Gerbich HC Hamilton M59/01

[2001] NZHC 1165

IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY M59/01

UNDER The Trustee Act 1956

IN THE MATTER of CHARLIE MOANA GERBICH

AND

IN THE MATTER of an application by KARRYN JULIE GERBICH

COUNSEL: W J Scotter for Applicant
J Binns for child

DATE OF HEARING: 29 November 2001

JUDGMENT: 29 November 2001

ORAL JUDGMENT OF HAMMOND J

Solicitors: Harkness Henry, Hamilton
J Binns, Hamilton

INTRODUCTION

[1] I have before me an application under s 41 of the Trustee Act 1956 for an order “approving payment or transfer to Karryn Julie Gerbich outright of the funds and property held by her on trust for Charlie Moana Gerbich Lee”. The stated grounds for the application are that “such an order will best provide for the maintenance, education, advancement and benefit of the said Charlie Moana Gerbich Lee”.

[2] The application is an unusual one and can only be understood in the context of the facts.

THE FACTS

[3] Karryn Gerbich lived as man and wife with Gregory Francis Lee from 1990 down to 7 March 2000. Greg died in a helicopter accident on Mt Kariori on 7 March 2000. As at the date of his death, Greg was 38 years old, having been born on 1 October 1961. Karryn was 33, having been born on 7 December 1966. The couple had one child, a girl called Charlie, who was born on 29 January 2000, just five weeks before Greg’s death.

[4] Greg did not leave a will. Letters of Administration of his estate were granted to Karryn as guardian ad litem on 2 August 2000. The estate comprised half of Greg’s interest in a property situated at 20 Cornwell Road, Raglan (“Cornwell Road”) and $88,462.96 in cash (that has been described before me as “the cash estate”). According to the affidavit, that sum was derived as follows:

BY:	Combined Insurances proceeds policy		$10,500.00
BY:	Combined Insurances refund premium	$221.80
BY:	Westpac Trust balance account	$82,643.13
TO:	ANZ repayment visa card	$2394.75
TO:	Legal costs of McKinnon & Co as per tax invoice	$2507.22
TO:	Balance held on term deposit	$88,462.96
$93,364.93	$93,364.93

[5] The couple’s property dealing had become somewhat complicated. Greg and Karryn purchased Cornwell Road as tenants in common in equal shares. The purchase price was $95,000, all of which was provided by the ANZ Bank on a first mortgage. This loan was also secured by a collateral mortgage over Karryn’s mother’s (Mary Elizabeth Gerbich, known as “Colleen”) former home at 106 Whatawhata Road, Hamilton.

[6] In 1998 Colleen sold her home for $140,000 and applied all of those funds towards building a house on Cornwell Road. There was an informal agreement by which she and Greg would live with her mother in “her” house until they had built a house for themselves at the other end of the property. It was intended that Karryn and Greg would eventually subdivide off the land immediately surrounding her mother’s house and transfer that to her. It was thought that such a subdivision would likely be permitted by the Waikato District Council and Mrs Lee would have a separate title.

[7] In October 1999 Greg and his brother Kevin (who also died in the helicopter accident) sold a property owned by them at 53 Lorenzen Bay Road, Raglan. Greg’s share of the sale proceeds was approximately $73,000. That money was paid into an account in Greg’s name with WestpacTrust. The purpose of the account was to serve as a savings account for all the money that Karryn or Greg could put towards the construction of their new house. That is how the sum of $82,643.13 in the statement which I have already recited originally came into being.

[8] At the time he was killed, Greg had literally just started work on the new home. It had been agreed between the parties that during the first year of Charlie’s life, Karryn and Greg would work together on this project, and Mrs Lee would assist by looking after Charlie.

[9] Throughout the ten years of the relationship, Karryn has deposed that she “consistently earned far more than Greg”. She had a good job with Telecom and was earning $45,000 plus per year. Greg was sometimes self employed, working on building alterations; and sometimes worked as a fisherman on a Raglan based trawler. His income was about $15,000 per annum. He was very much an outdoors type, and spent a lot of his time surfing and kayaking. Karryn does not make these observations as a complaint or criticism of Greg. She said, “I loved him the way he was. We were very happy together”.

[10] Greg’s death threw these plans into disarray. The plans for the construction of the new house had to be cancelled. Her mother was feeling isolated from her friends. She had broken her leg and could not drive. In the new circumstances she preferred to live “in town”. And she thought it would be easier for her to care for Charlie in town when Karryn returned to work.

