Pryor v Bulley
[2013] NZCA 559
•14 November 2013 at 12.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA245/2012 [2013] NZCA 559 |
| BETWEEN | GRAHAM PRYOR, STEPHEN TIPENE PERENARA MARR, CATHY DEWES, KENNETH RAURETI, HARINA WARBRICK, MARTIN MARR AND MEREPEKA RAUKAWA-TAIT AS TRUSTEES OF THE TE MANA O NGATI RANGITIHI TRUST |
| AND | DAVID ALLEN BULLEY, KEVIN JOSEPH HENNESSY, BRIAN EDWIN PONTING, PETER JAMES PATTERSON, DONNA MAREE SMIT AND WADE ROSS BROWN AS THE TRUSTEES OF THE EASTERN BAY ENERGY TRUST |
| AND | THE ATTORNEY-GENERAL FOR AND ON BEHALF OF THE MINISTRY OF ENERGY |
| Hearing: | 13 August 2013 |
Court: | Randerson, Wild and White JJ |
Counsel: | C R Carruthers QC and M D Branch for Appellants |
Judgment: | 14 November 2013 at 12.00 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BOrder empowering the first respondents, as trustees of the Eastern Bay Energy Trust, to retain the additional 52.29 per cent shareholding the Trust has already acquired in Horizon Energy Distribution Ltd.
CThe appellants are to pay the first respondents’ costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
DThe appellants are also to pay the costs of the consumers for a standard appeal on a band A basis and usual disbursements.
ECosts in the High Court should be fixed by that Court.
____________________________________________________________________
REASONS OF THE COURT
(Given by White J)
Table of Contents
Para No
Introduction [1]
Issue 1 – a 25 per cent cap? [10]
The Energy Companies Act 1992[13]
The Bay of Plenty establishment plan [25]
The EBET Trust Deed[37]
Subsequent events [45]
The High Court decision [60]
Submissions [62]
Our decision [66]
Issue 2 – a valid poll? [74]
Factual background [76]
The High Court decision [80]
Submissions [82]
Our decision [84]
Issue 3 – orders under s 64(1) of the Trustee Act 1956? [92]
The High Court decision [95]
Submissions [99]
Retrospectivity[102]
Discretion[116]
Result [125]
Introduction
The genesis for this appeal lies in the reform of electricity power boards which began with the passage of the Energy Companies Act 1992 and continued with the Electricity Industry Reform Act 1998.
In 1994 the business of the former Bay of Plenty Power Board (the Power Board) was taken over by a new company initially called Bay of Plenty Electricity Ltd but subsequently renamed Horizon Energy Distribution Ltd (Horizon) on 1 April 1999.[1]
[1]For convenience we refer throughout to the current names of relevant entities.
When Horizon was formed, 25.03 per cent of the shares were allocated under a share allocation plan to a consumer trust, called the Bay of Plenty Electricity Consumer Trust, which was formed on 1 August 1994 and renamed in October 2000 the Eastern Bay Energy Trust (EBET). After the new legislation in 1998, EBET conducted a consumer poll in September of that year which supported the acquisition of further shares in Horizon. In December 1999 EBET increased its shareholding in Horizon to 77.32 per cent.
It was not until some 10 years later that the appellants (as trustees of a local iwi trust) challenged the acquisition of the additional shares. They contended that EBET’s trust deed (the Trust Deed) prevented the trust from acquiring more than 25 per cent of the Horizon shares. They also contended that the consumer poll did not authorise EBET to increase its shareholding. Faced with these contentions, the EBET trustees (the Trustees) applied to the High Court for directions under s 66 of the Trustee Act 1956 to confirm that EBET’s current ownership of shares in Horizon was lawful in terms of the Trust Deed, or alternatively for an order approving the acquisition of the shares under s 64(1) of the Trustee Act and authorising the acquisition of the remaining shares in Horizon.
The other parties to the High Court proceeding were the Attorney-General on behalf of the Ministry of Energy, who abided the Court’s decision, and the appellants, who were joined by consent. Pursuant to orders sought by the Trustees when they issued their proceeding, Mr Hurd also appeared to represent the interests of consumers, as defined under the Trust Deed as the beneficiaries of EBET.[2]
[2]The amended definition defines consumers as persons whose premises are directly connected to Horizon’s distribution network and who directly or indirectly pay for its services: Bulley v Attorney‑General [2012] NZHC 615 at [17] and n 6.
In the High Court, Clifford J found against the appellants on both grounds of challenge raised by the appellants, which were that the poll was a nullity and that the Trustees has no power under the Trust Deed to acquired more than 25 per cent of Horizon’s shares.[3] He also found that, if required to do so, he would have approved the acquisition of the additional shares under s 64(1) of the Trustee Act.[4]
[3]At [67], [72] and [90].
[4]At [73]–[89].
The appellants now appeal against the High Court judgment. Their litigation costs are funded by Marlborough Lines Ltd (Marlborough), another energy company also owned by a consumer trust, which itself has acquired 12.5 per cent of the shares in Horizon.[5]
[5]At [35].
The three issues on appeal are:
(a)whether EBET was entitled under the terms of its Trust Deed to acquire more than 25 per cent of the shares in Horizon;
(b)if so, whether the poll of consumers conducted by EBET in September 1998 authorised it to acquire further shares in Horizon; and
(c)if not, whether the Court was entitled to make orders under s 64(1) of the Trustee Act permitting EBET to retain the additional 52.29 per cent shareholding it has in fact already acquired and to acquire the balance of the shares in Horizon.
It is convenient to deal with each of the three issues separately and to set out the relevant background and submissions for the parties when considering each issue.
Issue 1 – a 25 per cent cap?
This issue arises because cl 4 of the Trust Deed provides that the trust was established for “energy related purposes” and the definition of that expression in cl 1 of the Trust Deed includes:
(f)Acquiring equity in the Company up to a maximum of 25% of the Issued Capital of the Company.
The case for the appellants is that, in the absence of any valid amendment to the Trust Deed, these provisions effectively imposed for all time a 25 per cent cap on EBET’s shareholding in Horizon and that the Judge was wrong to decide otherwise.[6]
[6]At [61]–[67].
As in the High Court,[7] it is common ground that the provisions of the Trust Deed are to be interpreted objectively and in the context of the Deed as a whole, the relevant statutory background and factual matrix. We agree with the Judge that the existence of the statutory background and the factual matrix relating to its implementation in this case distinguishes the Trust Deed from a trust settled by a testator under a will or by an individual settlor.[8] We therefore turn first to the relevant statutory background which sets the scene for the interpretation of the Trust Deed.
The Energy Companies Act 1992
[7]At [48]–[51].
[8]At [52]–[53].
Horizon was an energy company created under the Energy Companies Act to take over the business of the Power Board as part of the restructuring of New Zealand’s electricity industry.[9] The purpose of the restructuring legislation was to corporatise Power Boards, with new energy companies required by s 36 to operate as successful businesses.
[9]Energy Companies Act 1992, s 32.
The statutory process involved:
(a)the previously elected members of the Power Board becoming “interim trustees” for the purpose of representing electricity consumers and negotiating the terms of the “establishment plan” for the new energy company;[10] and
(b)the appointment of members of the Power Board who would become the directors of the new energy company.[11]
[10]Section 4 and pts 2 and 3 generally.
[11]Sections 37–38.
