Law v Law

[2020] NZHC 1243

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE

CIV 2019-443-000048

[2020] NZHC 1243

IN THE MATTER

of an application for directions pursuant to section 66 of the Trustee Act 1956

BETWEEN

ROBERT ALASTAIR LAW, ANDREW JONATHAN LAW and KAIETO TRUSTEE

COMPANY LIMITED as trustees of the KAIETO TRUST NO.1

Applicants

AND

ELENA IVANOVNA LAW

First Respondent

AND

ROBERT MARK LAW, PETER ANDREW LAW, DAVID ALISTAIR LAW, ANNA

REBECCA LAW and JULIA RUTH LAW as

children of the late JAMES DONALD LAW and residuary beneficiaries of the KAIETO TRUST NO 1

Second Respondents

Hearing:	4 May 2020
Appearances:	S W Hughes QC & R I Gordon for the Applicants K R Pascoe for the First & Second Respondents
Judgment:	5 June 2020

JUDGMENT OF GWYN J

This judgment was delivered by me on 5 June 2020 at 2.30pm Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors/Counsel:

Susan Hughes QC, New Plymouth R I Gordon, Barrister, Stratford Nicolsons, New Plymouth

LAW v LAW [2020] NZHC 1243 [5 June 2020]

Introduction

[1]    Robert Alastair Law, Andrew Jonathan Law and the Kaieto Trustee Co Ltd,1 as trustees of the Kaieto Trust No. 1 (the Trust), apply for directions under s 66 of the Trustee Act 1956. The Trustees seek direction on the proposed distribution of the Trust. The Trust was settled by James Donald Law (known as Tige) on 15 December 2003. The first and second named trustees are Tige’s brothers.

Background

[2]Tige Law was born on 2 July 1947. He married three times:

(a)To Rosemary Law on 23 January 1971. Tige and Rosemary had three sons: Robert Mark Law, born 7 December 1971 and Peter Andrew Law and David Allistair Law, both born 5 March 1973.

(b)To Nikki Norman on 25 July 1980. Tige and Nikki had two daughters, Anna Rebecca Law born 23 January 1983 and Julia Ruth Law, born 22 October 1984l.

(c)To Elena Ivanovna, on 10 May 1994. There were no children from Tige and Elena’s marriage.

[3]    Elena was born in Moscow, Russia on 7 June 1953. Elena’s first marriage was in Russia. She has a daughter, Galia Anatoejevna Tikhonova, from that marriage. That marriage ended when Galia was about two years old.

[4]    Elena came to New Zealand in December 1993, when Galia was 17. At that stage Galia remained in Russia with Elena’s parents. Elena’s only asset at that time was an apartment in Russia. The apartment was eventually sold in 2009 and Elena’s half share of the proceeds (the other half share was Galia’s) was $109,152.06, but this was not transferred from Russia to Elena’s New Zealand bank account until July 2015.

1      The Kaieto Trustee Co Ltd is the independent trustee of the Trust. Its directors are Barry King and Rod Gordon. Mr Gordon knew Tige Law for many years and acted as his solicitor from November 2002. He is a witness for the applicants in this application.

[5]    Elena and Tige met for the first time at Auckland airport on Elena’s arrival from Moscow, although they had previously exchanged letters and phone calls. Elena then went with Tige to his farm at Whangamomona. They were married on 10 May 1994.

[6]    Whangamomona is in the Stratford District in the Manawatū-Whanganui region. It has a current population of approximately 150. I do not know the population when Elena arrived there, but it is safe to say that then too it was a very small community.2 Elena’s arrival in Whangamomona was no doubt an unusual event. As she notes in her affidavit, “we were quite the talk of the town”. Over the following years Elena and Tige developed a loving and hardworking partnership. After her arrival in New Zealand Tige sold half of his farm and built the Kaieto Café on the Tahora Saddle with the proceeds. Tige and Elena owned the café business as tenants in common and they lived in the café building. Elena ran the café with occasional help from Tige, whose main job was still with the remaining part of the farm. That farm property remained Tige’s separate property.3

[7]    Elena and Tige ran the café, seven days a week, from 1994 until it was sold on 17 June 2005. The net equity from the sale of the café was $257,525.64. $40,000 of that was paid into their joint bank account and the remainder split between them. Elena put her half in her bank account and used it to purchase a property at 21 Antonia Street, Stratford, in her name. Tige put his share of the proceeds in his personal account. After some renovation work, which Tige helped with, the Antonia Street property was rented for a time and then sold.

