McKnight v Craig HC Dunedin CIV-2009-412-000919

[2010] NZHC 1086

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IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2009-412-000919

UNDER  the Trustee Act 1956

BETWEEN  RICHARD STEWART MCKNIGHT GRAHAM ROSS WILKINSON ANDERSON LLOYD TRUSTEE COMPANY LIMITED

AS TRUSTEES IN THE LYNWOOD/CRAIG FAMILY TRUST First Plaintiffs

ANDRICHARD STEWART MCKNIGHT GRAHAM ROSS WILKINSON ANDERSON LLOYD TRUSTEE COMPANY LIMITED

AS TRUSTEES IN THE LYNWOOD/CHRISTINE CRAIG FAMILY TRUST

Second Plaintiffs

ANDNATHANIEL TOLLETH CRAIG CHRISTINE ANNE CRAIG PHILLIP NATHANIEL CRAIG SIMON MATTHEW CRAIG ELIZABETH ANNE WILKINSON ALISTAIR DAVID WILLIAMS ROGER NEILL WILLIAMS Defendants

Hearing:         10 June 2010

Appearances: F B Barton and A Cunninghame for Plaintiffs

A J Logan for Minor and Unborn Children

Judgment:      22 June 2010

RESERVED JUDGMENT OF HON. JUSTICE FRENCH

MCKNIGHT AND ORS V CRAIG AND ORS HC DUN CIV-2009-412-000919  22 June 2010

Introduction

[1]      The plaintiffs are the respective trustees of two trusts: the Lynwood/Craig family trust and the Lynwood/Christine Craig family trust.  They have applied under s 64A of the Trustee Act 1956 for an order approving a variation of both trusts on behalf of minor and unborn beneficiaries.  All adult beneficiaries have consented to the variation.

[2]      The trusts are mirror trusts, whereby Mr and Mrs Craig each created trusts for the benefit of the other, their extended families and nominated charities.

[3]      Both trusts are discretionary in nature and for all material purposes identical. The class of possible discretionary and capital beneficiaries is not yet closed because Mr and Mrs Craig could have further children, and there are also nieces, nephews or grand children who could be born. Some of the existing beneficiaries are under the age of 20 years.

[4]      The purpose of the proposed variation is to allow the trust funds to be settled on a new modern family trust called the Craig Family Trust.  To achieve this purpose it is proposed that the respective trust deeds be amended by including the trustees of the  proposed  new  Craig  Family Trust  as  a  discretionary beneficiary  as  to  both income and capital.  When implemented, the proposal will allow the assets of both mirror trusts to be combined within the new single trust.

[5]      A draft trust deed for the new Craig Family Trust was provided to the Court.

[6]      The reasons why the trustees want to consolidate the two mirror trusts into one modern family trust are:

i)        To simplify administration of the trusts, thereby saving costs.

ii)There is concern that as the trusts are currently structured, Mr and Mrs Craig are beneficiaries of only half of the combined assets, and on the death of one, the survivor could be disadvantaged

Relevant legal principles

[7]      The role of the Court in an application under s 64 of the Trustee Act is to give consent to the arrangement on behalf of persons such as minors, unborn and unascertained beneficiaries who are unable to give consent themselves.

[8]      The  following  principles  may  be  distilled  from  the  authorities:  see  Re

Greenwood [1988] 1 NZLR 197, Re Byrne HC Wellington CIV-2003-485-000167,

25 May 2004, Miller J and Ewington & Anor v Schulz & Ors HC Auckland CIV-

2008-404-006596, 5 May 2009, Winkelmann J.

i)        The power to approve a variation is discretionary.

ii)The Court may consider any proposal which varies or revokes any or all of the trusts or a proposal which enlarges the powers of the trustees in managing or administering the property subject to the trust.

iii)The discretion is exercised in the interests of the person on whose behalf the Court is asked to approve the variation and from their point of view.  The Court should therefore ask itself whether the person would have given approval if that person were alive, of full capacity and properly advised.

iv)The Court  can  approve  a scheme  which  conflicts  with  the intentions of the settlor but should not do so lightly.

v)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.

vi)The Court cannot approve an arrangement to the detriment of any person on whose behalf the Court is giving consent.

vii)But the Court is to take a wide approach to benefits and detriments  in  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.

viii)Difficulties may be met by amendments to the proposal or covenants by persons benefitting to make good losses to the disadvantage of other beneficiaries.

ix)      An order approving a proposed variation may be conditional.

[9]      Prior to the hearing, counsel for the minor and unborn children, Mr Logan, undertook a detailed analysis of the differences between the provisions of the mirror trusts and the provisions of the proposed new trust document.

[10]     He identified changes which were potentially detrimental to beneficiaries, including unascertained minor and unborn beneficiaries and submitted that the Court should not approve the proposal.

[11]     Mr  Logan’s  concerns  related  to  the  following  changes  entailed  in  the proposed Craig Family Trust:

a)       The number of classes of beneficiary is increased by the addition of trusts.

b)The trusts included as discretionary beneficiaries may benefit persons other than beneficiaries of the existing trusts.

c)        Persons who are children or grandchildren of N T Craig, but not also

C A Craig, will be excluded.

d)The power of resettlement may be exercised in such a manner that persons other than beneficiaries of the present trusts benefit at the expense of the persons who are beneficiaries of the existing trusts.

e)        Any future wife of N T Craig is excluded.

f)        The trustees are given power to exclude persons as beneficiaries.

g)       The new trust deed could be amended in ways that might prejudice existing beneficiaries and without the need for approval by the Court.

[12]     In his written submissions, Mr Logan suggested the following amendments should be made to the draft trust deed so as to avoid any potential detriment to beneficiaries:

a)       The beneficial interests in the Craig Family Trust are defined in the same manner as the existing trusts.

b)The Craig Family Trust may include as discretionary beneficiaries, trusts, so long as the only beneficiaries of such trusts are beneficiaries of the existing trusts.

c)       Similarly, assets of the Craig Family Trust could be resettled on other trusts, but only so long as the only beneficiaries of the other trusts are beneficiaries of the existing trusts.

d)The power to distribute capital of the new Craig Family Trust is expressed in the same manner as in the current trust deeds.

e)       There is no power given to the trustees of the Craig Family Trust to exclude any person as a final beneficiary.

f)        The power to amend the Craig Family Trust deed is restricted to the matters of management and administration.

[13]     After  reading  Mr  Logan’s  submissions,  the  plaintiffs  reconsidered  their position.  They acknowledge the merit of the points made by Mr Logan.

[14]     They have accordingly since amended the draft of the Craig Family trust deed so as to accommodate his concerns.  The second draft deed does not alter the rights of the existing beneficiaries.

[15]   In light of the amendments, Mr Logan has advised the Court that the arrangement as now proposed is not to the detriment of any person on whose behalf the Court is asked to give approval.  He submits that therefore approval may now be given.

[16]     I have now myself had the opportunity to peruse the second draft trust deed, and concur with that assessment.

[17]     Accordingly, the application is granted and the proposed arrangement set out in paragraph 17 of the statement of claim is approved on condition that the Craig Family Trust deed is in accordance with the amended draft filed on 10 June 2010.

[18]     There is no issue as to costs.

[19]     Finally, I would like to record the Court’s appreciation of Mr Logan’s helpful submissions.

Solicitors:

Anderson Lloyd, Dunedin

Ross Dowling Marquet Griffin, Dunedin