Interim trustees were disqualified from remaining as members of the Power Board.[12] They were also not subject to any of the rights, powers, duties, or liabilities of a trustee under the Trustee Act or under any other enactment or rule of law.[13]
[12]Section 6(1)(i).
[13]Section 14.
Under the Energy Companies Act it was the responsibility of the Power Board as the “establishing authority” to prepare an “establishment plan” for the new energy company, consult with the interim trustees and the public, and obtain the approval of the Minister of Energy to the plan.[14]
[14]Sections 2 (interpretation), 18, 23, 24 and 27.
For present purposes, the important features of an establishment plan were that it:
(a)value the energy undertaking on the basis determined by the Minister;[15]
(b)contain a “share allocation plan”;[16] and
(c)contain such other details as the Minister required or the establishing authority considered appropriate.[17]
[15]Section 18(2)(b).
[16]Sections 18(2)(c) and 22.
[17]Section 18(2)(i).
The specific requirements for the “share allocation plan” were prescribed by s 22 which provided:
22 Share allocation plan
(1)The establishment plan prepared by an establishing authority shall set out the authority’s recommendations as to the person or persons, or the class or classes of persons, to whom the voting equity securities in the relevant energy company should be allocated consequent upon the vesting in that company of the relevant energy undertaking.
(2) Those recommendations shall indicate—
(a)the kind, number, nominal value, and terms of those voting equity securities; and
(b)the person or persons, or the class or classes of persons, to whom those equity securities should be allocated.
After completing the required consultation with the interim trustees and the public,[18] the Board was required to incorporate in the establishment plan a fair and accurate summary of any comments received from the interim trustees and to indicate:[19]
(a)the extent to which those comments were taken into account in finalising the plan; and
(b)where any such comment has not been so taken into account, the reasons for not doing so; and
(c)whether or not the interim trustees endorse the share allocation plan included in the establishment plan.
[18]Sections 23 and 24.
[19]Section 23(2).
Subject to the power of the Minister to require a Board to prepare and submit a revised establishment plan and the special provisions which applied if the share allocation plan was not endorsed by the interim trustees, the Minister was required to approve the establishment plan.[20]
[20]Sections 27(1) and (2), 28 and 29–30.
The special provisions relating to the share allocation plan provided:
29Establishment plan not to be approved unless share allocation plan endorsed
(1)Subject to subsection (2), the Minister shall not approve an establishment plan under section 27 or section 28 in any case where, in the case of a plan submitted (whether alone or jointly with any other establishing authority) by an establishing authority that is a Board, the share allocation plan (including a share allocation plan that has been amended pursuant to section 28(1)(b)(i)) included in that plan is not endorsed by the interim trustees for that Board.
(2)Where, but for the provisions of subsection (1), the Minister could approve, or would be required to approve, an establishment plan, the Minister may or, as the case may require, shall approve the establishment plan except for the share allocation plan included in that plan, and in any such case section 30 shall apply in respect of that establishment plan.
30 Allocation of shares where share allocation plan not endorsed
Where section 29(2) applies in respect of any establishment plan, there shall be deemed to be included in that establishment plan a share allocation plan that provides for the voting equity securities in the energy company to which the establishment plan relates to be allocated in accordance with the following provisions:
(a)the securities shall be allocated to each constituent local authority of the relevant Board:
(b)each constituent local authority to which the securities are required to be so allocated shall be entitled to receive such proportion of the total voting equity securities in the relevant energy company as the number of qualifying electors of that constituent local authority bears to the aggregate number of qualifying electors of all the constituent local authorities of that Board.
We agree with the Judge that the effect of these provisions was to confer a power of veto on the interim trustees in respect of the share allocation plan.[21]
[21]Bulley v Attorney-General, above n 2, at [10].
It is also to be noted that there is no reference in these provisions to consumer trusts, such as EBET, owning shares in energy companies either on the initial allocation or subsequently. Such ownership was neither expressly contemplated nor prohibited. But, at the same time, the fallback position recognised under s 30 was local authority ownership of all the shares in the new energy company.
Once the Minister had approved the establishment plan an Order in Council would be made vesting the Power Board’s undertaking in its successor energy company, with its shares vested in the persons specified in the order giving effect to the establishment plan.[22]
The Bay of Plenty establishment plan
[22]Energy Companies Act, s 47(1)(a) and (b).
In the present case the Power Board prepared a draft establishment plan on 7 October 1992. The plan provided for the shares in the new energy company to be vested in consumers, with a small proportion going to a Shareholders’ Society and employees of the company as an incentive to optimise company performance. The interim trustees endorsed the plan and the energy company (Horizon) was duly incorporated on 29 October 1993.
In May 1994 the Minister declined to approve the establishment plan. Although there was no evidence directly before the Judge in the High Court as to the reason for the Minister’s decision, the Judge inferred from a comment in an earlier judgment relating to EBET that consumer opposition to the establishment plan and a petition that at least 50 per cent of the assets be settled on a trust influenced the Minister’s decision.[23]
[23]Bulley v Attorney-General, above n 2, at [13].
In any event the Board submitted a revised plan to the Minister. It replaced the proposed Shareholders’ Society with a new consumer trust and included an amended share allocation plan which read as follows:
SHARE ALLOCATION PLAN
The company will issue approximately 14.775 million $1 Ordinary shares, consequent upon vesting to those persons who were its customers as at 10 June 1994 and who complete and return a Share Issue Confirmation form. Each share to be issued to these customers will be given away free of charge.
The customer shares will be allocated according to the following customer classes:
Domestic Customers 52.0%
Commercial and Farming Customers 38.5%
Light Industrial Customers 7.5%
Heavy Industrial Customers 2.0%
Details of allocations and terms of issue to the individual classes of shareholders are contained in Appendix 1.
A pool of 225,000 $1 Ordinary Shares will be established for distribution to staff in accordance with the details set out in Appendix 1.
The company will issue free of charge 5 million $1 shares to the Bay of Plenty Electricity Consumer Trust. A draft Trust Deed is attached as Appendix 2.
The Trust will be controlled by five Trustees. The first Trustees will be elected by the Interim Trustees. Subsequent Trustees will be elected by consumers annually from 1 October 1995.
A Monitoring Committee will be established to address disputes and complaints about the allocation of shares and to resolve unforeseen anomalies in allocation. The Committee will comprise representatives of the Board and Interim Trustees together with two further members who shall be appointed by the Board and Trustee Members of the Committee. The Committee shall make final decisions which will be referred to the Board for implementation. The Monitoring Committee will act in accordance with guidelines attached as Appendix 3 to this Plan.
A cap of 20% of total shareholdings will be imposed on any one beneficial owner (other than the Bay of Plenty Electricity Consumer Trust) of shares to ensure there is no significant loss of voting power by other shareholders. This cap has been set out at 20% to enable listing of the shares on the N.Z. Stock Exchange.
As noted in the share allocation plan, the draft trust deed for the consumer trust was attached as Appendix 2 to the revised establishment plan. It included in the definition of the expression “Energy Related Purposes” the provision giving rise to the first issue, namely sub-cl (f) which refers to the acquisition by the Trust of equity in the new company “up to a maximum of 25%” of the issued capital of the company.
As required by the Act,[24] the revised establishment plan summarised the consultation that had taken place with the interim trustees and the public. Relevant correspondence between the interim trustees and the Power Board in the period May to June 1994 was attached. As the Judge noted,[25] the plan recorded that the major concern arising from the consultation was a desire to retain local ownership and the attached correspondence indicated a tension between the Power Board and the interim trustees as to the percentage of the shares in the new company to be vested in EBET.
