Re Ronald McDonald House Wellington Trust Board
[2015] NZHC 2073
•28 August 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-276 [2015] NZHC 2073
IN THE MATTER of s 66 of the Trustee Act 1956 AND IN THE MATTER
of the Ronald McDonald House
Wellington TrustBETWEEN
the Ronald McDonald House Wellington
Trust BoardAppellant
Hearing: 26 August 2015 Counsel:
C J Kelly for Appellant
D L Harris for CrownJudgment:
28 August 2015
JUDGMENT OF WILLIAMS J
Introduction
[1] There are three Ronald McDonald houses in New Zealand. Each is a residential accommodation facility for the families of children with life threatening illnesses undergoing treatment at hospitals in Auckland, Wellington and Christchurch. The service is provided free of charge.
[2] Three independent charitable trusts, one for each location, administer the facilities. A fourth charity, Ronald McDonald House Charities Trust, is also operative. I have the impression that RMH Charities Trust is a national fundraising entity, though that is not explicit in the evidence and nothing in particular turns on it.
[3] The applicant is Ronald McDonald House Wellington Trust Board (I refer to the trust entity as RMH Wellington and the applicant as simply the Board). That
Re the Ronald McDonald House Wellington Trust Board [2015] NZHC 2073 [28 August 2015]
trust currently operates under a deed dated 11 April 2006.1 Its focus is the Wellington facility it owns and operates. It raises funds from within the Central Region for that purpose.
[4] The terms of cl 4.1 of the trust deed reflect its purpose:
To establish and carry out in Wellington in New Zealand the charitable and educational purposes as follows:
(a) To own the property and establish and maintain on that Property the Ronald McDonald House incorporating accommodation for families of children with life threatening illnesses who are undergoing treatment at Wellington Hospital or any other facilities in the greater Wellington region.
(b) To provide facilities in the Ronald McDonald house to create an environment that is supportive of the families of children undergoing treatment.
(c) To encourage members of the public in the Central Region to participate in the work of the Trust.
(d) To do all such other acts and things as are incidental to and will further or promote the attachment of the objects of the Trust or any of them provided that noting in this Constitution shall authorise any object that is not charitable at law in New Zealand.
[5] “Central Region” is defined in the deed in the following terms:
Central Region means that area of New Zealand for which TCCF is responsible by delegation from the Child Cancer Foundation (Incorporated) comprising first, the geographic areas known as Horowhenua, Wanganui, Taranaki, Manawatu, Hawkes Bay, Wairarapa, Nelson, Marlborough, and Wellington which the Ronald McDonald House is to service and, secondly, such other geographic areas of New Zealand no matter where situated which the Trustees in their absolute discretion designate, either permanently or on a temporary basis, from time to time.
[6] RMH Wellington, RMH Auckland and RMH Charities have decided to merge into a single national trust to be dubbed Ronald McDonald House Charities New Zealand Trust (RMH Charities New Zealand). The three trusts say multiple localised RMH trusts are causing confusion in the fundraising market. They say
consolidating into a single entity is likely to help to resolve that confusion. RMH
1 The original deed establishing the RMH Wellington Trust was executed in 1990 (though at that point the Trust operated under the auspices and in the name of the Child Cancer Foundation (TCCF). This explains (as will be seen) TCCF’s ongoing interest in RMH Wellington).
Christchurch does not presently wish to join the consolidation but, I am told, may yet wish to do so in the future.
[7] In the application before me, the Board effectively seeks directions under s 66 of the Trustee Act 1956 varying the 2006 trust deed so as expressly to allow it to resolve to wind up RMH Wellington and transfer its assets to the new consolidated entity. The application seeks directions in these terms:
… confirming the power of the Board to:
(a) execute a deed of variation;
(b) resolve to wind up the trust; and
(c) as part of that winding up, resolve to pass the existing funds of the trust to a new trust known as the Ronald McDonald House Charities New Zealand Trust.
[8] It is common ground that this same purpose could have been achieved by the interested parties devising a scheme under Part 3 of the Charitable Trusts Act 1957, but the Attorney raises no objection in that respect.
