Re Setter

[2021] NZHC 1603

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2021-441-6

[2021] NZHC 1603

UNDER

Part 18 of the High Court Rules 2016 and the Trusts Act 2019

IN THE MATTER OF

an application without notice for directions as to service and representation

IN THE MATTER OF

an application to the Court for authorisation to vary a trust deed

BETWEEN

ALISTAIR JAMES SETTER, PATRICK MARCUS PEACOCK, KAREN ELIZABETH MIDDELBERG, ELIZABETH CLEMENT JANE GRAY TOSWILL, CALLUM LEICESTER GRAY, CATERINE ANNE AVERY, AND GEORGE HUGH WILLIAMS AS TRUSTEES OF CENTRAL HAWKES BAY CONSUMERS POWER TRUST

Applicants

Hearing:	On the Papers
Counsel:	H J P Wilson and J Bell-Connell for Applicants G Kelly for Beneficiaries
Judgment:	10 June 2021
Reasons:	1 July 2021

REASONS JUDGMENT OF ISAC J

Background

[1]                 The applicants are the trustees of the Central Hawke’s Bay Consumers Power Trust (the Trust). They have applied to vary the Trust Deed under s 130 of the Trusts

SETTER [2021] NZHC 1603 [10 June 2021]

Act 2019 (the Act) so that, in the future, all seven of the trustees will be appointed by the beneficiaries of the Trust. That is not currently the case for three of the trustees.

[2]                 As trustees, the applicants hold and own the shares in Centralines Ltd (Centralines), an electricity distribution company in Central Hawke’s Bay. The Centralines network has over $54m worth of assets, is 1,700 km in length, and supplies approximately 8,500 connection points.

[3]                 The Trust was established by the Trust Deed dated 10 March 1993, which was amended on 11 December 1998.

[4]                 The beneficiaries of the Trust are electricity consumers; those ultimately liable for the payment of any amount in respect of connection to or use of Centralines’ distribution network.

[5]                 Centralines is regulated by pt 4 of the Commerce Act 1986 (the Act). It must comply with the default price-quality paths (DPP) set by the Commerce Commission.1 The trustees say the cost to Centralines in ensuring compliance with DPP regulation is significant, comparative to the small numbers of consumers it has.

[6]                 Consumer-owned electricity distribution companies are exempt from DPP regulation under s 54G(2) of the Act. Under s 54D of the Act, a consumer owned electricity distribution company must have its trustees elected by consumers.

[7]                 The Trust is not currently ‘consumer owned’ because, as noted, three of its seven trustees are not elected by consumers. Instead, they are appointed by the Mayor of the Central Hawke’s Bay District Council, the Central Hawke’s Bay District Council, and the Manager of the largest consumer of electricity supplied by Centralines.

1      Mr Setter says this involves keeping revenues below Commission-set limits, meeting certain reliability and quality standards, and disclosing audited information showing how Centralines intends to comply with the limits, and how it has actually complied with the limits over the regulatory period.

Application

[8]                 Against that backdrop, the trustees have applied to vary the Trust Deed so that all seven of the trustees will be elected by consumers. The intention is to bring Centralines into the definition of ‘consumer-owned’ under the Act, so that it will be exempt from the DPP regulation. If the variation is not authorised, the trustees say:

(a)Centralines will be required to comply with the DPP, which will require it to face financial penalties because it is required to build a new depot and administration building that would put Centralines above a capital expenditure limit for the relevant period;

(b)Centralines will be disadvantaged by the incremental rolling incentive scheme under the DPP that would effectively require it to repay consumers for prices that it did not charge to consumers during the previous period; and

(c)The variation will enable Centralines to achieve greater pricing stability for beneficiaries.

[9]                 More generally, the trustees say the variation will allow the costs currently expended on regulatory compliance to be invested into the business and its infrastructure. And, the Trust will be in a better position to ensure that it is meeting the needs of the community by having all of its trustees elected by consumers.

[10]             The Trust has conducted a public consultation process with its beneficiaries.2 It says the outcome of the consultation process demonstrates that consumers are in support of the amendments to the Trust Deed.

[11]             The application is advanced under s 130 of the Trusts Act 2019. It is said that the proposed variation is:

2      The Trust placed a public notice in the Central Hawke’s Bay Mail on 29 October and 10 November 2020, a specific web page has been established on Centralines’ public website detailing the proposal and answers to frequently asked questions, Mr Setter appeared on a local radio station on 4 November 2020, drop-in centres were created at the Waipawa  Public Library on 5 and     10 November 2020, and the Trust asked for written feedback by 20 November 2020.

(a)necessary and/or desirable for the proper management and/or administration of the trust property; and

(b)does not alter a beneficiary’s interest under the trust; and

(c)does not involve a power to distribute trust property to a beneficiary.

