Public Trust v Cancer Society of New Zealand Incorporated

[2020] NZHC 615

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2019-485-521

[2020] NZHC 615

IN THE MATTER OF

The Burns Family Charitable Trust

BETWEEN

PUBLIC TRUST

Applicant

AND

CANCER SOCIETY OF NEW ZEALAND INCORPORATED

First Respondent

THE NATIONAL HEART FOUNDATION OF NEW ZEALAND

Second Respondent

THE ROYAL NEW ZEALAND SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS INCORPORATED

Third Respondent

Hearing:

17 March 2020

Counsel:

C J Kelly for Applicant

No appearance for Respondents

Judgment:

23 March 2020

JUDGMENT OF CHURCHMAN J

Background

[1]    By originating application dated 29 August 2019, the applicant sought directions from the Court to either confirm the meaning of a trust deed or to rectify the trust deed. That application is supported by two affirmations of Stewart John Vartan affirmed on 27 August 2019 and 5 November 2019 respectively, and an affidavit of Robyn Leigh Thomson sworn on 21 January 2020.

PUBLIC TRUST v CANCER SOCIETY OF NEW ZEALAND INCORPORATED [2020] NZHC 615

[23 March 2020]

The trust

[2]The application relates to the Burns Family Charitable Trust (the trust).

[3]    The settlors of the trust were two sisters, Helen Burns and Mary Burns, both retired of Tauranga. The deed of trust is dated 24 June 1993.

[4]    The original trustee of the trust was Trustees Executors Ltd but by deed of appointment and subsequent retirement dated 7 July 2009, Trustees Executors Ltd was replaced by Public Trust.

[5]    One of the settlors, Mary Burns, died on 20 October 1993, the surviving settlor, Helen Burns, died on 1 April 2015.

Issues for the Court

[6]    Two issues are raised in the application to the Court. The first relates to the identity of one of the beneficiaries of the trust, specifically as to whether it should be the Royal New Zealand Society for the Prevention of Cruelty to Animals Incorporated (the NZ RSPCA) or the Royal Society for the Prevention of Cruelty to Animals Incorporated (the UK RSPCA).

[7]    The second issue relates to the fact that the trust deed contained an accumulation of capital clause directing that, after payment of 80 per cent of the net income equally to the charitable beneficiaries, the trustees were:

… to transfer the remaining 20 per cent of the net income to the capital of the Trust Fund.

Identity of beneficiary

[8]    Prior to her death, the surviving settlor, Helen Burns, executed a statutory declaration on 8 October 2014. That statutory declaration addressed the fact that the settlors had been advised by the applicant that the Royal Society for the Prevention of Cruelty to Animals Incorporated was a British charity and promoted animal welfare in the United Kingdom.

[9]Helen Burns declared:

I believe the inclusion of the Royal Society for the Prevention of Cruelty to Animals in the trust deed to have been a clerical error. It was the intention of myself and my late sister that the charity to benefit from our Charitable Trust was to be the Tauranga branch of the Society for the Prevention of Cruelty to Animals.

[10]   The UK RSPCA have been notified of these proceedings and have provided a written consent dated 17 April 2019 confirming that it consents to the application by Public Trust to the High Court of New Zealand for rectification of the terms of the Burns Family Charitable Trust so that the reference to “Royal Society for the Prevention of Cruelty to Animals” in the trust deed is instead read as referring to the Royal New Zealand Society for the Prevention of Cruelty to Animals Incorporated.

Analysis

[11]   In an application for rectification, as it also is when interpreting a document, the Court’s task is to ascertain the natural and ordinary meaning of the words in question. In the case of Congregational Christian Church of Samoa v Tilaima, Andrews J said:1

The starting point is to give effect to the intention of the founder, ascertained from the terms of the Trust Deed. … the relevant principles of interpretation are:

(a)the purpose of a trust must be derived from its deed;

(b)where there is no express intention, extrinsic evidence is admissible;

(c)factors to consider include the language of the deed, its nature and the circumstances both of its execution and at the present time;

(d)the Court’s role is interpretation, not creation;

(e)past practice based on error cannot justify breach of trust.

[12]   In the present case, there is some indication of the settlors’ intention. At the time of the creation of the trust deed, both of the settlors lived in Tauranga and had done so for some 30 years. They had a history of community involvement and support for local charities and two of the three charities specified as beneficiaries of the trust

1      Congregational Christian Church of  Samoa  v  Tilaima  HC  Auckland,  CIV-2008-404-1893, 20 December 2010.

were clearly New Zealand charities. However, the most compelling evidence is the statutory declaration of Helen Burns. Having considered that declaration and the wording of the trust deed, I am satisfied that the settlors intended the correct beneficiary to be the NZ RSPCA, and not the UK RSPCA, and I make a declaration accordingly.