[8]    In about 2003 Tige had sold the remainder of the farm property and purchased a property at York Road. After the sale of the café Elena and Tige moved to the York Road property. Tige ran a construction business from the property and Elena worked in Stratford as a retail assistant.

2      Whangamomona is perhaps best known for the Whangamomona Republic Day celebration, held every other year to mark the 1989 shift of Whangamomona from the Taranaki region to the Manawatū-Whanganui region. Whangamomona wanted to stay part of Taranaki and declared itself a republic in protest at the shift in designation.

3      This is recorded in a Relationship Property Agreement dated 23 September 2004.

[9]    Tige’s children from his previous marriages were relatively young when Tige and Elena were married: ranging from about ten to 23 years old. The children did not live with Tige and Elena but came to stay with them for holidays. Elena says she had a loving relationship with the children but acknowledges that one of Tige’s sons had difficulties in accepting her as part of the family. She expresses her regret for any strain or tension that now exists in the relationship between her and the children.

[10]   Tige was diagnosed with cancer in late 2010. At that stage he had a pre-existing will and had made a memorandum of wishes dated 19 August 2004.

[11]   Tige Law made his last will on 23 May 2011. He made two further memoranda of wishes, dated 10 December 2010 and 23 May 2011. Tige died on 24 May 2011 and probate of his will was granted on 22 June 2011.

Jurisdiction

[12]Section 66 of the Trustee Act 1956 provides:

66       Right of trustee to apply to court for directions

(1)Any trustee may apply to the court for directions concerning any property subject to a trust,or respecting the management or administration of any such property, or respecting the exercise of any power or discretion vested in the trustee.

(2)Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the court thinks expedient.

[13]   As the Court of Appeal noted in Chambers v SR Hamilton Corporate Trustee Ltd there has been some difference between High Court decisions as to the type of issue that is suited to a s 66 application.4 The Court noted the breadth of the jurisdiction and, specifically, that it is not limited to points of minor importance.5 The Court quoted Lord Oliver in Marley v Mutual Security Merchant Bank and Trust Co Ltd:6

4      Chambers v SR Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at [32].

5 At [32].

6      At [32]; Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] All ER 198 (PC) at 201.

A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper and professional advice and, if so advised, to protect his position by seeking the guidance of the court.

The Court in Chambers identified the key jurisdictional issue as whether the trustees’ application for directions involved a surrender of their discretion to the Court.7 The Court considered:8Trustees do not necessarily surrender their discretion to the court simply by seeking directions for orders that they act in a certain specified way. They are entitled to come to court on the limited basis of seeking particular directions. Nevertheless it is clear that trustees may come into a court and say that they are in doubt as to how they ought to exercise their discretion, and surrender that discretion.

[14]   In seeking directions from the Court, the Trustees in this case rely on the broad jurisdiction articulated in Re Allen-Meyrick’s Will Trusts.9 I sought clarification from Ms Hughes QC, counsel for the Trustees, as to whether the Trustees were surrendering their jurisdiction to the Court or simply sought acceptance or rejection of their specific proposal for distribution of the Trust. Ms Hughes noted that paragraph 7 of the Trust Deed plainly gives the Trustees the power to distribute the Trust in accordance with the proposal they have put forward. However, in view of Elena’s opposition to that proposal and her submission of an alternative proposal for distribution, the Trustees wish the Court to provide directions, whether it is to approve one of the options put forward, or some hybrid alternative. What they seek is a practical solution and certainty and fairness for all the beneficiaries. On further reflection and discussion, Ms Hughes clarified that any hybrid direction – for example, that the Trustees and Elena “go shopping” for an alternative property – would inevitably cause delay and possible dispute and would not result in the certainty that the Trustees seek. In conclusion, the applicants do surrender their jurisdiction to the Court, but ask the Court to be mindful of the practical issues involved.

