Patient
[2023] NZHC 2924
•18 October 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-453
[2023] NZHC 2924
UNDER the Trusts Act 2019 IN THE MATTER
of the James H Smedley Charitable Trust
AND
IN THE MATTER
of an application for directions by TRACEY ANN PATIENT, trustee of the James H
Smedley Charitable Trust
Hearing: On the papers Counsel:
G F Kelly for the Applicant
R J M Sim for University of Otago, University of Canterbury and the Christchurch City Council
Judgment:
18 October 2023
JUDGMENT OF OSBORNE J
This judgment was delivered by me on 18 October at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
RE PATIENT [2023] NZHC 2924 [18 October 2023]
Introduction
[1] This proceeding seeks to achieve the final distribution of the James H Smedley Charitable Trust (the Trust), created by Deed dated 15 June 2009 (the Deed) in order to avoid unnecessary costs and practical issues brought about by an unduly complex structure. That structure gives rise to uncertainty as to the precise scope of the trustee’s powers. The potential recipients of Trust funds identified in the Deed (the University of Otago, the University of Canterbury and the Christchurch City Council) (the three recipients) consent to the orders sought by the applicant.
[2] Tracey Patient, as sole trustee of the Trust, applies for directions under s 133 Trusts Act 2019 (the Act).
The directions sought
[3]The directions sought are that:
(a)distribution of the trust funds is limited to the three recipients;
(b)distribution of the trust fund may be made to three new trusts, one for each of the three beneficiaries;
(c)costs be charged to the Trust; and
(d)any further order be made as this Court finds necessary.
The constitution of the Trust and its operation
[4] Mrs Patient is a solicitor practising in Christchurch. The Trust was settled by the late James Hobson Smedley during his lifetime. Mr Smedley was a client of another Christchurch solicitor, William Mather, with whom Mrs Patient worked.
[5] In 2004, Mr Smedley formed a trust (the 2004 Trust) — it not being the trust in respect of this proceeding. The 2004 Trust was intended to provide funding for medical research to be undertaken by students of the Christchurch Clinical School of Medicine (Clinical School), beautification projects for the Christchurch Botanic
Gardens (Gardens) and scholarships for students of the Faculty of Fine Arts at the University of Canterbury (Fine Arts Faculty). The trustees were Mr Mather and Karen Scott, a friend of Mr Smedley.
[6] The 2004 Trust was to be funded by a gift in Mr Smedley’s Will. It would not have operated until his death.
[7]Mr Mather retired in 2010. Mr Smedley became a client of Mrs Patient.
[8] Mrs Patient explains that Mr Smedley instructed her to form a new trust. The new trust was to be identical to the 2004 Trust except the trustees were to be Ms Scott and Mrs Patient. Mr Smedley did not want to approach Mr Mather to retire from the 2004 Trust. Mr Smedley explained to Mrs Patient that he and Mr Mather had given much time and thought to the wording of the 2004 Trust and he wished those terms to be exactly replicated in the new trust, with only the trustees to be changed.
[9]The Trust (the subject of this proceeding) was then formed.
[10] Mrs Patient explains she had reservations about how the Trust would operate as she considered the provisions for allocation of income of the Trust were unduly complicated. However, Mrs Patient stated Mr Smedley’s instructions were to reproduce the 2004 Trust. That is what she did.
[11] Mr Smedley died on 1 October 2016. Probate was obtained by Mrs Patient and Ms Scott, being also the executors of Mr Smedley’s last will.
[12]Ms Scott retired as a trustee of the Trust leaving Mrs Patient as the sole trustee.
[13] As a result of a testamentary promises claim against Mr Smedley’s estate, the three recipients were consulted. They raised concerns that the method for determining the application of funds was excessively detailed and that compliance with the Trust provision would be time consuming and costly. The three recipients and the trustee then reached agreement as to a proposed distribution of the Trust assets, subject to approval by this Court.
The Trust purposes
[14] The purposes of the Trust are very broadly stated in cl 3 of the Deed, which provides:
3 Trust Purposes
The purposes and aims of the trust are to use or employ first the annual produce of the trust and eventually, upon the winding up of the trust, the capital of the trust fund for the furtherance of any charitable purposes in New Zealand which are from time to time selected by the trustees in accordance with the provisions of this deed. Without limiting this in any way such purposes may also include the ability to assist:
The medical research for specific purposes to be undertaken by graduates or undergraduates at the Christchurch Clinical School of Medicine of the University of Otago (hereinafter called “the Clinical School”);
The trust board or local authority or other legally constituted board administering and operating the Christchurch Botanical Gardens (hereinafter called the “Botanical Gardens”) for the purposes of a special beautification project or projects;
The Dean of the Faculty of Fine Arts at the University of Canterbury (hereinafter called “the Faculty of Fine Arts”) for the purposes of scholarships for graduates and undergraduates.
In the event that one of the above organisations is not in existence or no longer has charitable status according to the Commissioner of Inland Revenue for the time being the trustees may in their absolute discretion pay or apply the distribution of such an organisation to the successor of such an organisation or another charitable organisation with the same objectives, provided that such discretion shall be limited to a discretion to aid charitable organisations with charitable purposes within New Zealand as defined by the law of New Zealand.
