Telford v Telford

[2023] NZHC 2331

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1021

[2023] NZHC 2331

IN THE MATTER

of the Estate of Barry Neil Telford and in the matter of an originating application seeking an order terminating a trust

BETWEEN

ASHLEIGH TRACEY TELFORD AND LOGAN JOHN TELFORD

Applicants

AND

MURRAY JOHN TELFORD AND JUDITH ANN TELFORD

Respondents

On the Papers

Counsel:

M V Smith for Applicants

G S McCardle for Respondents

Judgment:

24 August 2023

JUDGMENT OF ISAC J

Introduction and the issue

[1]    Barry Neil Telford died on 13 July 2020. In a will dated 15 November 2017, Barry appointed his siblings, Murray and Judith Telford, the respondents in this case, as trustees and executors of his estate. Probate was granted to them on 20 July 2020. The applicants are Barry’s children, Ashleigh and Logan Telford, who are the sole beneficiaries under his will.1

1      For ease of reference, I refer to the parties in this judgment by their first names. I mean no disrespect in doing so.

TELFORD v TELFORD [2023] NZHC 2331 [24 August 2023]

[2]    The will directed the executors to hold Barry’s estate on trust, and pay the residue in equal shares to the applicants when they reach the age of 25. The operative provision is in these terms:

[The trustees are directed to] pay the residue to those of my children namely LOGAN JOHN TELFORD, and ASHLEY TRACEY TELFORD, who

survive me and live to attain the age of Twenty Five (25) years and if more than one in equal shares PROVIDED HOWEVER if any of my abovenamed children predecease me leaving a child or children living at the time of my death, then such issue shall take, and if more than one in equal shares, the share that his, her, or their parent would have taken.

[3]    The applicants want the trust funds distributed to them before they turn 25. Ashleigh is 21 years old; Logan is 23. Neither has had any children. They submit that together they hold all the beneficial interest in the trust property and are therefore entitled under the rule in Saunders v Vautier,2 now codified in s 121 of the Trusts Act 2019,3  to require the trustees to terminate the Trust and distribute the assets.  On     24 December 2022, they made a written request of the respondents to that effect, pursuant to s 121.

[4]    The respondent trustees declined the request. Their position is that s 121 does not apply because, under the rule in Burns v Steel,4 the applicants do not yet have a beneficial interest in the trust property. Instead, their interests are contingent on attaining the age of 25. If either applicant does not reach that age, their share will go to their children, if any. Therefore, the applicants are persons who “may acquire a beneficial interest at a future date or on the happening of a future event” in terms of  s 124(2)(b) of the Trusts Act. As a result, the Trust may only be terminated with the approval of the court under s 121(2)(c).

[5]    The  applicants  now  seek,  by  way  of  an  originating  application  dated  18 May 2023, orders under s 121 terminating the Trust and distributing the funds to them in equal shares.

[6]    There is no dispute that the procedural requirements of s 121 have been met. The sole issue is whether the applicants’ beneficial interest in the Trust arises at a

2      Saunders v Vautier (1841) 4 Beav 115, (1841) 49 ER 482 (Ch).

3      Law Commission Review of the Law of Trusts (NZLC R130, 2013) at 162–163.

4      Burns v Steel [2006]1 NZLR 559 (HC) at [36].

future date such that ss 121(2)(c) and 124 apply, or whether they have already acquired a beneficial interest in the estate such that the Trust terminates on the applicants’ unanimous consent to termination.

[7]    Given the narrow issue, the parties were content to have the application dealt with on the papers.5

Legal framework

[8]    Under s 121 of the Trusts Act a trustee is required, provided the conditions for termination are satisfied, to terminate the trust and distribute the trust property upon receiving a written request to do so by all beneficiaries who together hold all of the beneficial interest in the trust property:

121     Termination of trust by unanimous consent of beneficiaries

(1)A trustee must terminate the trust and distribute the trust property on being required to do so by all of the beneficiaries who together hold all of the beneficial interest in the trust property if the conditions set out in subsection (2) are satisfied.

(2)The conditions for the termination of the trust are that—

(a)every beneficiary consents to requiring the trustee to terminate the trust and distribute the trust property; and

(b)the trustee receives a request to terminate the trust and distribute the trust property from or on behalf of each beneficiary; and

(c)if any of the beneficiaries is a beneficiary described in section 124(2), the court has made an order under section 124 approving the termination of the trust on behalf of that beneficiary.

(3)The condition in subsection (2)(b) is satisfied if—

(a)the beneficiaries provide a written request to the trustee to terminate the trust and distribute the trust property; and

(b)the notice is signed by each beneficiary or by the duly authorised agent of that beneficiary.

5      Joint memorandum of counsel, 18 July 2023.

[9]    A trustee has no discretion to refuse a request under s 121, provided of course the conditions are met. Notably, subs (2)(c) provides that termination of a trust requires the Court’s approval, but only where any of the beneficiaries are of a kind described in s 124(2). They are:

(a)a beneficiary who lacks capacity;

(b)a person who may acquire a beneficial interest at a future date or on the happening of a future event or on becoming a member of a certain class of persons; or

(c)a future person who may acquire a beneficial interest.

[10]   Section 124 confers a broad discretion on the court to terminate, vary or resettle a trust on behalf of the categories of beneficiaries listed above.6 Any trustee or person with a beneficial interest in trust property may apply for an order of approval under that section.7 On an application for an order of approval, the court must take into account:8

(a)the nature of any person’s interest in the trust property and the effect of the proposed order on that interest;

(b)the benefit or detriment that may result to any person with an interest in the trust property if the court makes or refuses to make the proposed order; and

(c)the intentions of the settlor of the trust in settling the trust, if it is practicable to ascertain those intentions.

