M I Clifford Trust No 2
[2022] NZHC 2015
•15 August 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-000557
[2022] NZHC 2015
UNDER section 124 Trusts Act 2019 IN THE MATTER OF
an application of DEIDRE COWLISHAW WOOD and PAUL JOSEPH DORRANCE
as Trustees of the M I Clifford Trust No 2 for approval of variation
Hearing: 16 May 2022 via telephone conference Appearances:
A V Foote for the Applicants O D Peers for Mr Palmer
Judgment:
15 August 2022
JUDGMENT OF NATION J
[1] Under s 124 of the Trusts Act 2019, the trustees of the M I Clifford Trust 2 seek orders approving a variation of that trust on behalf of unborn beneficiaries.
[2] Mr William Palmer of Buddle Findlay was appointed to present a report on behalf of the unborn beneficiaries and a comprehensive report as to the proposed variation was provided by Mr Palmer and Olly Peers of Buddle Findlay (the Buddle Findlay report).1
[3] I discussed various aspects of the report and the application with counsel in a telephone conference on 16 May 2022.
1 The report has been of considerable assistance to me.
Re M I Clifford Trust No 2 [2022] NZHC 2015 (15 August 2022)
Background
[4] The M I Clifford Trust No 1 was established by a deed of trust on 22 November 1963. The effective settlor was Ogilvie Garth Clifford. The beneficiaries were his children except Deidre Wood. It is not affected by the current application.
[5] Ogilvie Clifford established the M I Clifford Trust No 2 (the Trust) by deed dated 12 December 1966 to provide for Deidre to the same extent as her siblings had been provided for in the first trust and to make further provision for all four siblings.
[6] The Trust was varied by deed of variation dated 17 May 1993 as approved by an order of the High Court of New Zealand on 22 July 1993.2 It is this deed which the trustees seek to vary. I refer to it as the Trust Deed.
[7] The Trust Deed provided, amongst other matters, for income of the trust to be held:
(a) until 20 August 2016, for the four children of Ogilvie Garth Clifford and his wife Mary Ida Clifford (the siblings); and
(b) from 20 August 2016, for the living and any unborn children of the four siblings.
[8] The Trust Deed directed that from 20 August 2016 the balance of the capital of the Trust is to be held for the children of the siblings, the grandchildren of Ogilvie Clifford, in two funds of equal size:
(a) Fund A and its income arising for grandchildren living on 20 August 2016 (the older grandchildren); and
(b) Fund B and its income arising for grandchildren born after 20 August 2016 (the younger grandchildren).
2 Re Clifford (1993) 1 NZTR 3-001 (HC).
[9] Three of the siblings each had three children, all of whom have reached the age of majority. These are the older grandchildren. One of the siblings did not marry or have children. His circumstances are such that he is not able to have children. The other three siblings are either close to or over 60 years of age and further children are unlikely.
[10] The practical effect of the Trust Deed is that Fund A and its income is held for the nine older grandchildren, and Fund B and its income remains open for the benefit of younger grandchildren of whom there are none at present.
[11] The Trust Deed provides for accumulated undistributed income and capital in Fund A and Fund B to be held until the final date of distribution. This is 20 years after the death of the last sibling. The siblings now range in age from 59 to 69. Given those ages and assumed life expectancies, the final distribution is unlikely to be for at least another 40 years and potentially longer than this. On the final date of distribution, the capital and any accumulated income in the two funds is to be distributed to the older and younger grandchildren.
[12] The Trust Deed permits an earlier distribution to a grandchild provided that grandchild has reached the age of 35 and ensures by deed that his or her distribution would be held or distributed for the benefit of their children on terms that would ensure there was also equality between all grandchildren.
[13] The trustees propose to vary the terms of the Trust Deed so the two funds in the trust can be combined into a single trust fund. They also seek to replace the varied Trust Deed with a modern flexible instrument which gives the older grandchildren the power to appoint and remove trustees and allows for an earlier final distribution.
Analysis
[14] I consider the Trust is now essentially being held for the great-grandchildren given the length of time until the trust is vested and the restrictions for getting an earlier distribution.
