New Zealand Guardian Trust Company Limited v Presbyterian Support (Upper South Island)

[2015] NZHC 1693

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000146 [2015] NZHC 1693

BETWEEN

THE NEW ZEALAND GUARDIAN

TRUST COMPANY LIMITED Applicant

AND

PRESBYTERIAN SUPPORT (UPPER SOUTH ISLAND)

Respondent

Hearing:	(Dealt with on the papers)
Judgment:	22 July 2015

JUDGMENT OF GENDALL J

[1]      In a judgment I gave in this proceeding on 13 March 2015 I determined that the application by the New Zealand Guardian Trust Company Limited for variation of a charitable trust here failed as there was no general charitable intention and there was initial failure of the gift in question.

[2]      Nevertheless, I concluded in my judgment that this Court retained jurisdiction to re-form the accumulation clause, Clause 5(b)(ii) of the will of the testatrix, the late Iris Maude Utterson-Kelso (the testatrix) and I invited further submissions from the parties on this point.

[3]      This  clause  5(b)(ii)  of  the  will  together  with  other  relevant  provisions provided as follows:

5.        I GIVE DEVISE AND BEQUEATH the rest of my estate both real and personal of whatsoever situate unto my trustee UPON TRUST to pay thereout my just debts funeral testamentary expenses and all death duty payable in respect of my dutiable estate and to stand possessed of the residue (hereinafter referred to as “my residuary estate”)  UPON TRUST:

NZ GUARDIAN TRUST CO LTD v PRESBYTERIAN SUPPORT (UPPER SOUTH ISLAND) [2015] NZHC

1693 [22 July 2015]

(a)      TO  set  aside  and  invest  the  sum  of  TWENTY  FIVE THOUSAND DOLLARS $25,000.00) …

and:

(b)       SUBJECT to the payment provided herein for my sponsored children  I  DIRECT  MY  TRUSTEE  to  hold  the  residue UPON TRUST as follows:

(i)        TO invest the same in perpetuity as is by law or this my will allowed:

(ii)      TO  accumulate  an  amount  equivalent  to  ten  per centum  (10.00%)  per  annum  of  the  net  annual income arising from my estate by adding the same to the capital thereof;

(iii)      TO divide the remaining net annual income as shall not be accumulated as aforesaid into four (4) parts and to pay and apply such parts as follows:

…

[4]      The current wording of clause 5(b)(ii) of the deceased’s will noted above (the accumulation clause) does not prescribe a time limit which is an infringement of the Perpetuities Act 1964. At the very least this needs to be amended to bring it into line with the Perpetuities Act.

[5]      The Court has jurisdiction to modify the accumulation clause under s 10 of the Perpetuities Act 1964 and also under this Court’s inherent jurisdiction.  Section

10 reflects the Court’s inherent jurisdiction to make cy-pres modifications to otherwise unlawful perpetual accumulation clauses.

[6]      It is clear, however, that modification of the accumulation clause either under s 10 or under the Court’s inherent jurisdiction requires an examination of the deceased’s intentions as manifested in her will to identify whether they reveal a purpose towards which the capital and accumulated income in the accumulation clause could be applied.

[7]      Section 32 of the Charitable Trusts Act 1957 also reflects a preference for cy- pres modification at common law in circumstances such as the present.  However,

s 32  is  not  applicable  in  this  situation  as  the  capital  and  accumulated  income sustained by the accumulation clause is not otherwise applicable for a charitable purpose.   And, as my judgment dated 13 March 2015 did not approve a scheme under the Charitable Trusts Act 1957 and the Court would not have jurisdiction under s 32 Charitable Trusts Act 1957, any modification made under s 10 of the Perpetuities Act 1964 should be the minimum necessary to avoid breaching the rule against perpetuities.

[8]      From s 10 of the Perpetuities Act it is clear modification may be achieved if the Court can discern “the general intentions originally governing the disposition” from the will.   At [41] of my 13 March 2015 judgment I found that it could not safely be suggested that, Mrs Utterson-Kelso (the testatrix), had a paramount charitable intention here.  Nor does it seem there is any explicit expression of how capital and income accumulated under clause 5(b)(ii) should be applied.