6      Trusts Act 2019, s 124(1).

7      Section 124(3).

8      Section 124(4).

Consideration

[11]   The genesis of s 121 is the celebrated decision in Saunders v Vautier.9 In that case a testator left £2000 of East India stock in trust for his grandnephew, Daniel Vautier, to receive, along with accumulated interest and dividends, when he attained the age of 25. When Daniel turned 21, then the age of majority in the United Kingdom, he applied to the court for orders transferring the stock to him, four years early. The Lord Chancellor allowed his claim, saying:

Where a legacy is directed to accumulate for a certain period, or where the payment is postponed, the legatee, if he has an absolute indefeasible interest in the legacy, is not bound to wait until the expiration of that period, but may require payment the moment he is competent to give a valid discharge.

[12]   The case developed into a principle that where beneficiaries of a trust are all adults with full legal competence and are in agreement, they can act together to require the trustees to terminate the trust and distribute the trust’s property as they see fit.10 The rationale for the rule is that the beneficiaries together are the beneficial owners of the property and no one else has an interest in it.11 As noted, the rule was then codified in s 121 of the Trusts Act.

[13]   Mr McCardle for the respondents suggests that the applicants’ interests in the trust property are contingent under the rule in Burns v Steel because the will states that “the vesting of the benefit does not occur until the beneficiaries obtain the age of 25”, and that if either applicant failed to reach 25, their share will go to any children they might have. I am unable to accept that submission.

[14]   In Burns v Steel, the deceased had bequeathed all of his shares in a company to the plaintiff, Ms Burns.12 However, any transfer of the shares from the trustees to Ms Burns was governed by a pre-emption process in the company’s constitution.13 The High Court observed that the rule in Saunders v Vautier “does not apply where the

9      Saunders v Vautier, above n 2.

10 Heylen v Keene [2018] NZHC 2203, [2018] NZAR 1587 at [21].

11 Law Commission Perpetuities and the Revocation and Variation of Trusts (NZLC IP22, 2011) at [4.9]; and Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [10.3]

12 Burns v Steel, above n 4, at [4].

13 At [14]–[16]. The constitution imposed several conditions before the shares could be transferred, including a requirement that they first be offered to the other shareholders.

beneficiary is not entitled  to  the  trust  property  indefeasibly  and  absolutely”.14  Ms Burns did not have “an absolutely vested interest in the shares”. Her right to receive them was entirely contingent on the outcome of the pre-emption process:15

She may or may not receive a transfer of the shares. Or, if she does receive some of the shares, she may not receive them all. While she is entitled absolutely to the benefit of the proceeds of sale of the shares if they are sold to others under the preemption process, her right to receive shares in specie is no more than a possibility.

[15]The situation in Burns is quite different to the present.

[16]   Here, Ashleigh and Logan are the sole beneficiaries and the only people with an interest in the trust property. Their beneficial interests are not conditional or contingent. There is no future event which must occur before their rights to the trust property are crystallised. The trustees hold Barry’s estate on trust for the sole benefit of the applicants. Nor do they have any discretion about distribution when the applicants reach the age of 25. While Mr McCardle referred to the potential rights of the applicants’ children, that reference was misplaced because such rights could only arise under the will if either of the applicants had predeceased their father and left a child living at the time of Barry’s death. Obviously, neither precondition has been met.

[17]   The facts of the present case are almost identical to those in Saunders v Vautier where a sole beneficiary was entitled to demand the transfer of trust property held solely for his benefit despite the testator’s direction that this should occur when the beneficiary turned 25. The only difference here, it would seem, is that there are two beneficiaries instead of one. However, nothing turns on it.

[18]   Accordingly, all the requirements under s 121 are met, and the respondents are bound by that section to terminate the Trust and distribute its assets in accordance with the will.

[19]   Finally, there appear to be good reasons for the respondents’ reluctance to release the trust funds as requested. The respondents depose that they would have

14 At [36].

15 At [37].

consented to the funds being used for the purpose of purchasing a property which was the basis on which the applicants initially made their request for distribution. However, the affidavit evidence filed by the respondents indicates that the applicants have not been able to provide any evidence of a finance application or an agreement for the purchase of property in response to enquiries by the trustees. The applicants’ affidavits make no reference to their intended use of the trust funds.

[20]   As Mr McCardle observed, the trustees could have been open to personal liability had they made the requested distribution without resort to the Court, and the trust funds were lost. I therefore accept without hesitation that the respondents have acted in good faith and in accordance with what they understood to be the law, their duties as trustees, and the best interests of the beneficiaries. However, for the reasons set out above, I consider the legal position is clear and there is no basis on which to oppose the beneficiaries’ request.

[21]   That said, had I found that leave of the Court was required to make the distribution under s 124 of the Act, I would not have authorised the distribution given the lack of clarity about the applicants’ plans for use of the Trust fund.

Conclusion and result

[22]   The application is granted. The trust created by the will of Barry Neil Telford dated 15 November 2017 is terminated in accordance with s 121 of the Trusts Act 2019. The respondents are to gather in the trust property and distribute it to the applicants in equal shares in accordance with the terms of the will.

Isac J

Solicitors:
BMC Law, Paraparaumu for Respondents