[15] As detailed in the Buddle Findlay report, the strict requirement for equality between beneficiaries means the Trust is in the nature of a fixed, rather than discretionary, trust. The trustees have no discretion in relation to objects or distributions. The Trust Deed does not specifically enable trustees to make income distributions in advance of distributions of capital. The trustees’ only discretion relates to the exercise of investment powers and administration matters. At a practical level, the trustees’ discretion in relation to investments is limited because the Trust’s assets currently comprise mainly one commercial property.
[16] With the proposed variation, the trust period is defined to mean a period beginning at the date of the new deed and ending on the earliest of:
(a) the date 20 years from the date of the last survivor of the four siblings; or
(b) the date 12 months from the date on which the trustees receive written notice from all beneficiaries then living directing that the trust be wound up, which notice cannot be given during the lifetime of the youngest sibling; or
(c) such date as the trustees nominate in writing.
[17] The term “beneficiary” is defined to include the siblings’ children now living, that is the grandchildren of Ogilvie Clifford. A younger grandchild will automatically become a beneficiary at birth.
[18] The variation would require the trustees to hold the income of the Trust on trust and to pay or apply the income for the benefit of the beneficiaries provided such distributions are made to all beneficiaries in equal shares per capita. The trustees are also to hold the capital of the Trust on trust and to pay or apply the capital for the benefit of the beneficiaries provided that such distributions are made to all beneficiaries in equal shares and the beneficiary provides a deed of indemnity in favour of all unborn beneficiaries.
[19] Under the existing Trust Deed, Ogilvie Clifford had the power to appoint new trustees. After his death, the trustees of his will could exercise that power. With the proposed variation, it would be Deidre Wood who would have that power. If she loses the legal capacity to act, the power would vest in the trustees for the time being.
[20] The proposed variation requires the approval of the court on behalf of the younger grandchildren.
[21] The Court’s power to approve variations of trust on behalf of beneficiaries, including unborn or unascertained beneficiaries, was previously contained in s 64A of the Trustee Act 1956. As set out by counsel for the trustees and accepted by the Buddle Findlay report, the principles to be applied from the earlier Act in cases decided under that Act were:
(a) A trust may be varied with the consent of all beneficiaries, actual or contingent.3
(b) Section 64A of the Trustee Act conferred on the court the power to approve a variation on behalf of persons not legally able to do so for themselves.
(c) The court’s discretion is very wide and is to be exercised in the interests of the person on whose behalf it is asked to consent. The court should ask if that person would have approved the variation if they were of full capacity and properly advised.4
(d) When considering the arrangement, the court must start by recognising that under the rule in Saunders v Vautier,5 beneficiaries who have full legal capacity and together are absolutely entitled to the trust property have the right to defeat the intention of the settlor by varying or revoking the trust as they see fit.6
3 Malcolm Wallace “Variation and Resettlement of Trusts” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 235 at 237-238.
4 Re Byrne HC Wellington CIV-2003-485-167, 25 May 2004 at [25]; and Re Greenwood [1988] 1 NZLR 197 (HC) at 211.
5 Saunders v Vautier (1841) 4 Beav 115, 49 ER 282 (Ch).
6 Re Weston’s Settlements [1969] 1 Ch 223 at 244.
(e) The court may not consent to an arrangement that is detrimental to the person not legally able to consent.7
(f) The court is to take a wide approach to benefits and detriments in arrangements. It is not simply a matter of actuarial calculation.8 The arrangements must be considered as a whole. Indirect and intangible benefits and detriments are relevant, including the welfare and honour of the family.
(g) The court approaches the arrangement in a practical and business-like way, including the assessments of the advantages and the various parties’ bargaining strength.9
[22] I also refer to some of the principles as recently summarised by the High Court in Gavin v Gavin specifically in relation to s 124 of the Trusts Act:10
(a) the power to approve a variation is discretionary;
(b) 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;
(c) 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; and
(d) difficulties may be met by amendments to the proposal or covenants by persons benefitting agreeing to make good losses to the disadvantage of other beneficiaries.
7 Re Byrne, above n 4, at [26].
8 Re Van Gruisen’s Will Trusts [1964] 1 WLR 449 (Ch) at 450.
9 Re Byrne, above n 4, at [29].
10 Gavin v Gavin [2021] NZHC 550 at [15], citing McKnight v Craig {2010] 3 NZLR 860 (HC) at [7]-[8].
[23] I also accept, as the Buddle Findlay report pointed out, the issue of the remoteness of the class also influences the court’s assessment of each of the discretionary factors noted above. In Re Darlow, the characterisation of the unknown or unborn beneficiary class as “theoretical”, was a particular context factor given some weight by the Court.11
[24] The Buddle Findlay report comprehensively considered the benefits and detriments of the proposed variation from the perspective of the younger grandchildren.