The Trust Deed

[15]   Tige’s Will provided in summary that his residuary estate, after the gift of his personal effects to Elena, were to be left to the Trust.

7      Chambers v SR Hamilton Corporate Trustee Ltd, above n 3, at [33].

8      At [33]; citing Re Allen-Meyrick’s Will Trusts [1966] 1 All ER 740 (Ch) at 744.

9      Re Allen-Meyrick’s Will Trusts, above n 7.

[16]   The discretionary beneficiaries of the Trust are Tige, his five children (who I will refer to as the Adult Children), Galina and Elena, together with any grandchildren of Tige.10 The key relevant provisions of the Trust Deed are:

7Discretion of the Trustees

7.1The trustees may in their absolute and uncontrolled discretion at any time or times before the Date of Distribution pay or apply for or towards the maintenance, education, advancement, well being or benefit in any way of any of the Discretionary Beneficiaries (to the exclusion of any one or more of the Discretionary Beneficiaries) and in such proportions as the Trustees for the time being shall in their absolute and unfettered discretion determine:

a.The income of the Trust Fund as provided in Clause 8;

b.The capital of the Trust Fund as provided in Clause 10

…

8Income appropriation

…

8.2The Trustees may at any time or times (except as restricted by clause 7.2)11 resolve to:

a.Appropriate the whole or any part of the net annual income arising from the Trust Fund to any one or more of the Discretionary Beneficiaries and in such proportions as the Trustees for the time being shall in their absolute and unfettered secretion determine (to the exclusion of any one or more of the other Discretionary Beneficiaries) …

10Capital Appropriation

10.1The Trustees may at any time or times before the date of distribution in their sole and absolute discretion except as restricted by clause 7.2 resolve to:

a.Appropriate the whole or any part of capital of the Trust Fund and may appropriate any moneys and/or property and/or interest in property to any one or more of the Discretionary Beneficiaries and in such proportions as the Trustees for the time being shall in their absolute and unfettered discretion determine (to the exclusion of any one or more of the other Discretionary Beneficiaries) …

10.2Any Discretionary Beneficiary to whom any capital and/or property and/or interest in property is appropriated by the Trustees under the provisions of this clause takes an absolute and indefeasibly vested interest in the property so appropriated from the capital of the Trust Fund as from the date of such appropriation.

10     This is set out in cls 1.2 and 5.1.

11     Clause 7.2 is not relevant for the purposes of the present application.

…

20Trustees’ Duties

20.1The duties imposed on Trustees by Sections 13B and 13C of the Trustee Amendment Act 1988 shall not apply to the Trustees and they shall not be subject to those duties.

…

20.4The Trustees shall not be bound by any rule or principle of law relating to investment of trust funds and in particular and without in any way limiting the generality of the foregoing they shall not be bound by any rule or principle of law which imposes on them any duty:

a.To exercise their powers in the best interests of all present and future Discretionary Beneficiaries; or

b.To act impartially towards Discretionary Beneficiaries and between different classes of Discretionary Beneficiaries; or

c.To diversify trust investments; or

d.To have regard to the need to maintain the real value of the capital or income of the Trust; or

e.To have regard with respect to the Trust capital or potential for capital appreciation or risk of capital loss or depreciation; or

f.To have regard to any possible effects of inflation on Trust capital; or

g.To take advice; or

h.To have regard to the nature of existing Trust investments and other Trust property

i.To have regard with respect to Trust capital to:

i.The likely income return; or

ii.The length of time of the proposed investments; or

iii.The probable duration of the Trust; or

iv.The marketability of the proposed investments during, and on the determination of the proposed investments; or

v.The aggregate value of the Trust assets; or

vi.The effect of the proposed investment in relation to the tax liability of the Trustees in the course of administration of the Trust.

21Wishes of Settlor

21.1The Settlor recommends but not so as to form a binding trust or fetter in any way the uncontrolled discretion given to the Trustees by this Deed of Trust that the Trustees shall have regard to the expressed wishes from time to time of the Settlor (including a written memorandum of wishes of the Settlor) when the Trustees exercise their discretionary powers vested in them including but not limited to their discretionary powers in Clauses 7.1, 8.2, 10.1, 11.1 and 12.1.

