Godfreys 2010 Limited v The Wairewa Runanga Incorporated Society

[2017] NZHC 418

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2016-409-001184 [2017] NZHC 418

IN THE MATTER	of the James Wright Trust
IN THE MATTER	of an application for directions under ss 64 and 66 Trustee Act 1956
BETWEEN	GODFREYS 2010 LIMITED Applicant
AND	THE WAIREWA RUNANGA INCORPORATED SOCIETY Respondent

Hearing:	On the papers
Judgment:	13 March 2017

JUDGMENT OF NATION J

Introduction

[1]      The late James Wright died on 29 August 2006.  He left two farms on Banks Peninsula to an incorporated society Wairewa Runanga Incorporated (the Runanga). The Runanga has identified an urgent need to carry out short-term and long-term capital works on the farms that require capital.

[2]      During his life time, Mr Wright established the James Wright Trust (the Trust), the beneficiary of which is the Runanga.  The trustee is the applicant trustee company, the shareholders and directors of which are partners in Godfreys Law (the Trustee).  The trust deed states the purpose of the Trust is to enable the Runanga to purchase and farm further rural land close to the farms bequeathed to the Runanga to

enable the Runanga to farm the property more efficiently and economically.

GODFREYS 2010 LTD v WAIREWA RUNANGA INC SOC [2017] NZHC 418 [13 March 2017]

[3]      The Trust has capital of about $587,000.  The Trustee considers the Trust’s capital is unlikely to ever be sufficient to buy enough land to provide a meaningful profitable addition to the Runanga’s existing farm.   The Trustee seeks directions from the Court permitting it to make the trust capital available to the Runanga so the Runanga can use it in its farming operations.

[4]      The Trustee also seeks leave to make the application by way of originating application and directions that the application be determined without a hearing and without any other person being served with the application on the basis that the Runanga is the only person or legal entity affected by the application and it consents to each of the orders and directions sought.

The evidence

[5]     The application is supported by an affidavit from Mr John Boyles, the chairperson of the Runanga.   He says the farms bequeathed to the Runanga are currently leased for farming purposes.  The lease has been granted on the underlying principles  of Te Mātāpono  Kaitiakitaka (sustainable management), Te  Mātāpono Tikaka (cultural ecological wisdom), Te Mātāpono Hauora (health) and Te Mātāpono Kaikōkiritaka (care).   Collectively these mātāpono provide the cultural and ethical guidance necessary for the ‘ki uta ki tai’ kaitiakitanga of natural resources in line with the traditional tribal whakataukī of “mō tātou, ā, mō kā uri ā muri ake nei” (for us and those after us).   The economic utilisation of resources will, at all times, respect the customary and recreational rights of the wider Wairewa Runanga members.

[6]      Mr Boyles has said the Runanga has identified urgent work that requires capital expenditure, namely:

(a)  repair  of  Mr  Wright’s  former  homestead  which  has  deteriorated  in

previous years and suffered earthquake damage; (b)  reinstatement of farm tracks;

(c)  repair of existing fencing and addition of further fencing;

(d)  improvements to the water supply; and

(e)  the  provision  of  accommodation  and  camping  ground  facilities  to accommodate members of the Runanga and visitors.

[7]      Mr Boyle says the Runanga has, for several years, analysed information as to sales of land close to or bordering the Runanga farms.  Mr Boyle says no land has become available and the existing lots have capital values well in excess of the Trust’s capital.  He thus says it is not practical or feasible for the Runanga to use the trust fund to buy neighbouring farms and such land is not available.  The Runanga believes that using the trust fund to carry out the capital works required on its farms would better fulfil the Trust’s ultimate purpose of allowing the Runanga to farm its land more efficiently and economically.

[8]      Mr  McDonald  is  a  partner  in  the  Christchurch  law  firm  Godfreys.    He produced relevant documentation with his affidavit.  Clause 2 of the trust deed states:

2.  Purpose of Trust

The settlor has established the Trust to enable the Wairewa Rununga Incorporated Society to purchase and farm further rural land close to or bordering the Te Oka property (comprised in Certificates of Title 772/17 and 21B/1014) currently owned by the settlor (the property) which farm land has been bequeathed to the Wairewa Rununga Incorporated Society and the purchase of such additional lands will enable the Wairewa Rununga Incorporated Society to farm the property more efficiently and economically.