[24]Above at [16] and [19].
[25]Bulley v Attorney-General, above n 2, at [15].
A request by the interim trustees for an allocation of 40 per cent of the shares was rejected by the Power Board on the grounds that it was “excessive and [would] restrict the ability of the new energy company to operate as a successful business”.[26] The Board advised the interim trustees that an allocation of 25 per cent was the highest allocation it could support being recommended to the Minister because in the Board’s opinion any higher figure would diminish the new company’s ability to operate as a successful business. The Board pointed out that a 25 per cent holding would provide significant control to the Trustees and would enable them to effectively veto any major transaction with which they did not agree, including any change to the Articles of Association. The interim trustees ultimately decided to support an allocation at that level.
[26]Letter dated 19 May 1994 from the Power Board to the interim trustees.
The Power Board also advised that to provide a further protection for the Trustees it would be prepared for the new company’s Articles of Association to include provisions for the Trust to appoint two directors on to the board of the new energy company. The Power Board said that it felt that direct representation on the board of directors provided the Trustees with significantly more influence over the affairs of the company than an increase in shareholding would. The Power Board was not, however, prepared to agree to allow the Trust to have two directors if its shareholding was between 20 and 25 per cent as that would provide a disproportionate representation on the board.
Finally, the Power Board indicated that it was prepared to take positive action to obtain a suitable New Zealand-based cornerstone shareholder to hold up to 20 per cent of the shares. The Board made it clear that the cornerstone shareholder would not be issued additional shares which might have the effect of diluting the Trust’s shareholding.
On 24 June 1994 the Minister approved the revised establishment plan which included the allocation of five million of the new company’s shares (25 per cent) to EBET.
On 1 August 1994 the Trust Deed was executed by Bay of Plenty Electricity Ltd (now Horizon) and five named trustees, namely Messrs Butler, Law, Parkinson, Ponting and Steel. The five named trustees were the first trustees of EBET. They were five of the nine interim trustees.
The Energy Company’s (Bay of Plenty Electricity Ltd) Vesting Order was made on 29 August 1994 and vested the Power Board’s undertaking in the new company on 1 September 1994 with the shares in the company issued in accordance with the share allocation plan in the revised establishment plan. As not all of the 225,000 shares reserved for employees were taken up, the five million shares issued to the EBET represented 25.03 per cent of the total shares issued.[27]
[27]The conclusion in the High Court that the additional shareholding of 0.03 per cent was lawfully vested in the trust has not been challenged on appeal. See Bulley v Attorney-General, above n 2, at [40]–[41].
The Articles of Association of the new company contained two relevant provisions:
(a)a 20 per cent shareholder cap from which EBET was exempt; and
(b)the right for EBET to appoint and maintain in office two directors “for so long as the Trust holds not less than 25 per cent of the shares”.
The EBET Trust Deed
The Trust Deed executed on 1 August 1994 contains the following recitals:
APursuant to the Act the Minister of Energy has approved the establishment plan prepared and submitted in respect of the Company which establishment plan provides for the allocation of shares in the Company to the Trustees upon the terms set out in this Deed.
BIn order to give effect to the establishment plan the Company wishes to establish a consumer trust for energy related purposes or objects within the District.
CIt is contemplated that further donations and grants may be made to the Trust.
DThe Company records its directions to the Trustees the Company’s wish that the Trust Fund be applied for purposes which are energy related having regard to the general intention of the establishment plan.
(Emphasis added.)
The full text of the definition of “Energy Related Purposes” in cl 1 is:
‘Energy Related Purposes’ means Purposes which relate to some aspect of the beneficial use, application or enjoyment in the District of New Zealand’s energy resources including:
(a)Improvements to the safety of the general public by removing road and overhead hazards caused by above ground electricity supply support systems in the District;
(b)Improvements to the supply of electricity to the general public in rural or remote areas in the District by replacing, inadequate or unreliable supply systems;
(c)Avoiding, remedying or mitigating any adverse effects of energy related activities in the District on the Environment;
(d)Promoting research into more efficient ways of producing and distributing electrical energy for the benefit of the general public in the District including the awarding of research scholarships or prizes and the funding of research and developments projects;
(e)The provision of financial assistance to persons in the District to enable them to make better use of energy resources available to them or to subsidise the cost of such persons of existing supplies of energy;
(f)Acquiring equity in the Company up to a maximum of 25% of the Issued Capital of the Company.
(Emphasis added.)
The expression “Trust Fund” is defined as meaning “all the funds of the Trust and [including] all capital and income for the time being held by the trustees of the Trust”.
The purpose of the Trust is set out in cl 4 which provides that:
The company has established the Trust to enable the Trustees to apply the Trust Fund for or towards energy related purposes for consumers.
The Trustees’ powers include:
8.1Subject to the express terms of this Deed (and without limiting the generality of the foregoing) the Trustees shall have in relation to the Trust Fund and the income arising from the Trust Fund all the same powers as a natural person acting as beneficial owner of the property from time to time comprising the Trust Fund and such powers shall not be restricted by any principle of construction or rule of law except to the extent that such is obligatory.
8.2Without limiting the generality of the preceding paragraph and merely by way of example the Trustees shall have the powers set out in Schedule II to this Deed which may be exercised either alone or jointly with any other person.
8.3Notwithstanding clause 8.1, the Trustees shall not dispose (whether legally or beneficially) of any interest in the Shares unless the disposal has been approved by a Special Resolution of the Trustees.
The Trustees’ specific powers in Schedule II include:
Subject to any express terms in this Deed limiting or restricting such powers, the Trustees shall have the power to:
(a)Invest the Trust Fund or any portion thereof, notwithstanding that it may be subject to any liability, in any property whether in New Zealand or overseas.
...
(o)Invest the Trust Fund or any portion thereof in acquiring further shares of the Company, provided that more than 50% of the consumers responding to a postal questionnaire shall give prior approval to any such acquisition
The power of the Trustees to amend the Trust Deed is governed by cl 11.1(a) which provides:
The Trustees shall have the power by Special Resolution [notice] of which shall have been given in the notice convening the meeting to:
(a)rescind amend or add to rules set forth in Schedule I provided that no rescission amendment or addition shall conflict with any of the provisions of the operative Part of this Deed or Schedule II; and provided further that such rescission amendment or addition shall have first been approved by the Company.
The personal liability of the Trustees is limited by cl 14.1 which provides:
No Trustee acting or purporting to act in the execution of the trusts of this Deed shall be liable for any loss not attributable to that Trustee’s own dishonesty or to the wilful commission by the Trustee of an act not known by that Trustee to be a breach of trust. In particular no Trustee shall be bound to take, or be liable for failure to take, any proceedings against a co-Trustee for any breach or alleged breach of trust committed by such co-Trustee.
Subsequent events
Power Supply Corporation Ltd, a Fletcher Challenge subsidiary, which had received 17.9 per cent of the ordinary issued shares of Horizon as part of the initial allocation, had by December 1994 increased that shareholding to 26.1 per cent, notwithstanding the 20 per cent cap in the Company’s Articles of Association. At about the same time EBET and Fletcher Challenge entered into a shareholders’ agreement granting each other pre-emptive rights in respect of their shareholdings and agreeing to use their best efforts to remove the 20 per cent shareholding cap under the Articles which occurred on 20 March 1995.
