Re Honoris Trust
[2017] NZHC 2957
•30 November 2017
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-1605
[2017] NZHC 2957
IN THE MATTER of the Honoris Trust IN THE MATTER
of an application for directions by
PV TRUST SERVICES LIMITED as sole
trustee of the Honoris Trust, pursuant to section 66 of the Trustee ActPV TRUST SERVICES LIMITED
Applicant
Hearing: 13 September 2017 Counsel:
TM Molloy for applicant
Judgment:
30 November 2017
JUDGMENT OF FITZGERALD J
[As to trusteeʼs application for directions]
This judgment was delivered by me on 30 November 2017 at 4 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Re PV Trust Services Limited [2017] NZHC 2957 [30 November 2017]
Solicitors: Cone Marshall Ltd, Auckland (G Cone)
Introduction
[1] PV Trust Services Ltd (“PVTS”) is the sole trustee of the Honoris Trust (“Trust”). It has applied to the Court under s 66 of the Trustee Act 1956 for a direction that a proposed course of dealing in relation to the trust estate is “proper and lawful”.
[2] There is no doubt PVTS has the powers to administer and distribute the trust estate in the manner proposed. Rather, the directions are sought because the proposed distribution will be “particularly momentous”, in that it will result in the distribution of the entire trust estate. PVTS therefore considers it appropriate to seek the Court’s “blessing” of the proposal.
[3] The two remaining named beneficiaries of the Trust are based in Argentina.1 They have been served with the proceedings, which include information concerning PVTS’s proposed distribution of the trust estate. Neither has filed an opposition or has otherwise indicated a wish to participate.
Factual background2
[4] It is necessary to detail the unusual circumstances giving rise to PVTS’s proposed course of dealing. Counsel for PTVS has provided comprehensive affidavit evidence from a number of people as to these matters. I am grateful to Mr Molloy for his helpful synopsis of the material and his guidance through it.
[5] Alsira Rosa Heche de Libedinsky (“Alsira”) was an Argentine citizen. She was married to Jorge Libedinsky, a successful businessman. Together, they had three daughters. Jorge died in 1999, leaving significant assets to Alsira and their children.
[6] After Jorge's death, two of the daughters commenced legal proceedings against Alsira and the third daughter, Dulce. The case was ultimately dismissed but it caused
1 The other two named beneficiaries (one of which was the settlor of the Trust) have died.
2 I have anonymised names where it is not necessary or relevant for their full name to be set out in this judgment.
an irreparable rift between Alsira and Dulce on the one hand, and the remaining two daughters on the other.
[7] In 2010, Alsira and Dulce instructed Mr Juan Carlos Oreggia Carrau (a Uruguayan lawyer) to establish the Trust. Mr Carrau has provided an affidavit in this proceeding. He explains that at that time, he had already been advising Alsira and Dulce on financial matters concerning real-estate assets they owned in Uruguay. He describes Alsira and Dulce as being very close, that they lived together, shared their assets and investments and operated a joint bank account. He says that he would generally receive instructions directly from Dulce and only met with Alsira on the odd occasion.
[8] Mr Carrau goes on to explain how in 2010, Alsira and Dulce’s accountant approached him to assist in establishing a trust for Alsira and Dulce. He explains that his understanding at the time was that Alsira and Dulce would be settling jointly held assets into it. He states that their intention was to maintain control of their joint assets, but from outside Argentina in a “safe” jurisdiction and under a structure that would make the assets available to both of them, and in the case of death, to the survivor.
Terms of the trust deed
[9] After consulting with colleagues in the law firm in which he then worked who specialised in trusts (and being provided with a draft trust deed), Mr Carrau duly prepared the Trust’s deed (“Trust Deed”). Alsira signed it on 5 February 2010. Its key terms are as follows:
(a)The settlor is identified as Alsira (not Dulce).
(b)The trustee is PVCI New Zealand Trust Ltd.3
(c)The named beneficiaries are Alsira and Dulce. Somewhat curiously, each is described in a schedule to the Trust Deed as a “50% beneficiary”.4
3 PVTS subsequently replaced PVCI New Zealand Trust Ltd as trustee.
4 PVTS’s application originally sought direction from the Court as to the proper interpretation of
(d)The trustee has wide discretionary powers to appoint and remove beneficiaries.
(e)The trustee has wide discretionary powers to appoint and distribute trust income and capital.
(f)Upon the expiration of the Trust (being 80 years after settlement, or a date set by the trustee by deed), the trustee is to hold unappointed trust capital on trust for such of the beneficiaries, in shares as appointed by the trustee before the end of the trust period.
(g)If part of the trust fund remains undisposed of at the end of the trust period, the trustee is to hold the unappointed trust capital for the “final repository” (if any).
(h)The Trust Deed fails to identify any default beneficiary or a final repository to receive the unappointed trust capital at the end of the trust period.
(i)The trust is governed by New Zealand law and New Zealand courts have jurisdiction over its administration.