[9]      Mr McDonald has confirmed that the Trustee considers that it is not practical or realistic to try and achieve the purpose of the Trust as set out in the trust deed.  He has posed various questions for the Court to consider, the resolution of which may enable the Trustee to deal with the Trust’s capital in a way that would assist the Runanga in the manner the Runanga wishes to pursue.

[10]     Mr McDonald advised the Court that the Trustee was concerned about a possible argument that, because the purpose of the Trust cannot and is unlikely to ever be fulfilled, the Trust would fail so that the trust property would then have been held on a resulting trust for the deceased.  In his will, Mr Wright left the residue to the James Wright Trust so, if that gift failed, there would be an intestacy as to the

residue.  The Trustee was concerned that it could be argued the trust capital should be held for the benefit of the deceased’s next of kin pursuant to the Administration Act, the deceased having nieces and nephews who would succeed under the Administration Act.

Directions as to service

[11]     It is appropriate for these proceedings to be brought by way of originating application.  Leave is granted accordingly.

[12]     Apart from the Runanga, which consents to the application, the only persons who  might  potentially  be  affected  by the  proceedings  would  be  those  arguably entitled to a share in the trust fund through intestacy if the Trust fails.   I do not however consider that those relatives would have an arguable case that, in the circumstances as outlined, the Trust itself has failed.  The purpose of the Trust has not become impossible or unlawful.  It does not fail for uncertainty of object.  The vesting date for the Trust is 11 July 2086 or such earlier date as the trustees might, in their absolute discretion, appoint.  The funds in the Trust could remain invested until the vesting day when, in terms of the Trust, they would have to be distributed to the Runanga.

[13]     Because  there  is  no  prospect  of  the  Trust  failing  simply  because  of  the trustees present inability to use the trust fund to buy land for the Runanga, there is no person who could be affected by the proceedings other than the Runanga. Accordingly, it is appropriate for the Court to consider the application without any other party being served.

Proposed variation of the trust deed

[14]     The Court has been asked to determine whether the Trustee can vary the trust deed by adding as an additional purpose at the end of clause 2 such as:

…  and  alternatively  to  enable  the  trustees  to  appoint  capital  to  the beneficiary for the purpose of carrying out capital works on the property which will enable the beneficiary to farm the property more efficiently and economically.

[15]     The property, as defined in the trust deed, is the Te Oka farm belonging to the Runanga.  This addition would not be removing or replacing the existing purpose, but adding a purpose (which in reality would be the only purpose being executed by the Trust).  It could thus constitute a change to the Trust’s purpose.

[16]     Clause 15 of the trust deed gives the trustee to “alter, vary or revoke any term of  provision  of  this  deed”.    The  power  given  is  relatively broad  and  does  not expressly prohibit a variation that would not be fully in keeping with the Trust’s purpose.  However, such a power is not unlimited.  Butler states that:1

…  where  the  power  of  variation  is  contained  in  the  trust  instrument  a variation cannot be exercised beyond the reasonable contemplation of the parties, or to change the purpose of a trust, nor can it be used to commit a fraud on a power.

[17]     I consider the objectives of the Trustee and the Runanga could be better achieved through accelerating the vesting date relying on clause 9 of the trust deed.

Resettlement of the Trust

[18]     Kain  v  Hutton2   is  one  of  the  main  New  Zealand  cases  dealing  with resettlement and involves an application of the English case of Re Pilkington3.  It is concerned with ensuring that the new trust reflects the terms of the old trust in the sense of who benefits and how.4   This would not be an issue in the present situation because the respondent is the sole beneficiary to the current and the proposed trust.

[19]     Garrow and Kelly note that “the power to resettle cannot be used to redefine completely the terms of the original trust”.5    Though the purpose of the new trust would be different, it is still similar.  The settlor wished the Trust to buy adjacent

farmland, presumably to add to the profitability and value of the Te Oka farms.  The

1      Andrew Butler (ed) Equity and Trusts in New Zealand (2nd  ed, Thomson Reuters, Wellington,

2009) at 9.7.

