is that Daniel is a default beneficiary and will be removed as part of the settlement. Again, all the adult beneficiaries have provided their consent to the variations of the trust deed, and Daniel himself has, of course, consented to his removal and the variation. Mr Wallace has not expressed any concerns regarding the position of the minors and unborn grandchildren of Charlotte. Daniel’s children and grandchildren are not affected by the changes.
[55] It follows that in light of these findings approval is granted on behalf of minor, unborn and contingent beneficiaries of the CP Trust, Headstart Trust and Racecourse Trust to the variations to their respective trust deeds.
The DP Trust
[56] As previously canvassed, the variations to the DP Trust do not prejudice Daniel’s children, grandchildren or their spouses. Indeed, the proposed changes benefit those beneficiaries. The proposed distribution to Charlotte is strictly separate to the variation but, as noted by Mr Jones, it represents a quid pro quo for the variation and provision made from the McKenzie Trust and there is no objection to quantum. In relation to Jacob (Charlotte’s son), who is a minor, and Charlotte’s unborn grandchildren and remoter offspring, the removal of Charlotte’s family is, on balance, beneficial to them when the wider settlement is taken into account. That includes the benefits of the $2.5 million to Charlotte, the removal of competing interests from the CP Trust, Headstart Trust and Racecourse Trust, the fixed as opposed to discretionary interest in the capital of McKenzie Trust, and the avoidance of litigation which would further erode the value of the trusts and cause further stress to family, including younger generations.
[57] Being satisfied there are no vested interests that would prevent the Court from approving the variation, the changes to the trust deed of the DP Trust are approved on behalf of Charlotte’s minor or unborn children and grandchildren.
The McKenzie Trust
[58] Both Daniel’s and Charlotte’s minor or unborn children and grandchildren are gaining greater certainty as to their apportionment of the assets from the McKenzie Trust as a result of the changes to the trust deed. The variation of this trust being necessary to give effect to the settlement agreement, approval is granted on behalf of that group of beneficiaries to the variation of the McKenzie Trust.
Charitable beneficiaries
[59] In respect of both the CP Trust and the DP Trust, the trustees seek the Court’s approval on behalf of any charitable trust or charitable purpose or institution, being a class of beneficiaries who may acquire an interest on the happening of a future event to the proposed variation to the trusts.10
[60] The proposed variations will have a detrimental effect on this class of beneficiary. However, I accept that it is appropriate to consent to the proposed variation on behalf of this class having regard to the wider circumstances of the settlement. Firstly, the nature of this category of beneficiary is such that its interest is, at best, remote. The trustees to date have not nominated any charitable trusts or institutions and there is no prospect of such an event happening. Secondly, while removing this class of beneficiary is obviously detrimental to that group of beneficiaries, it will have no practical impact on any particular charitable entity because the likelihood of there being any distribution to such a beneficiary is effectively nil. The settlors’ intentions were to provide for their children and families, rather than benefit any person or institution outside the family.
[61] I accept the submission that this class of beneficiaries is so removed and its prospect of being appointed or receiving anything is so limited, that it is appropriate for the Court to approve their removal. Such a step neither offends against the settlor’s intentions or the purposes of the trusts. In reaching that decision, I note that the power to add charitable trusts or institutions as beneficiaries was included in the trust deed when Daniel and Charlotte were unmarried and had no children and were therefore
10 Trust Act 2019, s 124(2)(b).
the only two beneficiaries. Twenty-five years on, the children have since married and have two children of their own. It is also to be noted that the trusts define a “beneficiary” to include personal representatives and successors, and that in the unlikely event that all remaining beneficiaries die without issue the trust assets would still be held for their personal representatives and distributed according to their wills.
[62] For completeness, it is noted there are no vested interests that would prevent the Court from consenting to the variations sought. Approval is therefore given on behalf of this class of contingent beneficiaries to the variation of the trusts.
Orders
[63]The following orders are made:
(a)Approval is granted on behalf of minor and unborn beneficiaries of the CP Trust to the variations to the terms of that trust.
(b)Approval is granted on behalf of minor and unborn beneficiaries of the Headstart Trust to the variations to the terms of that trust.
(c)Approval is granted on behalf of minor and unborn beneficiaries of the Racecourse Trust to the variations to the terms of that trust.
(d)Approval is granted on behalf of minor and unborn beneficiaries of the DP Trust to the variations to the terms of that trust.
(e)Approval is granted on behalf of minor and unborn beneficiaries of the McKenzie Trust to the variations to the terms of those trusts.
(f)Approval is granted on behalf of charitable trusts or charitable purposes or institutions, being a class of beneficiaries of the CP and DP Trusts who may acquire an interest on the happening of a future event, to the variations to the terms of those trusts.