By July 1996 Power New Zealand Ltd (PNZ), an energy company based in the Auckland metropolitan area, was taking steps to acquire the Fletcher Challenge subsidiary’s shares and a number of institutional investors’ shares in Horizon. A shareholders’ agreement of 12 July 1996 between EBET and PNZ, in which they granted each other pre-emptive rights, enabled PNZ to do so.
There is no dispute that at the same time EBET itself was also seeking to acquire further shares in Horizon beyond its 25 per cent allocation. It obtained a range of legal advice about the nature and effect of the cap in sub-cl (f) of the definition of “energy related purposes” in cl 1.1 of the Trust Deed, especially in light of para (o) of sch II which allows EBET to acquire further shares subject to the prior approval of 50 per cent of the consumers voting in a postal ballot. Some of the advice received by EBET is summarised in the High Court judgment, but we agree with the Judge that it is unnecessary to refer to the advice in any detail as the questions of interpretation of the Trust Deed are for the Court.[28]
[28]Bulley v Attorney-General, above n 2, at [24].
We record, however, that the appellants submitted that the fact that EBET instructed its lawyers to “get rid of the 25 per cent cap” indicated at least an acceptance of the existence of the cap by EBET at that time.
The next influential event was the enactment of the Electricity Industry Reform Act 1998 which provided for the separation of electricity lines businesses from electricity supply businesses. Under the new legislation an electricity lines (or network) business could not be owned by a “person” which also ran an electricity supply (generation and/or retail) business.[29]
[29]Electricity Industry Reform Act 1998, pts 1– 5.
Most energy companies, including Horizon, decided to sell their electricity supply businesses and retain their network businesses. As the Judge recognised,[30] this significantly changed the nature of Horizon’s business and led to EBET in September 1998 carrying out a poll of its consumers to obtain approval to amend the Trust Deed to enable it to increase its shareholding in Horizon. EBET was contemplating increasing its shareholding to at least 51 per cent and perhaps acquiring all of PNZ’s shareholding which was 52.29 per cent by then.
[30]Bulley v Attorney-General, above n 2, at [7(b)] and [25].
We set out in detail the background to the consumer poll when we consider the second issue in this appeal relating to the validity of the poll. At this point it is sufficient to note that the outcome of the poll was decisive with over 90 per cent in favour of the proposed amendments to the Trust Deed. On the basis of the result, EBET instructed its lawyers on 9 October 1998 to make the necessary changes to the Trust Deed.
On 21 October 1999 Horizon, having completed the sale of its energy business, distributed $100.5 million of the proceeds to its shareholders. EBET’s share of that distribution was some $25 million. PNZ had also, by this time, split its lines and energy business. Its lines business was owned by United Networks Ltd (United), which had also succeeded to PNZ’s shareholding in Horizon.
Following receipt of EBET’s instructions to amend its Trust Deed, EBET’s lawyers reviewed their previous advice. In late 1998 they advised EBET that no changes to the Trust Deed were required and that the consumer poll result was sufficient, by itself, to authorise the acquisition by EBET of further shares in Horizon.
Acting on this advice, the Trustees of EBET resolved on 18 December 1998 that in light of the poll result they were entitled to own as many shares in Horizon as they believed to be in the best interests of EBET.
Following discussions between EBET and United during 1999, EBET agreed to acquire all of United’s shares in Horizon for $12.50 per share. This meant that, after settlement on 20 December 1999, EBET owned 77.32 per cent of the shares in Horizon which remains the position today.
In September 2009 a partial takeover offer for 51 per cent of Horizon by Marlborough was unsuccessful as EBET’s Trustees did not accept the offer in respect of the shares EBET held.
In November 2009 EBET’s Trustees decided to make an offer of $4 per share for the minority shares in Horizon and for this purpose sent out the necessary consumer poll to consumers in January 2010. This led to separate proceedings by the appellants seeking declarations challenging the steps being taken by EBET’s Trustees and an interim injunction preventing them from continuing with the poll.
In February 2010 the two sets of Trustees agreed that EBET would not take any further steps until the issues raised in the present proceeding were resolved.
In June 2010 Marlborough made a stand in the market for shares in Horizon and as at 26 July 2010 held 12.5 per cent.
The High Court decision
Clifford J accepted that if, properly construed, sub-cl (f) of the definition of “energy related purposes” effectively imposed a 25 per cent cap on EBET’s shareholding in Horizon, then that restriction would prevail over the apparently broader power in para (o) of sch II because cls 8.1 and 8.2 as well as sch II itself are expressly made subject the express terms of the Trust Deed.[31]
[31]Bulley v Attorney-General, above n 2, at [61].
But Clifford J did not accept that sub-cl (f) imposed such a limit for all time. Essentially, his reasons were:[32]
(a)Sub-cl (f) was an odd provision which was to be distinguished from the other subcls in the definition of “Energy Related Purposes”. Whereas the latter are all forward-looking provisions and clearly direct the Trustees to an inclusive range of purposes to which the funds of EBET may over time be directed, sub-cl (f) is not a “purpose” in that sense at all.
(b)Sub-cl (f) is best understood as recording the position reached under the share allocation plan in the revised establishment plan and the issue of the shares to EBET’s Trustees by the Vesting Order. As no decision was required by the Trustees to acquire the shares, there was little if any role left for the purpose in sub-cl (f).
(c)Sub-cl (f) therefore confirmed the agreed basis on which shares would be allocated to EBET and did not impose any limit on EBET as regards its future investments.
(d)This interpretation is supported by the presence of the specific additional investment power in para (o) of sch II. There would be little point in para (o) if it were construed as providing solely for a right of “top up” to maintain EBET’s 25 per cent in the event of a rights issue. There is no restriction under sub-cl (f) preventing EBET from maintaining its 25 per cent in that event. All para (o) would require was the prior approval of consumers. In view of the background to EBET, it is most unlikely that para (o) would have been included solely for that reason.
(e)Two aspects of Horizon’s Articles of Association also support the interpretation: first, the exemption of EBET from the 20 per cent shareholding cap and the absence of any 25 per cent restriction on EBET and, second, EBET’s rights to appoint and maintain two directors in office “for so long as the Trust holds not less than 25 per cent of the shares”.
(f)Bearing in mind that many and indeed most local communities decided to retain 100 per cent ownership of their local lines company and that Horizon was listed on the New Zealand Stock Exchange so that a takeover was a possibility, it cannot be regarded as surprising that EBET could, over time and subject to the availability of funds and consumer approval, increase its investment in Horizon.
Submissions
[32]At [63]–[66].
For the appellants, Mr Carruthers QC submits that when all aspects of the relevant factual matrix are taken into account, including in particular the revised establishment plan with its attached correspondence between the interim trustees and the Power Board, it is clear that the 25 per cent share cap was intended to apply beyond the initial allocation. Otherwise the cap could have been done away with immediately after the shares were issued contrary to the Ministerially-approved share allocation. Clause 4 of the Trust Deed therefore contains an express term limiting or restricting the trustees’ specific powers in sch II.
Mr Carruthers submits that the explanation for, and reconciliation of, the provisions is that the power in para (o) can have two functions. First, the right to acquire more shares was there to ensure that EBET was able, if consumers wished, to retain its cap of 25 per cent if further shares were issued. Second, if shares were sold as permitted by the Trust Deed and later EBET decided to restore its shareholding to 25 per cent, a combination of sub-cl (f) and para (o) allowed that.