[9]      I am satisfied, however, that it is not critical for the Court to identify a paramount  charitable  intention  before  modifying  this  accumulation  clause  under s 10.  Instead the issue here is whether the will in question discloses lawful purposes so as to allow for cy-pres modification to perfect an otherwise void perpetual accumulation. Alternatively, even if there may be some doubt as to whether s 10 can be utilised in this situation as I have already noted, cy-pres modification is otherwise permitted  under  the  Court’s  inherent  jurisdiction  –  Perpetual  Trustee  Limited  v

Roman Catholic Bishop of Christchurch.1

[10]     In my judgment of 13 March 2015 I found there was no paramount charitable purpose here in the context of a request from the applicant to substitute a specifically named charity for another in the distribution of income provided for under clause

5(b)(iii) of the will.   In doing so I particularly emphasised the methodical identification of the charities named and the specific nature of the gifts made by the

testatrix.

1      Perpetual Trustee Limited v Roman Catholic Bishop of Christchurch [2006] 1 NZLR 282 (HC)

at [21].

[11]     However, as the accumulation clause does not currently name any explicit purpose nor direct how capital and accumulated income should be applied there is, in my view, no possibility of cy-pres modification leading to substitution of the testatrix’s specific purposes for another purpose.  In reality here what the applicant is seeking as set out in the memorandum from its counsel is a purpose for the capital where one does not explicitly exist.

[12]     Turning to consider what the nearest purpose of the testatrix may have been here, a general reading of clause 5(b) of the will as a whole is of some use.  In this clause the testatrix directed that the residue of her estate should be invested with income derived and accumulated and the excess applied to the four charities named in clause 5(b)(iii).  There would be no income to derive for these charitable purposes if investments were not made under the accumulation clause.  That accumulation is therefore intended to protect the value of the capital, thus sustaining in real terms the income provided to the named charities.

[13]     Accordingly, in my view, it is open to this Court to conclude that the nearest purposes  for  which  the  capital  and  accumulated  income  of  the  estate  could  be applied are those set out at clause 5(b)(iii).

[14]     In the memorandum filed on behalf of the applicant, two alternative forms of accumulation clause have been suggested, both of which would comply with the rule against perpetuity.

[15]     In the submission received on behalf of the Attorney-General, however, it is suggested that neither clause should be adopted as both would permit the winding up of the Trust.   The Attorney-General  goes  on to suggest that  winding up is not necessary to comply with the rule against perpetuities and would in fact conflict with the testatrix’s lawful intention to create a perpetual charitable trust.  An alternative form is proposed by the Attorney which he maintains would better account for the testatrix’s wishes here.   I agree.   I will refer to that alternative form later in this judgment.

[16]     The three remaining charities are noted in clause 5(b)(iii) of the testatrix’s will  as  the  Salvation Army,  the  Nelson  Diocesan  Trust  Board  and  the  Nelson Regional Hospice Trust, the fourth charity the Green Gables Trust Board having ceased to exist.  The accruer clause at clause 5(b)(iii)(5) (which provides a gift-over of the one quarter share of the Green Gables Trust Board as I found to those other three charities) in my view applies here.

[17]     In my judgment this captures what is the true intention of the testatrix here that, should one or more of her four named charities cease to exist the remaining charities would take the share of that particular charity.

[18]     Turning  now  to  the  appropriate  accumulation  period,  it  is  clear  that accumulation must not be perpetual (and the maximum period under the Perpetuities Act 1964 is 80 years) whereas charitable trusts may be – Trustees Executors and Agency Co Ltd v Bush2  and Perpetual Trustee Ltd v Roman Catholic Bishop of Christchurch.3

[19]     From her will the testatrix, as I see it, clearly evinced an intention to create a trust which was not finite.  She directed her trustee at clause 5(b)(i) of her will (noted at para [3] above) to invest the residue of her estate “in perpetuity as is by law…allowed”.  Given this wish expressed by the testatrix that the trust continue for as long as the law allowed, I am satisfied it is appropriate to substitute an accumulation clause for the maximum permissible term under s 6 Perpetuities Act

1964, that is 80 years.  And, there can be no doubt in my view that limiting in time this accumulation clause is a less drastic step than voiding the provision.  It is also more in keeping with the aid of cy-pres modification to enable the wishes of the testatrix to be preserved here as far as possible.  A substituted accumulation clause limiting that 10% income accumulation to 80 years is to be ordered.

