The Hibiscus Hospice Charitable Trust
[2021] NZHC 279
•25 February 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1064
[2021] NZHC 279
UNDER the inherent jurisdiction of the court in the supervision of trusts AND UNDER
Section 66 of the Trustee Act 1956
AND IN THE MATTER OF
THE HIBISCUS HOSPICE CHARITABLE TRUST AND THE HIBISCUS HOSPICE DEVELOPMENT TRUST
BETWEEN
THE HIBISCUS HOSPICE CHARITABLE TRUST AND THE HIBISCUS HOSPICE DEVELOPMENT TRUST
Plaintiffs
Hearing: 16 February 2021 (by teleconference) Appearances:
CJ Kelly for the Applicant
DL Harris and CN Tocher for the Attorney-General
Judgment:
25 February 2021
JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 25 February 2021 at 12.00pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Crown Law, Wellington
To: Greg Kelly Law Limited, Wellington
HIBISCUS HOSPICE CHARITABLE TRUST & ANOR [2021] NZHC 279 [25 February 2021]
Introduction
[1] The Hibiscus Hospice Charitable Trust (HHCT) and the Hibiscus Hospice Development Trust (HHDT) (collectively, the Hibiscus Trusts) have for many years provided hospice services in the Hibiscus Coast region of Auckland. In 2018, the Trust Boards of the trusts determined to amalgamate with two similar trusts – the North Shore Hospice Trust (NSHT) and the North Shore Hospice Development Foundation Trust (NSDFT) – providing hospice services on the North Shore of Auckland (the North Shore Trusts). That merger has now been effected, such that the merged (and newly named) trusts now provide hospice services to the wider North Shore of the Auckland region, including the Hibiscus Coast.
[2] The Trust Boards of the Hibiscus Trusts are concerned to ensure that the amalgamation was legally effective. They are also concerned that, in the past, wills have been signed leaving funds to one or other of the Hibiscus Trusts by reference to their original names, such that executors of those wills may be uncertain whether the relevant legacy can be paid to one or other of the new amalgamated trusts.1
[3] The Trust Boards accordingly apply for directions under s 66 of the Trustee Act 1956 (the Act) and/or an order under the inherent jurisdiction of the Court, to confirm:
(a)the power of the Trust Boards to implement certain deeds of variation; and
(b)the power of the Trust Boards to complete the amalgamation.2
The actual orders sought by the Trust Boards are set out at [43] below.
[5] Given the Hibiscus Trusts are charitable trusts, the Attorney-General, as protector of charities, was served with the application. Counsel for the Attorney-
1 There is no similar application or relief sought in relation to the North Shore Trusts. I infer that the trustees of those trusts do not, at this time at least, have the same concerns.
2 A third order was originally sought, though after discussion with counsel for the applicants, Mr Kelly, that order was not pursued.
General filed comprehensive submissions addressing the amalgamation. The Attorney-General is broadly supportive of the application, and appeared at the hearing to make brief oral submissions.
[6]I turn now to the background to the amalgamation.
Background
The Hibiscus Trusts
[7] HHCT and HHDT were constituted by deeds dated 2 September 1992 and September 2003 respectively. The Trust Boards were incorporated under the Charitable Trusts Act 1957.
[8] Clause 2 of the HHCT deed states the objects of the trust, which include the provision of palliative care and the establishment of a hospice. Clause 2.2(b) provides for the provision of such services “in the Rodney District Council area or elsewhere in New Zealand as the Board may from time to time determine …” (emphasis added).
[9] Clause 4.1 of the HHDT deed states that the purposes of that trust are to hold the trust funds for the benefit of the charitable purposes of the HHCT or any successor.
