Littin v Heald
[2024] NZHC 1288
•22 May 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-000584
[2024] NZHC 1288
UNDER the Trusts Act 2019 IN THE MATTER
of the COLIN AND JENNY HEALD FAMILY TRUST
BETWEEN
SARAH LOUISE LITTIN
Plaintiff
AND
RICHARD JAMES MACKAY HEALD
Defendant
On the papers Counsel:
N Burley for Plaintiff
E J Loughnan for Defendant
B R D Burke for other parties (grandchildren minors)
P C Eastgate for interested parties Max Heald and Sam TaylorJudgment:
22 May 2024
JUDGMENT OF PRESTON J
This judgment was delivered by me on 22 May 2024 at pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
LITTIN v HEALD [2024] NZHC 1288 [22 May 2024]
Introduction
[1] The parties seek blessing orders by consent approving the terms of a deed of settlement dated 3 October 2023, which effects a final distribution of a family trust and estate assets including by provision for each of the settlor’s grandchildren.
[2] The settlement brought an end to litigation commenced by the plaintiff in which she sought the final distribution of the trust, albeit initially to her and her two siblings.
[3] The application is brought as the wording of the trust deed, the parties accept, could be clearer and a final distribution seemed momentous.
The Colin and Jenny Heald Family Trust
[4] The late Colin and Jenny Heald had three children: the plaintiff Sarah Louise Littin (Sarah), the defendant Richard James Mackay Heald (Richard) and their brother, Andrew Colin Heald (Andrew).
[5] On 1 April 1999, Colin Heald settled the Colin and Jenny Heald Family Trust (the Trust) on himself, his wife Jenny and Neville Moffitt, an accountant (the Trustees). Under the Trust deed (the Deed) the settlor wished to make provision for the future maintenance, education, advancement and benefit of his children and created the Trust for that purpose (Recital A).
[6] The beneficiaries comprise any or all of the settlor’s children and their children and issue born during the trust period. The trust period is the period until the vesting day. The vesting day is defined as the expiry of the period of 80 years from the date of execution of the Deed (31 March 2079) or such earlier date as the trustees in their absolute discretion appoint by deed in respect of either of the whole or any specified part of the trust fund or the date of distribution in cl 2.8.
[7]Clause 2.2 provides for payments out of trusts in the discretion of the trustees:
2.2Payments out of trusts: The Trustees may as they think fit pay out of the income or the capital of the Trust Fund any of the following:
(a)the expenses of administering the Trust Fund.
(b)the costs of acquiring further assets of the Trust Fund.
(c)any debts or liabilities of the Trust Fund.
(d)the premiums on any policy or policies of life insurance forming part of the Trust Fund.
(e)any other payments authorised by this deed notwithstanding in the case of payments from income that payment would normally be charged against capital;
and may also out of such income and capital set aside reserves for the same purposes.
[8] Under cl 2.4 the trustees have the power to pay all or part of the net income of the Trust Fund to such of the beneficiaries that in their absolute discretion they think proper.
[9] The interpretation of cls 2.7 and 2.8 is at the heart of the present application. I set them out in full:
2.7Holding payment on trust: A resolution of the Trustees to hold any part of the income or the capital of the Trust Fund in trust for or on behalf of any one or more of the Beneficiaries without anything more shall be for the purposes of this deed an application of income or capital for the benefit of such Beneficiary and any payment to a parent or guardian of a child with or without the execution of a receipt by such parent or guardian of application with or without the execution of any receipt shall constitute a full and final discharge to the Trustees;
2.8Distribution of trust fund: The Trustees shall, subject to sub clauses
2.2 and 2.4 hold the Trust Fund upon trust for such of the Beneficiaries as shall survive the date of distribution and if more than one in equal shares; provided however that should any Beneficiary have died at or before the date of distribution leaving a child or children (including an adopted child or children) living at the date of distribution who shall attain the age of twenty one (21) years such grandchild or grandchildren shall take, and if more than one in equal shares, the share in the Trust Fund which his, her or their parent would have taken if such a parent survived the date of distribution.
[10] The number of trustees is always, subject to the provisions of s 23 of the Trustee Act 1956,1 to be no fewer than two. The power of appointment of new trustees was vested in the settlor and now vests in Richard.