It is also submitted that the Judge erred in relying on the facts that some communities elected 100 per cent trust ownership and that Horizon was listed on the Stock Exchange. The former was not relevant to the Trust Deed. The latter was not evidence of an intention that a takeover was always a possibility, especially as there was at the time of listing a 20 per cent cap and any company can be the subject of a takeover, whether listed or not.
Mr Molloy QC for EBET’s Trustees and Mr Hurd for the consumers support the Judge’s conclusion on this issue, which was that sub-cl (f), properly construed, reflects the central element of the revised establishment plan – it is a declaratory provision rather than a prospective restriction.
Our decision
For the reasons that follow, we agree with the Judge that the 25 per cent “cap” in sub-cl (f) of the definition of “Energy Related Purposes” in cl 1 of the Trust Deed related only to the initial allocation of the shares to EBET and did not apply beyond that time.
First, the share allocation plan in the revised establishment plan as approved by the Minister in accordance with the Energy Companies Act was concerned only with the initial allocation of free shares as between the three prospective groups identified, namely customers, staff and the Trust. There is no requirement in the Act for either the establishment plan or the share allocation plan to address the question of share ownership in energy companies post allocation and the plans for Horizon did not do so. There was no suggestion that in not doing so the plans were in some way invalid or ought not to have been approved by the Minister.
Second, after the initial allocation of the shares Horizon became a listed company and, in ordinary circumstances, its shares would be expected to be freely tradeable in accordance with and subject to the provisions of Horizon’s Articles of Association. Again there is no provision in the Energy Companies Act or in the establishment plan approved by the Minister restricting the trading of shares in the company post allocation. And the share acquisition restrictions in Horizon’s Articles of Association did not apply to EBET.
Third, we agree with the Judge that sub-cl (f) of the definition of “Energy Related Purposes” is not really a purpose at all. Unlike the other real purposes in the definition, which relate to future activities, sub-cl (f) simply confirms an event that has already occurred with the initial share allocation. If it had been intended to prevent the Trustees from acquiring further shares post allocation, this was a particularly strange place to put a prohibition of that kind.
Fourth, if it had been intended to place a permanent prohibition on the acquisition of any further shares above 25 per cent, then sub-cl (o) of sch II would be redundant unless there was some other explanation for it. The two explanations given by Mr Carruthers could have been met by the application of sub‑cl (f) which was sufficiently wide to enable the trust to maintain or top up its 25 per cent allocation. This means that para (o) of sch II must have been intended to have the effect of allowing EBET to acquire additional shares beyond the initial allocation of 25 per cent provided the necessary approval of consumers by way of a poll was obtained.
Fifth, while, contrary to the decision of the Judge,[33] we accept that the correspondence attached to the revised establishment plan as part of the statutory approval process was admissible in evidence as part of the factual matrix relevant to the interpretation of the Trust Deed,[34] in our view the correspondence, like the share allocation plan and sub-cl (f) of the definition in the Trust Deed, related only to the allocation of free shares at the outset and not beyond.
[33]Bulley v Attorney-General, above n 2, at [58].
[34]Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
We do not consider that the references in the correspondence attached to the revised establishment plan alter our conclusion. We are referring particularly to the views of the Board noted in [30] above.
In view of our answer to issue one, it is necessary to consider issue two.
Issue 2 – a valid poll?
This issue arises because para (o) in sch II of the Trust Deed, which we repeat for convenience, provides that the Trustees have power to:
Invest the Trust Fund or any portion thereof in acquiring further shares of the Company, provided that more than 50% of the consumers responding to a postal questionnaire shall give prior approval to any such acquisition.
The case for the appellants is that the poll of consumers conducted by the Trustees in September 1998 did not seek or obtain approval from consumers for the acquisition by EBET of all of United’s shares in December 1999 which took EBET’s shareholding in the Company to 77.32 per cent. In terms of para (o), the poll was therefore not valid for that purpose.
Factual background
As we have already mentioned,[35] the poll was conducted following the enactment of the Electricity Industry Reform Act and the decision by the Trustees to acquire shares from PNZ to increase its shareholding in Horizon to over 50 per cent.
[35]Above at [3]–[4] and [50].
EBET sent the poll to its consumers under cover of a letter the relevant parts of which read:
Dear Electricity Consumers
You will have read about the changes to the legislation regarding electricity companies. As a result Bay of Plenty Electricity Limited (“BoPE”) is required to divide its existing business into two parts: one to own the network of lines through which electricity is conveyed to your property, and the other to supply your electricity and own the generation assets which BoPE now owns. This means that your Trust which owns 25% of the shares in BoPE may need to change its position.
Your Trust was formed by a Trust Deed which sets out the powers under which the Trust is controlled. These powers do not contemplate the changes that could be required under the new legislation. For the Trust to have the flexibility to ensure that your investment through the Trust is correctly positioned for the future to the best advantage, some changes to the Trust Deed are necessary. To make those changes however, your support is required.
We have therefore provided a voting paper with this letter. The voting paper is to enable you to vote regarding the changes required for the Trust to alter its investment from the present 25% of BoPE which it holds, to a new investment in one, or both of the new companies. This is not possible under the present Trust Deed which says that the purpose of the Trust is “to enable the trustees to apply the Trust Fund for or towards energy related purposes for consumers”. The term Energy Related Purposes is defined to include various improvements regarding safety and supply of electricity, overcoming adverse effects, promoting research, enabling better use to be made of energy resources and acquiring equity in BoPE up to a maximum of 25% of BoPE. The words relate to holding a maximum of 25% of the shares (equity) in BoPE, not any new subsidiary or other company which might be brought into being by BoPE. We, the trustees, would like that ability to ensure that we have the necessary powers to look after your investment. There are additional specific powers provided to the trustees which include “acquiring further shares of the Company (BoPE), provided that more than 50% of the consumers responding to a postal questionnaire shall give prior approval.”
To provide the trustees with the greatest flexibility to proceed as they see fit we ask you to vote in favour of the resolutions set out below. If you have any queries, either take this note to your financial advisor for guidance, or talk to either myself (telephone number...) or Toni Owen (telephone number... ) of the Trust.
...
The voting paper contained three resolutions. Two are directly relevant here:
BAY OF PLENTY ELECTRICITY CONSUMER TRUST
VOTING PAPER
I agree that the limitation of only being able to acquire up to a maximum of 25% of the shares in BoPE should be amended to allow the trust to own as many shares as it believes to be in the best interest of the Trust and the consumers.
In favour Against
I agree that the Trust Deed should be amended to allow the trustees to invest the Trust Fund in shares in any subsidiary or other companies formed directly or indirectly by BoPE to operate any business formerly owned by BoPE.
In favour Against
...
As already mentioned,[36] the voting on the poll was decisive. Of the 5,989 and 5,922 valid votes cast on Questions 1 and 2 respectively, 5,547 (92.6 per cent) and 5,368 (90.6 per cent) were in favour of the proposed amendments.
The High Court decision
[36]Above at [50].
Clifford J decided that the poll was valid and that therefore the Trustees acted lawfully in acquiring 52.29 per cent of the shares in the Company from United in December 1999.[37]
[37]Bulley v Attorney-General, above n 2, at [72].