[10] Cash and securities valued at approximately US$11 million were duly settled into the Trust. Mr Carrau says that although Alsira and Dulce jointly owned these assets, Alsira was recorded as the sole settlor of the Trust out of “deference” to her. While this could be argued to be consistent with the Trust Deed's description of Dulce and Alsira as “50%” beneficiaries, I am mindful of the fact that the named settlor is Alsira and not Dulce. PVTS has, properly in my view, proceeded on this basis.
these provisions. Those orders are no longer sought.
Alsira’s first letter of wishes
[11] On the same day the Trust was established, Alsira signed a letter of wishes (which had also been drafted by Mr Carrau, on instructions from Dulce). I will refer to this as “Alsira’s First Letter of Wishes”. It recorded that:
(a)The trustee was to distribute as much of the trust income and capital to Dulce and Alsira as from time to time was requested.
(b)That after her death, Alsira’s wish was that “my corresponding part of the trust fund passes entirely to my daughter [Dulce]”.
(c)After Alsira and Dulce had both died, a long serving family employee (“MM”) was to receive US$2,000 per month from the Trust for the rest of her life.
(d)The balance of the trust fund was to be held for Dulce’s children in equal parts.
(e)If Dulce died without leaving children, then besides the monthly distributions to MM, the trust fund would be for the benefit of the following charities:
(i)US$50,000 would go to a non-profit organisation which assists and supports research and treatment into infectious diseases (“Foundation”).5
(ii)The “remaining” would be divided between associations dedicated to diabetes research, recovery from cancer, cystic fibrosis and myasthenia gravis.6
(f)Under no circumstances was the trust fund to pass to Alsira's other two daughters and/or any of their relatives.
5 The head of the Foundation was a friend of Jorge and was also Dulce's physician.
6 Dulce had suffered from diabetes since childhood.
[12] At the time the Trust was settled and Alsira’s First Letter of Wishes was signed, Dulce was 60 years old. She had no children, and given her age (and absent adoption), was very unlikely to have children in the future. Mr Carrau says he and Dulce assumed the reference to Dulce's children was a standard formula used in all such letters of wishes and so they did not seek to amend it. Mr Carrau also says that the direction to leave the balance of the trust fund to charities was a provisional decision, and was only intended to last until Alsira or Dulce had decided who the final beneficiaries of the Trust should be.
Alsira’s second letter of wishes
[13] In 2014, Dulce approached Mr Carrau with instructions to prepare an updated letter of wishes. Alsira signed this on 18 February 2014. I will refer to this as “Alsira’s Second Letter of Wishes”. The only material amendments to Alsira’s First Letter of Wishes were:
(a)The gift to the Foundation was increased from US$50,000 to US$300,000.
(b)Instead of the “remaining” trust fund being distributed to various charitable organisations, only the “dividends earned by” the remaining trust fund would be distributed, at the trustee’s discretion, between associations dedicated to diabetes research and recovery from cancer.
[14] Mr Carrau says Dulce and Alsira intended the latter amendment to make clear that they did not want the entire balance of the trust fund paid to charitable organisations, and that they intended to provide further directions to the trustee in respect of the distribution of the balance of the fund.
Further events
[15] Alsira died on 10 April 2014. By her last will, she left her entire estate to Dulce.7
7 Alsira had excluded her two daughters from her estate in accordance with the procedure required under Argentine law. They appear to have accepted their exclusion and the Court was informed
[16] Mr Carrau continued to advise Dulce in relation to the Trust. Mr Carrau says that at all times, Dulce acted as if she was the sole owner of the Trust’s funds, as if she was entitled to direct the trustee in relation to the appointment of further beneficiaries and the ultimate destination of the trust estate.
[17] On 24 March 2015, and consistent with Alsira’s Second Letter of Wishes, the trustee appointed MM and the Foundation as additional beneficiaries of the Trust, but only to take effect on the date of Dulce’s death.
Dulce takes steps to identify final beneficiaries
[18] Shortly after Alsira’s death, Dulce became concerned about the final beneficiaries of the Trust. She met with Mr Carrau on 24 November 2014 to discuss those concerns. She told Mr Carrau she had started to prepare a list of final beneficiaries and she gave Mr Carrau a (handwritten) copy of a list.8 Mr Carrau explains that Dulce said the list was not complete (but reflected the names of the beneficiaries she already had in mind), but that she would complete it shortly. She also asked him to start drafting the documents necessary to have those people appointed as beneficiaries.
[19] Dulce and Mr Carrau continued to discuss these matters. On 19 March 2015, and as it transpired, only a few weeks before Dulce’s death, they had a conversation through an online messaging application about the incomplete list of final beneficiaries that Dulce had prepared.9 Initially, Dulce could not recall the need to make changes to the Trust or providing Mr Carrau with the incomplete list of beneficiaries some months earlier. But after Mr Carrau had explained the situation, she agreed she needed to complete the list of beneficiaries. The relevant part of the conversation was as follows:10
Dulce: Hello, Juan.
they have not taken any steps to challenge it.
8 A copy of this list, together with an official translation, is included in the evidence filed in support of the application.
9 Records of these conversations have been provided with the evidence filed in support of the application.
10 These conversations were originally in Spanish and have been translated into English.
If everything goes right (my health will have me doubting until the last moment) I'm going to Belgium on Wednesday 25 until Monday, April 6.
