Merona Trustees Limited
[2022] NZHC 1971
•10 August 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-345
[2022] NZHC 1971
UNDER Section 133 Trusts Act 2019 IN THE MATTER
of an application for declarations relating to the M & R Cooper No. 2 Trust
BETWEEN
MERONA TRUSTEES LIMITED and
HAMISH PATRICK BENNETT, as trustees of the M & R Cooper No. 2 Trust
Plaintiff
Hearing: 5 July 2022 Appearances:
D Kalderimis and K H Lawrence for Plaintiff P Brown for M Dasilva
J V Ormsby and K Wood for R Moody G Jones for S Cooper
Judgment:
10 August 2022
Reissued:
19 August 2022 and 16 September 2022
JUDGMENT OF DUNNINGHAM J
This judgment was delivered by me on 10 August 2022 at 2.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
RE: MERONA TRUSTEES LTD [2022] NZHC 1971 [10 August 2022]
Introduction
[1] This is a case about what the words “the children of the settlors” mean in a trust deed. Do they mean:
(a)the natural children of the settlors (who are husband and wife);
(b)the settlors’ natural children, plus the natural child of the wife whom the settlors raised together; or
(c)the settlors’ natural children, plus any natural child of either one of them, whether or not that child was raised as their own?
[2] The meaning of those seemingly plain words is hotly contested by the parties, has been the subject of multiple legal opinions, and will have significant financial consequences for some of the parties depending on how they are interpreted.
[3] To resolve this dispute, the trustees have applied to the Court under s 133 Trusts Act 2019 for direction as to how this and related clauses of the trust deed are to be interpreted.
Factual background
[4]Mervyn Cooper (Merv) and Sylvia Cooper (Rona) were married in 1958.
[5] Rona had two children from a prior marriage, being Robert Cooper (Rob), born 10 February 1949, and Ray Moody (Ray), born 21 July 1950. Rona’s first husband abandoned her when the children were very young. At the time there was no domestic purposes benefit, and Rona was unable to keep her children. Rob was sent to live with Rona’s mother, and Ray was sent to live with Rona’s favourite aunt, Edna Moody, and her husband, Maurice.
[6] After Rona married Merv, Rob went to live with them. He was about 10 years old at the time. Rob kept his father’s surname, McLean, while he was growing up, but he changed his last name to Cooper by deed poll as an adult. However, he did not know about the existence of his brother Ray. Rona never told her children about Ray,
nor had any contact with him as he grew up. It is uncertain whether this was because she was told she must sever contact with him if her aunt took over his care, or because was simply too painful for her to do so.
[7] Merv and Rona also had two children together, Lilly Cooper (Lilly), and Amanda Cooper, who is now known as Miffy Dasilva (Miffy). Rob, Lilly and Miffy were raised by Merv and Rona as a family unit, and the girls were never told that Rob had a different father.
[8] Although Ray was raised by Edna and Maurice and took the surname Moody, he was not adopted by them, nor were they made his legal guardians. At no time during his childhood did Ray know that they were not his parents. It was not until 1971, by which time Edna had passed away and Ray was planning to marry his now wife Helen, that he learnt Maurice was not his father. This was because Maurice told him that when he married, he would need to use the name “Raymond Alan McLean”, presumably because that was the name on his birth certificate. However, even then he was not given information regarding who his real parents were or why he was raised by Edna and Maurice.
[9] It was not until 1982, when Ray was about 32 years old, that he learnt Rona was his birth mother and that he had a brother, Rob. This revelation came about because friends of Helen’s parents, one of whom was related to Merv, told Helen’s mother that Rona had given Ray away when he was little and that he had a brother, Rob. This information was passed on to Ray and Helen. Helen then made contact with Rob’s wife, Suzanne (Sue), and asked whether Rob might like to meet Ray. That proposal was initially rejected. However, around 10 years later Sue contacted Helen and Ray, seeking a meeting, but at that stage Ray was more ambivalent about doing so and it was not followed up on.
[10] As luck would have it, about six weeks later, Helen and Ray were taking clients out to a Japanese restaurant in Christchurch. They were seated opposite a couple, and Helen immediately saw a resemblance between the husband and Ray which she pointed out to Ray. They approached the couple, introduced themselves, and found out the couple was his brother, Rob, and Rob’s wife, Sue. As Ray says, it was a very
successful meeting. They agreed to have a further meeting a few weeks later at the Sign of the Takahe. Again, the meeting went well. Rob seemed excited to have reconnected with Ray, and Ray finally had family in his life and a sibling whom he was similar to. Further meetings were arranged, setting in train a good relationship between the two brothers which lasted nearly 20 years until they had a falling out at the end of a canal boat holiday in France in 2010.
[11] It was not until several months after Rob and Ray met that Rob told Rona that this had happened. This was a huge shock to Rona, who by then was in her early sixties, and she was quite upset at the time. It took Rona some time to come around to actually meeting with Ray, but this eventually occurred in around 1993, at her instigation. Ray says from their first meeting, his relationship with his mother blossomed as they got to know one and other. They lived close to each other and they also both had homes in Akaroa which meant he could visit his mother and Rob on a regular basis. Ray says that,for a period of just under 20 years, they enjoyed many events with Rona, Merv and the rest of the family, including most Christmases. Joint Christmases eventually stopped after 2010 when there was a falling out between Lilly and Miffy, and the size of the extended family was becoming unmanageable.
The M & R Cooper No. 2 Trust
[12] Merv and Rona settled the M & R Cooper Trust (the No. 1 Trust) in 1986. The beneficiaries of The No. 1 Trust included “the children of the said Mervyn Nathaniel Cooper of Christchurch, Company Director and Sylvia Rona Lorraine Cooper, his wife born before the date of distribution”. This family trust owned the land and buildings in Riccarton where Merv established the Kauri Lodge Retirement Village. The Trust sold those assets in 2008, and the sale proceeds of approximately $3,500,000 were retained in the Trust.