Memoranda of wishes

[17]   Tige made three memoranda of wishes, on 19 August 2004 (before he became ill), 10 December 2010 and 23 May 2011. The memoranda are generally consistent in their terms and include the following key provisions:

(a)The Trust shall continue until Elena’s death (or Tige’s death if that is later).

(b)The interests of Elena, as a discretionary beneficiary, are to be “paramount” until she reaches the age of 65.

(c)On Tige’s death and the sale of the York Road property, the Trustees should purchase a smaller two bedroom unit in New Plymouth for Elena’s use.

(d)It was “essential” that until Elena reaches 65 years she should have no financial or other worries. Tige did not wish for Elena’s own independent resources of capital or income to be whittled away.

(e)The trustees were to disregard Elena’s own assets in considering what assistance should be given to her until she attained the age of 65.

(f)When Elena reaches 65 the Trustees should divide the capital of the Trust into two equal parts, one part to go to Elena (and then, on her death to Tige’s five children); the other part to the five children, with

Elena to have the use of that one half interest of the capital of the Trust during her lifetime and the income arising therefrom.

(g)Elena should receive a distribution of weekly income of $500 from the Trust until she qualifies for national superannuation at 65. From the age of 65, she should receive a total of $500 per week, comprising superannuation and payment from the Trust, with the Trustees having discretion to increase the payments, bearing in mind inflation and cost of living increases.

[18]   Wishes expressed by a settlor in a memorandum of wishes will usually be given significant weight by a trustee wishing to execute a trust in accordance with the settlor’s intentions. But, as Heath J noted in SR Hamilton Corporate Trustee Ltd v White, they are not binding.12 “The context in which they were expressed and any material changes in circumstances necessarily affects the weight to be placed on them.”

[19]On appeal from that judgment, the Court of Appeal said: 13

Settlors are entitled to express their wishes for the benefit of trustees, and trustees are entitled to take them into account. They can be important guidance to them in the exercise of discretionary powers. However trustees, whatever a settlor’s wishes, must conscientiously apply their independent discretion in exercising their powers. Wishes can only be taken into account if they are not inconsistent with the purposes of the trust as appear from its written terms. Trustees should not blindly obey all settlor instructions. It is necessary for trustees to read and understand a memorandum of guidance to discern the settlor’s wishes, and then with those wishes in mind make an independent assessment of the appropriate course of action, taking into account not just the memoranda, but all relevant factors.

[20]   Here, the Trust Deed recorded Tige’s recommendation that the Trustees have regard to his wishes when exercising their discretionary powers, including but not limited to under cls 7.1, 8.2, 10.1, 11.1 and 12.1.14

12     SR Hamilton Corporate Trustee Ltd v White [2016] NZHC 1408, at [71].

13     Chambers v SR Hamilton Corporate Trustee Ltd, above n 3, at [36] (footnotes omitted).

14     At cl 21.

What happened after Tige’s death

[21]   The trustees met on 28 October 2011, with Elena in attendance, and agreed to the sale of the York Road property. They also discussed the acquisition of a property in New Plymouth for Elena, noting that it was a priority.

[22]   Sometime between then and the next meeting of the Trustees on 27 June 2012 the Trustees purchased a three bedroom, 601 m2 residence at 17 Heaphy Street, Westown, New Plymouth. Although the property was intended to be Elena’s residence possibly for the rest of her life, her evidence is that she was not consulted about the property, nor did she see it until two days after it was bought. Mr Gordon felt sure that the other trustees had involved Elena, but as he was not personally involved in the purchase he was not able to confirm that. I accept the clear indication from Elena that she was not consulted.15 It is plain that Elena communicated her view that the house was not suitable early in the piece. That is reflected in correspondence between Elena and one of the Trustees in December 2012. It appears from the Trust Minutes that the Trustees considered the acquisition and retention of the Heaphy Street property primarily through the lens of a trust investment, with a view to ultimate resale, rather than through the lens of Elena’s needs, as the occupant, and Tige’s expressed wishes regarding her.16 The Trust’s “conditions of occupancy” for Heaphy Street also reflect that approach, requiring, amongst other things, that the Trustees must have keys to the house and shed at all times; for periodic inspections on 48 hours’ notice; that Elena was to be the sole occupant and “is not permitted to have a partner of any nature in the residence or other boarders or family members living with her.”17