I'd like to see you when I'm back because I'm worried about [MM] I don't want her to be unprotected.
…
Juan: Perfect. I have to make some arrangements in New Zealand to formalize all the changes in HT. It's about 3000. Let me know if you agree. Have a good trip and enjoy.
…
Dulce: Please remind me, which were the changes?
Juan: To incorporate the new beneficiaries, a deed of amendment signed by you, has to be done. It will be prepared by the legal firm that manages the trusts in NZ for us. I could do it myself, but in order to avoid the risk that they could claim something, I prefer to be sure and get it done by the NZ lawyers.
Dulce: Ok, I didn't remember anything about this.
I take it for granted that the new beneficiaries will only appear in case that I disappear ..
Juan: Do you remember that you gave me a list with percentages of beneficiaries? We are not going to do it yet because you have to complete it. Just to advance on the matter. The beneficiaries would only receive in case of your death.
Dulce: Ok, we have to improve the situation of [MM] and complete the percentages properly.
Juan: Ok. We wait for you to come back.
[Emphasis added]
[20] But the final list of beneficiaries was never completed. Dulce died unexpectedly on 8 April 2015.11
Other relevant documents
[21] Dulce had signed a will on 18 March 2015, again reasonably soon before her death. Apart from several specific gifts, she left the balance of her estate to her close friends SF and JG.12 A Mr Bernardo Maria Beccar Varela was named as Dulce’s
11 The cause of death was “acute pulmonary edema”.
12 All specific gifts in Dulce’s will are to SF and JG. It was JG who Dulce was visiting in Belgium just before she died.
executor. He is a senior partner at an Argentinean law firm. There are no questions as to the validity of Dulce’s will, or her testamentary capacity at the time it was signed.
[22] Shortly after Dulce’s death, the trustee received a letter from Mr Varela dated 6 May 2015. Mr Varela was writing in his capacity as Dulce’s executor. Mr Varela says in his letter that in the months before her death, he and Dulce had had several conversations during which Dulce had told him she intended the balance of the trust estate to be finally distributed to nine persons or entities, including the Foundation and MM. PVTS subsequently clarified with Mr Varela that the contents of his letter were based on his recollection of his conversations with Dulce (which were not reduced to writing at the time). Mr Varela also advised that these intentions matched Ducle’s personal handwritten annotations that had been found in her home after her death.13
[23] PVTS was appointed trustee of the Trust in October 2015 (upon PVCI New Zealand Trust Ltd’s retirement). Mr Gerardo Caffera Morandi, a Uruguayan lawyer and a director of PTVS, has sworn three affidavits in support of PVTS’s application. He explains that PVTS has considerable doubts whether Mr Valera’s letter is a reliable record of Dulce’s wishes for the Trust. Although there is no doubt Mr Varela wrote the letter to PTVS with utmost good faith, its undated and unverifiable recollections are not consistent with Dulce’s online (and recorded) messaging conversation with Mr Carrau, just 20 days before her death. It is quite clear from those messages that Dulce had not finalised her views as to the Trust’s final beneficiaries.
[24] I have also considered the handwritten notes Mr Varela found in Dulce’s home. I consider that PTVS’s view that they are too informal to clearly indicate Ducle’s intentions for the Trust is a reasonable position to take. For example, parts of the notes are illegible, some of the names are ambiguous (with only first names given), and the notes only deal with 70 per cent of the trust estate. Also, the notes do not completely match up with the list of names in Mr Varela’s letter, as some of the names in the handwritten notes have been crossed out. The handwritten notes provided by Mr Varela also correspond with the draft handwritten list of beneficiaries Mr Carrau said Dulce had given him in November 2014. As discussed at [19] above, that draft was
13 Copies of the “annotations” are also in evidence (together with official translations).
incomplete, with Dulce herself stating several months later that the percentages needed to be “completed properly”.
[25] I therefore agree that there is no conclusive record of Dulce’s wishes for the trust estate’s final beneficiaries or its distribution after her death.14
The problem
[26] Mr Morandi explains that PVTS as trustee now faces a difficulty regarding the distribution of the balance of the trust estate. He says PVTS would ordinarily wish to give effect to Alsira’s Second Letter of Wishes by distributing the estate as follows:
(a)Setting aside sufficient funds (approximately US$1,000,000) to generate income to pay MM US$2,000 for the remainder of her life;
(b)Distributing US$300,000 to the Foundation; and
(c)Paying “dividends” generated by the remaining trust estate to associations dedicated to diabetes and recovery of cancer research worldwide, at PVTS’s discretion.
[27] But Mr Morandi notes that after the first two steps are taken (which are submitted to be uncontroversial), PTVS will be left holding the balance of the trust estate, worth approximately US$11 million, until the expiry of the trust period in February 2090 (or such earlier date as the trustee nominates by deed).
[28] As the Trust has no final beneficiaries, Mr Morandi states that he has been advised that upon the expiry of the trust period, PVTS would hold the balance on resulting trust for the settlor’s estate (i.e. for Alsira’s estate). If this occurs, Alsira’s executors would be required to distribute those assets in accordance with her will. Because Dulce was the settlor’s sole heir, the balance would then devolve to Dulce’s executor, who would distribute those assets in accordance with Dulce’s will. This would result in the assets being distributed to SF and JG. But by February 2090, both
14 It is of course a separate question as to what extent, if any, Dulce’s wishes should be taken into account in any event, given she is not a named settlor of the Trust. See [29] below.