[11] Without prejudice to the generality of the trustees’ powers, the trustees have power to obtain and act upon the opinion of a barrister or solicitor, whether in relation to the interpretation of the trust deed or any other document or statute or as to the administration of the trusts. Nothing in the relevant clause, Schedule (dd), prevents the trustees from applying to the court if they think fit or prohibits any of the beneficiaries from doing so.
Richard becomes a trustee
[12] In or about March 2015, Colin Heald died. In 2016 Mr Moffitt retired and Richard was appointed a trustee with Jenny.
[13] On 14 June 2019, Jenny died leaving Richard as the remaining sole trustee of the trust and sole trustee of Jenny’s estate. The beneficiaries of Jenny’s estate are Sarah, Richard and Andrew with a substitution clause for their children.
[14] The Trust Fund after repayment of loans to beneficiaries is valued at approximately $1.4 million, comprising the sale proceeds of the family home and an investment property.
Procedural Background
[15] The plaintiff brought proceedings in December 2021 initially alleging a breach of trust on the part of Richard for advances made to himself as sole trustee and seeking his removal as trustee. However, the parties accept that Richard has since provided a true account of the trust assets.
1 Section 23 of the Trustee Act 1956 (repealed) provided, upon the death of a trustee, for the devolution of joint trustee powers: to be exercised or performed by the survivor or survivors of the trustees for the time being. Cf Trusts Act 2019, s 102(1).
[16] On application, the Court appointed Mr Burke counsel to represent the minor grandchildren of the late Colin Heald including Alex Heald if it was ascertained that he was a minor.
[17] Following a judicial settlement conference all parties and interested parties who were not minors signed a settlement agreement on 3 October 2023. The parties agreed:
(a)The adult children of Andrew Heald, Max Heald and Sam Taylor will receive a distribution of $30,000 each from the trust fund.
(b)The other adult grandchildren of the settlor, namely the defendant’s daughter, Emily Frances Heald and the plaintiff’s children, Jared Scott Mackay Littin and Alex Lewis Littin will receive a distribution of
$10,000 each from the trust fund.
(c)The minor grandchildren, Katie Stacey Heald, Benjamin Colin Heald, Timothy James Heald and Alex Heald will also receive a distribution of $10,000 each. The funds are to be held in trust by each of their respective parents until each one attains the age of 18 years with a discretion to make provision for their maintenance, education, advancement and benefit before that date; and
(d)The balance of the trust fund will be distributed in three equal shares to Richard, Andrew and Sarah.
Issues
[18]The issues for the Court in summary are:2
(a)Whether the trustees have the power to pay or transfer capital to beneficiaries during the trust period.
2 The issues were helpfully set out by counsel in an agreed statement and comprised five discrete issues, here synthesised.
(b)Whether the Court will bless the proposed decision to terminate the trust and distribute the trust fund, under s 133 and, if necessary, s 124 of the Trusts Act 2019 (the Act).
(c)If the Court is not prepared to bless because the deed may be unclear, whether the Court is prepared to amend cl 2.7 to provide the trustees with the power to appoint capital, under ss 122, 124 and 125 of the Act and/or the inherent jurisdiction.
(d)If two trustees are required to be appointed in order for the Court to bless the proposed settlement, whether the Court will exercise the trustees’ discretion to carry out the settlement agreement if it is surrendered to the Court by the sole trustee.
Discussion
Do the trustees have the power to pay or transfer capital to beneficiaries?
[19] The primary beneficiaries are Sarah, Richard and Andrew, for whose future maintenance, education, advancement and benefit the trust was intended to provide.
[20] Counsel submit that on a proper construction of the Deed the trustees, if two were appointed, have the power to pay both income and capital to any of the discretionary beneficiaries.
[21] I accept, as the parties submit, the trust deed is poorly drafted. Under cl 2.2 the trustees have a general discretionary power to pay out income or capital for identified purposes, which power extends to any other payments authorised by the Deed. Clause 2.4(a) provides that the trustees have the power to pay or apply income to any of the beneficiaries in their absolute discretion. There is no equivalent provision for the payment or application of capital. Nevertheless, cl 2.7 provides that a resolution of the trustees to hold any part of the income or capital of the trust fund in trust on behalf of a beneficiary without anything more shall be an application of income or capital for the benefit of such beneficiaries. As counsel for the minor
grandchildren, Mr Burke, identifies the language of cl 2.7 is ambiguous as it refers to holding capital on trust for a discretionary beneficiary rather than paying it. There is no time limit stipulated as to how long the capital is to be held but a resolution to hold capital for a discretionary beneficiary constitutes an application of it. I accept counsel’s submission that plainly an application of capital must include paying it or transferring it to a beneficiary.