[13] The Hempleman Trust was settled on 27 April 2002. It owned holiday homes for the family on Hempleman Drive, Akaroa.
[14] In September 2008, the trustees received legal advice which recommended transferring the assets from the No. 1 Trust to the Hempleman Trust, noting the beneficiaries were ostensibly the same in both trusts, and the Hempleman Trust Deed
was a more modern, flexible trust deed than that for the No. 1 Trust. The assets of the No. 1 Trust were subsequently resettled on the Hempleman Trust, and it was renamed The M and R Cooper No. 2 Trust (the No. 2 Trust) in November 2008. It is this trust deed which gives rise to the interpretation issue which has been referred to this Court.
[15] Soon after the resettlement, Merv and Rona signed a memorandum of guidance which set out their wishes for the administration and management of the No. 2 Trust. Those wishes involved making equal distributions of income to “such of our three children Robert William Cooper, Lilly Jessica Cooper and Amanda Jane Cooper-Davies as continue to survive us” as well as smaller distributions to the children and grandchildren of those three children.
[16] In late 2009, Merv and Rona went to their lawyers to prepare Rona’s will. At this meeting, Rona told her lawyer about Ray and described him as her “birth son”. In her will, Rona left a gift of $50,000 to each of Rob, Lilly and Miffy whom she referred to as “my children”. She also left $50,000 to Ray, referring to him as her “birth son”.
[17]Alongside her will, she left a letter to Ray. It read as follows:
Dear Ray
Ray, not especially, to single you out, with this letter, but because of the way times were when you were a baby I have told you I just did not have the means or the way to keep you with me.
I did what I thought was the best and if I had to, I would do the same today, as I was sure this was the best way for my baby. I will not mention the pain and tears still come at times, but you have grown into a fine man and even though I cannot take the credit for bringing you up, I am proud of you.
I would ask that you be compatible with the family and content with the money I have left you. I am sure you will be. And I leave you to enjoy the rest of your life with your beautiful family. God Bless you, Ray.
With Love, your Mother.
[18]Rona died on 11 February 2013.
[19] In early 2016, at the instigation of Mr Hamish Bennett, a family friend who had agreed to be a trustee, a review of the No. 2 Trust structure was sought from the law firm, Duncan Cotterill. That advice was provided on 22 April 2016 and raised,
for the first time, doubt as to whether Rob fell within the definition of discretionary beneficiaries as one of “the children of the settlors”. This was expressed as a “preliminary view”, but was described as “retrievable” as Rob could be appointed as an additional discretionary beneficiary under the general variation powers in the trust deed.
[20] A second opinion was sought from the law firm, Harmans. In its letter of advice dated 2 June 2016, that firm said it preferred the view that Rob was included within the definition of discretionary beneficiaries but, like Duncan Cotterill, said that any doubt could be cured by appointing him as a discretionary beneficiary by deed. Shortly afterwards, a deed of variation dated 9 June 2016 was executed, appointing Rob, his children, and his grandchildren as discretionary beneficiaries.
[21] Katherine Ewer, a solicitor specialising in tax and trusts, was engaged by the No. 2 Trust to review the advice received to date. She provided further advice in November 2016. Her advice was the first to raise the question of whether Ray was a beneficiary of the Trust. She succinctly explained the issue as follows:
The difficulty with the [Duncan Cotterill] view is that if Robert William Cooper was not legally adopted by Mervyn, he falls outside the class of Final Beneficiaries. The problem with [Harmans] view is that while including Robert, it would also include Raymond Moody, Rona’s other son.
[22] Merv died on 10 March 2020. Shortly afterwards, there were retirements and appointments of trustees, so by 25 March 2020, the trustees were Merona Trustees Ltd and Mr Hamish Bennett, who are the current plaintiffs.
[23] At that point, a further opinion was sought from the firm Greg Kelly Law. That firm advised that Rob was likely a discretionary beneficiary but not a final beneficiary, and Ray’s status was likely the same. The legal opinions gave rise to uncertainty over Rob’s position, and thereby to Sue’s position, as Rob died in September 2020 and Sue, his wife, was not a discretionary beneficiary under the June 2016 deed of variation. They also gave rise to uncertainty over Ray’s position as a discretionary and final beneficiary.
[24] I note, at this juncture, the various legal opinions obtained by the trustees were adduced in evidence in somewhat redacted form.1 The legal advice was introduced in evidence not to suggest that any of the opinions were determinative of the interpretation issue, but rather to provide context to the actions and intentions of the settlors and as background to the decision to bring the matter to Court.
The trust deed
[25] Before discussing the issues arising, it is necessary to set out the relevant provisions of the trust deed for the No. 2 Trust. Clause 1 of the trust deed provides:
DEFINITIONS
In this Deed the following terms where the context admits
(a)“child, children and issue” shall include children by adoption as well as natural born children.
(b)“the Discretionary Beneficiaries” shall mean:
(i)the Settlors, the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper, or either of them;
(ii)any of the children of the Settlors;
(iii)any child or children of whom either or both of the Settlors may have been appointed guardian;
(iv)any grandchild of the Settlors;
(v)any person whom any of the children or grandchildren of the Settlors marries but not if such person is separated from such child or grandchild nor if the marriage is dissolved.
The Settlors declare that the principal purpose for the trust is to benefit beneficiaries for whom they have “natural love and affection” and that his [sic] principal purpose shall always apply in exercising the power of appointment or removal of beneficiaries.