SF and JG are likely to be dead, and so the balance of the trust estate would be distributed to their own heirs.
[29] PVTS evidently considers this outcome would be undesirable. However, it has no clear guidance from Alsira or Dulce as to what PVTS should do with the balance of the trust estate. Mr Morandi also explains that as Dulce was merely a beneficiary of the Trust, PVTS is not obliged to take her wishes as to the distribution of the balance of the trust estate into account. Further, distributions in accordance with the draft handwritten notes by Dulce would be inconsistent with Alsira’s Second Letter of Wishes. However, given Alsira, as settlor, clearly intended to benefit Dulce (significantly) in relation to the Trust on her (i.e. Alsira’s) death,15 PVTS consider it not unreasonable to also take into account Dulce’s own wishes. Mr Morandi further notes that, at least based on Mr Carrau’s evidence, both Alsira and Dulce believed that Dulce (after Alsira’s death) had the necessary power to appoint beneficiaries to receive the balance of the trust fund. This is consistent with Mr Varela and Mr Carrau’s evidence of their respective discussions and communications with Dulce about the Trust after her mother passed away.
[30] Given Dulce’s wishes in relation to the Trust are too uncertain (i.e. based only on the draft and incomplete handwritten notes as to potential beneficiaries), PVTS considers it would be more appropriate, and consistent with Alsira’s own wishes as settlor, to distribute the balance of the trust fund in accordance with Dulce’s will.16 PVTS considers this to be the clearest and only reliable indication of Dulce’s intentions in relation to her assets. Accordingly, PVTS proposes that it appoint Dulce’s heirs, SF and JG, as beneficiaries of the Trust, in order that it might distribute the balance of the trust estate to them in equal shares.
[31] But Mr Morandi considers that a further problem arises. If PVTS immediately distributes the balance of the trust estate to SF and JG, there will no longer be trust capital to generate “dividends” to pay to institutions dedicated to cancer and diabetes
15 Given her statement in her Second Letter of Wishes that upon her death, her “share” of the Trust passes to Dulce.
16 PVTS notes that it is not bound by either Alsira’s First or Second Letter of Wishes, but it is nevertheless appropriate in exercising its discretion that it has regard to those wishes: Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108 at [66]; Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at [36].
research (in accordance with Alsira’s Second Letter of Wishes). In order to resolve this issue and to take into account Alsira’s wishes, PVTS proposes distributing a percentage of the trust estate immediately to associations dedicated to diabetes and cancer research.
[32] Mr Morandi says PVTS has consulted with the Trust’s financial advisors in order to calculate the appropriate amount to distribute to those associations. The trust estate currently generates income of approximately US$75,000 per year. The Trust’s financial advisors have confirmed that the net present value of the right to receive income for the remaining lifespan of the trust period is worth approximately US$3,163,152. So, to give effect to Alsira’s Second Letter of Wishes, PVTS proposes to immediately distribute US$3,163,152 to associations dedicated to cancer and diabetes research.
The proposed distribution
[33]Accordingly, PVTS proposes to administer and distribute the trust estate by:
(a)Setting aside, and continuing to hold on trust US$1,000,000 for the purpose of making payments of US$2,000 per month to MM for the remainder of her life, in her position as beneficiary of the Trust.
(b)Distributing US$300,000 to the Foundation, in its position as a beneficiary of the Trust.
(c)Distributing US$3,163,152 to associations dedicated to cancer and diabetes research, to be appointed by PVTS in its absolute discretion.
(d)Appointing SF and JG as beneficiaries of the Trust and then distributing the balance of the trust fund (excluding amounts held on trust for MM referred to at [33](a)) to them in equal shares.17
17 This means approximately US$7.8 million would be shared equally between SF and JG.
(e)Upon the death of MM, distributing the balance of funds held for her benefit to SF and JG in equal shares.
[34] PVTS believes that it has all the necessary powers to administer and distribute the trust estate as proposed. It considers the proposed distributions set out above to be a proper exercise of its discretion as trustee. But it considers the proposed distributions would be particularly momentous given they result in the distribution of the entire trust estate. PVTS accordingly applies to the Court for directions that it is “proper and lawful” for it to administer and distribute the trust estate as proposed.
Discussion
Section 66 jurisdiction
[35] PVTS relies on s 66 of the Trustee Act 1956, which gives trustees a broad right to apply to the High Court for directions:18
66 Right of trustee to apply to court for directions
(1)Any trustee may apply to the court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee.
(2)Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the court thinks expedient.
[36] Importantly for PVTS, s 69 of the Trustee Act provides that trustees acting under directions of the court are deemed to have discharged their duties in relation to the subject matter of the directions.19 Therefore, a direction “blessing” PVTS’s proposed actions would effectively shield PVTS from future, related claims by beneficiaries and/or other parties. The issue arising is whether s 66 grants PVTS the right to apply to the High Court for directions in the nature of those sought here.