[23]   The total amount paid to Elena from the Trust between Tige’s death on 24 May 2011 and June 2018 when she turned 65, was $68,040, an average of $9,720 per annum or $810 per month. Elena says that, given Tige’s clearly expressed wish that she receive $500 per week from the Trust during this period, this was a very significant shortfall. The Trustees’ evidence does not dispute this calculation.

15     In her letter of 20 December 2012 to Barry King.

16     Kaieto Trust No. 1 Meeting of Trustees, held on 3 May 2013.

17     These are set out in a letter to Elena’s solicitor dated 13 March 2013.

[24]   Again, the Trustees appear to have approached the question of the payments to Elena with a primary focus on preservation of the Trust capital, not on addressing Elena’s needs in accordance with Tige’s clear wishes. The evidence for the Trustees refers to the Trust minutes showing “a continuing tension between the ambitions of Elena to receive payments from the Trust and the desire of the trustees to try and preserve a share of the capital for distribution to the children on Elena reaching 65 years.” The evidence goes on “… it is unknown what happened to funds she received from the joint account, the insurance policy, the contribution from Donald Law’s estate, and funds settled on her trust as a result of the Relationship Property settlement. As it was, she was living rent free, expense free, in a house provided by the Trust and was receiving $12,000 a year from the Trust.” The tone is judgemental and pejorative and the approach taken is not consistent with Tige’s memoranda of wishes in which he made plain that he did not want the Trustees to have regard to Elena’s other assets in considering what financial assistance should be paid to her from the Trust.

[25]   The level of the payments made to Elena was a result of the Trustees’ view that the weekly payment to Elena had to come from Trust income only, not from capital. As Mr Gordon deposed, while the Trust income would have been sufficient to fund the payments at the time Tige stipulated them, when interest rates were eight or nine per cent, subsequent falls in interest rates meant that the Trust income was not sufficient to fund the weekly payments at the level Tige had intended. A further consequence of the Trustees’ approach was that the Trustees treated any payment to Elena made in excess of Trust income as a debt to the Trust. As at 30 June 2018 the current account debt recorded was $52,790.

[26]   While the Trustees did not bring this application inviting the Court to resolve the question of how payments made in excess of trust income were to be treated, it has become plain that I must do so to assess the approach that should be taken. This requires resolving the meaning of cl 8(c) of each of the memoranda of wishes of     10 December 2010 and 23 May 2011, which states “it is my wish that my wife ELENA until she attains the age of sixty five years should, upon my death, and until she qualifies for New Zealand Superannuation receive a distribution of weekly income from the Trust of $500 per week net to her” (emphasis added).

[27]   As described above, the Trustees have interpreted that phrase as requiring payment of the weekly amount from the interest earned by the Trust (“income”) only, not from the Trust capital.

[28]   I accept that the provision is inelegantly phrased. I also note the somewhat different wording of cl 8 d of the Memoranda: “upon attaining the age of sixty five years that she should receive the sum of $500 per week in total, part being such weekly sum she will receive from New Zealand Superannuation and with the balance sum required for an overall weekly payment of $500 to be advanced to her by the Trustees from income or capital of the one half share of the trust fund held for her …” (emphasis added).

[29]   Mr Gordon says that the Trustees’ approach was consistent with a discussion he had with Tige on 15 November 2010 (after Tige was diagnosed with cancer) which he recorded in a file note as “Elena … should receive a distribution income from the Kaieto Trust No 1 a weekly payment of say of (sic) $500.00 per week net, ie. a net payment to Elena.” The file note went on to say “Tige’s current assets through the Kaieto Trust No 1 are the York Road farmlet valued at $400,000.00 and he has cash investments of $320,000.00 so there is a more than adequate sum upon sale of the York Road farmlet to achieve his wishes in view of his recent medical prognosis.” The file note concludes “Updated will and Memorandum of Wishes to be completed on this basis as soon as possible.”