To make gifts in for or towards the advancement of education, the relief of poverty and for such other charitable purposes in New Zealand as the trustee shall, from time to time, determine. In this regard “charitable purposes” means every purpose which, in accordance with the law of New Zealand, is charitable; and
To make donations to such charitable organisations that have approved donee status under sKC5 of the Income Tax Act 1994 or any substitute or additional Act and whose charitable purposes are exclusively within New Zealand.
[15] By cl 4 of the Deed, the purposes identified in cl 3 of the Deed are declared to be at all times paramount.
Application of the Trust fund
[16] Clause 5 of the Deed provides that the Trust is to live as long as the law of New Zealand permits or, if that is limited by legislation or the common law, then to a period of 80 years from the date of the death of the settlor.
[17] Clause 5 directs the trustees to distribute the “annual produce” of the Trust between the three recipients during the life of the Trust. The clause establishes a four- yearly cycle of distribution, with years 1, 2 and 3 of each cycle to the Clinical School and the fourth year divided at the trustees’ sole discretion between the Gardens and the Fine Arts Faculty.
[18]Clause 5 continues:
In the event that neither the Clinical School nor the Botanical Gardens Administration Authority nor the Faculty of Fine Arts is in existence or has charitable status then my trustees may apply the annual distribution in accordance with clauses 3.1.4 and 3.2 hereof.
[19] Clause 3 does not have numbered sub-clauses but, from the structure of cl 3, the cross-referencing is evidently intended to provide, in the events described in the passage set out above at [18], that the trustees may, in their absolute discretion, pay or apply the relevant portion of the annual produce to “the successor of such an organisation or another charitable organisation with the same objectives … within New Zealand”.
[20]Clause 5 concludes by providing for the final distribution of the Trust:
On final distribution, the trustees will: liquidate all the assets of the trust; and
determine the total value of the trust fund; and
pay all proper expenses and debts of the trust and all fees, charges and costs whatsoever arising out of the winding up of the trust; and
distribute the remainder of the assets as to 75% to the Clinical School for its charitable general purposes and 12.5% to the Christchurch Botanical Gardens Administration Authority for its general charitable purposes and 12.5% to the Faculty of Fine Arts at the University of Canterbury for its general charitable purposes; and
in the event that no organisation qualifies under clause 5.8.4 the trustees shall wind up the trust as if it had ceased before the expiry of the term specified in clause 5.8 and distribute the trust funds according to clause 17 of this Deed.
[21] The above summary of provisions of the Deed belies the significant detail contained in the Deed as to how the Clinical School is to apply the “produce” of the Trust. Close to one full page of the Deed is devoted to that topic.
[22] It is clear the administration of the Trust would involve significant time and cost, both for the trustees and the recipients. The three out of four year cycle required by the Deed in the case of the Clinical School has also proved inapt because, as established by Mrs Patient, many suitable research projects of the Clinical School run for several years and will not fit with the Deed’s cycles of distribution.
[23] Mrs Patient has also established an issue in relation to the requirement under the Deed for the trustee to determine what project within the Gardens would qualify as a charitable purpose for that recipient. On Mrs Patient’s inquiries, such a decision is likely to require suitable botanical experience, lending itself more appropriately to the experience of the Greenparks Manager of the Christchurch City Council.
[24] Mrs Patient further identifies there is no longer an entity known as the “Faculty of Fine Arts” at the University of Canterbury. A Fine Arts School exists, but not as a separate department. As with the Gardens, Mrs Patient identifies a lack of expertise on her part, as trustee, in identifying a student who has “performed with distinction in prior studies”.
The proposal and the consultation with the three recipients
[25] Each of the three recipients is well accustomed to dealing with will bequests and grants from trusts. Each has its own accounting and administration system in that regard. They and Mrs Patient agree that the overall charitable intent of Mr Smedley, as settlor, would be better achieved if the entire Trust fund were distributed to new trusts each associated with and nominated by the three charitable institutions, with distribution reflecting the proportions intended by the four-yearly cycle referred to above, namely:
(a)75 per cent: University of Otago;
(b)12.5 per cent: University of Canterbury; and
(c)12.5 per cent: Christchurch City Council.
[26] Each of the three recipients would hold its funds pursuant to a distinct trust administered through their own systems, which will reflect Mr Smedley’s wishes and intentions.
Legal issues
[27] Mr Kelly, for the applicant, submits the winding up of the Trust can be achieved within the powers contained in the existing Deed.
[28] Mr Kelly notes the tension between the detailed specific provisions of cl 5 on the one hand and the general charitable purpose in cl 3 on the other. He submits cl 5 is intended to indicate the settlor’s thinking without imposing any prescriptive or binding requirements.
[29] As noted above (at [19]) a potential difficulty arises in construing the Deed in that in places it refers to sub-paragraph numbers when no such numbering exists. It also appears that there are some cross-referencing errors within the Deed. For example, clause 1.2 (part of the “Interpretation” section) provides:
The “objects”, the “purposes”, the “charitable purposes”, the “trust purposes” shall mean the “trust purposes” as set out in clause 4 of this deed.