18 PVTS does not rely on the court’s inherent supervisory jurisdiction over trusts. The court’s inherent supervisory jurisdiction in relation to trusts is complementary to the statutory jurisdiction conferred by the Trustee Act: see Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 230 at [19].
19 Unless the trustee has been found guilty of fraud, wilful concealment or misrepresentation in obtaining that direction.
[37] For some time, it was unclear as to the breadth of issues that could be determined by s 66 applications. Some decisions had suggested that it was inappropriate for trustees to use s 66 to apply for directions in relation to substantive or important issues, or which involved the question of breach of trust by any of the trustees.20 Others had suggested that a broader approach was appropriate.21
[38] The Court of Appeal, however, has recently provided some clarification. In Chambers v S R Hamilton Corporate Trustee Ltd, it was confirmed that the High Court’s jurisdiction under s 66 is not restricted to minor or procedural issues.22 Rather, the provision is an enactment of the English Chancery Court’s “broad equitable jurisdiction”. The Court of Appeal said the nature of that English jurisdiction was summarised by Lord Oliver in Marley v Mutual Security Merchant Bank and Trust Co Ltd as follows:23
A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper and professional advice and, if so advised, to protect his position by seeking the guidance of the court.
[39] The Court went on to note that applications under s 66 will not usually be appropriate where important facts are contested.24
[40] Though it is now clear the High Court’s jurisdiction under s 66 is “broad” and not restricted to minor or procedural issues, the Court of Appeal’s reference in Chambers to Marley might suggest that a trustee must be in “genuine doubt” about a contemplated course of action before it can apply for directions under s 66. If that is so, then PVTS could not rely on s 66 here, as PVTS accepts it has the powers to administer and distribute the trust estate in the manner proposed, and it does not have any genuine doubt about the propriety of its proposed course of action. Rather, it
20 Neagle v Rimmington [2002] 3 NZLR 826 (HC) at [23]; Melville v NRMA Insurance (NZ) (2002) 1 NZTR 12-002 (HC) at [58].
21 New Zealand Māori Council v Foulkes [2014] NZHC 1777, [2015] NZAR 1441 at [44]-[50], where Kós J (as he was then) observed that s 66 is “simply an enactment of a broad Equitable jurisdiction that has long resided in Chancery Courts” (at [44]) and that, provided the caveats to the exercise of the jurisdiction are respected, trustees ought not to be deterred “from engaging this useful jurisdiction” (at [50]).
22 Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at [32].
23 Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 (PC) at 201.
24 At [34].
considers that course of action to be proper and appropriate, but given the decision is particularly momentous, seeks the Court’s approval or “blessing”. In this way, PVTS is not surrendering its discretion to the Court, but rather seeks the Court’s approval of PVTS’s own exercise of discretion.
[41] Mr Molloy notes that, in a well-known but unnamed and unreported case,25 Robert Walker J (as he then was) set out four categories of cases in which the Chancery Division of the English High Court will give directions to trustees. Mr Molloy says the orders sought by PVTS are covered by the “second category”, where a trustee has formed its own view of the appropriate course of action (i.e. there is no “genuine doubt” in the trustee’s mind as to what should occur), but it nevertheless seeks the court’s blessing given the course of action is momentous.
[42] Robert Walker J’s statement of these four categories was repeated by Hart J in Public Trustee v Cooper, where one of the issues considered was whether the Privy Council’s decision in Marley meant that the act of a trustee seeking directions necessarily involved the trustee surrendering his or her discretion.26 Hart J referenced Robert Walker J’s (chambers) judgment and set out the following extract from it:27
At the risk of covering a lot of familiar ground and stating the obvious, it seems to me that, when the court has to adjudicate on a course of action proposed or actually taken by trustees, there are at least four distinct situations (and there are no doubt numerous variations of those as well).
(1)The first category is where the issue is whether some proposed action is within the trustees’ powers. That is ultimately a question of construction of the trust instrument or a statute or both. The practice of the Chancery Division is that a question of that sort must be decided in open court and only after hearing argument from both sides. It is not always easy to distinguish that situation from the second situation that I am coming to …
(2)The second category is where the issue is whether the proposed course of action is a proper exercise of the trustees’ powers where there is no real doubt as to the nature of the trustees’ powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers. Obvious examples of that, which are very familiar in the Chancery Division, are a
25 Given it had been dealt with in chambers.
26 Public Trustee v Cooper [2001] WTLR 901 (Ch).
27 At 922-924.
decision by trustees to sell a family estate or to sell a controlling holding in a family company. In such circumstances there is no doubt at all as to the extent of the trustees’ powers nor is there any doubt as to what the trustees want to do but they think it prudent, and the court will give them their costs of doing so, to obtain the court’s blessing on a momentous decision. In a case like that, there is no question of surrender of discretion and indeed it is most unlikely that the court will be persuaded in the absence of special circumstances to accept the surrender of discretion on a question of that sort, where the trustees are prima facie in a much better position than the court to know what is in the best interests of the beneficiaries.