[30]   Mr Gordon says that in drafting the memoranda of wishes for Tige he was intending to capture what he thought was Tige’s intention, being that the payments to Elena come from income only. However I also observe that Barry King highlighted in a Trust meeting that the memoranda of wishes “were not definitive in limiting Elena to access Trust income – as opposed to capital”, although he went on to say that reliance should be placed on Mr Gordon’s interpretation in view of the fact that he “constructed the original MOW alongside Mr JD Law.” 18

[31]   Mr Gordon also says that the Trustees made their approach (that payment to Elena should come from Trust income only) clear at all times. He refers to Elena’s

18     Kaieto Trust No. 1 meeting of 28 April 2014.

presence at a meeting of the Trustees on 28 October 2011, where he referred the Trustees to the contents of Tige’s memoranda of wishes. The minutes of that meeting record “That regular payments to Elena – until she reaches the age of 65 are to be from Trust income not capital.” There is however no evidence that the Trustees ever directly told Elena that they believed all payments to her must come from Trust income only, or that “excess” payments were accruing as a debt in her name. She does not accept the debt.

[32]   Ms Pascoe, counsel for Elena, poses this as a “jurisdictional” question: did the Trustees correctly interpret Tige’s memoranda of wishes in light of his clear instructions and the terms of the Trust Deed? Her submission is that they did not and, as a consequence, Elena has received considerably less than she ought to have. The consequence of the shortfall is that Elena has been able to manage her financial obligations only by using her own resources. Her evidence is that she had to use the proceeds of the sale of her property at Antonia Street to support herself. This, she says, is exactly what Tige was seeking to guard against. Elena sets out the details of her remaining assets in her evidence. They are not significant.

[33]   When one reads the other provisions of the Memoranda of Wishes it is plain that Tige’s overwhelming intention was that Elena’s interests were to be paramount; she was to be adequately provided for, without the need for her to resort to her own capital or income. The Memoranda read as a whole do not indicate that Tige intended that Elena receive the weekly payments at the level he stipulated only if the Trust income was sufficient to fund them. Nor do the terms of the Trust Deed mandate that approach. On the contrary, cls 7.1 and 20.4 of the Deed are entirely consistent with the weekly payments to Elena coming from Trust capital, as well as Trust income, where necessary. This latter approach is also consistent with the themes clearly articulated in the memoranda of wishes.

[34]   I conclude that the better interpretation of cl 8(c) is that Elena is to receive a “weekly income” of $500 and that it does not limit the source of that payment to only the income of the Trust. It therefore follows that the Trustees have acted on an incorrect interpretation.

Proposals for distribution

The Trustees

[35]The proposal that the Trustees have put before the Court is that:

(a)the property at 17 Heaphy Street, New Plymouth, occupied by Elena should be transferred into the names of the Adult Children;

(b)such transfer is to be subject to a registered lease in Elena’s favour, confirming her right to occupy that house (or any substituted house) for the rest of her life without costs;

(c)the Adult Children are to meet all outgoings on the house property including insurances, rates and maintenance;

(d)the current account debt of $52,790 owed by Elena to the Trust as at 30 June 2018 is to be written off; and

(e)after payment of all costs, the balance of funds held in the Trust be finally distributed in equal shares between the Adult Children.

Elena’s proposal

[36]Elena seeks directions that:

(a)the Trustees sell the Heaphy Street property and purchase a property in the Masonic Trust Village in New Plymouth, to be recorded by Deed in the name of the Adult Children;

(b)Elena has the right to occupy that property for the rest of her life without cost, protected by an occupation right agreement in her name;

(c)the Adult Children meet the outgoings on the property by way of a weekly payment of $200 per week;

(d)the Trust makes a one-off lump sum payment of $20,000 to Elena; and

(e)after payment of all costs the balance held in the Solicitor’s Trust account to be distributed equally between the Adult Children.