The North Shore Trusts
[10] NSHT and NSDFT were established by deeds dated 12 December 1988 and 3 June 1997 respectively. They have the same charitable purposes as the Hibiscus Trusts except in two ways:
(a)Clause 2(a) of the NSHT’s trust deed provides that the objects for which the trust is established are “to provide establish and maintain hospice care services on the North Shore of Auckland…”.3
(b)Clause 2(a) of the trust deed for the NSDFT provides that the primary object for which the trust is established is “[t]o provide financial
3 “North Shore” is not defined.
support and assistance to NSHT and to make provision to meet the longer term community requirements for hospice services throughout the region of the NSHT”. Clause 2(d) provides that the Trust will “support NSHT (and any extensions thereof)”.
Merger/amalgamation
[11] As noted, in 2018 the Trust Boards of the Hibiscus Trusts and the North Shore Trusts decided to amalgamate the trusts so that there would be one charitable hospice service, and one funding trust supporting the charitable activities of both charities, for the greater area of Auckland north of the harbour. I infer this was for reasons of efficiency.
[12] The merger/amalgamation was effected through four deeds of variation dated 28 June 2018. Using powers of variation common to all four trust deeds:
(a)A clause was added to each deed of trust empowering each trust to amalgamate with “a similar charity located in the region and territory known as Auckland”.
(b)The geographic area for the Hibiscus Trusts was redefined as “the region and territory known as Auckland”.
(c)The geographic area for the NSHT was redefined to refer to the establishment and maintenance of hospice services on the “North Shore, Hibiscus Coast, Wellsford/Warkworth or West Auckland regions of the territory known as Auckland…or elsewhere in Auckland as the Board may determine…”.
[13] The HHCT has since been merged/amalgamated with the NSHT, and the HHDT merged/amalgamated with the NSHDFT. This was effected by the Hibiscus
Trusts transferring their assets into the existing North Shore Trusts.4
[14] The deeds of variation for the North Shore Trusts included provision for those trusts to be renamed as the Harbour Hospice Charitable Trust and the Harbour Hospice Development Foundation Trust respectively. I will refer to these trusts collectively as the “Harbour Trusts”.
[15] The trust deeds for the Harbour Trusts record the merger of the Hibiscus Trusts and the North Shore Trusts, as well as the name change referred to in the preceding paragraph. The trust deeds also record their geographic area as “the geographic region and territory known as Auckland”.
[16]I turn now to the relevant trust provisions by which the merger was effected.
Trust provisions
Powers of variation
[17] Clause 6 of the trust deed for the HHCT empowers the trustees to vary the trust deed:
6.1 …
6.2 The Trustees shall have the power to alter or vary the existing trust deed.
6.3 Proposed alterations to the Regulations of the Trust and/or the Trust Deed shall be notified to the Board of Trustees in writing a minimum of twenty-one (21) days prior to the date of the meeting at which such alterations are to be voted upon.
6.4 Alterations to the Regulations of the Trust and/or the Trust Deed shall require a two-thirds majority vote of the Board of Trustees.
6.5 No alterations to the Regulations of the Trust and/or the Trust Deed shall be made which would in any way remove the exclusively charitable nature of the Trust.
4 A point arose in oral submissions as to whether “shell” HHCT and HHDT trusts “remained behind,” following the transfer of their assets to the North Shore Trusts. Mr Kelly observed that as a trust is not a separate entity in its own right, once trustees are not in possession or control of trust funds or assets to which their fiduciary obligations attach, it is arguable the “trust” no longer exists. After discussion with counsel, it was agreed that the point does not arise for determination on the present application; the presence or otherwise of such “shell” trusts not affecting the validity or otherwise of the merger, or the orders sought by the applicants.
[18] In the same way, cl 10 of the trust deed for the HHDT empowers the trustees to vary the trust deed:
10.1 The Trustees shall have the power to alter or vary this existing trust deed.
10.2 Proposed alterations to the Regulations of the Trust and/or the Trust Deed shall be notified to the Board of Trustees in writing a minimum of twenty-one (21) days prior to the date of the meeting at which such alterations are to be voted upon.