[9] A draft deed of variation per (a) above is attached to the affidavit of Denis Frank Wood, trustee of RMH Wellington, in which the changes to the trust deed are set out. A standard form amendment is proposed to various machinery provisions of the deed. By way of example, cl 5.1 relates to the power to pay, apply or appropriate income. It will provide as follows (with the additional wording added in italics):
The Trustees may pay, apply or appropriate, or decide to pay, apply or appropriate as much of the income arising from the Trust Fund in an Income Year as they think fit for or towards one or more of the purposes of the Trust or for the benefit of one or more charitable bodies in New Zealand whose purpose include one or more purposes of the Trust.
[10] The proposed variations thus widen the range of options available to RMH Wellington by empowering it to transfer its operation to another charity that shares in common at least one of RMH Wellington’s charitable purposes.
[11] Clause 11.10 of the deed contains its winding up provisions. Paragraph (a) of that clause currently provides as follows:
(a) The Trustees may wind up the Trust if in their opinion, it becomes impossible, impracticable or inexpedient to carry out the purposes of the Trust set out in clause 4.1.
[12] It is proposed to delete that subclause and to substitute the following:
(a) The Trustees may wind up the Trust by a resolution of not less than seventy-five per cent (75%) of the Trustees present and voting at a duly convened and conducted meeting of the Trustees.
[13] Subclause (b) of cl 11.10 currently provides as follows:
(b) On the winding up or dissolution of the Trust, the Trustees must give or transfer all surplus assets after the payment of costs, debts and liabilities:
(i) to Ronald McDonald House Charities and TCCF, for their general purposes in the Central Region, in such shares as the Trustees shall, in their absolute discretion determine and provided that in order to receive such assets or a share thereof a recipient must be recognised as charitable by the Commissioner of Inland Revenue. If only one of those organisations is then existing then a share of such assets as determined by the Trustees in their absolute discretion to that one subject to it then being so recognised by the Commissioner of Inland Revenue with the balance given or transferred as provided below in this clause.
(ii) subject to clause 11.10(b)(i) if neither Ronald McDonald House Charities nor TCCF are then existing and so recognised by the Commissioner of Inland Revenue as charitable then:
(a) to some other charitable organisation or body within
New Zealand having similar objects to the Trust; or
(b) for some other charitable purpose or purposes within
New Zealand.
[14] That subclause is to be substituted by the following:
(b) On the winding up or dissolution of the Trust, the Trustees shall transfer all surplus assets after the payment of costs, debts and liabilities to one or more charitable trusts in New Zealand whose purposes include one or more purposes of the Trust.
[15] The applicants say that although the disestablishment of RMH Wellington will cause its operations to be assimilated into the new national trust whose focus will include both Auckland and Wellington, the terms of the new deed provide
comfort that regional identity will not be lost and that funds raised in a particular region are applied to purposes of that region:
5.3Regional considerations: Subject to clauses 7.1 and 7.2 (and to support the activities and purposes of the previous RMH Charities and other charitable organisations which have transferred assets to the Board) the Board shall in exercising their powers and discretions under this deed:
(a) specifically apply the moneys and other property sourced for the purposes of a Relevant Region to, or for the benefit of, the assets of, the Trust in that region, including houses, hospitals, facilities and other work of the Trust in that region, in the priority set out in clauses 9.7.
(b) encourage members of the public in a Relevant Region to support and participate in the work of the Trust and its purposes.
[16] Similarly in cl 9.7, priority is given in the utilisation of assets transferred by
RMH Wellington, to purposes related to Wellington facilities:
9.7Assets: in respect of those assets of whatever nature transferred by a RMH Charity to the Trust the application of those assets shall be applied in the following priority:
(a) While those assets remain expended, for the maintenance of the facilities (whether as an immediate and urgent requirement or for work previously budgeted for by that RMH Charity) previously owned by such RMH Charity which the Board intends to continue to own and for the operational requirements associated with those facilities.
(b) in respect of assets of whatever nature acquired or received in a Relevant Region expressly for the purposes of the Trust in that region.