[22] I also agree that the interpretation contended for is supported when the Deed is considered as a whole. The trust was settled to make provision for the future benefit of Colin’s children. The trust period is fixed at 80 years from the date of execution of the Deed. Under cl 2.4 the trustees in their absolute discretion may appoint the whole of the trust fund and any date so appointed shall be the vesting day. Colin cannot have contemplated that the trustees would have no power to pay capital to his children or grandchildren during the trust period without bringing the vesting day forward. I note, also, the varying powers in that clause including to “pay and apply” income are summarised under the single concept in the heading: “Application of Income”. This, too, supports the broader interpretation of cl 2.7 for which the parties contend.
[23] Clause 2.8 is also imperfectly drafted as it creates the potential for a grandchild, or indeed an unborn beneficiary to receive a further share of the trust fund if one of Sarah, Andrew or Richard dies. I accept, as the parties submit, that cannot have been intended by the settlor and the clause does not derogate from the ability to pay or transfer capital.
[24] Considering these contextual factors together I consider the trustees have power under the Deed properly construed to distribute capital to any of the discretionary beneficiaries.
Blessing orders
[25] The parties acknowledge the proposed payment of the entire trust fund to the discretionary beneficiaries constitutes a momentous decision. They seek the Court’s directions under s 133 of the Act. A trustee acting under any direction of the Court is protected under s 134 of the Act and must be treated as having discharged the trustee’s duties.
[26]Section 133 of the Act 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.
(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.
[27] In Chambers v S R Hamilton Corporate Trustee Ltd in context of the predecessor of s 133 of the Act, s 66 of the Trustee Act 1956, the Court of Appeal noted there are four types of directions applications: whether an action was within the trustees’ powers, a request for a blessing order for something momentous, the surrender of trustees’ discretion where they are in doubt and a challenge to their actions.3
3 Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131 at [24] and [33].
[28] The directions sought fall within the first two categories in Chambers. I am asked for directions whether the settlement is a proper exercise of the trustees’ powers
— or if it would be if two trustees were appointed — and to bless the settlement deed. If cl 2.7 of the Deed confers the power on trustees to pay capital to discretionary beneficiaries, as I have held it does, the proposed payment of the entire trust fund to the discretionary beneficiaries constitutes a momentous decision. It involves the effective termination of the trust.
[29] Sarah brings the application under s 133, whereas the proper applicant under that section is Richard. However, as Mr Burley submits it is implicit in the amended statement of defence that Richard supports the application. Further, the power in cl (dd) of the schedule to the Deed expressly provides for application to the Court for directions by any trustee and any beneficiary. In that context, I agree with Mr Burley that the Court could determine the application in the inherent jurisdiction; as Isac J observed in Re Setter, the breadth of the inherent jurisdiction appears to permit of its use in appropriate cases to fill any gaps left by Parliament in the statute, to the extent consistent with the statutory language.4 I would add that section 133(4) does not restrict the availability of proceedings within the court’s jurisdiction, including a declaration interpreting the terms of the trust and in substance Sarah’s application invites the Court’s interpretation of the terms of the trust.
[30] Furthermore, as counsel have noted Richard could surrender his discretion to the Court and invite the Court to formalise the agreement under s 133 (and s 124 on behalf of the minor grandchildren) or the inherent jurisdiction in any event. A trustee must put the Court in possession of all the material necessary to enable the discretion to be exercised. If that course were adopted, I accept there is sufficient information within the affidavits and memoranda filed to exercise the discretion in favour of the settlement deed.
4 Re Setter [2021] NZHC 1603 at [36].
[31] The trust deed stipulates that the number of trustees shall at all times, subject to s 23 of the Trustee Act 1956, be no fewer than two. Under that provision a power given to or imposed on two or more trustees jointly may be exercised or performed by the survivors or survivor trustee “for the time being”.5 Richard Heald is the survivor of two trustees. Mr Burley submits that he may accordingly exercise the joint power for the time being, and the Court is not being asked to approve an action beyond the scope of the Deed.
