Perpetual Trust Ltd v Roman Catholic Bishop of Christchurch HC Christchurch Civ-2005-409-465
[2005] NZHC 1091
•23 August 2005
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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV 2005 409 465
UNDER the Trustee Act 1956
IN THE MATTER OF the Estate of ZOE MARIA ARMSTRONG
late of Christchurch, Spinster
BETWEEN PERPETUAL TRUST LIMITED A TRUSTEE COMPANY HAVING ITS REGISTERED OFFICE AT CHRISTCHURCH AS TRUSTEE IN THE ABOVE ESTATE
Plaintiff
AND ROMAN CATHOLIC BISHOP OF THE DIOCESE OF CHRISTCHURCH Defendant
Hearing: 9 August 2005
Appearances: J G Matthews for Plaintiff
O G Paulsen for Defendant
A J Butler for DAM Armstrong
Judgment: 23 August 2005
JUDGMENT OF CHISHOLM J
[1] In her last will made on 2 November 1982 Zoe Armstrong appointed the plaintiff to be her executor and trustee. After making a bequest of $10,000 to her sister Ms Armstrong directed that the residue of her estate was to be held upon the following trust:
“(a) TO invest the same as is by law or this my Will allowed
(b) TO pay in perpetuity so much of the net annual income to arise therefrom as my Trustee shall think fit (but not exceeding four fifths thereof in any one year) to THE ROMAN CATHOLIC BISHOP of THE DIOCESE OF CHRISTCHURCH for the time being for such charitable purposes in connection with his work among the
PERPETUAL TRUST LIMITED V ROMAN CATHOLIC BISHOP OF THE DIOCESE OF CHRISTCHURCH HC CHCH CIV 2005 409 465 23 August 2005
Aged in the Province of Canterbury in New Zealand as he shall from time to time decide
(c) TO accumulate so much of the net annual income as shall not be paid out under the provisions of the preceding subclause and to add the same to the capital of my residuary estate in augmentation thereof
…
(e) I DECLARE that the trusts set up under the foregoing provisions shall be known as the Z.M. ARMSTRONG CHARITABLE FUND”.
Powers and authorities for the administration of the trust were provided in terms that were relatively standard for professionally drawn wills of that vintage.
[2] Since Miss Armstrong’s death on 31 October 1986 the plaintiff has paid out fourth fifths of the income to the Roman Catholic Bishop. The remaining one fifth has been added to the capital, but shown in the annual accounts as a charitable reserve. As at 31 December 2004 the charitable reserve stood at $264,483 and the capital of the estate apart from the reserve at $959,596.92 giving a total capital fund of $1,224,079.92.
[3] When issues arose about the effect of the will the plaintiff took advice and decided that the appropriate course was to seek directions from the Court pursuant to s66 of the Trustee Act 1956 in relation to the following matters:
(a) Whether clause 4(b) constitutes a valid charitable trust. (b) Whether clause 4(c) is void.
(c) Depending on whether clause 4(c) is void, whether the defendant is entitled to receive the whole of the income of the residuary estate, or whether there is an intestacy in respect of the accumulated portion.
Although Desley Armstrong, a niece of the deceased, entered an appearance reserving rights, Ms Butler sought, and was granted, leave to withdraw at the commencement of the hearing.
[4] Helpful submissions were provided by both sides. Mr Matthews explained that the plaintiff is administering other estates which involve similar testamentary provisions and that this decision is likely to have implications beyond the trust immediately involved.
Whether 4(b) Constitutes A Valid Charitable Trust
[5] The relief of aged people is included in the preamble to the Charitable Uses Act 1601 and it is well established that it is an independent charitable purpose. Therefore clause 4(b) prima facie constitutes a valid charitable trust. The only issue is whether the charitable purpose fails by virtue of the delegation which enables the Roman Catholic Bishop for the time being to decide how the income should be spent within Canterbury for that charitable purpose.
[6] In Tatham v Huxtable [1950] 81 CLR 639, 653-654 Kitto J explained the underlying principle concerning delegation by way of a general power of appointment:
“The creation of a general power of appointment, that is to say a gift by will to such person or persons as X shall appoint, the power being exercisable in favour of X himself or his legal personal representatives, is regarded as involving no infringement of the general rule because X is thereby placed for all practical purposes in the position of beneficial owner of the property … Thus an exercise of the power amounts in substance to the appointor’s disposition, and not to a testamentary act done by him on behalf of the testator. In a real sense, the testator has “passed the beneficial interest to (the donee) to dispose of as his own”: Houston v Burns (1918) A.C. 337 at 342.”
In both Tatham v Huxtable and Houston v Burns the gift failed because the appointees were given such wide powers of appointment that the exercise of those powers would not necessarily be confined to charitable purposes.
[7] Both counsel agreed that the delegation to the Roman Catholic Bishop in this case is in a different category. It is a delegation to a specific and identifiable individual who is confined in the exercise of that power to the purpose of benefiting aged people. I agree that it falls within the principle explained in Tatham v Huxtable and I am satisfied that clause 4(b) of the will constitutes a valid charitable trust.