[11] Towards the end of 2000 Karryn assisted her mother to buy another house for her in Hamilton by “advancing” $80,000 from Greg’s cash estate. She deposes, “so far as I am concerned this payment represents approximately Greg’s half share of the total extent to which my mother’s contributions had improved Cornwell Road but the official legal basis of the payment was that the money, being less than half the total value of Greg’s estate, was being used in Charlie’s best interests by providing a permanent home for us both.”

[12] It has to be said that by resorting to the estate in the way in which she did, Karryn was quite unwise. The present application is really being made to validate a course of action she had already adopted.

[13] Colleen’s new house cost $132,000. That was provided by the $80,000 just recited; $40,000 raised by Colleen; and $10,000 borrowed by Ms Gerbich from the bank. The intention is that Colleen will help look after Charlie in her home during the day when Ms Gerbich returns to some work.

[14] As at the date of Greg’s death, Karryn and Greg owed the ANZ Bank a total of $131,263.14, comprising $126,478.25 secured by the original mortgage, and a separate loan of $4,784.89. On 12 June 2000 ANZ Life Assurance Co Ltd paid to ANZ the sum of $128,847.15 to clear the mortgage loan.

[15] Karryn deposes that Cornwell Road is now worth approximately $300,000. She says as at the date of Greg’s death the couple owed her mother approximately $160,000, being the total value of her contributions to that property and approximately $131,000 to the ANZ Bank. She deposes that on those figures there would have been little, if any, equity in the property for Greg and her upon a sale.

[16] Accordingly, for the purposes of the application, she suggested in her affidavit that Greg’s estate “be valued at approximately $160,000, being the cash estate of (say) $95,000 plus (say) $65,000, being half the mortgage repayment and insurance repayment”. Counsel now suggest a realistic figure would be $145,000, allowing for all costs and disbursements attendant on rationalising the situation which has arisen, and this proceeding.

[17] Karryn deposes:

“I seek the consent of this Court to apply all of the capital in Greg’s estate for the maintenance, education, advancement and benefit of Charlie upon the basis that this can best be achieved by enabling me to:

(i) Pay out to my mother the balance of the money she spent on the house that is now Charlie’s and my house.

(ii) Enable me to maintain a reasonable standard of living for Charlie and myself without having to return to work full time.

(iii) Provide for Charlie over the next 19 years in all the ways that a single parent provides for a child.”

[18] Subsequently, I saw counsel in Chambers on an application for directions. I made it plain that, even assuming the court was prepared to approve an “advance”, there was no way I could see this court authorising a wholesale resettlement of the estate on Karryn under s 41. Ms Binns indicated she would oppose any such outcome. Counsel then asked for time to consider the matter further and to take further instructions.

[19] The proposal which is now before me is that both counsel seek “an order authorising Karryn to transfer Cornwell Road to herself absolutely, subject to her giving a mortgage back to herself as Charlie’s trustee in the sum of $100,000, interest free, with the court to determine when such sum is to be paid to Charlie”. This is very much the sort of order I had tentatively canvassed with counsel in Chambers, although the relevant figures were a matter to be considered by them, along with the terms of the mortgage.

RATIONALE OF APPLICATION

[20] The present situation is an unusual one. The order sought on the originating application gave the court some concern as to whether Karryn was not simply seeking to divert to her own name the entire corpus of an estate which, however it has come about, she holds for an infant. And it has to be highly likely that Karryn will form another relationship at some time in the future. That could put that corpus “at risk” to claims by any future partner of hers, or other events.

[21] I should add that Karryn elected to pursue the present application, apparently after taking advice, rather than make an application to the Family Court (as against herself as trustee) for maintenance of Charlie. It is said that alternative would have involved ongoing legal and accounting costs and taxation. Furthermore, it was suggested to me that the jurisdiction of the Family Court to make appropriate orders on an application of that kind “is now far from clear”. It was said that since the introduction of the Child Support Act 1991 on 1 July 1992, the traditional concept of child maintenance has been replaced by an income based formula approach administered by the Child Support Agency of the Department of Inland Revenue. Further, it is claimed, “the present application allows greater scope for protecting Charlie’s future interests”. And, “in any event, Karryn seeks to achieve a result which she believes Greg himself would have wanted. Greg and Karryn intended to make wills each in favour of the other”. I was told that was why the application now before me was made under s 41 of the Trustee Act 1956.