However, cl 3 of the Deed is headed “Trust Purposes” and begins:
The purposes and aims of the trust are to use or employ first the annual produce of the trust and eventually, upon the winding up of the trust, the capital of the trust fund for the furtherance of any charitable purposes in New Zealand which are from time to time selected by the trustees in accordance with the provisions of this deed.
(emphasis added)
[30]Clause 3 immediately thereafter continues:
Without limiting this in any way such purposes may also include the ability to assist [the three recipients] .
[31]Clause 3 also contains two concluding paragraphs which empower the trustee:
To make gifts in for or towards the advancement of education, the relief of poverty and for such other charitable purposes in New Zealand as the trustee shall, from time to time, determine. In this regard “charitable purposes” means every purpose which, in accordance with the law of New Zealand, is charitable; and
To make donations to such charitable organisations that have approved donee status under sKC5 of the Income Tax Act 1994 or any substitute or additional Act and whose charitable purposes are exclusively within New Zealand.
[32] Clause 4, which is referred to in cl 1.2 of the Deed (above at [29]) and identifies the cl 3 purposes as paramount, commences:
Notwithstanding anything herein contained or implied, no power or reservation, express or implied, in this deed shall authorize the trustees to do or suffer any act which does not further the charitable purposes as specified in clause 3…
[33] Accordingly, notwithstanding what the Deed states at cl 1.2, cl 4 does not set out the concepts (such as “charitable purposes”) referred to in cl 1.2. Rather, cl 4 confirMrs that cl 3 is the paramount clause.
[34] Clause 5 as discussed above at [16]–[20], is that part of the Deed that provides for the distribution of the Trust, both as to income and capital.
[35] This is not the case for applying the principle that the particular overrules the general. Clause 4 directs that nothing contained in the Deed is to affect the breadth of cl 3.
[36] Mr Kelly submits that the concluding paragraph of cl 3 of the Deed (as set out in [14] above) creates broad powers to distribute capital to a wide range of charitable purposes. He further submits that to construe the cl 3 concluding paragraphs (above at [31]) as permitting the distribution of income only would be to render those two clauses redundant. The earlier provisions of cl 3 separately permit the distribution of income for any charitable purpose. Mr Kelly submits that the concluding cl 3 paragraphs have meaning only if they create a wider power, namely a power to distribute capital.
[37] I accept Mr Kelly’s submission. While there are conflicts within the structure of the Deed, cl 3 is expressly constituted as the paramount clause, and the powers provided in cl 3 must be accorded such paramountcy.
[38] The directions in cl 5 constitute a request to the trustees without being a binding direction that the produce of the trust is to be distributed in accordance with cl 5.
[39] Accordingly, I am satisfied that income and, where appropriate, capital may be paid for any charitable purpose in accordance with cl 3. On that basis, the last two paragraphs of cl 3 permit the trustee to distribute the whole of the capital as she now intends.
Section 133 directions
[40]Directions are sought here under s 133 of the Act:
133 Trustee may apply to court for directions
(1)A trustee may apply to the court for directions about—
(a)the trust property; or
(b)the exercise of any power or performance of any function by the trustee.
(2)The application must be served, in accordance with the rules of court, on each person interested in the application or any of them as the court thinks fit.
(3)On an application under this section, the court may give any direction it thinks fit.
(4)This section does not restrict the availability of alternative proceedings within the court’s jurisdiction, including a declaration interpreting the terms of the trust.
[41] Cases under the predecessor to s 133 of the Act illustrate that the Court may make orders to give its “blessing” where trustees are considering a “momentous decision”.1
1 Public Trust v Cooper [2001] WTLR 901 (Ch) at 922–924, cited in Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [42].
[42] I am satisfied that the substance of the application — that is, the proposed steps in relation to a Trust — is appropriate. The trustee is entitled to orders under s 133 of the Act largely in the terms sought. Although the order sought in terms of the application is worded slightly differently, I conclude (as submitted by Mr Kelly) that cl 3 of the Deed confers upon the trustee a general power to distribute income and capital for any charitable purpose.
Orders
[43]I order:
(a)The applicant shall distribute the trust fund of the James H Smedley Trust to the University of Otago, the University of Canterbury and the
Christchurch City Council (the “new trustees”) in the following proportions:
(i) to the University of Otago
75%
(ii) to the University of Canterbury
12.5%
(iii) to the Christchurch City Council
12.5%
(b)The funds so distributed are to be held and applied by the new trustees for the purposes set out in clause 3 of the James H Smedley Charitable Trust Deed dated 15 June 2009.
(c)The costs and disbursements of the applicant of and incidental to this application shall be charged to the funds of the James H Smedley Charitable Trust.
(d)Leave is reserved to the applicant and the new trustees to apply for further directions if necessary.
Osborne J
Solicitors:
Greg Kelly Law Limited, Wellington for Applicant Gallaway Cook Allan Layers, Dunedin
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