The Judge’s reasons were:
[71] On balance, however, I have concluded – albeit by a somewhat narrow margin – that the combined effect of the letter to Consumers and the terms of the poll itself do, in terms of the clear and overwhelming affirmative vote recorded by Consumers in favour, constitute the Trust having obtained the prior approval of Consumers as necessary. In my view, the phrase “to provide the Trustees with the greatest flexibility to proceed as they see fit” in the letter to Consumers when considered in terms both of the proposal to amend the Deed and the reference to the need to obtain Consumer consent to further acquisitions of shares, means that a Consumer voting in favour would have understood that they were providing both for amendments to the Trust Deed and to the Trustees acquiring further shares so that the Trust would own “as many shares as it believes to be in the best interests of the Trust and the Consumers”, as provided in the first resolution. I agree that the wording is not as clear as it could or should have been. It does have to be remembered, however, that the draftsperson of the documents would have been trying to strike a balance between legal precision and comprehensibility. A number of Consumers noted at the time that they had difficulty understanding the poll documents. In this context, I do not think it would be appropriate to consider the poll documents in an overly legalistic or formalistic way. What I think has to be established is that the Consumers knew they were giving the Board their approval to acquire further shares in the Company, noting that – as Trustees – the Trustees could only enter into such an acquisition on terms which they thought were in the best interests of the beneficiaries. In my view a Consumer voting in favour of Resolution 1 would, when that action was considered in the context of the information contained in the covering letter, have understood they were approving the Trustees acquiring further shares in the Company and on that basis I consider that the poll was effective.
Submissions
Mr Carruthers submits that the questions in the poll were not apposite because they related to the amendment of the Trust Deed, which was not authorised under cl 11.1(a), not to the acquisition of shares. The Trust Deed was not amended and no poll was conducted in respect of the acquisition of shares from United.
Mr King, who presented this part of the argument for the Trustees, and Mr Hurd support the Judge’s reasoning.
Our decision
For the following reasons, we accept Mr Carruthers’ submission and disagree with the Judge on this issue.
First, as an executed trust deed, the Trust Deed should be interpreted in accordance with its terms and their purposes, reflecting the public commercial purpose of the trust and the statutory background to which we have referred.[38]
[38]Re UEB Industries Limited Pension Plan [1992] 1 NZLR 294 (CA) at 297; Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA); Manukau City v Lawson [2001] 1 NZLR 599 (HC) at [13]; Bulley v Attorney-General, above n 2, at [51] and Andrew Butler “The Trust Concept. Classification and Interpretation” in Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [3.3]. As to that context, see Andrew Butler “Trusts and Commerce” in Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [39.7.1] and Greg Kelly and Chris Kelly Garrow and Kelly’s Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at [11.31]–[11.32].
Second, adopting this approach, it is clear from the text of para (o) in sch II of the Trust Deed that the power conferred on the Trustees to invest the trust fund or any portion of it “in acquiring further shares” in Horizon is expressly subject to the proviso requiring the prior approval of more than 50 per cent of the consumers “to any such acquisition”. The express terms of the proviso qualify the general power to acquire further shares by requiring prior consumer approval “to any such acquisition” which suggests approval to a specific acquisition or acquisitions.
Third, the need for the Trustees to obtain prior consumer approval to a specific acquisition is reinforced by the purpose of the provision which is to restrain the general power of the Trustee to acquire further shares. To give proper effect to this restraint and to enable consumers to decide whether to give their approval, they would need to be given sufficient information to make an informed decision. Bearing in mind the commercial environment and the need to recognise practical limits on disclosure, the information which consumers would need in order to make an informed decision would include the terms of the proposed acquisition, such as the number of shares, the price range and its funding, and the reasons why the Trustees considered the acquisition was desirable.
Fourth, applying this interpretation of the proviso in this case, it is clear that the Trustees did not seek or obtain the prior approval of consumers to the acquisition of United’s shares in Horizon in December 1999. Instead consumers were being asked to approve amendments to the Trust Deed designed to give broad enabling powers to EBET so that the Trustees could acquire as many shares in Horizon as they considered were in the best interests of EBET and consumers. Reasons for seeking these amendments were given. But no specific acquisition was mentioned and no information was given to enable consumers to make an informed decision about such an acquisition.
Fifth, as the Trust Deed was not amended, it was necessary to proceed in accordance with the terms of the proviso to para (o).
In view of our conclusion that, while there was power to acquire the additional shares, there was no adequate poll, it follows that the acquisition of the United shares in December 1999 was not authorised and therefore amounted to a breach of the Trust Deed.
In view of our answer to issue two, it is therefore necessary to consider issue three.
Issue 3 – orders under s 64(1) of the Trustee Act 1956?
This issue arises because in the event of our deciding as we have that the consumer poll was invalid the Trustees seek authorisation retrospectively from the Court for the retention of the shares acquired from United in December 1999 under s 64(1) of the Trustee Act which provides:
64 Power of court to authorise dealings with trust property
(1) Subject to any contrary intention expressed in the instrument (if any) creating the trust, where in the opinion of the court any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, retention, expenditure, or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the same without the assistance of the court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income: provided that, notwithstanding anything to the contrary in the instrument (if any) creating the trust, the court, in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent to the order, may make such an order and may give such directions as it thinks fit to the trustee in respect of the exercise of any power conferred by the order.
(Emphasis added.)
The case for the appellants is that s 64(1) does not enable the Court to approve an unauthorised transaction by trustees retrospectively and, in any event, the Court should not, as a matter of discretion, approve the transaction. Reliance was placed on expert evidence called by the appellants from Professor van Zijl (Professor of Accounting and Financial Management) and Mr Weaver (actuary). The purpose of this evidence was to establish that EBET had undesirably concentrated its investments when it acquired the further shares in Horizon and that the return earned by EBET was not sufficient to compensate for the risk of its investment in Horizon when that risk was measured by reference to the volatility of the price of Horizon’s shares on the New Zealand Stock Exchange.
For EBET there was expert evidence from Mr Coulter (investment adviser) that the acquisition of further shares had proved to be a sound investment. It had also given EBET greatly increased control of Horizon which in turn facilitated the achievement by EBET of its object of applying the trust fund for Energy Related Purposes. More particularly, Mr Coulter noted that average dividend income had been some $2.6 million per annum, representing an after tax annual yield which, in absolute and comparative terms, had in general terms been a good investment.
The High Court decision
Although in view of his answers to issues one and two it was not necessary for him to consider the third issue, Clifford J did so on the basis that it was appropriate to record his conclusions that s 64(1) did enable the Court to approve the unauthorised transaction retrospectively and that in the circumstances of this case he would have exercised the Court’s discretion to do so.[39]
[39]Bulley v Attorney-General, above n 2, at [73], [83] and [89].
Clifford J considered that the addition of the reference to “retention” in s 64(1) and its preservation in a subsequent amendment to that section in 1960 meant that retention of assets acquired in breach of the Trust Deed might be justified after the event just as a similar acquisition might be validated before the event.[40] Bearing in mind that the object of the section was to ensure that the trust property was managed as advantageously as possible in the interests of the beneficiaries, there was no reason in principle to limit the application of the section as suggested by the appellants.
[40]At [79].
Clifford J accepted that the reference in the proviso to s 64(1) to “notwithstanding anything to the contrary in the trust instrument” meant that the Court had jurisdiction to vest the necessary power in the Trustees even if sub‑cl (f) did place a cap on EBET’s shareholding.[41] On this point the Judge adopted the interpretation of Tipping J in Re Greenwood[42] rather than that of Cooke J in Re Smith.[43]
[41]At [80]–[83].
[42]Re Greenwood (deceased) [1988] 1 NZLR 197 (HC).