[20]     I turn now to issues raised by the applicant that there should be an obligation to disburse capital and any remaining income at the end of the accumulation period.

With respect I disagree.  Charities are able to exist in perpetuity and the testatrix here

2      Trustees Executors and Agency Co Ltd v Bush (1908) 28 NZLR 117 (SC) at 119.

3      Perpetual Trustee Ltd v Roman Catholic Bishop of Christchurch [2006] 1 NZLR 282 (HC) at

[12].

expressed a clear desire to create a perpetual charitable trust.  Accordingly, once a charitable purpose is identified and any accumulation is appropriately time limited to comply with the Perpetuities Act 1964, s 21 of that Act ceases to apply – Perpetual Trustee Ltd v Roman Catholic Bishop of Christchurch.4

[21]     Once the accumulation period expires then, in my view there should be no obligation on the trustee to vest the capital in the named charities, thus winding up the trust.  Instead, the trustee should be empowered to continue to invest capital and accumulate income in the usual ways (in accordance with the normal powers and obligations of trustees under the Trustee Act 1956).   Although the mandated accumulation must end after the maximum Perpetuities Act 1964 period of 80 years, there is no limit on the amount of time the trustee can continue to invest and apply the Trust funds.

[22]     Addressing the applicant’s concern that the capital may be “run down” here, I accept arguments in response advanced to me on behalf of the Attorney-General as follows:

(a)      The fact that only 10% of the net income is reinvested as capital could be insufficient to guard against the effects of inflation but, as I see the position, this may also reflect the testatrix’s intention to maximise the amount of income available to the specified charities sooner rather than later.  In the absence of an obligation to vest the capital after 80 years the trustee, as I see it, would simply assess the state of the trust and make any prudent investment or payment to the remaining charities.

(b)There is a reasonable argument here that Clause 5(b)(iii) of the will makes sense only so long as the accumulation clause continues to apply.  That clause 5(b)(iii) is essentially a clause directing the trustee to pay out only 90% of the net income.  As such, once the 80 year

period has elapsed, clause 5(b)(iii) is arguably unenforceable.   This

4      Perpetual Trustee Ltd v Roman Catholic Bishop of Christchurch [2006] 1 NZLR 282 (HC) at

13-14.

position needs to be clarified to avoid any doubt.  From the order that will follow, it will be apparent that the Court makes clear that clause

5(b)(iii) will cease to apply after the accumulation clause ends.

[23]     For all the reasons outlined above I am of the view that an order modifying the will should be made.  I now make an order varying the trust created by the will of the testatrix by deleting clause 5(b)(ii) of the will and substituting therefore the following clause as clause 5(b)(ii):

(ii)       To accumulate for a period of 80 years an amount equivalent to ten per centum (10.00%) per annum of the net annual income arising from my estate by adding the same to the capital therefore, whereupon after the expiry of 80 years cl 5(b)(iii) shall cease to apply, and any distributions thereafter made shall be divided into three parts and:

1)   One part paid to the Salvation Army at Nelson for use amongst people in need in the City of Nelson;

2)   One  part  paid  to  the  Nelson  Diocesan  Trust  Board  for  the purpose of the Whareama Home Stoke Nelson;

3)   One  part paid to the  Nelson  Regional Hospice Trust for the purposes of Hospice facilities and services within the Nelson health area;

In the event of any of these charitable organisations noted above ceasing to exist, any part that would have been paid to an organisation that no longer exists shall be divided equally between the remaining organisations.

...................................................

Gendall J

Solicitors:

Wynn Williams, Christchurch

Saunders Robinson Brown, Christchurch

Crown Law, Wellington