10.3 Alterations to the Regulations of the Trust and/or the Trust Deed shall require a two-thirds majority vote of the Board of Trustees.
10.4 No alterations to the Regulations of the Trust and/or the Trust Deed shall be made which would in any way remove the exclusively charitable nature of the Trust or result in the distribution of its assets or the winding up or dissolution for any purpose that is not exclusively charitable or alter Clauses 7 or 13 unless it is first approved in writing by the Department of Inland Revenue.
Variation of the Hibiscus Trusts
[19] By deeds of variation dated 28 June 2018, the trustees of the Hibiscus Trusts made the following amendments to the existing trust deeds (to expand the geographical area for the trusts):
(a)Clause 2.2(b) of the HHCT deed was deleted and substituted, changing from:
To provide establish operate and/or maintain a hospice or hospices hospitals hostels clinics emergency shelters homes accommodation and other buildings in the Rodney District Council area or elsewhere in New Zealand as the Board may from time to time determine for the care of the terminally ill and/or their relatives in need either permanently or temporarily.
(emphasis added) to
To provide establish operate and/or maintain a hospice or hospices hospitals hostels clinics emergency shelters homes accommodation and other buildings in the region and territory known generally as Auckland and elsewhere in New Zealand as the Board may from time to time determine for the care of the terminally ill and/or their relatives in need either permanently or temporarily.
(emphasis added)
(b)Clause 3 of the HHDT deed was changed from:
The Office of the Trust shall be at Hibiscus House, 2a John Dee Crescent, RED BEACH or such other place as the Board may determine.
to
The Office of the Trust shall be at Hibiscus House, 2a John Dee Crescent, RED BEACH or such other place as the Board may determine. The geographical area of the Trust shall be the same geographical area as that of the Hospice, and described in clause 2.2(b) of the Hospice Trust Deed, including any variations to that clause.
(emphasis added)
[20] The trustees of the Hibiscus Trusts then inserted into the trust deeds the following new clauses providing for merger or amalgamation:
(a)Clause 3.2(u) of the HHCT deed:
3.2 The business of the Trust shall be managed by the Board which shall have full power and authority to carry out the aims and the purposes of the Trust including:
(u) to merge or amalgamate its operations with any other charitable organisation similar to the Trust (“Similar Charity”) and with the same charitable purposes and objects as the Trust provided such Similar Charity is located in the region and territory known as Auckland.
(b)Clause 6.3(m) of the HHDT deed:
6.3 In addition to the powers implied by the general law of New Zealand or contained in the Trustee Act 1956, the powers which the Board may exercise in order to carry out its charitable purposes are as follows:
(m) to merge or amalgamate its operations with any other charitable organisation similar to the Trust (“Similar Charity”) and with the same charitable purposes and objects as the Trust provided such Similar Charity is located in the region and territory known as Auckland.
Merger of charitable trusts
[21] As counsel for the Attorney-General notes, there are a number of methods by which charitable trusts may merge or amalgamate. Examples include:
(a)transfer of the assets of trust A to trust B, with trust A (arguably) remaining as a “shell” trust;
(b)trust A and trust B transfer their assets to a new trust C, with both trusts A and B (arguably) remaining as “shell” trusts; and
(c)grouping a number of small charities together by scheme under the Charitable Trusts Act 1957.
[22] As will be evident from the above discussion, the method adopted in this case was the first of these three options.
[23] In their original form, the trust deeds for the Hibiscus Trusts did not provide for merger or amalgamation. They did, however, provide for variation of the trust deeds (as set out at [17] and [18] above). As can be seen, any variation or alteration must not “affect the overall charitable nature of the Trust”.
[24] There is no dispute in this case, and I accept, that the North Shore Trusts are “similar charities” to the Hibiscus Trusts. They have near identical objects, focussed on the provision of charitable hospice and associated services. I am also satisfied that the introduction of the new power concerning merger/amalgamation does not offend the power to vary the Hibiscus Trusts, as the introduction of that power does not affect the overall charitable nature of the trusts. The trusts are not changing, for example, to profit driven organisations, and remain providers of hospices and associated services.