[13]   Given that I am satisfied that there has been a mistake, and that the proper interpretation of the words used in the trust deed is that they were intended to refer to the Royal New Zealand Society for the Prevention of Cruelty to Animals Incorporated and not the UK RSPCA, there is no need for me to consider rectification. However, I confirm that, had I been required to do so, relying on cases such as Saunders v CIR,2 I would have made an order rectifying the terms of the trust deed by inserting the words “New Zealand” after the word “Royal” and before the word “Society” in the definition of “the charitable beneficiaries” on page 2 of the trust deed.

Accumulation of capital

[14]   Historically, capitalisation of the income of a charitable trust is prohibited by that part of the rule against perpetuities known as the rule against accumulations.3

[15]   The application of the rule against perpetuities generally was modified by the Perpetuities Act 1964. The long title of that Act was:

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.

[16]Unfortunately, the language used in the Act did not achieve this outcome.

[17]   Section 21 of the Act provided a new rule relating to accumulation of income and trusts. Section 21(1) said:

… the power or direction to accumulate … income shall be valid if the disposition of the accumulated income is, or may be, valid, and not otherwise.

2      Saunders v CIR (1982) 5 NZTC 612, 380. See also Vanderlinde v Vanderlinde [1947] Ch 306, 311; and Re Butlin’s Settlement Trust [1976] 2 All ER 483.

3      See Trustees Executors and Agency Company Ltd v Bush (1908) 28 NZLR 183; 11 GLR 286.

[18]Section 21 of the Act did not address charitable trusts and in the decision of

Re Armstrong,4 Chisholm J held:

[12]     While the meaning of s 21 is obscure, the real issue in the present context is whether it has any application at all to a charitable trust.

[19]The Judge concluded that it did not.

[20]   Having come to that conclusion, Chisholm J then considered whether the Will could be modified to give effect to the apparent intention of the Will maker, namely that the whole of the income should be devoted to the charitable purposes specified in the Will. He considered there were three possibilities:

(a)approval of a scheme under the Charitable Trusts Act 1957;

(b)modification under s 10 of the Perpetuities Act; and

(c)modification under the inherent jurisdiction of the Court.

[21]   The Judge considered a scheme undesirable because of the likely delay and cost. He had some doubt as to whether s 10 was applicable and preferred to modify the terms of the trust using the inherent jurisdiction of the Court. He adopted the last of these alternatives.

[22]   There has been significant recent legislative development in relation to the accumulation of income by a charitable trust.

[23]   On 30 July 2019, the Trusts Act 2019 received the royal assent. It does not come into force  until  30  January  2021.  Section  16(5)  of  the  Act  provides,  “The common law rule known as the rule against perpetuities is abolished.”

[24]   Section 18 provides “A trust may accumulate income to the extent that is consistent with its terms.”

4      Re Armstrong, Perpetual Trust Ltd v Roman Catholic Bishop of Christchurch [2006] 1 NZLR 282.

[25]   For the same reasons that influenced Chisholm J in Re Armstrong, likely delay and cost make the approval of a scheme under the Charitable Trusts Act 1957 an unattractive option. Therefore, the Court has two options to address this issue. Either it can vary the terms of the trust deed under the Court’s inherent jurisdiction as was done in Re Armstrong, or it could use the power of rectification on the basis that it is obvious that the settlors did not intend to include in their trust deed a provision which was void as a matter of law.

[26]   The simplest approach is to rely on an inherent jurisdiction of the Court in the same manner that Chisholm J did in Re Armstrong.

[27]   I declare that cl 4.3(b) of the trust deed requiring a trustee to transfer 20 per cent of the net income to the capital of the Trust Fund is invalid.

[28]   Once the Trusts Act 2019 comes into effect after 30 January 2021, accumulation of capital in respect of the income of a charitable trust will become lawful. Clause 4.3(b) of the trust deed provides an indication of the settlors’ intention in relation to the accumulation of capital. Therefore, the trustee, in carrying out the settlors’ intentions, is entitled to have some regard to it. However, the trustee will not be obliged to act in accordance with it.

[29]   Section 18 of the Act provides that a trust may accumulate income. There is nothing in Hansard which would provide guidance as to any special meaning that Parliament might have intended for the word “may”. It must therefore be given its ordinary meaning. That meaning implies the exercise of a discretion by a trustee. The trustee may therefore determine to accumulate such portion of the income of the trust as they deem appropriate.

Outcome

[30]   The reference to the UK RSPCA in the Will is declared to be a reference to the NZ RSPCA. The reference to accumulation of capital in the trust deed is declared to be invalid. After 30 January 2020, the trustee will have a discretion to accumulate such portion of the income as they deem appropriate.

[31]I approve the draft order filed by counsel for the applicant in this matter.

Churchman J

Solicitors:
Greg Kelly Law Limited, Wellington for Applicant