(c)“the Settlors” shall include the Settlors or Settlor for the time being hereof together with any other person or persons who subsequently transfer assets to the trustees by way of sale, gift or otherwise.
…
1 The form in which they were provided was the subject of this Court’s judgment in Re Merona Trustees Ltd [2022] NZHC 724.
(h)“the Final Beneficiaries” shall mean the children of the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper.
[26] As counsel point out, there is a slight difference between the definition of “discretionary beneficiaries” at cl 1(b)(ii), being “the children of the Settlors”, and the definition of “final beneficiaries” as, “the children of the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper”.
[27] The trust deed includes a purpose provision at the end of the sub-clause which lists the discretionary beneficiaries. It says:
The Settlors declare that the principal purpose for the trust is to benefit beneficiaries for whom they have “natural love and affection” and that his [sic] principal purpose shall always apply in exercising the power of appointment or removal of beneficiaries.
[28] The term, the “Settlors”, is referred to three times in different ways in the trust deed. In the first line of the trust deed, where the parties are defined, it reads:
MERVYN NATHANIEL COOPER of Christchurch Manager and SYLVIA
RONA LORRAINE COOPER his wife (hereinafter called “the Settlors”)
Clause 1(b) of the definitions section lists “the discretionary beneficiaries” as including “the Settlors, the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper or either of them”. Finally, cl 1(c) of the definitions section defines “the Settlors” as:
“the Settlors” shall include the Settlors or Settlor for the time being hereof together with any other person or persons who subsequently transfer assets to the trustees by way of sale, gift or otherwise.
The positions of the parties
[29] As signalled at the outset, the parties have identified three possible interpretations of the terms of the No. 2 Trust regarding who are discretionary and final beneficiaries. Those interpretations are, in each case, that such beneficiaries are:
(a)the two children of the settlors together, being Lilly Cooper and Miffy Dasilva; or
(b)the settlors’ two natural children, as well as the son they raised together, Robert Cooper, who was the natural child of only one of the settlors,
Rona Cooper; or
(c)the settlors’ two natural children, as well as Robert Cooper and Raymond Moody, who were both the natural children of one of the settlors, Rona Cooper, but noting that Raymond Moody was raised by another family.
[30] The trustees were directed by the Court to make arguments in relation to both the first two positions. While Mr Kalderimis has done that, his submission is that the second interpretation has the most merit.
[31] Both Miffy and Sue support the plaintiffs’ submissions that the second of the three interpretations is the proper interpretation having regard to the legal principles applying to interpretation of documents.
[32] Ray, however, supports the third interpretation as according with the objective interpretation of the trust deed in its context.
Principles applying to the interpretation of trust deeds
[33] The interpretation of trust deeds is approached in the same manner as the interpretation of contracts and wills.2 The principles were summarised in the recent decision of Holland v Jonkers as follows:3
(a)In general, trust deeds are construed as per the ordinary rules of contractual interpretation.
(b)More specifically, deeds are to be interpreted from a standpoint that is practical and purposive, rather than detached and literal. The factual matrix within which the relevant trust was formed is relevant. Trust
2 Ryan v Lobb [2021] NZHC 2219 at [20]; Edge v Bourke [2020] NZHC 1185, [2020] 3 NZLR 522
at [14]; and Marley v Rawlings [2014] UKSC 27, [2015] AC 124 at [19]-[23].
3 Holland v Jonkers [2021] NZHC 3469 at [109].
deed provisions are to be interpreted objectively in the context of the whole document, relevant statutory background and factual matrix.
(c)A Court, when interpreting a trust deed, is required to construe each provision according to its natural meaning and give provisions “ample operation” rather than approach interpretation in a narrow way or limited by reference to historical presumption.
(d)The test of what is intended by the settlor or in the reasonable contemplation of the parties is an objective question, to be answered by ascertaining the actual meaning of words used in their context. The search for intention in relation to trusts, as with contracts, is for the intention as revealed in the words used by the parties. The expressed intention of the parties is to be found in the answer to the question, “what is the meaning of what the parties had said?”, not to the question “what did the parties mean to say?”
(e)Interpretation of trust deeds should be tailored having regard to the type of trust involved.
[34] Taking the first principle set out in Holland v Jonkers, all parties agree that the Supreme Court’s decision in Firm PI Ltd v Zurich Australian Insurance Ltd,4 settles the general approach to contractual interpretation.5 In Firm PI, the majority summarised the approach in this way.
[60] … the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
(footnotes omitted)
4 Firm PI Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.
5 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [10].
[35] In Bathurst Resources Ltd v L & M Coal Holdings Ltd, the Court endorsed the objective approach as articulated in Firm PI, saying:6
Giving primacy to the written words of the agreement accords with the policy of providing commercial certainty. It also recognised that since the written contract contains the words the parties chose to record their agreement, the language used to do so has to be important. But by allowing a contextual reading of those words, the Firm PI approach recognises both that words have to be read in context and that the promotion of commercial certainty should not be allowed to defeat what the parties actually meant by the words in which they recorded their agreement. The objective approach to this contextual assessment is a legal construct designed as the best way of reliably determining the true agreement as recorded in the words of the contract. It rejects the parties’ subjective evidence of intent as irrelevant to what both parties meant and as generally unreliable. Rather, the court (embodying the reasonable person) assesses the evidence reasonably available to both (or all) of the parties at the point of contract which could bear upon the meaning of those words.
…
[36] The application of the principles of contractual interpretation to the constructions of wills and trusts was confirmed by the Court of Appeal in Powell v Powell.7
[37] Moreover, in ascertaining the settlor’s intentions, the Court is guided by the words of the trust deed and the context in which the trust was created … [a contextual approach] … has also been applied to the construction of trust deeds in Manukau City Council v Lawson, and Gailey v Gordon. In the former, having referred to Boat Park Ltd v Hutchinson, Patterson J said:
The meaning to be ascertained is that which the trust deed would convey to a reasonable man having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time the trust deed was entered into.
