In the Matter Of the Mountain View Trust and the Hill View Trust Between Marilyn Joy Davies and Selwyn James Metcalfe Applicants
[2024] NZHC 2998
•15 October 2024
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE
CIV-2024-443-000066
[2024] NZHC 2998
UNDER Part 19 of the High Court Rules, and ss 124, 125 and 133 of the Trusts Act 2019 and the inherent jurisdiction of the High Court to supervise the administration of trusts IN THE MATTER OF
the Mountain View Trust and the Hill View Trust
BETWEEN
MARILYN JOY DAVIES and SELWYN JAMES METCALFE
Applicants
On the papers: Counsel:
K Lenahan for Applicants
Judgment:
15 October 2024
JUDGMENT OF GRAU J
Introduction
[1] Mr Lionel Robertson (Toss) and Mrs Deidre Robertson (Betty) were farmers in Taranaki. They have two children; Mrs Gail Fisher (Gail) and Mrs Carol Mobbs (Carol). In 1962, Toss and Betty purchased a dairy farm in Ōkato. They worked and lived on the farm until they retired in 1979 and moved off the farm, but they retained ownership of the farm after retirement. Gail and Gail’s husband, Mr Stewart Fisher (Stewart), had both worked on the farm for many years without taking any income from it.
RE DAVIES [2024] NZHC 2998 [15 October 2024]
[2] In the early 2000s, Toss and Betty decided to sell the Ōkato farm and use the proceeds of sale to help Gail and Stewart buy a farm of their own.
[3] The decision to sell the farm was, it seems, the impetus for Toss and Betty to each settle a trust. Toss settled the Mountain View Trust and Betty settled the Hill View Trust (the Trusts). The Trusts were both settled by separate trust deeds dated 16 February 2001, but the Trusts are mirror trusts of each other and contain identical clauses. Importantly, Toss, Betty, Gail, Carol, and Gail and Carol’s children and remoter issue, are listed as discretionary beneficiaries of the Trusts.
[4] A company, R & F Farms Limited (the Company), was also incorporated, in 2002. The Company has 100,000 shares which are divided equally between the Mountain View Trust, the Hill View Trust, Gail and Stewart.
[5] When the Ōkato farm was sold, the proceeds were transferred to the Trusts and the Trusts provided the Company with an unsecured loan of $1 million to buy a 68-hectare farm in Hāwera. Gail and Stewart lived, and still live, on the homestead on the farm and were responsible for the day-to-day management of the farm until the Company sold the bulk of it in 2021.
[6] Toss passed away on 26 January 2004 and Betty passed away on 28 June 2010. After the Trusts were established, and before they died, Toss and Betty created five separate memoranda of wishes. These memoranda conflict each other. As a result of the conflicting memoranda, and after Betty’s death, there was a protracted dispute between Gail and Carol about the final distribution of the Trusts’ assets. The dispute continued until a mediated settlement was reached on 11 September 2024.
[7] The settlement did not include any discretionary beneficiaries other than Gail and Carol. Because there are other discretionary beneficiaries who were not parties to the settlement deed, the settlement is conditional on this Court’s approval. Accordingly, the Trustees of the Trusts, Ms Marilyn Davies and Mr Selwyn Metcalfe, have applied to the Court for the following:
(a)substantive orders under ss 124, 125 and 133 of the Trusts Act 2019 approving the proposed distribution of Trust assets in accordance with the settlement, approving the proposed termination of the Trusts and waiving the requirement of consent of non-party beneficiaries;
(b)leave to bring the application by way of originating application; and
(c)a direction that service of the application on any of the beneficiaries of the Trusts be dispensed with.
Background
The Trusts’ deeds and assets
[8] As noted earlier, the Trusts’ deeds list the following people as discretionary beneficiaries:
(a)Toss and Betty (who were also the primary beneficiaries);
(b)Carol and Gail; and
(c)Carol and Gail’s children and remoter issue (which includes unborn descendants).
[9] Carol and Gail went on to have families of their own who are, therefore, discretionary beneficiaries of the Trusts. Gail, who is now 74, has three adult children, one adult grandchild, two minor grandchildren, and two minor great-grandchildren. Carol, who is now 64, has three adult children and five minor grandchildren.