(3)The third category is that of surrender of discretion properly so called. There the court will only accept a surrender of discretion for a good reason, the most obvious good reasons being either that the trustees are deadlocked (but honestly deadlocked, so that the question cannot be resolved by removing one trustee rather than another) or because the trustees are disabled as a result of a conflict of interest. Cases within categories (2) and (3) are similar in that they are both domestic proceedings traditionally heard in Chambers in which adversarial argument is not essential though it sometimes occurs. It may be that ultimately all will agree on some particular course of action or, at any rate, will not violently oppose some particular course of action. The difference between category (2) and category (3) is simply as to whether the court is (under category (2)) approving the exercise of discretion by trustees or (under category (3)) exercising its own discretion.
(4)The fourth category is where trustees have actually taken action, and that action is attacked as being either outside their powers or an improper exercise of their powers. Cases of that sort are hostile litigation to be heard and decided in open court.
[Emphasis added]
[43] Both Robert Walker J and Hart J went on to discuss the effect of Lord Oliver’s opinion in Marley. Robert Walker J said:
I cannot think that the Privy Council [in Marley] was intending to decide, apparently without argument or citation on the point, that what I have called category (2), which is familiar to all Chancery practitioners on the private client side, does not really exist as a category at all.
[44] In Public Trustee v Cooper, Hart J said he “respectfully and emphatically agreed” with Robert Walker J that Lord Oliver was not intending to abolish category- two cases by subsuming them into category-three.28 I therefore read those judgments as affirming that, at least in England, trustees need not be in “genuine doubt” before approaching the Court for directions under its “broad equitable jurisdiction”.
28 At 925.
[45] Although these decisions have not been expressly adopted in New Zealand,29 in Chambers, the Court of Appeal referred to Public Trustee v Cooper, and set out the four categories when summarising counsel’s submissions.30 Ultimately, it was unnecessary for the Court to expressly consider or adopt the categories in that case, given the key issue was “whether the Trustees’ application for directions involved a surrender of their discretion to the Court”.31 In this context, the Court stated:32
[33] … Mr Gudsell argued that an explicit surrender of discretion was required. It has been suggested that Marley stands for that proposition, and we would not go that far. Trustees do not necessarily surrender their discretion to the court simply by seeking directions for orders that they act in a certain specified way. They are entitled to come to court on the limited basis of seeking particular directions. Nevertheless it is clear that trustees may come into a court and say that they are in doubt as to how they ought to exercise their discretion, and surrender that discretion.
[46] The Court also expressly noted that Robert Walker J’s four categories are referred to in many leading texts.33
[47] If s 66 of the Trustee Act is an enactment of the Chancery Court’s “broad equitable jurisdiction”, and if category-two applications are regularly decided by English High Court’s Chancery division, I see no reason why there should be a threshold requiring trustees to be in “genuine doubt” before applying to the High Court under s 66. For the reasons set out above, I do not read the Court of Appeal’s decision in Chambers as standing for such a proposition, despite its reference to Marley.
[48] I am fortified in this view by the earlier New Zealand High Court decision of Gailey v Gordon.34 That case involved a trust settled by a large company for the benefit of its employees. All the employees, however, were soon to be made redundant, leaving the trust without beneficiaries. So, the trustees applied to the Court
29 Though they have been followed “often enough” in England: see Lynton Tucker et al Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at [27-074].
30 At [24].
31 At [33].
32 Citing Public Trustee v Cooper.
33 At fn 10, referring to David Hayton et al Underhill and Hayton Law of Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [85.4]–[85.10]; Lynton Tucker et al Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at 1135; and Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington 2013) at [24.34].
34 Gailey v Gordon [2003] 2 NZLR 192 (HC). This was also referred to with apparent approval by the Court of Appeal in Chambers v SR Hamilton Corporate Trustee, at fn 17.
under s 66 asking (among other questions) whether they could “properly” proceed with a proposed winding up and distribution of the trust’s assets to a newly created charitable entity. The application was opposed by the employees.
[49] There was some dispute as to whether the proposal was within the trustees’ powers under the trust deed (this aspect of the application being akin to a category- one application). O’Regan J analysed the trust instrument and concluded the proposal was within the trustees’ powers.35 He then turned to consider whether the proposal was “proper”.
[50] Of relevance to this case, the trustees had submitted that in seeking that direction, they were not asking the Court to exercise any of the trustees’ discretion for them. The defendants, however, argued that the effect of making the application in that case was that the trustees had surrendered their discretion to the Court and that:36
the Court ought … to determine what action should be taken in the best interests of the trust estate. In other words, the Court should exercise the trustees’ discretion as it if were the trustees.”
[51] O’Regan J noted that much of the argument on this point focused on Marley. However, his Honour rejected the proposition that Marley stood for the broader proposition that a surrender of discretion must occur in all applications under s 66. It is useful to set out O’Regan J’s observations in this regard in full:
[31] …In relation to Marley, the order sought was for the conditional contract to be confirmed “subject to such modifications (if any) as the Court might think fit and as might be agreed”, which invited the Court to consider modifications to the proposal before it – indeed the Court of Appeal of Jamaica had done so. Marley involved an application for approval of the merits of the contract, effectively seeking a finding that the contract represented the best outcome reasonably obtainable by the trustees in the interests of the beneficiaries. The invitation to consider modifications ask the Court to approve something which differed from the proposal devised by the trustees. In my view, that put Marley into a different category from the present case.