Variation or alteration of “substratum” of trust?
[25] The change to the geographical area of the Hibiscus Trusts is set out at [19](a) above. The key issue in this case is whether that change is a permissible variation, or an impermissible alteration to the “substratum” of the trusts.
[26] The concept of the substratum of a trust, and its relevance to a power to vary a trust deed, was discussed by Megarry J in Re Balls Settlement:5
5 Re Balls Settlement [1968] 2 All ER 438 (ChD) at 442. See also Re Ronald McDonald House Wellington Trust Board [2015] NZHC 2073 at [24].
If an arrangement changes the whole substratum of the trust, then it may well be that it cannot be regarded merely as varying that trust. But if an arrangement, while leaving the substratum, effectuates the purposes of the original trust by other means, it may still be possible to regard that arrangement as merely varying the original trusts, even though the means employed are wholly different and even though the form is completely changed.
[27] Counsel referred me to a number of authorities which have considered whether a variation to the trust deed had “crossed the line” from being a permissible variation to impermissibly altering the substratum of the trust.
[28] In Dyer v The Trustees, Executors and Agency Co. Ltd, Mr Dyer established a trust, the income of which was to be applied “in or towards the establishment and maintenance of a permanent municipal professional orchestra in and for the State of Victoria”.6 The money provided by the trust was insufficient for this purpose and so Mr Dyer sought to use the variation power in the trust deed to apply the fund to other musical endeavours.7 The variation power in Dyer provided:
It is hereby declared that the said James Dyer his executors or administrators may from time to time and at any time or times by deed vary all or any part of the trusts and powers hereinbefore declared and created.
[29] The Supreme Court of Victoria concluded that the variation impermissibly altered the substratum of the trust.8 In their joint judgment, Irvine CJ and Duffy J concluded that it was not possible to vary the trust as Mr Dyer had proposed because, although the fund would still be applied to “musical purposes”,9 it would “depart from the original purpose of the gift”, which was to establish an orchestra for Victoria.10
[30] In contrast, in Re Balls Settlement, a trust was established which provided the settlor with a life interest in the trust fund, and a testamentary power which entitled him to appoint the fund to each of his two sons, the wife of any son, or his grandchildren, as long as not more than half the fund was provided to either family. The settlor wished to vary the terms of the trust and sought approval pursuant to s 1 of the Variation of Trusts Act 1958. The variation would remove the life interest and the
6 Re Dyer [1935] VLR 273 (SC) at 283.
7 At 284.
8 At 287 (per Irvine CJ and Gavan Duffy J) and 290–291 (per Martin J).
9 At 276 (per Macfarlan J).
10 At 278.
power of appointment, and divide the trust fund into two halves. Each half would be held on trust for one of the sons for life and then for the son’s children.11
[31] Megarry J recognised that all that remained of the old trust was the “general drift or purport, namely that a moiety of the trust fund is to be held on certain trusts for each son and certain of his issue”, and posed the issue as whether “…the word ‘varying’ is wide enough to embrace so categorical a change?”12 After referring to Dyer, his Honour concluded that despite the changes, the underlying purpose of the original trust remained and, as a result of the variation, that purpose was simply being effected by other means. Megarry J accordingly approved the variation on the basis that the substratum of the trust remained, with the differences lying in the detail rather than the substance.13
[32] A similar issue arose in this jurisdiction in a case concerning the Ronald McDonald houses, used to support families with children in hospital.14 At the time of the judgment, there were three Ronald McDonald houses in New Zealand, located in Auckland, Wellington and Christchurch. Three independent charitable trusts administered the houses. The three trusts wished to merge into a single national trust, to avoid confusion in the fundraising market.