[37]The proposals have significant common elements, namely:

(a)that a house, registered in the name of the Adult Children, be available for Elena to occupy for the rest of her life, without cost to her, and with her interest protected at law (whether by a registered lease or occupation right agreement);

(b)the Adult Children will meet all the outgoings on the property; and

(c)after payment of all costs the balance of the Trust funds be distributed equally between the Adult Children.

[38]   The points of divergence are as to whether Elena in is to continue to live in 17 Heaphy Street or a property in the Masonic Trust Village in New Plymouth; the

$20,000 lump sum payment to Elena; and the ostensible “current account debt” of

$52,790.

[39]   Despite the Trustees’ failure to make the weekly $500 payments anticipated by the memoranda of wishes, Elena does not seek to address the full disadvantage she has suffered, proposing instead the one-off lump sum payment of $20,000.

[40]   As to the place of residence, Elena’s proposal is that the Trustees sell the Heaphy Street property. The purchase of that house was, as Ms Pascoe describes it, a decision made for her. While the Trustees’ proposal leaves open the possibility that, if the Heaphy Street property were transferred to the Adult Children, they might at some time in the future agree to it being substituted for another house for Elena to live in, she fears a repeat of the same process where she is not consulted.

[41]   The Heaphy Street house is not a two bedroom unit as Tige had anticipated. Elena wishes to have a smaller property and, in particular, a property in the Masonic

Trust Village in New Plymouth, which would better suit her current and future needs. She wishes to make the move from Heaphy Street now, not at some undefined point in the future, as the applicants may have anticipated. The Heaphy Street property was given an indicative value of $405,000, as at 30 April 2018. Elena’s understanding is that a property in the Masonic Village can be purchased within the range of $360,000 to $380,000. It appears would-be purchasers of the properties Elena is interested are assessed on a case by case basis.19

[42]   The Trustees respond that the acquisition of a right to occupy in the Masonic Village would not enable the Trustees to maintain the real value (inflation adjusted) of Trust capital committed to an investment in the Masonic Village, compared with Trustee ownership of the 17 Heaphy Street. There would also be a significant capital cost to the Trust because of the abated purchase price that would be crystallised when Elena leaves the property, whether on her death or earlier, that being a feature of the purchase of properties within a retirement home complex.

[43]Mr Gordon calculates that impact for the Trust:

(a)capital forfeited of $114,000, if Elena were to occupy the residence for 15 years ($380,000 multiplied by two per cent assumed inflationary increase in the property market); and

(b)$79,800 capital cost on Elena’s exit from the property (21 per cent of

$380,000); giving rise to

(c)a total potential capital loss of $193,800.

[44]   On the proposed $20,000 lump sum payment, Mr Gordon says it would require the Trustees to apply Trust capital to an income beneficiary which would result in further erosion of the asset held for the benefit of capital beneficiaries.

19 There was some discussion before me as to whether Elena might be below the minimum age for entry to the Village but during the hearing Ms Pascoe was able to clarify that there is no minimum age applicable.

[45]   The proposed payment by the Trustees of $200 per week (to meet the outgoings on the Masonic Village property) would also likely result in a reduction in Trust capital of approximately $7,000 per annum, or $105,000 over 15 years. Mr Gordon notes too that there is an inconsistency in Elena’s affidavit as to whether this payment is to come from the Trustees (para 52) or the Adult Children (para 57). I am satisfied from the Notice of Intention to Defend of 20 January 2020 (at para 2(c)) and the first respondent’s written and oral submissions that the ongoing payments are to come from the Adult Children.

[46]   Looked at overall, Mr Gordon says Elena’s proposal could potentially reduce the Trust capital available to capital beneficiaries by approximately $298,000.

[47]   In response, Ms Pascoe acknowledges that purchase of a Masonic Village property would ultimately result in a capital loss for the Trust. She also notes however the significantly reduced outgoings – the $200 per week sought is the current monthly service fee at the Village. As she notes, the Trustees have not provided a comparable estimate for the outgoings and maintenance and repairs to the Heaphy Street property if it were to be retained.