THE LAW

[22] Section 41 provides:

“Power to apply capital for maintenance, etc.

A trustee may at any time or times pay or apply any capital money or other capital asset subject to a trust, for the maintenance or education (including past maintenance or education), or the advancement or benefit, in such manner as he may in his absolute discretion think fit, of any person entitled to the capital of the trust property or of any share thereof, whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event, or subject to a gift over on his death under any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion, and any such payment or application may be made notwithstanding that the interest of that person is liable to be defeated by the exercise of a power of appointment or revocation, or to be diminished by the increase of the class to which he belongs:

Provided that-

(a) Except with the consent of the Court, the money or asset so paid or applied for the maintenance, education, advancement, or benefit of any person shall not exceed altogether in amount or value-

(i) Half of the presumptive or vested share or interest of that person in the trust property where the value of that share or interest exceeds $15,000 or such other amount as the Governor-General, by Order in Council, may for the time being prescribe in place of that amount; or

(ii) In any other case $7,500, or such other amount as the Governor-General, by Order in Council, may for the time being prescribe in place of that amount; and

(b) Where that person or any other person is or becomes absolutely and indefeasibly entitled to the share of the trust property in which that person had a presumptive or vested interest when the money or asset was so paid or applied, that money or asset shall be brought into account as part of that share in the trust property; and

(c) No such payment or application shall be made so as to prejudice any person entitled to any prior life or other interest, whether vested or contingent, in the money or asset paid or applied unless that person is in existence and of full age and consents in writing to the payment or application, or unless the Court, on the application of the trustee, so orders.”

[23] Mr Scotter referred me to the commentary in Nevill’s Law of Trusts Wills and Administration in New Zealand (Maxton ed) at pp 213-214. He said, “The court’s discretion is very wide and is to be exercised in a liberal fashion. It is to be noted that, surprisingly, there does not appear to be any precedent for an application in circumstances such as apply here and, in passing, it is also noted that as from 1 February 2002 applicants in Karryn’s position will be able to apply under the Family Protection Act.”

[24] Whether that be so or not, this court is bound to deal with the application as it presently stands, on the law as it is at this time. In the broadest sense, an advancement is the payment to a beneficiary of part of the capital of a bequest before the time has come at which the capital falls into that beneficiary’s hands. The term “advancement” is itself an eighteenth century word, which meant generally the setting up in life of a young person. Originally the conception was payment for purposes such as starting a person in a business or in a profession, paying apprenticeship fees, or supplying capital to allow an existing business to be carried on. In Brooke v Brooke (1911) 3 OWN 52 (an Ontario case) Middleton J (adopting American judicial authorities) said:

“It may not be easy to define with precision what is meant by “advancement in life” since the meaning may depend, to a greater or less degree, on circumstances, but it seems to us to point to some occasion out of the everyday course, when the beneficiary has in mind some new act or undertaking which calls for pecuniary outlay, and which, if properly conducted, holds out a prospect of something beyond a mere transient benefit or employment.”

The authorities seem to have been clear enough that “an advancement is neither a loan or debt to be repaid” (re Hall (1887) 14 OR 557).

[25] As routinely occurs, will draughtsmen enlarged the phrase “advancement” by the addition of the words “education” as well as (later) the word “benefit”. In other words, they broadened the scope of the original concept. Then the statutory provisions which evolved in the various Commonwealth jurisdictions (including s 41 in New Zealand) all reflected this enlargement by the usage and practice of solicitors.

[26] In re Pilkington’s Will Trusts [1964] AC 612, at p 633, Lord Radcliffe expressly regarded the addition of the word “benefit” as the “largest of all” additions. His Lordship said:

“This wide construction of the range of the power, which evidently did not stand upon niceties of distinction provided that the proposed application could fairly be regarded as for the benefit of the beneficiary who was the object of the power, must have been carried into the statutory power . . . since it adopts without qualification the accustomed wording ‘for the advancement or benefit in such manner as they may in their absolute discretion think fit’ (pp 634-5)”

[27] More modern instances of the exercise of the power include some very wide-ranging purposes. These include the payment of the cost of sending an infant beneficiary on a sea cruise to enable him to recuperate from a breakdown in health associated with studying for a commerce degree at the University of Melbourne (Re Dick [1940] VLR 166) and making charitable donations in pursuance of a sense of moral obligation which a principal beneficiary might feel that he or she owes (Re Clore’s Settlement Trusts [1966] 1 WLR 955).