(footnotes omitted)
[38] Each party submitted that when those principles were applied to the circumstances in which the trust deed was drafted, they supported that party’s preferred view.
6 At [46].
7 Powell v Powell [2015] NZCA 133, [2015] NZAR 1886 at [53].
The submissions
Interpretation 1 – the beneficiaries are the natural children of both Merv and Rona
[39] As directed, the trustees set out arguments for the first of the three proposed interpretations which is that the discretionary beneficiaries and final beneficiaries are confined to the natural children of Merv and Rona. Mr Kalderimis points out that the natural and ordinary meaning of “the children of the Settlors” is that the phrase refers to the first line of the trust deed where Merv and Rona are defined as “the Settlors”. Similarly, the final beneficiaries are defined as “the children of the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper”.
[40] On this argument, the starting point is the natural and ordinary meaning of the words “the children of the Settlors”. That would include any natural children of Merv and Rona together and any children adopted by them, which is how the definitions section defines children, but not the children of only one of them. The trustees also submit that the phrase “the children of the Settlors” should be read in light of the definition of final beneficiaries, being “the children of the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper”. On an ordinary reading, both formulations have the same meaning, and there is no obvious reason why these two definitions would refer to different beneficiary classes. It is difficult to construe the words “the children of the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper”, to include the children of only one of them.
[41] This accords with the approach taken to the interpretation of a trust deed in similar circumstances in Martin v Hamilton Byrne.8 At issue was whether the words “the children of the said [Mr and Mrs Vilimek]” in a trust deed were limited to the two adopted children of the Vilimeks or included Mrs Vilimek’s adult children from a previous marriage. In that case the Court found that:9
[T]he plain and grammatical meaning of the clauses is clear and requires the words to be confined to those who can in law claim both Mr and Mrs Vilimek as their parents.
8 Martin v Hamilton Byrne SC Victoria No. 3894, 24 September 1986.
9 At 8.
The Court in Martin noted that if the settlors had wanted the children of only one of them to benefit, it would have required only a modest change to the drafting of the deed to make their intention clear.10
[42] Mr Kalderimis says there are also some aspects of the context in which the No. 1 Trust was settled which may be relevant. Its discretionary and final beneficiaries were “the children of the said MERVYN NATHANIEL COOPER … and SYLVIA
RONA COOPER … born before the date of distribution. This conjunctive wording also, on its grammatical construction, tends to suggest the beneficiaries of the No. 1 Trust were limited to the children of Merv and Rona together. If Rob was not a beneficiary of the No. 1 Trust, this would be relevant context to the settlement of the No. 2 Trust in 2008 as the resettlement deed recorded that the beneficiaries of the two trusts were “ostensibly the same”. Other background context which might distinguish Rob from his two sisters was that he was raised by extended family for much of his childhood prior to the age of 10.
Interpretation 2 – the beneficiaries are the natural children of the settlors, as well as Rona’s son Rob, whom they raised together
[43] In advancing this second interpretation, the trustees say that the plain and ordinary meaning of the words discussed above are a helpful starting point, but little more than that. Here, context is highly relevant to interpretation. In that regard, it is relevant that the No 1 Trust was settled in 1986 before the family met Ray as an adult and when Rob, Lilly and Miffy were in their twenties and thirties. The No. 2 Trust was settled in 2002 when Rob, Lilly and Miffy were in their forties and fifties. To all their professional advisors, both before and after meeting Ray as an adult, Merv and Rona presented as a couple with three children, being Rob, Lilly and Miffy. Indeed, the accountant’s file for the No. 2 Trust recorded Merv, Rona, Rob, Lilly and Miffy as the beneficiaries of that trust. Similarly, the family’s lawyers understood that Merv and Rona had three adult children, and the purpose of the resettlement, and of the trust structure generally, was to benefit all three of them.
10 At 18.
[44] As a further and important element of context, Merv and Rona clearly considered Rob to be their son. By way of example, Merv’s will specifically provided that “any reference to my children in this will shall include my stepson Robert William Cooper”. Hamish Bennett, a trustee and close friend of Merv and Rona, also understood that Merv and Rona had three children; Miffy, Lilly and Rob.
[45] There is also ample documentary evidence which illustrates that the settlors’ intention was to benefit Rob, Lilly and Miffy. Merv and Rona’s memoranda of guidance dated 16 February 2009 and 27 November 2009 both provide:
… in exercising your discretion, you should:
(a)consider the reasonable needs and requirements of our children Robert William Cooper, Lilly Jessica Cooper and Amanda Jane Cooper-Davies...
They go on to specify that 50 per cent of the annual income was to be distributed each year “in equal shares between such of our three children Robert William Cooper, Lilly Jessica Cooper and Amanda Jane Cooper-Davies ...”
[46] The circumstances in which Rona prepared her will also emphasised the distinction the couple made between Ray and the other children. Rona’s will made equal, but separate, provision for Ray as her “birth son”, but in the accompanying letter she says, “I would ask that you be compatible with the family and content with the money I left you”. By implication, she did not see him as eligible to receive money from the No. 2 Trust.
[47] To the extent subsequent conduct can be an aid to interpretation, Mr Kalderimis says the No. 2 Trust supported Rob, Lilly and Miffy’s children with health and education expenses, but Ray’s children were not supported by the No. 2 Trust. While Rona wrote a cheque from the No. 2 Trust to purchase a christening gown for Ray’s granddaughter in 2012, Mr Medlicott’s evidence confirms this would have been treated as Rona’s personal drawings from the No. 2 Trust.