(c) In respect of all other assets of whatever nature not acquired or received expressly for the purposes of the Trust in a Relevant Region, for the general purposes of the Trust in all regions.
The applicant’s arguments
[17] The applicant Board says there is doubt about whether the provisions of the
2006 trust deed permit the winding up of RMH Wellington and transfer of its assets to RMH Charities New Zealand in light of the Wellington and Central Region focus of the trust’s original purpose. Assimilation of RMH Wellington into a national trust
may, it is considered, be inconsistent with that focus. Clarification is sought through the express provision in the variation. The applicant submits that resort to s 66 is appropriate in the circumstances.2
[18] The Board submits that it has agreed in principle to sign the deed of variation and to proceed to winding up and transfer of RMH Wellington’s assets to RMH Charities New Zealand, but says there is sufficient doubt to warrant seeking appropriate directions from the Court under s 66.
[19] The Board submits that in fact the focus of RMH Wellington under the deed is not so much Wellington (simply the site of treatment) but the broader purpose of assisting families of children receiving treatment. Patients, Mr Kelly submitted, could in reality come from all over the country. The Board says assisting families in this way will continue to be a core activity of RMH Charities New Zealand so the RMH Wellington purpose is not undermined.
[20] The Board submits that it arguably has the power to execute a variation of this nature since the only limitations on the power of variation are those set out in cls 23 and 25 of the 2006 deed relating to alterations to rules. These, the Board argues, contain simple super majority machinery provisions – 75 per cent of the trustees voting at a meeting called with sufficient notice, provided there is no conflict with the wider provisions of the trust deed, and no prejudice to charitable purpose. If it is accepted that the Wellington residential focus is incidental to the primary purpose of supporting the families of children with serious illness who happen to be in Wellington Hospital, then the changes are consistent with both the underlying purpose of the trust and this variation power.
Submissions of the Attorney-General
[21] No issue is taken with the ultimate objective of the application, but Ms Harris for the Attorney submits that the path chosen is not permissible. The Attorney’s
submission is that:
2 Recent New Zealand authorities confirm this, it is argued: Irvine & Ors v Penny [2015] NZHC
485, Lang J; Mitchell v Griffiths [2014] NZHC 751, Venning J; Gailey v Gordon [2003] 2 NZLR
192, and discussion in that case of Marley v Mutual Security Merchant Bank & Trust Co Limited
[1991] 3 All ER 198 (PC).
(a) the 2006 deed does in fact contain the power to achieve the desired objective – that is to amalgamate RMH Wellington into RMH Charities New Zealand;
(b)the proposed variation is therefore unnecessary and in any event inappropriate because the variation would (on its terms) permit the “substratum” of the trust to be undermined without express authorisation in the deed; and
(c) the alleged need to consolidate the RMH trusts because of confusion in the fundraising market is a sound basis upon which to argue that it is “inexpedient” in terms of cl 11.10(9) to carry out the purposes of the trust utilising the present structure. Winding up can therefore be justified. The Attorney relies in particular on a decision of this Court in Re Tuhoe Charitable Trust Board3 in that respect.
[22] In any event the Attorney argues, the proposed variation amendments are too wide and able to be used for a purpose inconsistent with the underlying purpose of the trust – that is to enable, by a backdoor means, the transfer of the trust’s assets to another entity that lacks a sufficient Wellington focus. They therefore arguably
permit a fraud on the power.4
[23] The Attorney submits that the Court should direct that the trustees have the power to wind up the trust under cl 11.10 of the 2006 deed, but it is both unnecessary and inappropriate for the trustees to execute the wider variations now sought.
Analysis
[24] I do not agree with Mr Kelly that the regional focus of the 2006 deed is incidental to its real purpose which is provision of family accommodation. Rather, the Wellington and Central Region foci are, in my view, inherent in RMH
Wellington’s substratum. That is why the Board specifically required the
3 Re Tuhoe Charitable Trust Board [2012] NZHC 1952.
4 See Kain v Hutton [2008] NZSC 6, [2008] 3 NZLR 5891 at [46]-[47].
amendments to RMH Charities New Zealand’s draft deed at cl 5.3 and 9.7 as outlined above before it would agree to the consolidation.