[10] Clause 13 of the deeds provided that on vesting day, which is 16 February 2081 (absent the Trustees appointing an earlier date by deed), the Trustees hold the Trust funds for one or more of the living beneficiaries in such shares as the Trustees, in their absolute discretion, shall determine. The deeds further provide that the shares allocated can be at the exclusion of other discretionary beneficiaries. Therefore, the deeds imagined a situation where some discretionary beneficiaries may not receive any entitlement to the Trusts’ assets.
[11] Immediately prior to the conditional settlement on 11 September 2024, the assets of the Trusts were:
(a)$790,000, being the balance of the unsecured loan owned by the Company to the Trusts;
(b)50,000 shares in the Company; and
(c) $128,535.28 in cash.
[12] At 6 September 2024, according to a draft statement of financial position, the Company had a total equity of $750,176.
The memoranda of wishes
[13] There were five memoranda of wishes from Toss and Betty about the distribution of the Trusts’ assets. All memoranda note that they are not binding but, instead, provide guidance to the Trustees in exercising their wide discretion under the deeds.
[14] In 2001, two memoranda of wishes were created; one for the Hill View Trust and the other for the Mountain View Trust. The Trustees are not in possession of the Mountain View Trust 2001 memorandum of wishes but are aware of it and are of the understanding that it mirrors the memorandum of wishes for the Hill View Trust. It provides that on the death of the survivor of Betty and Toss, the Trust assets should be divided equally between Gail and Carol.
[15] In 2002, Toss signed another memorandum of wishes in relation to the Mountain View Trust. It states:
(a)a wish that on the death of the survivor of Toss and Betty, Gail and Stewart would be allowed to purchase the shares in the Company at a price of $1 per share regardless of the shares’ real value;
(b)the option to purchase all the shares in the Company is to recognise the “great deal of help” Gail and Stewart had given in building up the Trust assets;
(c)a wish that after the discounted share purchase, the remaining assets of the Mountain View Trust would be divided equally between Gail and Carol; and
(d)a wish that the Trustees of the Mountain View Trust were not to call up or compel any repayment of any loan owed by the Company to the Trusts before the expiration of two years from the date of death of the survivor of Toss and Betty.
[16] An identical memorandum of wishes was completed by Betty in 2002 for the Hill View Trust.
[17] Finally, six weeks prior to her death, Betty completed a further memorandum of wishes in 2010. It recorded:
(a)a direction that her earlier memorandum of wishes from 2002 be destroyed;
(b)a wish that after her death, the Trustees would give all remaining Hill View Trust assets to Carol;
(c)Betty’s belief that Gail and Stewart had run the Company to the benefit of themselves without consulting her; and
(d)a wish there be no distribution to Gail.
[18] The final memorandum of wishes formed a large part of the dispute between Gail and Carol.
The dispute
[19] The Hāwera farm has, unfortunately, not been very profitable. Not long after Betty’s death, the Trustees of the Trusts, along with Gail and Stewart, decided to transition the farm from a dry stock farm to a dairy farm. Although the transition was considered to be a useful development, because the farm is a relatively small holding it was still not very profitable.
[20] In 2013, Gail and Stewart expressed a wish to purchase all the shares in the Company so they could have complete ownership of the farm. They understood that this would include buying Carol out, considering she was a discretionary beneficiary of the Trust. Carol refused the offer to buy her out and Carol’s and Gail’s lawyers then corresponded to try and come to an agreement. Until the recent mediation, those efforts were largely unsuccessful.
[21] Carol’s position was that the loan from the Trusts to the Company needed to be called up and interest on the loan (for the full period of it) also had to be paid. Carol was somewhat aggrieved that Gail and her family had received numerous benefits under the Trusts already whilst she had seen no benefit at all. Carol, in following Betty’s 2010 memorandum of wishes, considered that she was entitled to all of the Hill View Trust and half of the Mountain View Trust.
[22] Gail’s view was that she and Stewart were entitled to purchase all the shares in the Company for $1 per share, in accordance with the 2002 mirror memoranda of wishes. She also considered that the assets of the Trusts were to be divided between her and Carol equally.
[23] The Trustees tried to encourage a settlement between Gail and Carol and took a different view on what should be done. They formed the view that it would not be appropriate for Gail and Stewart to purchase the shares at a discounted price because the Company owned the major asset of the Trusts. Neither would it be appropriate for Carol to receive all of the Hill View Trust assets. Rather, they considered an even split of the Trusts’ assets between Gail and Carol to be the best outcome.