2      Kain v Hutton [2008] 3 NZLR 589 (SC).

3      In re Pilkington’s Will Trust; Pilkington v Inland Revenue Commissioners [1964] AC 612, [1962]

3 All Er 622.

4      Butler, above n 1, at 9.8.2.

5      Noel Kelly, Chris Kelly and Greg Kelly, Garrow and Kelly Law of Trusts and Trustees (6th ed, Lexis Nexis, Wellington, 2005) at 26.5.3.

new trust would still have the purpose of adding value and profitability to these farms, just through capital improvement.

[20]     A resettlement will always involve alterations, otherwise it would not be carried out.   The inclusion of clause 8 indicates that the settlor envisaged the possibility that the current trust may not continue to be the best vehicle to provide for the beneficiary.  Although the new trust would not have the exact same purpose as the current trust, it would still benefit the respondent.   As the Trust has no other beneficiaries, no one would be disadvantaged.  Therefore the applicant could resettle the trust funds for the benefit of the respondent in a new trust.

[21]     This procedure would however require the Trustee to establish a new trust for the benefit of the Runanga.   That would  involve additional  cost and  additional dispositions of title to the land.  Again, I consider the objectives of the Trustee and the Runanga would be better achieved by utilising clause 9 and bringing forward the vesting date.

Use of the rule in Saunders v Vautier

[22]     The rule in Saunders v Vautier allows early termination of the trust with the approval of all beneficiaries.6   The rule has developed to allow trustees to change the terms of the trust with all of the beneficiaries’ consent (and providing they are sui juris).7   The original rule allowing for early termination by the beneficiaries can be executed regardless of the settlor or trustees’ wishes.8   Therefore the Trust could be terminated  by the  Runanga  and  the  trust  funds  distributed  to  it,  irrespective  of whether it is in keeping with the trust’s purpose.

[23]     Re Philips NZ Ltd relied on the rule in Saunders v Vautier to vary the trust.9

The trust in question was a superannuation scheme.   The trustees proposed an amendment which would allow them to pay funds to the settlor company and the

beneficiaries from the reserve fund.  The trust deed prevented any amendment which

6      Saunders v Vautier (1841) 4 Beav 115; 49 ER 282.

7      Re Philips NZ Ltd [1997] 1 NZLR 93, at 101.

8      Nicky  Richardson Nevill’s  Law  of  Trusts,  Wills  and  Administration  (11th   ed,  Lexis  Nexis, Wellington, 2003) at 12.2.3.

9      Re Philips, above n 7.

would give funds to the settlor company.  The Court held that the rule in Saunders v Vautier allowed the trustees to vary the trust in this way with the beneficiaries’ permission.

[24]     The Runanga is the sole beneficiary of the Trust and it is sui juris.  It can ask for the Trustee to terminate the Trust by bringing forward the vesting date so that the capital in the Trust has to be distributed to the Runanga.   That could be done in conjunction with the Trustee exercising its power under clause 9 to bring forward the vesting date.

Use of s 64(1) of the Trustee Act 1956

[25]     Counsel submits that s 64(1) could be used to authorise the transfer of capital to the Runanga.  Pursuant to s 64(1), subject to any contrary intention expressed in the trust deed, the Court can give the trustee the power to make a disposition of trust property if, in the opinion of the Court, that would be in the best interests of the Runanga. That power is subject to any contrary intention expressed in the trust deed.

[26]     On the evidence before me, I accept the proposed transfer of funds to the Runanga would be in their best interests as it would allow the trust funds to be used in way that better equips it to run the Te Oka farm.  However, s 64(1) can be used only when such a disposition:

... is inexpedient or difficult or impracticable to effect the same without the assistance of the court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law ...

[27]     Because of the way clause 9 can be used to accelerate the vesting date, I do not consider it necessary to invoke s 64(1).

Use of s 64A Trustee Act 1956

[28]     Although not mentioned in submissions or Mr McDonald’s affidavit, s 64A could be used by the Court on an application to it by the Runanga to approve an arrangement for the trust fund to be paid to the Runanga, thereby varying the trust and enlarging the powers of the trustee.