Consent orders
[64] The Court having approved the variations to the respective trusts on behalf of beneficiaries identified in s 124(2) of the Act, the parties seek, by consent, orders approving the variation of each of the respective trusts according to draft orders filed with their joint memorandum of 11 March 2021. By consent, the following orders are made in accordance with the terms of the draft orders attached to the consent memorandum.
The Racecourse Trust (CIV-2021-409-52)
1.It is declared that, pursuant to s 122(1)(a) of the Act, the Racecourse Trust is to be varied in terms of the deed of variation of the Racecourse Trust attached to the joint memorandum of counsel of 11 March 2021, with the consent of:
(a)all beneficiaries who have an interest in the trust property;
(b)the trustees of the Racecourse Trust; and
(c)the Court, on behalf of the class of beneficiaries described in s 124(2) of the Act.
2.The variations described shall occur:
(a)simultaneously with the trustees of the DP Trust distributing $2.5 million (including GST, if any) to Charlotte Gavin in accordance with the deed of agreement dated 15 December 2020; and
(b)no later than 10 working days after the final orders of the Court are obtained.
3.Leave is granted to revert to the Court as required.
The CP Trust (CIV-2021-409-53)
1.It is declared that, pursuant to s 122(1)(a) of the Act, the CP Trust is to be varied in terms of the deed of variation of the CP Trust attached to the joint memorandum of counsel of 11 March 2021, with the consent of:
(a)all beneficiaries who have an interest in the trust property;
(b)the trustees of the CP Trust; and
(c)the Court, on behalf of the class of beneficiaries described in s 124(2) of the Act.
2.The variations described shall occur:
(a)simultaneously with the trustees of the DP Trust distributing
$2.5 million (including GST, if any) to Charlotte Gavin, in accordance with the deed of agreement dated 15 December 2020; and
(b)no later than 10 working days after the final orders of the Court are obtained.
3.Leave is granted to revert to the Court as required.
The Headstart Trust (CIV-2021-409-54)
1.It is declared that, pursuant to s 122(1)(a) of the Act, the Headstart Trust is to be varied in terms of the deed of variation of the Headstart Trust attached to the joint memorandum of counsel of 11 March 2021, with the consent of:
(a)all beneficiaries who have an interest in the trust property;
(b)the trustees of the Headstart Trust; and
(c)the Court, on behalf of the class of beneficiaries described in s 124(2) of the Act.
2.The variations described shall occur:
(a)simultaneously with the trustees of the DP Trust distributing
$2.5 million (including GST, if any) to Charlotte Gavin, in accordance with the deed of agreement dated 15 December 2020; and
(b)no later than 10 working days after the final orders of the Court are obtained.
3.Leave is granted to revert to the Court as required.
The DP Trust (CIV-2021-409-55)
1.The variation of the DP Trust, as set out in the deed of variation of the DP Trust attached to counsel’s joint memorandum of 11 March 2021, is approved on behalf of beneficiaries described in s 124(2) Trusts Act 2019.
2.The DP Trust is to be varied, pursuant to s 122(1)(a) Trusts Act, with the consent of:
(a)all beneficiaries who have an interest in the trust property; and
(b)the trustees of the DP Trust.
3.The variations described above shall occur:
(a)simultaneously with the trustees of the DP Trust distributing
$2.5 million (including GST, if any) to Charlotte Gavin, in accordance with the deed of agreement dated 15 December 2020; and
(b)no later than 10 working days after the final orders of the Court are obtained.
4.The sealed order for information protocol, dated 4 September 2015, issued by Dunningham J in CIV-2013-409-1371 (Powell v Powell) is revoked.
5.Leave is granted to revert to the Court as required.
The McKenzie Trust (CIV-2021-409-61)
1.It is declared that, pursuant to s 122(1)(a) of the Act, the McKenzie Trust is to be varied in terms of the deed of variation of the McKenzie Trust attached to counsel’s joint memorandum of 11 March 2021, with the consent of:
(a)all beneficiaries who have an interest in the trust property; and
(b)the Court, on behalf of the class of beneficiaries described in s 124(2) of the Act.
2.The variations shall take effect simultaneously with the distribution by the trustees of the DP Trust of $2.5 million (including GST, if any) to Charlotte Gavin, in accordance with the deed of agreement between those parties dated 15 December 2020, and no later than 10 working days after the final orders of the Court are obtained.
3.Leave is granted to revert to the Court as required.
Solicitors:
Shaun Cottrell Law, Christchurch Duncan Cotterill, Christchurch
Buddle Findlay, Christchurch
Tavendale and Partners,Christchurch
Copy to: Mr Wallace Mr Jones
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