[25] I have no difficulty in approving the proposed variations from their perspective for the following reasons.
[26] There are in fact unlikely to be any further grandchildren who would benefit as younger grandchildren in terms of the Trust Deed as it stands. I am satisfied that, given the ages and circumstances of three of the siblings, it will not be possible for any of them to have another child. I am also satisfied, on the basis of an affidavit from the relevant sibling, the affidavit of his sister Deidre and the Buddle Findlay report as to information obtained from the relevant sibling’s children, there is little likelihood of the fourth sibling having any more children. It is thus highly likely there will be no younger grandchild who might benefit from Fund B in terms of the Trust Deed.
[27] The proposed deed also contains provisions which would provide a further protection and benefits for a younger grandchild in the unlikely event of such a grandchild being born after 20 August 2016. Such a younger grandchild would automatically become a beneficiary at birth. Under the proposed variation, trustees would have the power to distribute capital between beneficiaries in equal shares. As originally proposed, while there remained a possibility of a younger grandchild becoming a beneficiary, the trustees would have had the power to require any grandchild receiving a capital distribution to provide the trustees with an indemnity in favour of all younger grandchildren then unborn.
11 Re Darlow [2021] NZHC 2184 at [77].
[28] Through discussion between Buddle Findlay and the Trustees, it has been agreed that it will be mandatory for the trustees to obtain such an indemnity and agreement was reached as to how that indemnity would be worded.
[29] Any younger grandchild would obtain a vested interest as a beneficiary in the trust at birth instead of the contingent interest they would currently have under the Trust Deed. Under the Trust Deed, their interest would vest at a date potentially 40 or 50 years into the future when they would likely be past an earlier period in their lives when the distributions of income or capital to them would likely be of greater assistance.
[30] A significant change with the proposed variation is that the trust fund could be distributed significantly in advance of the date for final distribution currently in the Trust Deed. This would also be of benefit to younger grandchildren in that it would allow the younger grandchildren to benefit from a capital distribution earlier in their lives when this would be of more benefit to them.
[31] All of the living beneficiaries of the Trust, being the older grandchildren, consent to the proposed variation.
[32] The youngest sibling is now 59. The grandchildren are in their 20s and 30s. The final distribution date is likely to be 40 years or more in the future by which time the grandchildren would be in their 60s or older. Under the current Trust Deed, a grandchild would be able to seek an earlier vesting of their share but only if they had reached the age of 35 and covenant to hold their share for the benefit of their children.
[33] With the proposed variation to the Trust Deed, the trustees would have the ability to distribute the trust fund at any time. An early distribution would benefit the existing grandchildren as named beneficiaries. Through such a distribution, they would receive an equal share of the accumulated income and capital in the trust at a time when it would likely be considerably of more use to them than if they have to wait for the 40 years or more that would likely equate to the final distribution date as it stands.
[34] Of some concern to me was however the potential for the proposed variation to be to the detriment of the great-grandchildren of Ogilvie Clifford who could ultimately have benefitted under the Trust Deed as it stands. Their interests were not commented on in any detail in the Buddle Findlay report, but it did say that the settlor’s apparent wish for deferring vesting as long as possible was not necessarily desirable or realistic. Buddle Findlay were of the opinion that the settlor’s apparent wish in this regard was not a compelling reason to deny approval to the proposed variation, particularly so when the deed in the proposed variation accorded with his intentions as to there being equality between beneficiaries.
[35] I discussed this concern with counsel in the telephone conference on 16 May 2022. I then received a joint memorandum from counsel for the applicant and Buddle Findlay addressing my concern.
[36] With the Trust Deed as it stands, great-grandchildren could ultimately benefit from the final distribution of the trust fund. The final distribution date is 20 years from the death of the last sibling. On that date, the trust fund would be distributed between the children of the siblings, Ogilvie Clifford’s grandchildren. In the Trust Deed there is a substitution clause so that if any grandchild failed to obtain a vested interest in the trust fund and leaves children living at the final date of distribution, such children would take, in equal shares, the share their parent would have taken had they survived to attain a vested interest.