[48] Furthermore, when the question of Rob’s status as a beneficiary arose after Rona’s death, Merv’s reaction is described consistently. For example, Mark Sherry from Harmans says, “Merv wanted to make sure there was no doubt as to Robert’s
position as a beneficiary of the trust”, and Hamish Bennett, a trustee, says, “Merv was gutted to find out that there might be some question about Rob’s status and he wanted to make sure that Rob would definitely benefit as a beneficiary of the trust”. Within a week of receiving the second legal opinion raising a question over Rob’s status, the No. 2 Trust deed was varied to include Rob and his descendants as beneficiaries of that trust.
[49] Merv also told Katherine Ewer that he and Rona considered their three children to be Rob, Lilly and Miffy. Conversely, it is clear that Merv did not consider Ray in the same way, as is made clear from the evidence of Mr Bennett, Ms Ewer, Mr Sherry, and Rob’s wife, Sue.
[50] Mr Kalderimis submits that in all the circumstances, when the context is fully considered (as it must be), there can be no real question about Rob’s status as a beneficiary of the No. 2 Trust. Reasonable people in the position of the settlors would have understood that Rob was included in the definition of the children of the settlors and would have interpreted the trust deed accordingly.
[51] Conversely, Mr Kalderimis submits that Ray’s status is different. There is nothing in the relevant context known to the settlors to suggest he was intended to benefit from the No. 1 Trust, which was settled before he came to know the Cooper family, and nothing to suggest that he was intended to benefit from the No. 2 Trust.
[52] Mr Kalderimis submits that an interpretation should not be favoured when, based on contemporaneous evidence, it is contrary to what the settlors intended. In that regard, he again points to the memorandum of guidance prepared by Merv and Rona which made it clear that they intended their three children, including Rob, to benefit from the No. 2 Trust.
[53] Both Merv and Rona saw Ray in a different light. While various accounts are given of the closeness of Rona’s relationship with Ray once they reunited, she did not raise Ray as her own son, he is not mentioned in any documentation relating to the No. 2 Trust, and her final will refers to Rob, Lilly and Miffy as her children, but to
Ray as her birth son. Mr Kalderimis also points out that Merv did not consider Ray to be his son. He and Ray did not have a close relationship.
[54] While Merv and Rona had known Ray for nearly a decade when they settled the No. 2 Trust, and longer when the No. 1 Trust assets were resettled on it, both these events took place when their three children were well established adults. At this stage Merv and Rona’s relationship with Ray was of a very different nature to their relationships with Rob, Lilly and Miffy, and the context makes it clear they did not consider Ray to be one of their children for the purposes of the No. 2 Trust.
[55] Mr Jones, counsel for Sue, endorsed the submissions made by the trustees in support of the second interpretation. Sue’s status as a discretionary beneficiary under the trust deed is dependent on Rob being considered a discretionary beneficiary under it, rather than under the deed of variation. Under the variation, there is no provision for Rob’s wife to be a discretionary beneficiary of the trust, whereas under the trust deed, if he is a child of the settlors, then she, as a spouse of such a child, is identified as a discretionary beneficiary.
[56] Mr Jones says this view is supported by the express purpose of the trust deed, which says:
The settlors declare that the principal purpose of the trust is to benefit beneficiaries for whom they have “natural love and affection” and that this principal purpose shall always apply in exercising the power of appointment or removal of beneficiaries.
[57] All the evidence points to Merv and Rona having natural love and affection for both Rob and Sue at the time the trust was settled in 2002. A narrow interpretation which excluded Rob and Sue as beneficiaries would be contrary to the expressed intention of the settlors and would frustrate an “ample operation”11 of the trust deed.
[58] Ms Brown, counsel for Ms Dasilva, also supported the second interpretation of the trust deed, adopting the arguments of the trustees.
11 Holland v Jonkers, above n 3, at [109](c).
Interpretation 3 – the beneficiaries are the natural children of the settlors as well as the natural children of either one of the settlors, whether or not they raised them together
[59] Mr Ormsby, counsel for Ray Moody, submits that as a child of Rona, Ray is both a discretionary beneficiary and a final beneficiary of the No. 2 Trust.
[60] Mr Ormby’s submissions began with an examination of the factual background to show that, despite the period of separation, once Ray was reunited with his mother, a long and close relationship developed with both her and with his full brother Rob. In his affidavit evidence, Ray says that it felt like family whenever he was with the whole family and he was told by Rona to call her “mother”, which is what he did for the rest of her life. He also explained that Rona was a doting grandmother to Ray’s children, with her sharing a particular bond with Ray and Helen’s daughter, Melissa.
[61] Ray acknowledges he was not as close to Merv, saying that “whenever Merv was present, Mother would be much more reserved with me”. For that reason, Ray explains it was his preference to see Mother when Merv was not there and, he says, “I expect Merv felt the same”. However, he goes on to say this did not stop him from having normal family gatherings, including at Christmas and at birthdays. Ray says he did not receive an inheritance from Edna or Maurice when they died, as what was in Maurice’s estate was left to a daughter he had with a subsequent wife, and Ray respected those views. Ray saw the fact he was treated equally under Rona’s will as confirmation that she truly felt he was part of the family. He also considered the letter she left with her 2009 will reaffirmed his place in the family.
[62] Mr Ormsby submits that, while the words of the trust deed are ambiguous, it is clear that Merv and Rona always intended the language of the trust deed to include Rob as a discretionary beneficiary and a final beneficiary, even though he was the natural child of Rona only and not Merv.