Whether Clause 4(c) Is Void
[8] Under clause 4(b) the trustee is obliged to retain at least one fifth of the net annual income which is to be accumulated in terms of clause 4(c). The direction as to accumulation is open ended which means that the accumulation continues indefinitely. The issue is whether this provision is void because it offends against the rule against perpetuities.
[9] According to Mr Matthews The Trustees, Executors, and Agency Company (Limited) v Bush and Anor (1908) 28 NZLR 117 is directly in point. In that case there was a bequest to the University of Otago for the advancement of education in Otago, subject to certain conditions. One of the conditions was that one tenth of the annual income was to be retained and added to capital. Denniston J concluded at
119:
“A trust for accumulation exceeding the limits prescribed by “The Accumulations Act,
1800” (39 & 40 Geo. III, c. 98, commonly called the Thellusson Act), but not exceeding the limits allowed by the common law, will be established to the extent permitted by the Act, and will be void for the excess only : See Jarman on Wills(4). But the trust for accumulation in the present case is unlimited, and, of course, is therefore in excess of the period allowed at common law by the rule against perpetuities, and is, like every other such limitation, void in toto : Jarman on Wills(4). The rule against perpetuities does not prevent the creation of a charitable trust in perpetuity : Attorney-General v Webster(5). But where there is a trust for charitable purposes and a direction to accumulate the income or a proportion of it indefinitely, or for any period in excess of that allowed by the rule against perpetuities, such direction is not a trust in favour of the charity, but is a fetter on the charitable trusts and prevents the use of the property for charitable purposes during the period for which the accumulation is directed: See Martin v Margham (1844) 14 Sim 230. The trust for accumulation is therefore altogether void.”
Mr Matthews claimed that this decision remains good law notwithstanding the passing of the Perpetuities Act 1964 and that on the strength of that decision I should conclude that the direction to accumulate income in clause 4(c) is void.
[10] Mr Paulsen disagreed, primarily on the basis that Trustees and Executors v Bush is not good law today for two primary reasons. First, the reasoning of the Court was influenced by the Accumulations Act 1800 which was part of the New Zealand law when the case was decided but has since been superseded by s41 of the Property Law Act 1952 which was in turn replaced by s21 of the Perpetuities Act
1964. Second, the rationale for the decision is unconvincing and Martin v Margham is not authority for the proposition for which it was cited in Bush. Mr Paulsen argued that since the law recognises that the corpus of a charitable trust can be held in perpetuity it should not matter that a testator wishes to “inflation proof” that fund by augmentation from income on an annual basis. His argument was that far from acting as a fetter on the charitable purpose, the direction to accumulate in this case is no more than an administrative direction which actually enhances the charitable purpose.
[11] I now consider these competing arguments, beginning with an assessment of the implications, if any, of the Perpetuities Act 1964. The long title to the Act describes it as an Act “to effect reforms in the rule of law commonly known as the rule against perpetuities and to abolish the rule of law commonly known as the rule against accumulations”. The Act applies to the wills of testators who die after the commencement of the Act: s4(1)(a). For present purposes the crucial section is s21 of the Act which provides:
“21 Accumulation of income
(1) Where property is settled or disposed of in such manner that the income thereof may or shall be accumulated wholly or in part, the power or direction to accumulate that income shall be valid if the disposition of the accumulated income is, or may be, valid, and not otherwise.”
Sections 41 and 42 of the Property Law Act 1952 which imposed rules as to the accumulation of income were repealed by subs (3) of s21.
[12] While the meaning of s21 is obscure, the real issue in the present context is whether it has any application at all to a charitable trust. In The Laws of New Zealand, Charities, it is stated at para 74:
“A direction to accumulate income is valid only to the extent that it does not infringe the perpetuity period. However, where there is an express or implied direction to accumulate in favour of charity, the rule against accumulations has no application.” (Emphasis added).
A similar conclusion was reached in Re Chambers [1971] NZLR 703 in which it was decided that the rule against accumulations contained in s41 of the Property Law Act had no application to charities. That approach is also entirely consistent with the
statement contained in the passage from Trustees and Executors v Bush quoted above that the rule against perpetuities does not prevent the creation of a charitable trust in perpetuity.
[13] Given the clear line of authority and the absence of anything in the Perpetuities Act that would indicate a different outcome, I accept that s21 of the Perpetuities Act does not apply to gifts to charitable trusts. I do not accept Mr Paulsen’s first argument. Nor do I accept his second argument that the rationale behind Trustees and Executors v Bush is unconvincing. To me it is entirely logical that accumulations that are to be held in perpetuity do not fall within the umbrella of a charitable trust because they cannot be used by the charity. That situation is distinguishable from a situation where the corpus is in existence at the time the trust is created.