Discussion

[48]   I have considered the parties’ respective proposals and had the benefit of the careful submissions advanced by counsel. I conclude that the proposal advanced by Elena is an outcome that is fair to all beneficiaries, best meets Tige’s plainly expressed wishes and is consistent with the Trustees’ obligations.

[49]I have concluded above that Elena was intended to receive a weekly income of

$500 from the Trust, whether payable from Trust income or capital. It follows that there is no “debt” properly owing from Elena to the Trust in respect of payments she received from Trust capital.

[50]   The Trustees say that the point is now of little moment because, as part of the proposal put forward to the Court, they will write off the debt which as at 30 June 2018 was $52,790.

[51]   I take a different view. It remains relevant, first because the Trustees present it in their proposal essentially as a benefit to Elena. Second, because it is likely that the other beneficiaries, the Adult Children, were not aware of the background to Elena’s “debt” to the Trust. It would be surprising if their view of what is a fair resolution now, and the delay in achieving that resolution, had not been influenced by the existence of the “debt”. That is unfortunate given the indications that there is now a degree of tension between Elena and the Adult Children because of the delay in resolving outstanding issues and achieving distribution of the Trust.

[52]    Tige’s wish was that by the time she turned 65 Elena would be financially secure and living in a two bedroom unit in New Plymouth, and the Trust funds available for distribution. It is unsatisfactory for both Elena and the Adult Children that two years after Elena turned 65 they find themselves in the current situation. That is a consequence of choices made by the Trustees.

[53]   The Trustees’ approach to the purchase and retention of 17 Heaphy Street was also not consistent with Tige’s wishes. As I have noted above the Trustees were (and remain) focused on the investment nature of the property, notwithstanding the Memoranda of Wishes and cl 20.4 of the Trust Deed, in particular subcls (d)–(f), (h) and (i). Those provisions make it plain that the Trustees were not limited by a commercial, investment focus, as they appear to have assumed. The upshot of the Trustees’ approach is that nine years after Tige’s death Elena is living in a house she was not consulted about, which does not meet her needs and is not what Tige stipulated. Because the weekly distribution paid to her from the Trust was considerably less than Tige had asked, and Elena had anticipated, she has had to deplete her own resources contrary to Tige’s clearly-expressed wishes. The Adult Children are still waiting for a distribution of the Trust funds when they might reasonably have expected that to occur shortly after Elena turned 65.

[54]   I acknowledge what Mr Gordon says about the capital loss that will inevitably occur from the purchase of a Masonic Village property. There are two points to be made in response. First, it might be regarded as a likely consequence of the Trustees’ approach to the initial acquisition of a property which was not suitable for Elena’s ongoing needs. Second, of course it would have been preferable to have avoided that

cost to the Trust, but as I have already noted, the terms of the Trust Deed20 specifically state that the Trustees are not bound by a duty to have regard to the need to maintain the real value of the capital of the Trust, or the likely income return or the length of time of the proposed investments, or the marketability of the proposed investments on determination.

[55]   I hope that Elena and the Adult Children will now be able to resolve any remaining tensions in the relationship.

Outcome

[56]I give directions in the following terms:

(a)the Trustees are to sell the Heaphy Road property and purchase a Mason Trust Village property. Such is to be recorded by Deed in the name of the Adult Children;

(b)the First Respondent will have a right to occupy that house for the rest of her life without cost, protected by an occupation right agreement in her name;

(c)the Adult Children will meet the outgoings on the property by way of a weekly payment of $200 per week;

(d)the Trust will make a one lump sum payment of $20,000 to the First Respondent; and

(e)after payment of all costs, the balance of funds held in the Solicitors Trust account will then be distributed equally between the Adult Children.

[57] Leave is reserved to the parties to seek any further directions necessary to give effect to the orders at [56] above.

20     Clause 20.4.

Costs

[58]   I did not hear from counsel on the question of costs but my preliminary view is that it is appropriate that the costs of both the applicants and the first respondent be met from Trust funds. If any party disagrees with that approach they should submit a memorandum accordingly, within 14 days of the issue of this judgment. In the absence of any objection, the parties should submit memoranda of costs by that date.

Gwyn J