[63] This is reinforced by the fact that when legal advice was received in 2016 that the definition of beneficiaries might not include Rob, then, in order to remove any doubt, a deed of variation was executed to specifically add Rob, his children and grandchildren as a beneficiary. Mr Ormsby notes that while Merv may have seen it as
a “problem” that Ray was also included in the definition of discretionary beneficiaries, no steps were taken by the trustees, who included Merv, to vary the trust deed or remove Ray as a beneficiary. Just as it was open to the trustees to add a beneficiary for the avoidance of doubt, they could also have removed one for the same reason and this was not done.
[64] In arguing that Ray, as a natural child of one of the settlors, is a discretionary beneficiary under the terms of the trust deed, Mr Ormsby argues that the use of the words “any of” indicates that the intention was to have a definition of discretionary beneficiaries which was wide enough to capture the children of either of them (and in particular, Rob). If it was intended to include only the children of both Merv and Rona as settlors, then he says the trust deed would be expected to say either:
(a)the children of both of the settlors; or
(b)the children of Mervyn and Rona’s marriage.
[65] Reinforcing this point, Mr Ormsy says that if Rona and Merv had chosen to define the discretionary beneficiaries as simply “the children of the settlors” it might have been more ambiguous. However, the inclusion of the words “any of the children” is an indication that it was intended to be wide enough to capture the children of either of the settlors.
[66] Another matter which Mr Ormsby says supports this interpretation is that cl 1(b)(iii) states that “any child or children of whom either or both of the settlors may have been appointed guardian” is a discretionary beneficiary. He says it is doubtful the settlors would have intended to include as a beneficiary a child for whom only one of them was appointed a guardian, while intending to exclude a child for whom only one of them was a natural parent.
[67] Another aspect of the drafting which supports both Ray and Rob being included as discretionary beneficiaries is the stated purpose of the trust, which is to “benefit beneficiaries for whom they have natural love and affection”. Mr Ormsby submits that it is clear Rona had love and affection for Ray throughout his life, and
this is demonstrated by the examples given in Ray’s affidavit, including the letter accompanying her will. The fact she treated him equally with her other children in her will is further evidence of her natural love and affection for him.
[68] Mr Ormsby also endorses a point made in the legal opinion from Harmans, which is that one of the categories of discretionary beneficiaries is defined at cl 1(b)(i) of the trust deed as follows:
[T]he Settlors, the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper or either of them;
He says cl 1(b)(i) provides a definition of “Settlors” for the purpose of determining the class of discretionary beneficiary. It makes it clear this was a trust established to benefit Merv and Rona as settlors or either of them. By reference to that definition of “Settlors” as discretionary beneficiaries, it is the children of either one of them that are included as beneficiaries.
[69] Mr Ormsby also relies on the Property Law Act 1952 which provides rules of construction to assist in interpreting trust deeds.12 Section 70 of the Property Law Act 1952 provides:
In the construction of a covenant or proviso, or other provision, in a deed, whether express or implied under this or any other Act, unless a contrary intention is expressed, words importing the singular or plural number, or the masculine gender, shall be read as also importing the plural or singular number, or as extending to females, as the case may require.
[70] He says the term “settlors” in the trust deed is expressed in the plural. By virtue of s 70 it must also be read in the singular, unless the exception is engaged by the trust deed expressly saying otherwise – there is nothing in the trust deed which does this. He notes the phrase “unless a contrary intention is expressed” was held by the Court of Appeal to be interpreted “as requiring there to be an express written agreement to the contrary” to demonstrate such a context.13 As the clear intention was to include the child of one settlor as well as of both, so that Rob was a beneficiary of the trust, it follows that Ray must also be a beneficiary. In short, as there is no difference between
12 While the Property Law Act 2007 came into operation on 1 January 2008, by virtue of the transitional provisions of that Act, the Property Law Act 1952 continues to apply to the trust deed.
13 Brian Green Properties v Bindon Holdings [2017] NZCA 284, (2017) 18 NZCPR 570 at [64].
the status of Rob and Ray. If the trust deed is interpreted so that the “children of the settlors” means Rob, then it must necessarily include Ray as well.
[71] For the same reasons, Ray should also be considered a final beneficiary of the trust. Although final beneficiaries are described as “the children of the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper” there is no evidence to indicate a different set of beneficiaries was intended as final beneficiaries from those children who were discretionary beneficiaries.
[72] Accordingly, Ray’s inclusion as a beneficiary fits with the words and purpose of the trust, while still allowing the trustees to exercise their discretion taking account of the different relationships involved.
Discussion
[73] I start by considering the language used in the trust deed and whether, as submitted by Mr Ormsby, the phrase “any of the children of the Settlors” in the definition of discretionary beneficiaries at cl 1(b)(ii) is wide enough to capture the children of either of the settlors. I do not accept that it is. The phrase is found in the clause of the trust deed which defines the discretionary beneficiaries of the trust. Each defined category makes it clear that all individuals in that category, or any one of them, is a discretionary beneficiary. Thus, cl 1(b)(i) makes it clear that Merv and Rona are discretionary beneficiaries, “or either of them”. The balance of the clauses, being cl 1(b)(ii)–(v), all begin with the word “any”, making it clear that all or any individual in that category will be a discretionary beneficiary. When that pattern is identified, I do not consider the use of the words “any of” in the phrase “any of the children of the Settlors” was intended to capture children of only one of the settlors. It means the children of the settlors, individually and collectively, are discretionary beneficiaries.
[74] Similarly, I do not accept that the wording of cl 1(b)(i), which describes a category of discretionary beneficiary as “the Settlors, the said Mervyn Nathaniel Cooper and Sylvia Rona Lorraine Cooper or either of them”, can be said to define who the settlors are for the purpose of cl 1(b)(ii). Rather, as the trustees submit, it supports an interpretation that “the children of settlors” means the children of both settlors because:
(a)the operative definition of “the Settlors” as both Merv and Rona is specifically broadened in this clause to include either settlor; and
(b)cl 1(b)(iii) is specifically worded so as to include children of either settlor who may have been appointed guardian (which would not have been required if settlors meant either of them).