[32] No party now contests that Richard may alone exercise the joint power; by her statement of claim Sarah sought Richard’s removal as sole trustee and the appointment of an independent trustee but she no longer maintains that position. Mr Burke for the minor grandchildren after the settlement observed the “ongoing requirement” for two trustees and suggested there was merit in appointing a further trustee in order to hold the funds on trust for the minor grandchildren until they attain the age of 18. However, both proposed alternates, Sarah and Andrew reside in Australia and it is understood that the appointment of either may have unforeseen tax consequences for them. Mr Burke makes clear in his written submissions since filed that as both Richard and Andrew have a good and supportive relationship with each of their respective children they could each hold the respective distributions on trust, as contemplated by the settlement agreement and in separate accounts until each child attains majority. I agree.
[33] The steps to terminate the trust and effect final distributions under the settlement are on terms that all parties have agreed and which counsel for the minor grandchildren supports. They are to be undertaken promptly following the Court’s blessing. As I discuss below, such differential provision in the settlement for the second-generation beneficiaries is supported on the basis of their different circumstances and relationship with their respective parent.
5 The Trustee Act 1956 was repealed on 30 January 2021. The equivalent provision under the Trusts Act 2019, s 102(1) provides for the devolution of powers on death of a trustee as follows: “[i]f a power or function is vested in or imposed on 2 or more trustees jointly and any 1 or more of those trustees dies, the surviving trustee (if any) may exercise the power or perform the function until a replacement trustee (if any) is appointed.”
[34] For these reasons I am satisfied it is appropriate that the Court bless the 3 October agreement in reliance on cl 2.7 of the Trust and s 23 of the Trustee Act 1956, and subject to consideration of the position of the minor grandchildren which I now discuss.
Termination of trust and position of the minor grandchildren
[35] The final distributions will effectively terminate the Trust. Accordingly, and even although s 133 does not expressly so provide, it is necessary that the court approve the proposed arrangement on behalf of the minor grandchildren under s 124 of the Act.6 That section provides:
124 Power of court to approve termination, variation, or resettlement of trust
(1)The court may, on behalf of any of the beneficiaries described in subsection (2) who has an interest in the property of a trust, approve the termination, variation, or resettlement of the trust.
(2)The beneficiaries are—
(a) a beneficiary who lacks capacity:
(b) a person who may acquire a beneficial interest at a future date or on the happening of a future event or on becoming a member of a certain class of persons:
(c) a future person who may acquire a beneficial interest.
(3)An application for an order of approval may be made by—
(a)the trustees or any one of them:
(b)any person with a beneficial interest in the trust property.
(4)On an application for an order of approval, the court must take into account each of the following factors:
(a) the nature of any person’s interest in the trust property and the effect of the proposed order on that interest:
6 If all the beneficiaries were adults, the parties would be entitled to come to the court in the inherent jurisdiction invoking the rule in Saunders v Vautier that the terms of a trust may be varied if all beneficiaries being of legal capacity consent: Saunders v Vautier (1841) 49 ER 282.
(b) the benefit or detriment that may result to any person with an interest in the trust property if the court makes or refuses to make the proposed order:
(c) the intentions of the settlor of the trust in settling the trust, if it is practicable to ascertain those intentions.
(5)The court must not make an order of approval if its effect would be to reduce or remove any vested interest in the trust property.
(6)An order of approval binds the person on whose behalf it is made and takes effect without any further step.
[36] The principles for the exercise of the Court’s power under s 124 were summarised in Gavin v Gavin:7
(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.
7 Gavin v Gavin [2021] NZHC 550 at [13] – [15].
[37] All the adult beneficiaries have participated in and support the proposed settlement. Further, Mr Burke supports the Court giving its consent on behalf of the minor grandchildren, for the following reasons:
(a)The settlement is for the benefit of the minor grandchildren. Each will receive a modest but not insignificant distribution at age 18. The minor grandchildren have a good relationship with their respective parents and can expect to inherit from them in due course.