[12]             I issued a minute dated 11 May seeking counsel’s assistance on whether s 130 is the appropriate avenue for this application. Counsel filed helpful submissions indicating s 130 was the appropriate gateway.

[13]             On 10 June 2021 I issued a results judgment granting the orders sought with reasons to follow.3 This judgment sets out my reasons.

Discussion

[14]             Broadly, ss 64 and 64A of the Trustee Act 1956 have been carried over with some modifications in ss 130 and 1244 of the Trusts Act 2019.

[15]Section 130 of the Trusts Act is the successor to s 64. It provides:

130Power of court to vary or extend trustees’ powers in relation to property

(1)The court may vary or extend the powers of the trustees of a trust if—

(a)the court considers that the variation or extension is necessary or desirable for the proper management or administration of the trust property; and

(b)the variation or extension does not alter a beneficiary’s interest under the trust; and

(c)the variation or extension does not involve a power to distribute trust property to a beneficiary.

(2)An application for an order may be made by—

(a)a trustee of the trust; or

(b)a beneficiary of the trust.

3      Re Setter [2021] NZHC 1381.

4      And s 125.

[16]             Section 130 is directed to variations of trustee powers. Only administrative and management powers may be varied under s 130. Section 130 cannot be used to alter a beneficiary’s beneficial interest or involve a power to distribute trust property to a beneficiary.5

[17]             Section 64 was also administrative in nature, empowering the court to sanction specific transactions where they would be in the best interests of beneficiaries and there would otherwise be difficulties in effecting those transactions.6 The types of transactions enumerated in the section were sale, lease, mortgage, surrender, release, other disposition, purchase, investment, acquisition, retention or expenditure. All these transactions were concerned with the non-distributive administration of the trust property, as the provision did not permit the court to make changes to the beneficial interests under the trust.

[18]             As the Law Commission noted in relation to the relationship between ss 64 and 64A:7

9.56 Traditionally section 64 has mainly been applied to authorise dealings with trust assets in a way that has not been contemplated or authorised by the trust deed. It can be distinguished from the type of intervention undertaken under section 64A (which allows more substantive amendments to trusts including changes to provisions about beneficiaries). We consider this type of distinction should be retained. However some broadening of the provision to allow the court to make amendments to the non-distributive administrative provisions of the trust deed where this is necessary to enable the trustees to efficiently manage trust property seems appropriate.

[19]             Variations of trust deeds have been approved by the Court under s 64.8 However, those cases where variations to a trust deed have been allowed have not discussed in detail the reach of the statutory provision. At first blush, it is not clear that Parliament could have intended to permit variations to trust deeds under s 64, given the express statutory language is directed to the approval of specified (and individual) transactions. One explanation for the expansive interpretation adopted may be the

5      Nicola Peart (ed) Family Law — Family Property (online looseleaf ed, Thomson Reuters)  at  TU 130.03.

6      Law Commission Review of the Law of Trusts Preferred Approach Paper (NZLC IP31 2012) at 186.

7      At 188.

8      See Banicevich v Gunson [2006] 2 NZLR11 (CA) at [41]; MacAlister v Royal New Zealand Foundation of the Blind [2015] NZHC 909.

effect of the decision of the House of Lords in Chapman v Chapman,9 the apparent effect of which was to ossify the scope of the Court’s inherent jurisdiction. Chapman v Chapman has been followed in New Zealand.10

[20]              As noted, more fundamental alterations of trusts and trustee powers under the Trustee Act 1956 were made under s 64A, which provided the Court with a discretion to approve on behalf of beneficiaries any arrangement varying or revoking the terms of a trust, or enlarging the powers of the trustees for “managing or administering” the trust property.

[21]             Section 64A now appears to have been largely subsumed in ss 124 and 125 of the Trusts Act. Section 124 provides the Court with a power, on behalf of any of the beneficiaries, to approve the termination, variation, or resettlement of a trust. Under s 125, the Court may waive a requirement for beneficiary approval of such variations or resettlements.

Discussion

[22]             The Trust’s application does not appear to fit nicely within s 130. Section 130 relates to variations of trustees’ powers. The proposed changes do not relate to any trustee powers, but rather seek to confer on the beneficiaries a wider power of appointment of trustees. For this reason, while I go on to make some brief observations about the current lack of clarity about the scope of s 130, and its relationship to s 124, I have concluded that the appropriate course is to make the orders sought under the Court’s inherent jurisdiction, consistent with the approach in Clifton v Clifton.11

Scope of s 130 variations and relationship with s 124

[23]             There certainly are indications that s 130 — like s 64 — can be used to vary trust deeds.