[75] I also accept the trustees’ submission that the definition of settlors found in cl 1(c), which includes “any other person or persons who subsequently transfer assets to the trustees by way of sale, gift or otherwise”, is not intended to affect the defined categories of discretionary beneficiaries. It could not have been intended that other persons who transfer assets to the trustees by way of sale, gift, or otherwise, would then have their children encompassed as discretionary beneficiaries. I accept that this is a “boilerplate” clause which is intended to apply for the purposes of clauses such as cl 8(1)(b) and 8(2), which deal with variations to the trust deed. The term “Settlors”, as used within cl 1(b), clearly refers to Merv and Rona, being the persons identified as the settlors in the parties section of the deed.
[76] The real question is who is included as “children of the Settlors”, that is, of Merv and Rona. Clearly Miffy and Lilly are incorporated as Merv and Rona’s natural-born children. However, if the term is confined to the natural children of both Merv and Rona, that would exclude Rob. All parties agree, looked at objectively in the context in which the deed was created, that cannot have been intended.
[77] In that regard, this case can be seen as analogous to Boranga v Flintoff, where in the first schedule to the trust deed, the specified income class was defined as:14
The said Kevin Patrick O'Keefe and the said Gertrude Jeannette O'Keefe and their children and remoter issue and the spouses of such children and remoter issue.
A similar definition applied to the specified capital class.
14 Boranga v Flintoff (1997) 19 WAR 1 (WASC) at 3.
[78] The O’Keefes had a daughter together, and Gertrude O’Keefe also had two children to her first husband. The daughter brought the proceeding contending that the phrases “their children” and “the children of” in the trust deed should be construed to include only the children of both Kevin and Gertrude O’Keefe. However, the Court held that:15
Once all the mutually known facts are considered, it is apparent that construing the phrases to mean the children of both Kevin and Gertrude O’Keefe is not the only way to construe them.
The fact that the classes refer “children” in the circumstances of the case supported a conclusion that:16
It was the intention of the parties to include the children of their union as well as the children of Gertrude O’Keefe’s first marriage.
... Gertrude O'Keefe, at the time the deed was entered into, was a woman with three adult children. There is nothing in the circumstances before me, at the relevant time, to suggest any reason why Gertrude O'Keefe would intend to treat one of her three children differently from the others, ...
The Court went on to say that the conduct of Kevin and Gertrude O’Keefe after the deed was entered into confirmed that the appropriate construction of “their children” and “the children” referred to both the plaintiff and her two half-brothers.
[79] In the present circumstances, having regard to the context within which the relevant trust deed was drawn up, including the express purpose of the trust which was to benefit beneficiaries for whom the settlors had “natural love and affection”, it is inconceivable that the words “the children of the Settlors” was intended to exclude Rob, who had been brought up as Merv and Rona’s child alongside Miffy and Lilly. While on their face, the words “the children of the Settlors” or “the children of [Merv] and [Rona]” would normally mean the natural or adopted children of their marriage, in the context, it clearly meant the children that comprised their family unit at the time the trust was established.
[80] I am fortified in this view by the fact that Merv and Rona’s professional advisors, including from the law firm Harmans, and their accountants, Marriotts, all
15 At 4.
16 At 5.
understood that the three children were beneficiaries of the trust. Such professional advisors are an excellent proxy for a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation which they were at the time the trust deed was executed. Those lawyers clearly understood the three children to be discretionary beneficiaries, and their contemporaneous records record the same.
[81] Some of the evidence before the Court was of subsequent conduct, and in particular, the memoranda of guidance executed by Merv and Rona dated 16 February 2009 and 27 November 2009, along with subsequent memoranda executed by Merv, as the remaining settlor after Rona’s death, on 24 June 2015 and 26 February 2016. These all set out the wish that trust funds be distributed to Rob, Lilly and Miffy. None expressed a wish that trust funds be distributed to Ray.
[82] Traditionally, subsequent conduct has been excluded as an aid to interpretation of contracts.17 However, New Zealand courts have progressively moved away from excluding such evidence, preferring a more general test of relevance.18 That progression culminated in the Supreme Court’s decision in Bathurst articulating a single relevance-based test of the admissibility of all such extrinsic evidence.19 This test covers the admission of evidence relating to the commercial context and purpose of the document, prior negotiations and subsequent conduct and is expressed as follows:20
... [E]vidence is prima facie admissible if it has a tendency to prove or disprove anything of consequence to determining the meaning the contractual document would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation in which they were in at the time of the contract.
[83] To be admissible, subsequent conduct must be relevant in that it sheds light on objective intention. Subsequent conduct that merely demonstrates one party’s objective intention or belief is irrelevant and therefore inadmissible. The admissibility
17 See, for example, James Miller and Partners v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 (HL); L Schuler v Wickman Machine Tools Ltd [1974] AC 235 (HL).
18 See Wholesale Distributors Ltd v Gibbons Holdings Ltd [2007] NZSC 37, [2008] 1 NZLR 277;
Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
19 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 5.
20 At [62].
of subsequent conduct in accordance with the test of relevance when constructing a trust deed was confirmed in Edge v Bourke.21
[84] Complicating the issue in the case of trusts is that a trust deed is not like a contract which is the product of two bargaining parties, where mutual subsequent conduct might well be relevant to understand what the parties objectively intended. Subsequent conduct by trustees, some of whom were also settlors, could simply perpetuate their subjective intention and may be of little assistance as to what the document objectively meant in the context in which it was made. It is also important to note the Court is interpreting what the document meant at the time it was entered into.22 Events or matters which were not known at the time the document was entered into cannot, objectively, be relevant to interpretation of the trust deed.