[28] More recently the power has been used extensively for tax planning purposes, usually by the creation of separate settlements for the beneficiary and the beneficiary’s family. (See Re Pilkington’s Will Trusts (supra); Re Hastings-Bass [1975] 1 Ch 25; CIR v Ward [1970] NZLR 1; Davidson v CIR [1976] 2 NZLR 705; and Prebble, “Constitution of Sub Trusts to Receive Income of Infant Beneficiaries of Discretionary Trusts” (1981) 9 NZULR 247)

[29] Probably the most often cited case is Pilkington, in which trustees were authorised to pay a considerable sum of capital to sub-trustees by way of advancement of little Penelope. She was four years old when the trustees decided on that course of action, and her family life was quite stable and comfortable. But it was said to be clearly to Penelope’s “benefit” that these sums be released from the head trust if substantial estate duty was to be avoided.

[30] As I have noted, both counsel are now prepared to support the amended application. There is therefore, no lis in the traditional sense. But that does not absolve this court of the responsibility of seeing that the proper reach of the section is not exceeded.

[31] In support of the application this can be said:

• Karryn was due for something by way of recompense for her past (and presumably her future) support of the child.

• Charlie will be better served by having a mother who can give her full care without the financial pressure of servicing a mortgage.

• Disentangling the infant’s interest from that of its mother and grandmother is a good (and even necessary) thing, in this instance.

• Housing, per se, has in various ways been held to be a “benefit” within the meaning of s 4l.

• If it is right to approve charitable donations in pursuance of a (putative) sense of moral obligation, the same can surely be said of the moral obligation between de facto husband and wife, in respect of which the New Zealand Parliament has now legislated. To put this another way, Charlie could well feel, and very reasonably at that, that her father should have made specific provision for her mother to avoid the very situation which has now arisen before this court.

[32] In the form now put forward, the application secures a substantial percentage of the estate to the intended beneficiary, albeit in a recast form. How much is enough must always be a matter of circumstance and degree. But I think Charlie is here sufficiently protected. The recasting of the estate in the form sought makes sense and is for the benefit of Charlie.

CONCLUSION

[33] There will therefore be orders in the terms sought, but with the following additional terms. The mortgage is to be a registered first mortgage. It is to be repaid when Charlie turns twenty. She would have had the estate at that age and there is no justification for holding the “advancement” for a longer period. If the mortgage is repaid before Charlie turns twenty, it will of course be capital in Greg’s estate and will have to be held, invested and accounted for by Karryn to Charlie, when Charlie turns twenty years of age.

[34] I should comment further on the term that Charlie will have her estate at twenty. Mr Scotter understandably urged on me that there should be a deferral until Charlie is thirty years or age, or at the very least twenty-five. That may well have been wise, and many testators so provide. But here, on the intestacy, the child was entitled to the estate at her majority. To extend the term seems to me to recast the estate in a way which would indubitably be an entire remaking of the lawful position. The terms of the orders I am making are already at the farthest shores of s 41. Of course, in practical terms, Karryn may sell before Charlie turns twenty years of ago. The mortgage would then fall back into the estate and as I have said, would have to be lawfully invested for Charlie’s benefit until she is twenty. To make this clear, in other words, the mortgage is not transferable. It arises only out of the particular and peculiar circumstances which have arisen in this case and which led to the present application.

[35] All of that said, without wishing to sound paternalistic, the Court hopes (as it always does in such a situation) that the fund will be sensibly utilised by Charlie for her real and long term benefit when it falls in.

COSTS

[36] Ms Binns will have costs of $2500 out of the estate, together with her disbursements, if necessary, as certified by the Registrar.

[37] The applicant’s costs are a little more complicated. The legal costs regarding the procuring of the Letters of Administration and the associated administration of the estate would be proper charges against the estate, without an order of the Court. I am prepared to allow Karryn her costs on this application out of the estate. I fix those costs at $6500, together with disbursements, if necessary, as certified by the Registrar.

[38] Counsel should be able to settle an order in terms of this judgment for sealing without further reference to me. But in the event that any difficulty should arise, I reserve leave to counsel to apply for a telephone conference with me, wherever I then happen to be sitting.

Judgment accordingly.