[37] Great-grandchildren of Ogilvie Clifford could benefit under the Trust Deed as it stands, as could the younger grandchildren.
[38] In considering the interests of great-grandchildren and whether the Court should approve the variation on their behalf, s 124(4) of the Trust Act requires me to take into account:
(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:
(c) the intentions of the settlor of the trust in settling the trust, if it is practicable to ascertain those intentions.
[39] Having regard to the interests of great-grandchildren who might benefit under the Trust Deed as it stands, I consider the following factors provide good reason for the Court to approve the proposed variation.
[40] Any benefit great-grandchildren might obtain under the Trust Deed as it stands would be contingent on their parent not surviving to attain a vested interest in the trust fund as at the final distribution date as it stands or through their parent being willing to seek an earlier distribution date and entering the covenant in the terms required as provided for under the existing Trust Deed. There is no certainty or even a likelihood that great-grandchildren would personally obtain a benefit as a beneficiary under the Trust Deed as it stands.
[41] If there is an earlier distribution of the trust fund amongst the beneficiaries as named in the proposed variation, being the existing grandchildren, the earlier distribution of the trust is likely to be of benefit to the children of each of those grandchildren. An earlier distribution is likely to be of use to the grandchild, perhaps through assisting them to acquire a home or to improve their capital or income positions in ways that would enable them to better provide for their children, the great- grandchildren of Ogilvie Clifford.
[42] With the proposed variation, there is some protection for great-grandchildren as to the potential for them to benefit from an inheritance of wealth that has been distributed to grandchildren. Clause 1.2.2 of the proposed Trust Deed states that a reference to a person includes a reference to that person’s personal representatives and successors including, in the case of any beneficiary who dies during the trust period, the executors of that beneficiary’s estate. Through that clause, the executors of a deceased beneficiary’s estate would be able to ensure that the beneficiary’s share of the trust fund, to the extent it has been retained, falls into that deceased’s estate. There, it would be available to meet any entitlement which the great-grandchild has in terms of their parent’s estate or on account of any claim that a great-grandchild might have under the Family Protection Act 1955.
[43] Delaying distribution of the trust fund for such a long time into the future, as is currently required with the final date of distribution, would likely discourage the grandchildren from being actively interested in the administration of the estate. It would likely leave them with a lingering feeling of resentment that the effective settlor, Ogilvie Clifford, had chosen to prioritise his wish to control the distribution of wealth for as long as possible without appreciating the way that wealth could be of greater benefit to his grandchildren if they could receive it when it would be of most use to them.
[44] The potential earlier distribution date would also allow the trustees to avoid the costs and administrative burden of continuing with the trust if and when they consider that to do so would no longer be in the interests of the beneficiaries and their families.
[45] The intentions of the settlor, Ogilvie Clifford, were discussed by the High Court in its judgment of 20 April 1993.12 Williamson J commented that the settlor’s general philosophy appeared to have been to postpone the vesting of capital as long as possible. The Court commented then that this attitude could be described as rigid or old fashioned. The Court found that practical and other considerations in favour of variation outweighed the general philosophy or intentions of the settlor in that regard. I consider this is also necessary now.
[46] The intentions of the settlor are not however being ignored with the proposed variation. His insistence on equality is being respected. The proposed variation will give the trustees a greater discretion as to the distribution of both income and capital but always on terms that there be equality between beneficiaries. Administratively, it will be easier to achieve this with each of the three siblings who have children having three children each.
[47] For all these reasons, I approve the variation of the Trust Deed in terms of the draft Trust Deed which was attached to the amended notice of application for the variation of the Trust dated 30 March 2022.
12 Re Clifford, above n 2.
[48] In a judgment of 10 December 2021, Associate Judge Lester ordered that Mr Palmer’s costs would be costs for the No 2 Trust. The applicants’ costs will also be for the Trust. I accordingly assume it will not be necessary for the Court to make any other order as to costs. Leave is nevertheless reserved to the applicants to apply for any further order that might be necessary to give effect to this judgment or as to costs.
Solicitors:
Duncan Cotterill, Christchurch Buddle Findlay, Christchurch.
0