[85] Taking these matters into account, I consider that the memoranda of guidance prepared by Merv and Rona in February and November 2009, and by Merv in June 2015 and February 2015, are relevant extrinsic evidence as to who were considered the “children” of Merv and Rona. They assist in determining what was meant by the settlors when they said that the beneficiaries were to be “the children of the settlors” and confirm an enduring understanding that Rona and Merv saw Rob, Lilly and Miffy as their children.
[86] Other evidence of subsequent conduct which was adduced in evidence was not necessarily relevant. For example, the wedding invitation prepared by Sue’s parents, when Rob and Sue were married, and which described Rob as the “only son” of Merv and Rona, sheds no real light on the meaning of the trust deed at the time it was entered into. On the other hand, Rona’s will, and her accompanying letter, is of relevance in that it supports the understanding that a reasonable person would have had at the time the trust deed was executed, which was that Rob, Lilly and Miffy were seen as her “children”, whereas Ray fell into a different category, as her “birth son”.
[87] Mr Ormsby suggests that the fact Ray was not removed as a beneficiary, when the legal opinions raised this possibility, is conduct that can assist in interpreting the
21 Edge v Bourke [2020] NZHC 1185, [2020] 3 NZLR 522.
22 Bathurst, above n 4, at [89].
deed. However, I concur with the trustees that this cannot be seen as subsequent conduct which is relevant to the interpretation of the deed. The initial advice received from both Duncan Cotterill and Harmans raised the possibility that Rob was not a beneficiary and this was the primary concern of Merv and the trustees. Very shortly after the second of these two opinions was received, the deed of variation was signed to include Rob for the avoidance of doubt. It was not until after the deed of variation was executed that Katherine Ewer raised Ray’s position for the first time. However, she considered that neither Rob nor Ray were beneficiaries under the trust deed’s definition. In light of those opinions, and given Merv’s status as settlor and trustee which gave him considerable influence over distributions of the trust, nothing can really be taken from the failure to take active steps to clarify Ray’s position.
[88] The next argument raised by Mr Ormsby to support the argument that children of the settlors must include any children of either one of them is his reliance on the Property Law Act 1952, and the provision that states:
In an instrument, unless the context otherwise requires, –
…
(b) words in the singular include the plural, …
[89] The issue here is whether the proviso, being “unless the context otherwise requires”, is engaged. I am satisfied it is because a plain reading of the trust deed makes it clear that the term “the Settlors” means both Merv and Rona. That is why, in defining who are the discretionary beneficiaries, the deed expressly states that they can also, individually, be discretionary beneficiaries. It is also why cl 1(b)(iii) is specifically worded to include children of whom either settlor may have been appointed a guardian. I am satisfied the Property Law Act does not assist in interpreting the trust deed to make a child of one or other of the settlors a beneficiary.
[90] As a consequence, I am satisfied that notwithstanding the literal meaning of the trust deed, which would suggest that only the natural children of both Rona and Merv were intended, when the trust deed provisions are interpreted objectively and in light of what the trust deed would have conveyed to a reasonable person having all the background knowledge reasonably available to the parties at the time it was executed,
the words “the children of the Settlors” must be expanded to include the children who were considered part of the settlors’ family unit at the time. In other words, it includes not just the natural children of their marriage, but also the child they brought up within their family unit as if he was the natural child of both of them.
[91] This conclusion has the inevitable, and no doubt disappointing, result that Ray is not a beneficiary of the trust deed. While he was reunited with his birth mother and formed a rewarding and happy relationship with her and with members of his extended family, that does not alter the fact that at the time the trust deed was entered into, a reasonable person would distinguish between Ray, who was not brought up as the child of Merv and Rona, and the three children who were.
Conclusion
[92] In light of my finding that, on a proper interpretation of the No. 2 trust deed, Rob was a child of the settlors, I make the following declarations:
(a)Robert William Cooper is discretionary beneficiary of the trust pursuant to cl 1(b)(ii) of the trust deed;
(b)Robert William Cooper’s children are discretionary beneficiaries of the trust pursuant to cl 1(b)(iv) of the trust deed;
(c)Spouses and partners of Robert William Cooper’s children are discretionary beneficiaries under cl 1(b)(v) of the trust deed (unless they are separated from such child of him or their marriage is dissolved);
(d)Suzanne Cooper is a discretionary beneficiary under cl 1(b)(v) of the trust deed;
(e)Robert William Cooper is a final beneficiary of the M & R Cooper No. 2 Trust pursuant to clause 1(h) of the trust deed; and
(f)Robert William Cooper’s children are final beneficiaries of the M & R Cooper No. 2 Trust pursuant to clauses 1(h) and 12(c) of the trust deed.
Costs
[93] I have not heard from the parties on the question of costs. However, I am satisfied that the trustees’ costs in respect of this application should be paid from the trust fund.
[94] My preliminary view is that the legal costs of the other parties participating should also be paid from the trust fund. This was a genuine dispute which was brought to the Court because of conflicting advice received by the trustees. It would have been necessary to appoint counsel to have all possible interpretations argued if the parties had not chosen to do so. Furthermore, the competing positions were responsibly brought and argued.
[95] However, should there be any dispute over the matter, I reserve the issue of costs in respect of the parties, other than the trustees. Any application for orders as to costs must be made within 20 working days of the date of this decision.
Solicitors:
Greg Kelly Law Limited, Wellington Saunders Robinson Brown, Christchurch Lane Neave, Christchurch
Copy To:
P Brown, Barrister, Auckland
J V Ormsby, Barrister, Christchurch G Jones, Barrister, Christchurch
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