[33] The Wellington Ronald McDonald house was operated pursuant to a trust deed with a focus on the Wellington facility. Clause 4.1 of the trust deed set out the trust’s 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.
11 At 440.
12 At 441.
13 At 442–443.
14 Re Ronald McDonald House Wellington Trust Board [2015] NZHC 2073.
(c) To encourage members of the public m 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.
[34]“Central Region” was defined as follows:
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..
[35] The applicants in that case applied for directions pursuant to s 66 of the Act varying the trust deed so as to expressly allow the Board of Trustees to resolve to wind up the trust and transfer its assets to the new national entity. The proposed variation was to provide as follows, with the additional wording 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.
[36] In that case, the Attorney-General did not consider the changes could be effected through a variation, given the proposals went to the substratum of the trust, given that as a result of the proposed variations, the trust’s focus on the Wellington and Central Region would be lost.
[37] Williams J did not accept the applicant’s submission that the regional focus of the trust deed was merely incidental to its real purpose, which was the provision of family accommodation. Williams J concluded that the Wellington and Central Region “foci are, in my view, inherent in [the trust’s] substratum”.15 The trustees were therefore unable to use an existing power of variation to alter the trust, and needed to
15 At [24].
rely instead on winding up provisions to enable the transfer of the trust’s assets to the national trust.16
Analysis in the present case
[38] Counsel for the Attorney-General submits that the present case might be distinguished from Dyer and Ronald McDonald House for the following reasons:
(a)First, counsel notes that the Hibiscus Trusts as originally settled were focused on the Hibiscus Coasts, but unlike the authorities just discussed, their trust deeds did not provide for the Rodney District Council area only; they also extended “elsewhere in New Zealand as the Board may from time to time determine”. Counsel accordingly submits that defining the coverage of the trust “as the region and territory known as Auckland” remains technically within the original area, but allows the trust flexibility to position its services within Auckland according to need.
(b)Second, the redefinition continues to include the Hibiscus Coast, providing some comfort that the original geographical identity of the Hibiscus Trusts has not been lost and the charitable funds will still be applied to that area. Counsel also records their understanding that the Hibiscus Trusts will retain physical premises on the Hibiscus Coast, reinforcing the latter point.
[39]Mr Kelly for the applicants naturally endorses these submissions.
[40] I agree that this case can be distinguished from cases such as Dyer and Ronald McDonald House for the reasons given by the Attorney-General. In particular, the fact the HHCT original trust deed was not limited to the Hibiscus Coast, but also contemplated that the hospice services could extend “elsewhere in New Zealand” reinforces the substratum of the trust was not limited to the provision of hospice services only in the Hibiscus Coast. Indeed, the alteration might be considered
16 Re Ronald McDonald House Wellington Trust Board [2015] NZHC 2073 at [25].
relatively modest, given hospice services will continue to be provided in the Hibiscus Coast.
[41] I am therefore satisfied the variation of the Hibiscus Trusts has not interfered with either the substratum of those trusts or their exclusively charitable nature.
Result and orders
[42] It accordingly follows that the variations effected were within the trustees’ powers under the original trust deeds.
[43] I discussed with counsel at the hearing the form of orders sought and appropriate to be made on the present application. It was agreed that orders in the following terms would be appropriate:
(a)The Harbour Hospice Trust, registered charity CC22413, is the lawful successor to both the North Shore Hospice Trust and the Hibiscus Hospice Trust, and all of the rights and entitlements of those the latter two trusts are now vested in the Harbour Hospice Trust; and
(b)The Harbour Hospice Development Foundation, registered charity CC22411, is the lawful successor to both the North Shore Hospice Development Foundation Trust and the Hibiscus Hospice Development Trust and all the rights and entitlements of those two Trusts are now vested in the Harbour Hospice Trust.
[44]I make orders accordingly.
[45]I make no orders as to costs.
[46]I thank counsel for their helpful submissions (both written and oral).
Fitzgerald J
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