9      Chapman v Chapman [1954] AC 429 (HL).

10     Re Gray (decd) [1956] NZLR 764 (HC); Re Ebbett (decd) [1974] 1 NZLR 392 (HC).

11     Clifton v Clifton (2004) 1 NZTR 14-018.

[24]             Unlike s 64, s 130 is broadly framed and does not list the specific types of transactions that can be the subject matter of an application to vary or extend the trustees’ administrative powers. Such drafting is an indication that Parliament did not want to restrict the scope of the provision to individual transactions, and that it can be used for wider changes to the administration and management of a trust than appeared to be the case under s 64. And it may also indicate that, so long as the extension or variations relate broadly to the trust property — and do not involve dispositive powers

— they can be done under s 130.

[25]             In this regard, I accept the applicant’s submission that s 130 of the Act cannot have narrowed the courts’ jurisdiction to approve variations for administrative and management purposes. If anything, it has broadened it.

[26]             Section 130 also lowers the threshold for intervention. Where under s 64 a court could only vary a trustee’s powers if it was expedient in the management or administration of the trust property, or in the best interests of the beneficiaries of the trust, s 130 allows the court to vary or extend a trustee’s powers if it considers it “necessary or desirable” for the proper management or administration of the trust property. The inclusion of the word ‘desirable’ potentially gives greater scope for the Court to approve applications by trustees to vary administrative powers.12 I also have no doubt that this proposed application, in terms of how it has been framed, is necessary and desirable for the proper management or administration of the trust property. There is also a clear benefit to the beneficiaries.

[27]             I also accept the applicants’ submission that the proposed variation does not impact the distributive provisions of the Trust or the underlying beneficial interests, and so s 130, by implication, could be seen as an appropriate mechanism to achieve the change the Trust seeks.

[28]             Despite these observations, as I have noted the difficulty for the current application is that it does not seek to alter trustee powers. Instead it seeks to alter (or expand) the beneficiaries’ power of appointment of trustees. That appears to be beyond the obvious scope of s 130, and squarely raises the question whether s 130 is

12     Family Law — Family Property, above n 5, at TU 130.03.

the appropriate avenue to achieve the amendment to the Trust Deed which the applicants seek.

[29]             The application also highlights a question about the boundary between purely ‘administrative’ changes governed by s 130 (or s 64 of the previous Act) and more substantive alterations contemplated by s 124 (or the previous s 64A). The Law Commission considered the relationship between the two provisions was worthy of clarification:13

5.60 The issue for consideration, as the Commission sees it, is whether section 64 should be expressly restricted to the approval of certain transactions, and it made clear that any more fundamental amendment to trustees powers or any other terms of the trust should only be permissible under section 64A, or whether section 64 should explicitly allow the variation of trusts. This would make it clear that any variation of a trust can only be made with the consent of the beneficiaries, and that while the court can provide consent on behalf of incapable beneficiaries, it cannot supplant its approval for the views of those that withhold consent. It was asked, above, whether section 64A should be extended so that a variation of any nature can be made under the provision. On one view this would diminish the need for section 64. However, there is also an argument that the fact that beneficiary consent is not required under section 64 means it offers a simpler alternative than section 64A and thus warrants retention. This would essentially confirm Winter. Indeed, its convenience may warrant its extension so that it can be used for a broad range of administrative variations, as the New Zealand courts have done on occasion, without the need for beneficiary consent. One possibility would be to restrict section 64 to dealings with trust assets. It may be helpful to consider the principles behind section 64 and 64A. Should the law emphasise beneficiaries’ proprietary rights in trusts by broadening the types of variation that can be approved under section 64A? To what extent should trustees be able to give effect to settlors’ intentions by varying administrative provisions of trusts?

[30]             It is not apparent that this important question has been answered by Parliament when it enacted the Trusts Act. Parliament adopted the Law Commission’s draft legislation but in doing so it made some important changes to the text. And in making changes to what is now s 130, the Select Committee report does not provide guidance on the reasons for the amendments, or the relationship between matters falling within s 130 and those which ought to be addressed under s 124.14 This case in fact raises that

13 Law Commission Review of the Law of Trusts Third Issues Paper (NZLC IP22 2011) at 71.

14 Trusts Bill 2017 (290-3) (select committee report). The Law Commission’s suggested drafting limited the court’s power to vary or extend trustee powers under s 130 to those “in relation to property transactions”. The empowering words in s 130 (1) are not limited in that way, suggesting Parliament intended to widen the power of variation from that contemplated by the Law Commission.

question: are alterations to a power of appointment of trustees captured by s 130, s 124, or not at all?

[31]             Because this application was not opposed, the Court has not had the benefit of a contradictor or full argument on the point. But it is not necessary to determine in this case whether s 130 is the appropriate statutory jurisdiction on which to grant the order. That is because I consider the inherent jurisdiction permits the Court to make the order sought.