[32] I accept that Lord Oliver of Aylmerton’s comments about the surrendering of discretion could be interpreted as a generic comment applying to all applications under s 66 or its overseas equivalents, but the better view is that it was a comment made in the context of the particular proceedings which was not intended to apply to all cases.
35 At [36]-[70].
36 At [24].
[33] In the present case the application has been made on a limited basis, seeking a Yes or No answer to each issue raised. That is the basis on which the issues have been placed before the Court by the trustees in their application and in my view it is inappropriate for the Court to further than answering the questions put to it. While Marley and Allen-Meyrick permit trustees to surrender their discretion if they wish to do so, they are not authorities for the proposition that any application under s 66 involves a surrender of discretion by the applicants even if that is not what they seek to do.
[52]I respectfully agree with his Honour’s analysis.
[53] Although O’Regan J did not refer to Robert Walker J’s four categories, it is also apparent that he considered the application before him to be a category-two type application, in which he did not assume the trustees’ discretion.37 He went on to express the tentative view that the appropriate standard of assessment in such a case is whether the proposed decision is in bad faith,38 or is ultra vires.39 Having considered the evidence put before him, he found that the proposal was both lawful and proper. O’Regan J accordingly made a direction that the trustees could “properly proceed” with the proposed winding up and distribution.40
[54] Taking these matters together, I am of the view that the jurisdiction conferred by s 66 can extend to the category-two type directions described by Robert Walker J and Hart J in Public Trustee v Cooper. Moreover, having given specific consideration to New Zealand’s unique trusts landscape,41 I am of the view that, so long as appropriate procedural safeguards are put in place to minimise potential prejudice to beneficiaries, such a jurisdiction could indeed be useful in the New Zealand context.
Approach to applications of the kind in this case
[55] The proper approach to applications such as the present one has been well- canvassed in English and other overseas decisions.42 Given the potential for
37 At [34].
38 Noting at [34] that “bad faith” includes decisions made for an ulterior motive, taking into account irrelevant considerations, refusing to take into account relevant considerations, and acting capriciously.
39 Rather than the stricter scrutiny of the “Wednesbury unreasonableness test”; see [88]-[90].
40 At [91]-[93].
41 As required by Vervoort v Forrest [2016] NZCA 375, [2016] 3 NZLR 807 at [63].
42 I have been guided, in particular, by Public Trustee v Cooper [2001] WTLR 901 (Ch); Cotton v Brudenell-Bruce [2014] EWCA Civ 1312, [2015] WTLR 39; Re Savile [2014] EWCA Civ 1632, [2015] WTLR 635; Re The S Settlement (2001) 4 ITELR 206 (Jersey RC); Re the V Settlement (2007) 12 ITELR 360 (Guernsey RC); Re the Thyssen-Bornemisza Continuity Trust (2002) 5
disadvantages to beneficiaries resulting from “blessing” orders if improperly made, it is paramount that applicant trustees provide the court with all relevant facts, documents and information when making an application.43 Further, it is imperative that when considering such an application, a judge only make the orders sought after “scrupulous consideration” of the evidence.44 The court will not rubber stamp such applications,45 and if the court is left in doubt, then it may withhold its approval.46
[56] Hart J in Public Trustee v Cooper stated that, when considering an application for blessing orders, the court should consider the following matters:47
(a)First, has the trustee in fact formed the opinion which the court is asked to bless?
(b)Second, is the opinion formed one at which a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the trust deed, could properly have arrived?
(c)Third, is the opinion vitiated by any conflict of interest under which any of the trustees might have been labouring?
[57] Millet J (as he then was) in Richard v Mackay sounded a note of caution in relation to the court’s approach to such applications, both in terms of the consequences of orders being made on them and the scope of the court’s role in relation to them:48
ITELR 340 (Bda SC).
43 Cotton v Brudenell-Bruce [2014] EWCA Civ 1312, [2015] WTLR 39 at [61]. See also Re Savile [2014] EWCA Civ 1632, [2015] WTLR 635 at [53]-[54], where Patten LJ observed that the level of information required will depend on the nature of the decision and its potential consequences.
44 Public Trustee v Cooper at 925. See also David Hayton et al Underhill and Hayton Law of Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [85.7].
45 Tamlin v Edgar [2011] EWHC 3949 at [25].
46 Although in Cotton v Brudenell-Bruce [2014] EWCA Civ 1312, [2015] WTLR 39 at [61], Vós LJ was of the opinion that court would not refuse to approve a proper, and momentous, transaction on some technical ground based upon an incidental failure to produce adequate material.
47 Public Trustee v Cooper at 925.
48 Richard v Mackay [2008] WTLR 1667 (Ch) at 1671. Note, however, that more recently in Cotton v Brudenell-Bruce [2014] EWCA Civ 1312 (CA) at [84], Vós LJ “cautioned” courts not to be overly cautious, stating: “The authorities that I have mentioned above that emphasise the need for caution in approving a trustee’s decision to undertake a momentous transaction need, I think, to be placed in context. The court will not approve a trustee’s decision without a proper evidential basis for doing so. But the court should equally not deprive a trustee of approval without good reason.”