[24] A number of factors were considered in reaching this view. Thy included that the memoranda of wishes were not binding on the Trustees; it was unclear how much weight could be afforded to the 2010 memorandum of wishes; the Trusts’ deeds did not require the loan to be called up until vesting day and did not require interest to be charged; and calling up the loan in full would have rendered the Company insolvent and thus prevent any possibility of a full recovery of the debt for the Trusts.
[25]Neither Gail nor Carol agreed with the approach of the Trustees.
Resolution
[26] After Carol launched proceedings in 2019, and there were further attempts at negotiation, the parties agreed to a private mediation. At the mediation, Gail, Carol, the directors of the Company and the Trustees agreed to the following:
(a)the Company will pay $730,000 to the Trusts as part repayment of the debt;
(b)Carol will receive a distribution of $730,000;
(c)Gail will receive a distribution of all the Trusts’ shares in the Company and the balance of the debt owed by the Company to the Trusts; AND
(d)Gail will receive any balance of cash in the Trusts, if any, after the Trusts are terminated.
[27] The settlement also records that Carol and Gail have considered the interests of their children and grandchildren in agreeing to the settlement. In signing the settlement, they have agreed their children and grandchildren can appropriately be provided for from the share their parent or grandparent is to receive under the settlement.
The application
[28] On 25 September 2024, Mr Lenahan, counsel for the Trustees, filed interlocutory and substantive applications to give effect to the settlement deed.
[29] The Trustees seek leave to bring the application as an originating application under pt 19 of the High Court Rules 2016. Mr Lenahan submits this is the appropriate procedure because the application is brought with the consent of Carol and Gail, there are no factual disputes, and doing so would be in the interests of justice.
[30] Flowing from this application, the Trustees also seek directions to dispense with service. Mr Lenahan notes the only beneficiaries who have not consented to this application are either minors or adults for whom waiver of consent is sought. In the case of the minor discretionary beneficiaries, the Trustees seek this Court’s consent on their behalf. Because of these applications, Mr Lenahan submits that there is no utility in service.
[31] In turning to the substantive orders sought, Mr Lenahan submits it is appropriate for this Court to approve the settlement agreement, including on behalf of all beneficiaries who are not parties to the settlement deed. Mr Lenahan says that, notwithstanding the Trusts’ deeds, which do not specify final beneficiaries, it is clear the assets of the Trusts were intended to go to Gail and Carol. The other beneficiaries were merely contingent. This, Mr Lenahan argues, is supported by the memoranda of wishes from Toss and Betty.
[32] Mr Lenahan submits further that the extended dispute about the appropriate distribution favours this Court approving the settlement without the consent of the other beneficiaries. By approving the settlement, and preventing any further costs, it increases the likelihood that some of the settlors’ grandchildren may actually receive some tangible benefit from the Trusts’ assets.
[33] To approve the settlement, Mr Lenahan submits it is also necessary for this Court to exercise its power under s 124 of the Trusts Act to consent on behalf of the minor and unborn discretionary beneficiaries and to waive the requirement for consent of the adult discretionary beneficiaries, who were not parties to the settlement, under s 125.
Procedure
[34] I consider it is appropriate to bring the application as an originating application for the reasons outlined by Mr Lenahan. After reading all the relevant material, there are no factual issues in dispute in respect of this application and it is in the interests of justice to secure a just, speedy and inexpensive determination of the proceedings. Leave is granted accordingly.
[35] The Trustees have not served this application on any party as Carol and Gail agreed, under the settlement, for the Trustees to bring the application. Further, the Trustees seek this Court to consent on behalf of, or waive the consent of, discretionary beneficiaries who are not parties to the settlement. As I will expand on below, I consider the orders sought in relation to consent of these beneficiaries are appropriate in this case. For these reasons, and in line with the approach of other decisions of this Court,1 I do not consider it necessary to appoint a litigation guardian for the minor beneficiaries. Nor is it necessary to serve the discretionary beneficiaries. Accordingly, I direct that service of the application and supporting documents be dispensed with.
[36] Because the application is not being opposed by any party, I also consider it is appropriate to deal with this matter on the papers.
Substantive orders
Approval of the proposed distribution and termination
[37] Section 133 of the Trusts Act explicitly recognises the ability for trustees to apply to this Court for approval of proposed trustee decisions. It 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.