[14] One of the problems with Mr Paulsen’s proposition that a testator should be able to inflation proof a charitable trust is that it would be difficult to draw the line between accumulations that qualified and those that did not. Of necessity the rules surrounding charitable trusts are strict. In this case one fifth of the income is accumulated annually and if that situation continued in perpetuity the accumulated fund would continue to grow. The fund has already reached more than $250,000. If the Court accommodated this direction to accumulate one fifth of the annual income it would find it very difficult to hold the line, assuming that a rational line could be established in the first place. I am not prepared to undermine well established principles relating to charitable trusts.
[15] In my view Trustees and Executors v Bush is still good law and should be followed. I accept Mr Matthews’ submission that clause 4(c) is void.
Implications Of The Conclusion That Clause 4(c) Is Void
[16] The first issue is whether there is an intestacy as to the income retained under clause 4(c) or whether the Court can make a cy-pres modification. There is, of
course, a general reluctance on the part of the Courts to find an intestacy in this type of situation: see Re Collier [1998] 1 NZLR 81, 95.
[17] Before there is any prospect of reforming the will it needs to be examined to see whether it was the donor’s intention to give the entire income, including the income that was to be accumulated, to the charitable purpose. In Attorney-General v Dean and Canons of Windsor (1860) 8 HL Cas 369 it was stated at 405 :
“… if by the original instrument of foundation the founder has expressly or impliedly declared his intention to devote the lands to charity, though in his particular appropriation he may have failed to exhaust the whole of the rents, yet the general intention to devote the whole to charity prevails, and the property, to whatever value the lands may eventually rise, is held to be devoted to charitable uses.”
That broad principle is reflected in Alacoque v Roache [1998] 2 NZLR 250 in which it was held that a charitable gift, the express purposes of which had failed before the death of the testatrix, could only take effect and be held for charitable purposes where there was a general charitable intent.
[18] It is not difficult to detect a general charitable intention to give the entire income, including the income that was to be accumulated, to the charitable purpose of providing relief for the aged in Canterbury. Except for the bequest of $10,000 the testatrix has devoted the whole of her estate to that purpose. There are no competing claims. In clause 4(e) she has directed that the trusts are to be known as the Z M Armstrong Charitable Fund which indicates that she has viewed the entire bequest under clause 4 as a global bequest to that fund. This global approach can also be detected in clause 5(f) of the will which authorises the trustees to invest in such a way as in the opinion of the trustees “will benefit the Z. M. Armstrong Charitable Fund”. It can probably be safely inferred that the intention underlying the direction to accumulate at least one fifth of the income was to ensure that the fund survived in perpetuity.
[19] Having concluded that the testatrix’s intention was to give the entire income for the purpose of benefiting the aged within Canterbury, it is necessary to determine whether the will should be modified to give effect to that purpose. I have no doubt that it should. There are potentially three avenues for achieving that outcome: a
scheme under the Charitable Trusts Act 1957; s10 of the Perpetuities Act; and the inherent jurisdiction of the Court.
[20] Mr Matthews explained that a scheme under the Charitable Trusts Act was not the plaintiff’s preferred option because of the expense and delay that it would involve. In my view the option of a scheme under the Charitable Trusts Act can be quickly eliminated because s32 of that Act does not apply.
[21] This narrows the possibilities down to s10 of the Perpetuities Act and the inherent jurisdiction of the Court. Section 10 provides:
“10 Cy-pres modification in certain other cases
(1) Subject to the provisions of this section, where it has become apparent that, apart from the provisions of this section, any disposition (whether made before or after the commencement of this Act) would be invalid solely on the ground that it infringes the rule against perpetuities, and where the general intentions originally governing the disposition can be ascertained from the instrument governing the disposition or (where there is no such instrument) from the terms and scheme of the disposition, the disposition shall be reformed so as to give effect, if possible and as far as possible, to those general intentions within the limits permitted under the rule against perpetuities.”
It is probably debatable whether this section applies. Even if it does I do not think that the outcome would differ from that achieved by way of a cy-pres modification utilising the inherent jurisdiction of the Court. Under those circumstances I have decided to take the precaution of utilising the inherent jurisdiction of the Court.
Outcome
[22] The following directions are provided:
(a) Clause 4(b) of the will constitutes a valid charitable trust. (b) Clause 4(c) is void.
(c) Given the conclusion reached under (b) and the underlying intention of the testatrix to benefit the charity referred to in clause
4(b), there will be a modification to the will by deleting the words
“(but not exceeding four fifths thereof in any one year)” in clause
4(b) and clause 4(c) in its entirety.
Leave is reserved to either party to apply further should the need arise.
[23] The plaintiff will, of course, be entitled to costs from the trust without any order of the Court. The defendant and Ms Armstrong are also entitled to solicitor/client costs from the trust.
Solicitors: Wynn Williams & Co, Christchurch (Counsel: J G Matthews) Cavell Leitch Pringle & Boyle, Christchurch
Cunningham Taylor, Christchurch
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