[32]             In Clarke v Karaitiana the Court of Appeal explained this Court’s jurisdiction in the field of trusts, saying it:15

…is both statutory and inherent. The inherent jurisdiction is derived from the Court’s general supervisory powers in equity relating to the supervision of trusts for the welfare of beneficiaries. The inherent jurisdiction of the Court includes the power to enable it to act effectively within its jurisdiction. The Court may exercise its inherent jurisdiction even in respect of matters which are regulated by statute, so long as it can do so without contravening any statutory provision.

(footnotes omitted)

[33]Clause 14 of the Trust Deed provides:

Except as authorised by a Court of competent jurisdiction or by Clause 24 of the Schedule to this Deed, this Deed may not be altered or amended by the Trustees.

(emphasis added)

[34]             The Court is therefore empowered by the Trust Deed to vary its terms. Administrative provisions have been varied by the Court under its inherent jurisdiction before, on the basis that they are not a variation of the trust itself.16

[35]             And, consistent with my own view of the limits of ss 130 and 124, in Clifton v Clifton, Patterson J concluded that neither ss 64 nor s 64A of the 1956 Act (now ss 130 and 124), provided the Court with jurisdiction to vary a power to appoint trustees.17 Instead, the Court considered the power to do so lay in the inherent jurisdiction. That

15     Clarke v Karaitiana [2011] NZCA 154, (2011) 3 NZTR 21-034, [2011] NZAR 370 at [38].

16     See Clifton v Clifton, above n 11; Re Harkness Henry Trust Management Ltd [2019] NZHC 2480.

17     At [39]–[42].

was so despite the limits of Chapman v Chapman, because the proposed change did not involve a variation of the trust.18 Rather, it was a variation of an administrative provision:19

The Court's inherent jurisdiction to alter trusts has been restricted by the House of Lords decision in Chapman v Chapman, as applied in Re Ebbett. However, what is sought here is not, in my view, a variation of the trust. As noted above, it is a variation of an administrative provision and not an alteration of the trust itself. This trust was sanctioned by this Court to protect infant beneficiaries. In my view, the Court must have a supervisory jurisdiction to modify an administrative provision which has been shown can be used in a manner which may be to the detriment of the infant beneficiaries. The Court, in its inherent jurisdiction, should intervene to modify that administrative provision so that the interests of the infant beneficiaries cannot be readily jeopardised. In the circumstances, I intend to use the inherent jurisdiction of this Court to modify this administrative provision.

(references omitted)

[36]             To the extent it may be helpful in later cases, I express the following tentative views:

(a)First, it seems the previously expansive view of s 64 as permitting variations to trust deeds has been accepted in the broader statutory power conferred on the Court in s 130, but only insofar as a proposed variation relates to trustee powers. Other variations of trust deeds would not prima facie appear to be contemplated by the statutory language, and would fall to be considered either under ss 122–125, or the inherent jurisdiction.

(b)The view of the limits of the inherent jurisdiction expressed in Chapman v Chapman may no longer be good law.20 That is because underpinning their Lordships’ judgments was the rejection of “any suggestion that the Court has an inherent jurisdiction to alter a man’s

18 Chapman v Chapman, above n 9.

19   Clifton v Clifton, above n 11, at [43]. Clifton v Clifton  has been followed or cited with approval  in Mudgway v Slack HC Auckland, CIV-2010-404-2058, 26 July 2010; McCallum v McCallum [2017] NZHC 1218 at [37]–[38], and Koanga Institute Incorporated v Kotare Community Land Trust Board [2021] NZHC 169 (albeit indirectly).

20 Chapman v Chapman, above n 9.

will because it thinks it beneficial.”21  Yet  Parliament when enacting   s 130 expressly empowered the Court to approve variations which the Court considers “desirable” for the proper management or administration of the trust property. Implicit in Parliament’s approach is a rejection of the underlying premise in Chapman v Chapman, that is, that a court cannot vary a trust where it would be beneficial to do so. If the inherent jurisdiction takes its lead from the Court’s statutory jurisdiction, it seems a more coherent approach under the 2019 Act may be to avoid strained constructions of the statutory language regarding variations to trusts and to look to the inherent jurisdiction in appropriate cases to fill any gaps left by Parliament (to the extent any such evolution of the inherent jurisdiction is consistent with the statute).

Result

[37]             I confirm the variation of the trust deed — as annexed to the affidavit of Alistair James Setter at AJS-2.

[38]Leave is reserved if any matter remains unresolved.

Isac J

Solicitors:
Dentons, Kensington Swan, Wellington for Applicants

21     Chapman v Chapman, above n 9, at 445 per Lord Simonds, approving the statement of Farwell J in Re Walker [1901] 1 Ch 879 Ch 879 at 885.