1 See for example Re Drummond [2023] NZHC 847; Re Macalister [2021] NZHC 3572; Re Tau
[2023] NZHC 2544; and Re Goubitz [2024] NZHC 976.
(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.
[38] In the present circumstances there is no uncertainty about the Trustees’ powers under the Trusts. The reason for seeking this Court’s approval, or “blessing”, of the proposed decision is because such a decision is momentous for the Trust and other discretionary beneficiaries have not, or cannot, provide their approval of such an action.2 For these types of approval orders, the Court must consider whether the Trustees have actually formed the relevant opinion; whether the opinion is one which a reasonable body of trustees could properly have arrived at; and whether the opinion of the trustees is vitiated by a conflict of interest.3
[39] It is clear the Trustees have formed the opinion that the Trusts’ Assets should be distributed in accordance with the settlement. This includes moving the date of distribution forward from 16 February 2081 to 10 days after a sealed order is received from this Court and the subsequent terminations of the Trusts. The decision is not vitiated by any conflict of interest.
[40] It is also a lawful decision which a reasonable body of trustees could have properly have arrived at. As a starting position, discretionary beneficiaries under a trust do not ordinarily have a legal or equitable interest in trust assets unless the trustees or settlors exercise a power to distribute assets to them.4 Under cl 13 of the Trusts’ deeds, the Trustees have a wide power to distribute the Trusts’ assets to any discretionary beneficiary they deem appropriate, at whatever share they deem appropriate, to the exclusion of other discretionary beneficiaries. Accordingly, the Trustees have the power to distribute the assets only to Gail and Carol.
2 See Re PV Trust Services Ltd [2017] NZHC 2957, [2018] 3 NZLR 160 at [42]; and Calver v Fogarty [2024] NZHC 961 at [19].
3 Calver v Fogarty, above n 2, at [19] citing Public Trustee v Cooper [2001] WTLR 901 (Ch) at 925, where Hart J based his observations on an earlier unnamed and unreported chambers judgment by Robert Walker J.
4 Hunt v Muollo [2003] 2 NZLR 322 (CA) at [11].
[41] The action proposed under the settlement is also a reasonable one for two key reasons. First, all of the memoranda of wishes make clear that the assets were to be distributed to Gail and Carol and implied that the interests of the other discretionary beneficiaries were contingent. Neither Toss nor Betty made express reference in their memoranda of wishes to distribute the assets their remoter issue, except in the case that Carol or Gail had died (which has not happened). Accordingly, the proposed beneficiaries of the Trusts’ assets are in line with the settlors’ wishes—despite a departure from some of the settlors’ specific wishes about the exact terms of distribution.
[42] Second, distribution on the terms in the settlement is the most practical way forward and increases the chance of a benefit being received by the other non-party discretionary beneficiaries. As noted, the terms of the distribution are not exactly in line with the memoranda of wishes of the settlors. But there is good reason for this. For example, calling up the debt immediately would cause the Company to become insolvent and prevent the discretionary beneficiaries from receiving any benefit. Distributing the Trusts’ assets now (as opposed to on the distribution date provided for in the Trusts’ deeds) will also end the dispute between Carol and Gail and ensure the Trusts’ funds are not spent on unnecessary litigation.
[43] Overall, I consider it is appropriate to approve the contents of the settlement and the proposed action of the Trustees to give effect to the settlement, despite other discretionary beneficiaries not being party to it. Although the Trustees are not entitled to completely ignore the interests of the non-party discretionary beneficiaries, this has not happened here.5 Clause 12 of the settlement explicitly notes that the children and grandchildren of Carol and Gail will be provided for through their parent or grandparent’s share in the assets. The remoter issue of Carol and Gail, such as the great-grandchildren and unborn discretionary beneficiaries, were also, as the Trustees say, unlikely to receive any benefit from the Trust unless older discretionary beneficiaries had died before distribution.
5 See Wallace v Wallace [2023] NZHC 2928 at [38].
Approval and/or waiver of consent
[44] Section 124 of the Trusts Act allows the Court to consent to the proposed termination of a trust on behalf of minor, unborn, and unascertained beneficiaries. Section 125 allows the Court to waive the consent of any beneficiary, or class of beneficiaries, to the proposed termination of a trust. Because the settlement deed contemplates that, after distribution of the assets, the Trusts will be terminated, it is necessary to make orders under ss 124 and 125 to ensure the terms of settlement can be carried out.