[29]     Justice Tipping held in Re Greenwood that the fact a proposed variation goes against the settler’s intentions does not alter the Court’s jurisdiction to approve the change, although it may affect the Court’s consideration of its merits.10     This is contrast to English authority which suggests that the Court cannot approve a change to the purpose of a trust.  However, as Butler argues, that approach goes against the legislative  purpose  of  s  64A  and  should  not  be  followed  in  New  Zealand.11

Therefore s 64A could be used by the respondent, with permission by the Court, to alter the terms of the trust to include a wider purpose.

[30]     The current application is however made by the Trustee.

Accelerating the vesting date under clause 9

[31]     The Runanga is the sole beneficiary in the deed of trust dated 11 July 2006.

[32]     Vesting day in the trust deed means:

i)     The day upon which shall expire the period of 80 years from the date of this deed, being the date within the perpetuity period permitted to be specified  under  Section  6  of  the  Perpetuities  Act  1964  and  the perpetuity period applicable to this Deed is specified accordingly; or

ii)    Such date being earlier than the day specified above, as the trustees may in their absolute discretion by Deed appoint pursuant to clause 10.1.

[33]     The reference to 10.1 is an obvious slip.  The terms of part 9 of the trust deed are as follows:

9.  Distribution on Vesting Day

9.1The Trustees shall have the power in the Trustees’ absolute and uncontrolled discretion to appoint by deed a Vesting Day which falls within the perpetuity period applicable to this deed in respect of the whole or any specified part of the Trust Fund.  Any day so appointed shall for all purposes be the Vesting Day in respect of the Trust Fund or the part specified as the case may be.

9.2On the Vesting Day the Trustees shall stand possessed of such of the  capital  and  income  of  the Trust  Fund  as  may  then  remain UPON TRUST for the Beneficiary and the receipt of the secretary, treasurer or other proper officer of the Beneficiary shall be a full

10     Re Greenwood [1988] 1 NZLR 197 at 211.

11     Butler, above n 1, at 9.5.2(6).

discharge  to  the  Trustees  for  any  such  payments  made  to  the beneficiary.

9.3Or if the Trust in clause 9.2(a) fails, then for any charitable purpose the trustees may nominate in writing.

[34]     Clause 9 allows the trustees to transfer the whole of the trust fund’s capital to the beneficiary at any time before the vesting day.  The trustees are given the power to make such a transfer in such a manner and subject to any terms and conditions as they think fit.  There is nothing in the clause that would indicate that this must be made in the interests of the Trust’s purpose.  This would be an acceptable route for the applicant to achieve its goal.

[35]     The wording in clause 9.3 is a clear indication that the distribution on vesting does not have to be for the purpose of the trust, as set out in clause 2 of the Trust.

[36]     It is apparent from the evidence of Mr McDonald and Mr Boyle that both the Trustee and the Runanga want the capital that is in the James Wright Trust to be available to the Runanga to spend on the capital improvements which it needs to make to the Te Oka farm to assist in the more efficient and economical use of that farm.  That could be achieved by the Trustee exercising its power to bring forward the vesting date so as to distribute the capital in the Trust to the Runanga.

Conclusion

[37]     The Court accordingly directs that the applicant may distribute the entire capital of the trust to the respondent by advancing the vesting day, pursuant to the trustees’ powers to do so under clause 9.1 of the trust deed.

[38]     In accordance with clause 9.2 of the trust deed, the receipt of the secretary treasurer or other proper officer of the Runanga shall be a full discharge to the Trustee for the payment to the Runanga.  Neither the Trustee nor the Runanga are abound to apply the trust capital for the purpose of acquiring adjoining land and the Runanga is free to utilise the trust capital as it sees fit in the furtherance of its own objects.

[39]     As these directions have been obtained for the benefit of the Runanga, it is appropriate that the costs of, and incidental to, the application be charged against the trust capital and an order is made accordingly.

Solicitors:

Godfreys Lawyers, Christchurch

G M Brodie, Christchurch.