(b)The minor grandchildren are discretionary beneficiaries during the trust period and contingent final beneficiaries on the vesting day. They have rights enforceable against the trustees to ensure that the trustees properly consider whether to exercise a discretion in their favour but do not have a vested interest in the trust fund.
(c)Colin Heald’s primary purpose in settling the trust was for the benefit of his children. The trust fund is the proceeds of sale of the family home and an investment property owned by Colin and Jenny. They wanted the trust fund to be divided equally between their three children, Sarah, Andrew and Richard. The proposed arrangement is one which loving parents and grandparents might be expected to make to their children and grandchildren and is within the range of a reasonable decision that a trustee could make.
(d)A gift of $10,000 to each of the minor grandchildren on their majority will provide them with some assistance after they leave school and is commensurate with what other adult grandchildren have consented to. Counsel confirms he has discussed the potential additional assistance which one of the minor grandchildren may require with that minor’s parents and is satisfied they will provide the child with any additional assistance in future if necessary.
(e)The adult children of Sarah and Richard have filed affidavits confirming their consent. The other two adult grandchildren have been separately represented and special provision is made for them on the basis of their relationship with their father.
(f)The minor grandchildren’s contingent interest as final beneficiaries must in any event be regarded as remote: even if cl 2.7 was narrowly construed the trustees at least have the power to resolve to hold capital for any one or more of the discretionary beneficiaries during the trust period. The expression in the Deed’s recital of the settlor’s intention to benefit his children although not binding on the trustees will carry considerable weight.
Unborn beneficiary
[38] Following the settlement, counsel for the interested parties responsibly advised that Max Heald’s de facto partner is pregnant. This raised the issue of whether and to what extent consent is necessary on behalf of unborn beneficiaries. Counsel for Sarah, Richard and the minor beneficiaries submit there is no need for further consideration by the Court. Max Heald advises through counsel he would consent on behalf of the unborn beneficiary if he is able to, and alternatively, he requests the Court to consent on their behalf under s 124 of the Act.
[39] That issue will be the first of a third generation for whom no other provision has been made in the settlement deed and in respect of whom each of the grandchildren of Colin and Jenny Heald has been provided. I agree with counsel that remote issue would not be expected to benefit from a discretionary family trust. There is no requirement for further order or direction by the Court and the Court’s consent in terms of s 124 extends, if necessary, to the unborn child of Max Heald.
Variation
[40] As the Court is prepared to bless the proposed decision in the settlement, it is unnecessary to determine the subsidiary issues seeking to vary the Deed under ss 122, 124 and 125 of the Act. I record however that, as Mr Burley submits, the memorandum of settlement is substantially compliant with s 122 and it is supported by counsel for the minor grandchildren under s 124.
[41] The settlement will enable the resolution of the Trust on terms which meet the settlor Colin Heald’s intention to provide for the benefit of his children. It is in the interests of the second (and subsequent) generations of the family that there is a harmonious distribution. All grandchildren are represented and provided for in the settlement agreement. There is no requirement under the Deed for equal provision, differentiation in the settlement is limited and the reasons provided are sound. There are, I accept, indirect and intangible benefits of having the Trust distributed for the wellbeing of the family.
Conclusion
[42] I have found there is power under the Deed properly construed for the trustees to distribute capital to the beneficiaries and that the power may be exercised by Richard Heald as sole trustee for the time being, in accordance with the settlement deed dated 3 October 2023 to which all parties give their consent.
[43] The Court approves the settlement reached on 3 October 2023 and blesses the distributions in the Colin and Jenny Heald Family Trust therein. The Court gives its consent on behalf of the minor grandchildren and, if necessary, the unborn beneficiary the child of Max Heald. The parties have set out draft orders addressing in addition to the terms of settlement, associated costs and administrative orders by consent.
Result
[44] Orders are made, accordingly, in terms of paragraphs [1] – [10] of the parties’ draft orders by consent.
………………………………………
Preston J
Solicitors:
Saunders & Co, Christchurch (N Burley) for Plaintiff
Hatherly Loughnan, Christchurch (E J Loughnan) for DefendantHarmans Lawyers, Christchurch (B R D Burke) for Grandchildren Minors Cavell Leitch, Christchurch (P C Eastgate) for Interested Parties
Andrew Heald (for himself and Alex Heald)
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