[25] But that does not mean the Board’s objective cannot be achieved. More particularly, I agree that the Tuhoe Charitable Trusts case and the authorities cited therein, suggest the reference in cl 11.10(a) to ‘inexpedient’ is to be read broadly and purposively, and that the Court should adopt a facilitative approach where it has been demonstrated that the current trust is no longer suitable or apt as a vehicle for
achieving the underlying purpose of the trust.5
[26] Tipping J’s extensive discussion of the meaning in the context of s 32 of the Charitable Trusts Act of the term “inexpedient” in Re McElroy Trust assist in understanding what it should be taken to mean in charitable trust restructuring.6
The power to vary a charitable trust was first enacted by the Charitable Trusts Extension Act 1886. The criteria for variation were then limited to impossibility and impracticability. Inexpedience was added as a criterion by the Religious, Charitable, and Educational Trusts Amendment Act 1928. The amendment was prompted by the decision of Reed J in Methodist Theological College Council v Guardian Trust and Executors Co of New Zealand Ltd [1927] GLR 394 where an obviously inexpedient purpose could not be varied because it was neither impossible nor impracticable to carry it out.
The general connotation of the word “inexpedient” in its present context is of the original charitable purpose or purposes having become unsuitable, inadvisable or inapt. Parliament’s wish to expand the concepts of impossibility and impracticability should not be inhibited by too narrow an interpretation of the word “inexpedient”. Clearly Parliament wished to give the Courts power to approve a scheme of variation in circumstances beyond those where the original purpose could no longer be carried out. The concept of inexpediency introduced a value judgment rather than simply an assessment of feasibility. It may remain possible and practicable to carry out the original purpose but it may have become inexpedient to do so. If that is so, a scheme of variation may be approved so long as it keeps as close as reasonably possible in the new circumstances to the original intention of whoever established the trust: see Re Twigger [1989] 3 NZLR 329 and the various cases there surveyed, and in particular the influential decision of Tompkins J in Re Whatman (Supreme Court, Wellington, 16 July 1965). It may be worth repeating here that the question is not whether the scheme
5 Hawkes Bay Children’s Home v Birthright (Napier) Inc HC Wellington CIV-2004-441-458,
30 August 2004, Re Sisters of Mercy Trust HC Wellington CIV-2005-485-2290, 12 December
2005, and Re New Zealand Federation of Graduate Women HC Wellington CIV-2006-485-2037,7 November 2006, all referred to in Tuhoe Charitable Trusts at [38].
6 Re McElroy Trust [2003] 2 NZLR 289 at [13]-[14].
carries out the purposes of the trust better. Rather it is whether it is now inexpedient to carry them out.
[27] “Inexpedient”, at least as that term is used in s 32, is thus a broad term to be applied to the needs and circumstances of a case, particularly so in the context of an application to rationalise multiple trusts into a single consolidated structure. There is no reason to construe the same word in cl 11.10 any differently. Perhaps the relevant question in the present case is whether the obstacles to the carrying out of the original trust purpose are sufficiently significant and the arguments against the restructure sufficiently limited in merit to justify the proposal such that the present structure may now be described as inexpedient.
[28] In this case, that is undoubtedly the position in my view.
[29] Clause 11.10(a) is therefore engaged: the current trust structure is inexpedient and it is in order to wind up RMH Wellington, provided the new destination for its assets is operated for purposes more or less consistent with the original RMH Wellington purpose. Perfect symmetry is not required, but a reasonable degree of consistency in light of the circumstances of the case is.
[30] I am satisfied that the terms of the deed under which RMH Charities New Zealand will operate are consistent with the original purposes of RMH Wellington. The proposed additions to RMH Charities New Zealand’s deed (in effect) giving priority in the use of Wellington assets and Central Region funds, to Wellington based accommodation and services, involves a sufficient degree of consistency with the old purpose. Given the structural flaw – “inexpedient” multiple localised trusts – the change, on the proposed deed terms, represents a reasonable reconciliation of two potentially inconsistent ideas: national operation and localised benefit. So far, so good.