It must be borne in mind that one consequence of authorising the trustees to exercise a power is to deprive the beneficiaries of any opportunity of alleging that it constitutes a breach of trust and seeking compensation for any loss which may flow from that wrong. Accordingly the court will act with caution in such a case when evaluating the possibility of risk and it will need to satisfied that the proposed transaction is not imprudent. But the appropriateness of the transaction is essentially for the trustees to decide, and different minds may have different views on what is appropriate in particular circumstances.
[58] The authors of Underhill and Hayton Law of Trusts and Trustees usefully summarise the position as follows:49
The task of the court [in a category-two type application] is not to say how it would itself exercise the discretion, but merely to ensure (via an inquisitorial process) that the proposed exercise is lawful in the sense that the trustees can properly form the view which they have.
[59] In the present case, Fogarty J (who had managed this application prior to his retirement) took an active and inquisitorial role in overseeing PVTS’s application prior to the hearing before me. His enquiries and requests for further information, made through a series of minutes, meant several important matters have been clarified and important information that was not before the Court when the application was first filed has subsequently been brought to the table. That includes the background to Mr Varela’s May 2015 letter to PVTS; copies of the handwritten annotations found in Dulce’s home; the existence and terms of Alsira’s First Letter of Wishes;50 Mr Carrau’s evidence of his interactions with Dulce in November 2014; his important evidence as to his online messaging conversations with Dulce shortly before her death; the status of Dulce’s will; and the evidence as to Dulce’s testamentary capacity when she signed her will. I am grateful to Fogarty J for ensuring this evidence was produced.
[60] The way in which the evidence unfolded in the present case underscores the importance of the judge considering a category-two type application adopting a thorough and active approach to testing the evidence filed in support.51
49 David Hayton et al Underhill and Hayton Law of Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [85.7].
50 Which provides important guidance as to Alsira’s intentions as recorded in her Second Letter of Wishes, given the quite deliberate drafting changes between the two.
51 Noting that Vós LJ’s “caution against caution” in Cotton v Brudenell-Bruce did not extend to ensuring there was a proper evidential basis upon which to make the orders sought.
Consideration of the proposal in this case
[61] There is no doubt that PVTS has the power to administer and distribute the estate in the manner proposed. So the proposed distribution is “lawful”, in the sense the Trust Deed gives PVTS wide-ranging discretionary powers to appoint beneficiaries and distribute trust property in the manner proposed.
[62] I next consider whether the proposed administration and distribution is “proper”, or whether it infringes on PVTS’s duty to act as a reasonable and prudent trustee. At the outset, I accept that PVTS has genuinely formed the view that its proposal is proper and in the interests of the Trust and its beneficiaries. As noted in the authorities and commentary above, it is not for this Court to say how it would itself exercise the discretion.
[63] Considering the proposal objectively, I accept PVTS’s position, that it is preferable to distribute the trust estate forthwith rather waiting until the Trust’s expiry in 2090, is a reasonable approach to take. The complications arising from a contrary approach are set out at [28] above. I also agree that PVTS has given appropriate consideration to Alsira’s Second Letter of Wishes, having also made an independent assessment of the appropriate course of action.52 The proposed dealing shows sensitivity to Alsira’s wishes to provide for MM during her lifetime, to donate to the Foundation and to distribute Trust income to diabetes and cancer research. But the wishes effectively “run out” at this point, and I am of the view that the proposal demonstrates appropriate awareness of the unusual consequences of allowing the Trust, which has no final beneficiaries, to remain alive until its expiry in 2090. I consider it is reasonable for PVTS to take into account what would happen upon the Trust’s expiry and that in all the circumstances, it is reasonable for PVTS to also have regard to Dulce’s will. This is particularly so given the lack of any other clear or reliable evidence as to either Alsira or Ducle’s wishes in respect of the balance of the trust fund.
52 See Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at [36].
[64] The proposed administration and distribution does involve the appointment of new beneficiaries and the immediate distribution of trust capital to them. It may be difficult to see how this would be in the best interests of the Trust’s current beneficiaries, MM and the Foundation. But I pay particular regard to the unusual and unfortunate series of events (that being Alsira and Dulce’s deaths, in relatively quick succession, without final beneficiaries ever being appointed) that has resulted in the present situation. Further, none of the evidence filed in support of the application suggests that Alsira (or Dulce) intended the full balance of the trust estate to pass to MM and/or the Foundation. Given these unusual circumstances, I do not think it can be said that PVTS’s proposal is one which no reasonable body of trustees could have reached or is otherwise capricious, in bad faith, or is being exercised for any improper purpose.
[65] Lastly, there is nothing to indicate that PVTS has any conflicts of interests (actual or potential) that would cause the Court to withhold its approval from the proposed administration and distribution.
[66]I therefore conclude that the proposed distribution is proper.
Decision
[67] Pursuant to s 66 of the Trustee Act 1956, I direct that it is proper and lawful for PV Trust Services Ltd to administer and distribute the Trust estate as set out at [1](a)(i) to (v) of the amended originating application dated 3 October 2017.
Fitzgerald J
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