[43]Re Smith (deceased) [1975] 1 NZLR 495 (SC).
Clifford J noted that all Trustees and persons who were or might be interested were represented. He summarised the relevant expert evidence as to the wisdom of the Trustees’ decision to acquire further shares in Horizon rather than to diversify EBET’s investments He then concluded that, because community trusts were not ever set up to be diversified portfolio investors, EBET’s investment in Horizon had performed well relative to the performance of diversified investment portfolios and forcing EBET to sell the shares would be commercially disadvantageous, it was both expedient in the management of the property vested in the Trustees and in the best interests of the beneficiaries of the EBET that the Trustees be empowered to retain the shares.[44]
Submissions
[44]At [83]–[89].
On the question of retrospectivity, Mr Carruthers submits that the Trustee Act contains explicit provisions, such as ss 64A, 64B and 68, when the Court may act retrospectively, and that accordingly s 64 would also have been explicit if it had been intended to operate retrospectively. He also submits that to permit the Court to act retrospectively under s 64(1) would be inconsistent with the power of the Court to relieve a trustee of personal liability only if a trustee has acted “honestly and reasonably” under s 73. This analysis concerning retrospectivity was supported by the decisions in Winter v Attorney-General, Re Lyell (deceased) and Goodwin v Rocket Surgery Ltd.[45] The presence of the expression “retention” in s 64 is explained by the need for the Court to have power to retain an asset which would otherwise have to be sold because, for example, it is a wasting asset.
[45]Winter v Attorney-General HC Auckland M333-1Mol, 21 December 2001; Re Lyell (deceased) [1977] 1 NZLR 713 (SC); and Goodwin v Rocket Surgery Ltd [2013] NZCA 172, (2013) 14 NZCPR 110.
On the question of the exercise of the Court’s discretion, Mr Carruthers submits that the retention of the shares was neither expedient in the management or administration of the trust property nor in the best interests of the beneficiaries. Retention of shares with an approximate value of $33 million in breach of an express term of the Trust Deed cannot meet the expediency test, especially as it was contrary to the intentions of the settlor. In light of the expert evidence relating to the need for a diversified portfolio and the major and unnecessary risks involved in retention of the shares, it was not in the best interests of the beneficiaries for the shares to be retained.
Mr Molloy and Mr Hurd support the Judge’s decision. They submit that the natural meaning of the word “retention” should not be read down given the remedial context of the surrounding legislative provisions and the significant difficulties which would otherwise be involved in resolving the situation.
Retrospectivity
There is no doubt a strong presumption against retrospectivity in the interpretation of statutes,[46] although the presumption may be of variable strength depending on the subject matter it relates to.[47] The presumption applies to limit any retrospective effect from the enactment of a statute which alters the law as it previously stood or as it applies to events which have already occurred. The presumption may, however, be rebutted by statutory provisions which do so clearly.[48]
[46]Interpretation Act 1999, s 7; L’Office Chefifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1994] 1 AC 486 (HL) at 524–525; AJCB v EJD [2013] NZSC 79, [2013] NZFLR 749 at [6]–[7]; Ben Juratowitch Retroactivity and the Common Law (Hart Publishing, Oxford, 2008) at ch 4 and JF Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at 590–600.
[47]See Juratowitch at 86 and 96.
[48]R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2003] 1 AC 563 (HL) at [45]; B v Auckland District Law Society [2003] UKPC 38, [2004] 1 NZLR 326 (PC) at [58] and Cropp v Judicial Committee [2008] NZSC 46, [2008] 3 NZLR 774 at [26].
Here there is no suggestion that the Trustees are seeking to apply s 64 retrospectively to anything that happened before the provision came into force as part of the Trustee Act on 1 January 1957.[49] The issue here is whether in its terms s 64 enables the court to authorise EBET to retain an asset it has already acquired in breach of the Trust Deed. For the following reasons, we are satisfied that it does.
[49]Trustee Act, s 1(2).
Under s 64(1), the court, when satisfied the requirements of the section are met, has power to make an order conferring on trustees “the necessary power for the purpose” of “any purchase, investment, acquisition, retention, expenditure, or other transaction”. The express inclusion of “retention” in this list clearly suggests that the Court’s power extends to authorising trustees to “retain” assets already acquired without the requisite authority. In this respect the New Zealand provision differs from its English and Australian counterparts,[50] although in England there is authority to suggest that retrospective “retention” might be implied.[51]
[50]Trustee Act 1925 (UK), s 57 and Trustee Act 1925 (NSW), s 81; Trustee Act 1925 (ACT), s 81; Trustee Act 1925 (Vic), s 63; Trustee Act 1925 (Qld), s 94; Trustee Act 1925 (SA), s 59B and ss 48–55; Trustee Act 1925 (WA), s 89; Trustee Act 1925 (Tas), ss 47 and 55 and Trustee Act 1925 (NT), s 50A .
[51]Jones v Firkin-Flood [2008] EWHC 2417 at [31] and [39].
The noun “retention” is relevantly defined as continued possession (in this context) of property.[52]
[52]John Simpson and others (eds) Oxford English Dictionary (online ed) < and Tony Deverson and Graeme Kennedy (eds) The New Zealand Oxford Dictionary (Oxford University Press, Oxford, 2005) at 959.
This interpretation of the expression “retention” is consistent with the context of s 64(1). On its face the power under s 64(1) must relate to the “retention” of property already “vested in a trustee”. Consequently, the Court’s power of authorisation, if exercised, will inevitably have retrospective effect because it will authorise a past acquisition that has already occurred to be retained.
This interpretation of the text of s 64(1) is supported by the remedial purpose of the provision which is to empower the Court to authorise dealings with trust property when satisfied that it is either “expedient in the management or administration” of the trust property or would be “in the best interests” of the beneficiaries to do so. Significantly, the Court’s power may be exercised notwithstanding “the absence of any power for that purpose” in the trust instrument or indeed notwithstanding “anything to the contrary” in the trust instrument if the representation or consent requirements of the proviso are met.[53]
[53]Malcolm Wallace “Variation and Resettlement of Trusts” in Andrew Butler (ed) Equity and Trusts in New Zealand at [9.5.1(4)].
We agree with Clifford J that the interpretation of Tipping J in Re Greenwood is apposite. After recognising the force of Cooke J’s comment in Re Smith that to authorise a sale contrary to the wishes of the settlor would savour of a rewriting of the substantive trusts more than a step in the management and administration of the estate, Tipping J said:[54]
The power to approve a sale granted by s 64 is not however limited only to a case of expediency in the management or administration of any property vested in a trustee. The power arises additionally where, in the opinion of the Court, such a sale would be in the best interests of the persons beneficially interested under the trust. In such a case, power of sale being absent, the Court may by order confer such a power upon the trustees. As I have said that power may be exercised notwithstanding anything to the contrary in the instrument creating the trust. That can only be done in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent.
[54]Re Greenwood, above n 42, at 208.
Here there is no question of authorising the sale of an asset contrary to the wishes of the settlor. The present case is concerned with the retention of an asset (the shares) which we have held EBET was entitled to acquire subject to compliance with the requirement for authorisation following a consumer poll.
We also do not agree with Mr Carruthers that other provisions of the Trustee Act or the authorities require a different interpretation.