[31] The first difficulty, however, is the terms of the winding up clause 11.10(b)(i). This clause does not permit the proposed transfer. It requires that on winding up, the assets may only be transferred to RMH Charities and the Child Cancer Foundation (TCCF) to be utilised “for their general purposes in the Central Region”.
[32] It is only if those two organisations are no longer in existence at the time RMH Wellington is wound up, that the Board has a wider discretion to transfer the assets:7
(a) To some other charitable organisation or body within New Zealand having similar objects to the trust; or
(b) For some other charitable purpose or purposes within New Zealand.
[33] While RMH Charities New Zealand is to be wound up under the scheme, TCCF is an independent charity and still very much in existence. Thus on its present wording, the Board cannot give effect to the scheme for national consolidation because if RMH Wellington is wound up, its assets must be transferred to TCCF.
[34] The second problem is that the proposed variations to the 2006 deed are too broad – in fact broader in their compass than the steps the Board actually intends to take. They empower, in theory at least, transfer of the assets of RMH Wellington to a trust whose purposes overlap only to a limited extent with those of RMH Wellington. Ms Harris is right that, in this way, the proposed amendments could enable a fraud on the power, even if one is not intended. This Court should not sanction such an outcome, even if theoretical.
[35] On the one hand therefore, I am not satisfied that the relatively open-ended variations sought are appropriate because, as the Attorney submits, they permit, by over-broad language, the assets of the trust to be applied to purposes so inconsistent with the underlying objective or substratum of RHM Wellington’s deed as never to have been within the contemplation of the settlor. Long established authority
confirms that this is not permitted.8
[36] The standard form variation such as that set out above in relation to cl 5.1 is therefore not permissible.
7 Clause 11.10(b)(ii).
8 See for example Re Dyer [1935] VLR 273 at [290]-[291]; and Re Balls Settlement [1968] 2 All
ER 438.
[37] On the other hand, as I have found, the Board’s actual intention is broadly consistent with the purpose of RMH Wellington and should be supported if at all possible.
[38] I consider that RMH Wellington’s proposal can in fact be given effect in a manner consistent with the authorities through one small variation to cl 11.10(b)(i). This amendment would remove RMH Charities and TCCF and substitute RMH Charities New Zealand as the mandatory transferee of RMH Wellington’s assets on winding up.
[39] The only entity that may possibly be prejudiced by this course is TCCF, currently the compulsory transferee if RMH Wellington is wound up. But as Mr Woods’ affidavit demonstrates, TCCF approves of the restructuring. A letter from the chief executive of TCCF is exhibited to the Woods’ affidavit. The letter relevantly provides:
Child Cancer Foundation has been advised of the proposal to merge or resettle the Ronald McDonald House Wellington Trust assets, together with those of Ronald McDonald Charities and RMH Auckland Trust in to a charitable trust known as Ronald McDonald House Charities New Zealand Trust.
Thank you for providing copies of the documents to give effect to this proposed arrangement. The Child Cancer Foundation has a close interest in this matter as the trust now known as Ronald McDonald House Wellington Trust was originally established at the instigation of the Central Division of the Child Cancer Foundation. The Child Cancer Foundation also enjoys a close working relationship with Ronald McDonald House Trusts throughout New Zealand.
The Foundation supports the proposed merger.
[40] The application is therefore granted in part. The Board may:
(a) execute a deed of variation but the operative part of the deed must be on the following terms:
(i)clause 11.10(b)(i) is amended by deleting the existing subclause and substituting the following:
To Ronald McDonald House Charities New Zealand
Trust;
(ii)clause 11.10(b)(ii) is amended by deleting the existing subclause and substituting the following:
Subject to cl 11.10(b)(i), if Ronald McDonald House Charities New Zealand Trust does not then exist then to some other charitable organisation or body within New Zealand having similar objects to the trust.
(b) resolve to wind up RMH Wellington; and
(c) as part of that winding up, resolve to pass the existing funds of the trust to a new trust known as The Ronald McDonald House Charities
New Zealand Trust.
Williams J
Solicitors:
Greg Kelly Law, Wellington
Crown Law, Wellington