[45] The Trustees seek orders that the Court also use ss 124 and 125 to approve the distribution of the Trusts’ assets under the settlement. However, I do not consider such an order is possible under ss 124 and 125, nor do I consider such an order is necessary because of the wide powers of the Trustees and the Court’s approval of the proposed distribution and termination under s 133.
[46] The factors the Court must consider before making an order under ss 124 and 125 are the same. Namely:6
(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; and
(c)the intentions of the settlor of the trust in settling the trust, if it is practicable to ascertain those intentions.
[47] Both ss 124 and 125 also provide that the Court must not make an order if approval would, in effect, reduce or remove any vested interest in the trust property.7
6 Trusts Act 2019, ss 124(3) and 125(3).
7 Sections 124(5) and 125(4).
[48] Turning first to the application under s 124, Mallon J, in Re Macalister, summarised the principles for the exercise of the Court’s powers as follows:8
(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.
(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.
[49] I consider it is appropriate to make an order under s 124 of the Trusts Act in respect of the minor and unborn discretionary beneficiaries for the same reasons I consider it appropriate to make an order approving the settlement under s 133. Each of these beneficiaries is a discretionary beneficiary and, therefore, has no vested interest in the property. The settlors only intended any benefit for these beneficiaries to be contingent on an older beneficiary dying before distribution. It is also the most practical solution. Without an order under s 124, the settlement will unravel with the risk that no benefit is received by any of the beneficiaries. Without the settlement, it is likely the protracted dispute will continue and lead to a waste of the Trusts’ funds to
8 Re Macalister, above n 1, at [23].
participate in litigation. Orders under s 124 have also been made in similar circumstances.9
[50] I also consider it appropriate to make an order under s 125 of the Trusts Act in respect of the adult non-party beneficiaries. The power of waiver under s 125 was included on the Law Commission’s recommendation so the Court could ensure beneficiaries with negligible or remote interests would not stand in the way of other beneficiaries with more significant interests.10 Similar to the minor beneficiaries, the adult non-party beneficiaries were only ever intended to have a contingent interest in the Trusts’ assets. This intention is reinforced by the memoranda of wishes. Further, the settlement provides that their interests were considered in the settlement and can be protected through their parent’s or grandparent’s share.
Costs
[51] The Trustees also seek an order that all costs associated with this application are to be payable from the Trusts’ funds. Because the application has been brought by the Trustees reasonably and in good faith, this order is appropriate and in accordance with the Trustees’ rights under s 81 of the Trusts Act to an indemnity.
Orders
[52] In respect of the interlocutory application, I make the following directions as sought:
(a)leave is granted for the proceeding to be commenced by way of originating application;
(b)service on any beneficiaries of the Trusts is dispensed with; and
(c)the substantive application is to be dealt with on the papers.
9 At [25]–[26].
10 Te Aka Matua o Te Ture | Law Commission Review of the Law of Trusts: A New Trusts Act for New Zealand (NZLC R130, 2013) at [10.14]. This Court has also exercised its power under s 125 of the Trusts Act for similar reasons and in similar circumstances: see Re Goubitz [2024], above n 1; Ruby v Ruby [2022] NZHC 282; Re Jury [2022] NZHC 568; Re Tau, above n 1; and Talijancich v Talijancich [2021] NZHC 753.
[53]In respect of the substantive application, I make the following orders:
(a)under s 133 of the Trusts Act 2019, I approve the applicants’ distribution of the Trusts’ funds and assets and termination of the Trusts in accordance with the provisions of the settlement deed dated 11 September 2024;
(b)under s 124 of the Trusts Act 2019, I approve the termination of the Trusts in accordance with the provisions of the settlement deed dated 11 September 2024 on behalf of:
(i)minor discretionary beneficiaries of the Trusts; and
(ii)future, unborn, discretionary beneficiaries of the Trusts;
(c)under s 125 of the Trusts Act 2019, I waive the requirement for consent of the adult discretionary beneficiaries who are not parties to the settlement deed dated 11 September 2024 to the termination of the Trusts in accordance with the deed; and
(d)the applicants’ costs relating to this proceeding are to be paid from the Trusts.
Grau J
Solicitors:
Greg Kelly Trust Law, Wellington
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