The fact that the powers of the court under s 64A of the Trustee Act to authorise variations of trust, under s 64B in respect of capital dividends and under s 68 in respect of applications to review acts and decisions of trustees may also result in orders with retrospective effect does not mean that s 64(1) should not be interpreted in a similar manner. Indeed the absence of any express reference to the retrospective exercise of the powers under those provisions confirms that in the context of the Trustee Act such power may be necessarily implied.
It is true that a trustee may apply to the court under s 73 of the Trustee Act to be relieved from personal liability for a breach of trust where the trustee has:
acted honestly and reasonably, and ought fairly to be excused for the breach and for omitting to obtain the directions of the court ...
That is, however, a distinct process from an application by the Trustees for an order under s 64(1) for the approval or validation of a particular transaction. Trustees may be absolved from liability without a transaction completed in breach of trust being approved. The question whether s 64(1) should be read as limited in its retrospective application to circumstances where a trustee has acted honestly and reasonably and ought fairly to be excused does not arise in this case as we are satisfied that there is no basis for finding that the Trustees acted dishonestly or unreasonably in acquiring the further shares in Horizon or not to be fairly excused.[55] The existence of s 73 does not preclude an application under s 64(1). If it had been intended to make s 64(1) subject to s 73, the Act would have said so.[56] In the absence of any such qualification, we read and apply the provisions together.
[55]See below at [121].
[56]Burrows and Carter, above n 46, at 440.
Similarly, none of the authorities leads to a different conclusion:
(a)In Re Lyell[57] Beattie J, while granting an application under s 64(1) for the sale of a property, ordered that the proceeds be held on the same trusts as those contained in a will because the court had no jurisdiction under s 64(1) to vary the beneficial trusts of the will. In the present case no question of any variation of the interests of the consumer beneficiaries under EBET arises.
(b)Similarly in Re Winter[58] Fisher J accepted that s 64(1) does not permit the Court to interfere with the incidence of beneficial interests under a trust.
(c)In Goodwin v Rocket Surgery Ltd[59] this Court simply expressed the view that in the particular circumstances of that case, a summary judgment appeal where there was no agreement on the terms of a trust, it was doubtful that s 64 was an available source of jurisdiction for the Associate Judge.
[57]Re Lyell (deceased), above n 45.
[58]Winter v Attorney-General, above n 45, at [26].
[59]Goodwin v Rocket Surgery Ltd, above n 45, at [24].
The fact that “retention” may also cover the retention of assets which would otherwise be required to be sold (for example, because they are a wasting asset) is not a reason for reading down the meaning of the word. The natural and ordinary is the starting point, and, unless an unusual meaning is required by the purpose of the legislation, it is the end point also.[60]
[60]Owen v R [2007] NZSC 102, [2008] 2 NZLR 37 at [17]; Progressive Meats Ltd v Ministry of Health [2008] NZCA 162, (2008) 5 NZELR 457 at [40] and Waitakere City Council v Khouri [1999] 1 NZLR 415 (CA) at 421–422. See Burrows and Carter at 296.
We therefore agree with the Judge that the addition of the reference to “retention” is sufficient to enable the Court to authorise the acquisition of the shares retrospectively in the circumstances of this case.
Discretion
We also agree with the Judge that the Court should exercise its discretion under s 64(1) in the circumstances of this case. We are satisfied that, notwithstanding the failure of the Trustees to conduct a valid consumer poll, retention of the shares is both expedient in the management and administration of the trust and in the best interests of the persons beneficially interested under the Trust.
First, as required by the proviso to s 64(1), all EBET Trustees and consumer beneficiaries are represented in this proceeding and, apart from the appellants, consent to the order sought. Furthermore, those responding to the consumer poll voted overwhelmingly in favour of granting the Trustees the right to acquire further shares, albeit on the basis of imperfect information concerning the specific acquisition. It was a sensible use of the large sum of money which became available to the trust at the time the lines business had to be severed in consequence of the further statutory reforms.
Second, the shares were acquired some 10 to 12 years ago and no issue has been raised about them until recently when Marlborough Lines (itself owned by a consumer trust) became interested in acquiring shares in the Company. In our view in these circumstances where approval is sought to retain shares purchased many years ago and the only breach of trust relates to the validity of the consumer poll this is par excellence a case where the power under s 64(1) should be exercised.
Third, the return to the trust from the shares has been good over the relevant period of time.
Fourth, there does not appear to be any substance in the diversification point given that many (if not most) of the consumer trusts in New Zealand own 100 percent of the shares in former Power Boards (for example Vector in Auckland) and because, in terms of the trust deed, trustees were exempted from personal responsibility if the complaint was made on diversification grounds alone. The Judge was also entitled to accept the view of Mr Coulter in relation to the complaint about the risk from a lack of diversification.
Fifth, there is no substance in the appellants’ claim that approval of the acquisition would deprive them of a claim for breach of trust. A trustee is under no
liability to a beneficiary where no demonstrable loss has resulted from a breach of trust.[61] In this case no loss has been established. We consider that the evidence should have demonstrated loss at this stage if the s 64 application were to be resisted on the ground that the approval of the transaction would deprive the appellants of a viable cause of action. We note that the appellants’ counterclaim sought a declaration of breach of trust but did not claim any particular loss. Clause 14.1 of the Trust Deed in any event excludes the trustees from liability for any non-wilful breach of trust committed in the execution of trust affairs.[62] As noted, there is no allegation of bad faith behaviour on the part of the trustees.
[61]BNZ v NZ Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA); Re Mulligan (deceased) [1998] 1 NZLR 481 (HC); and Nestlé v National Westminster Bank [1993] 1 WLR 1260 (CA). See Andrew Butler “Breach of Trusts” in Andrew Butler (ed) Equity and Trusts in New Zealand at [10.3.1(2)].
[62]See above at [44].
Sixth, there is no need for a further poll to be taken in respect of this specific acquisition as Mr Carruthers suggested. Mr Hurd was appointed to represent the consumers and supported the Trust’s case.
Finally, in the context of ownership of shares in an energy company established under the Energy Companies Act with the approval of the Minister of Energy, there has been no opposition by the Crown to the Court now making the order sought by the Trustees.
We agree with Clifford J that if the Trustees wish to acquire further shares in Horizon beyond the 77.32 per cent already held they will need to obtain consumer consent for any such specific acquisition, supported by the necessary information to make an informed decision, of the kind referred to above at [87].[63]
Result
[63]Bulley v Attorney-General, above n 2, at [73] and [90].
For the reasons we have given, we answer the three issues as follows:
(a)Subject to the answer to the second issue, EBET was entitled under the terms of its Trust Deed to acquire more than 25 per cent of the shares in Horizon.
(b)The poll of consumers conducted by EBET under its Trust Deed in September 1998 did not authorise it to acquire further shares in Horizon.
(c)The Court is entitled to make an order under s 64(1) of the Trustee Act permitting EBET to retain the additional 52.29 per cent shareholding in Horizon. The acquisition by EBET of any further shares in Horizon will require consumer consent.
The appeal is therefore dismissed and we make an order empowering the first respondents, as trustees of EBET, to retain the additional 52.29 per cent shareholding the Trust has already acquired in Horizon Energy Distribution Ltd.
Costs should follow the event. The appellants are to pay the first respondents’ costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel. The appellants are also to pay the costs of the consumers, again for a standard appeal on a band A basis and usual disbursements. Costs in the High Court should be fixed by that Court.
Solicitors:
Harkness Henry, Hamilton for Appellants
Sharp Tudhope, Tauranga for First Respondents
Crown Law Office, Wellington for Second Respondent
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