The Presbyterian Church Property Trustees

[2019] NZHC 3280

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2019-442-64

[2019] NZHC 3280

UNDER

the Charitable Trusts Act 1957

IN THE MATTER

of a charitable trust settled by William Cullen

BETWEEN

THE PRESBYTERIAN CHURCH PROPERTY TRUSTEES

Applicant

Hearing:	4 December 2019
Counsel:	E Moran for Applicant (via AVL)
Judgment:	12 December 2019

JUDGMENT OF THOMAS J

[1]    The Presbyterian Church Property Trustees (the Trustees) have applied for orders approving a scheme prepared under pt 3 of the Charitable Trusts Act 1957 (the Scheme) in relation to a charitable trust (the Trust) established in respect of land on which the Trinity Presbyterian Church in Nelson currently stands. It is proposed to amend the present purpose of the Trust so that the Trustees may sell the land and use the proceeds to further the Presbyterian Church of Aotearoa New Zealand’s (PCANZ) mission within the presbytery that encompasses the city of Nelson.

[2]The grounds on which the application is made are that:

(a)it is impossible or impracticable or inexpedient to carry out the original purpose of the Trust;

PRESBYTERIAN CHURCH PROPERTY TRUSTEES [2019] NZHC 3280 [12 December 2019]

(b)the proposed purpose is charitable;

(c)the proposed purpose accords as nearly as is reasonably possible in the changed circumstances to the terms of the Trust; and

(d)the administration of the property or income or the carrying out of the Trust could be facilitated by extending or varying the powers of the Trustees or by prescribing or varying the mode of administering the Trust.

[3]    Roger Gyles, Deputy Chair of the Trustees, has provided an affidavit in support of the application.

[4]    The application has been advertised in accordance with the requirements of the Act1 and there is no evidence of any opposition.

[5]    I have received a report (the Report) from the Deputy Solicitor-General in exercise of the functions of the Attorney-General pursuant to a delegation under s 9C of the Constitution Act 1986. Pursuant to ss 35 and 56 of the Act, and for the purposes of assisting the Court as to the matters of which it is required to be satisfied under     s 56(1)(a), she reports that she is satisfied that the Scheme is a proper one and should carry out the desired purpose or proposal, and is not contrary to law or public policy or good morals; that the Scheme can be approved by the Court under pt 3 of the Act; that every proposed purpose is charitable within the meaning of pt 3 and can be carried out; and that the requirements of pt 3 have been complied with in respect of the Scheme up to the giving of the Report.

Background

[6]    William Cullen settled the Trust on 13 December 1849 when he conveyed an acre of land, the site of the former Trinity Presbyterian Church at 64 Nile Street, Nelson (the Property) to the original trustees. The Property was conveyed in trust for construction of a church.

1      Charitable Trusts Act 1957, s 36.

[7]    The Trust was “… for the Body of Christians now or hereafter residing in the Settlement of Nelson … adhering to and following [the Presbyterian faith] and intending to worship God in a Church to be called “Trinity Presbyterian Church” which is to be erected and built upon [the Property]”. No other use, intent or purpose was contemplated.

[8]    The Scheme would replace the Trust’s current purpose with one that allows the Trust’s assets to be used for the purpose of furthering PCANZ’s mission within the Alpine Presbytery, which encompasses the city of Nelson.

[9]    Furthermore, the Trustees propose to extend or vary their administrative powers or vary the mode of administering the Trust. In particular, the Trustees will be permitted:

(a)to sell the Property and invest the proceeds of sale (the Trust Fund) and any income not immediately required for the amended object;

(b)to apply income from the Trust Fund to the amended object;

(c)to retain income in any financial year and apply it to the amended object at any time;

(d)to apply capital from the Trust Fund to either the amended object or the construction of buildings for the use of the Whakatū Presbyterian Church; and

(e)the Trustees also propose the addition of a winding up clause, allowing the Trust to terminate and be wound up and dissolved if none of the Trust Fund remains and the Trustees resolve that the Trust be wound up.

The evidence

[10]   Mr Gyles explains that all property held on trust for PCANZ is vested in the Trustees pursuant to the Presbyterian Church Property Act 1885. The Trustees are a body corporate comprised of trustees appointed by the General Assembly of PCANZ.

[11]   The Alpine Presbytery is responsible for the worship, life and mission of PCANZ within the congregations in the geographical area from the top of the South Island to the Waitaki River, which includes the parishes in the Nelson area.

[12]   A church was built on the Property in 1849 and was used by Presbyterian congregations from that date. The foundation stone for the current building was laid in September 1891. In recent years, the parish of the Trinity Presbyterian Church has diminished in size and the church closed in 2015.

[13]   The Alpine Presbytery has determined that there are no sound reasons to retain the Property. The other parishes in the Nelson area do not wish to relocate to the Property and the area is well-served by the Whakatū Parish and the St Lukes Union Parish. The Property is also no longer fit for the purposes of the Presbyterian Mission in Nelson City. This is because:

(a)the buildings are in a very poor state of repair and would require significant resources to bring them up to current standards;

(b)the ongoing maintenance and running costs of the church building and site are prohibitive; and

(c)the heritage status of the church building and site restricts it from being modified to suit any possible future use by a PCANZ congregation in the 21st century.

[14]   The Trustees want to sell the Property and seek the Court’s approval for amended administrative powers to authorise the sale and guide their application of the proceeds of sale. The Trustees propose to apply both capital and income from the sale

of the Property to the new object, in particular the application of capital to the construction of new buildings for the use of the Whakatū Presbyterian Church.

[15]   The Property has rating valuations totalling $1,184,000. If that sum is achieved on sale, the annual income from the proceeds of sale is estimated at approximately

$41,440. Of this, $23,680 would be available for application to the Trust's objectives following an allowance to protect the Trust’s capital against inflation.

[16]   The Trustees’ experience is that the most likely need for funding within the Alpine Presbytery is for capital works, for example new buildings, or significant improvement projects such as earthquake strengthening.

[17]   The Alpine Mission Fund Board (the Board) manages the Alpine Mission Fund, which resources initiatives across the Presbytery. The Board determines financial support for a range of matters, including capital expenditure.2

[18]   The Trustees want to be able to take into account and accept any recommendations for the application of the Trust Fund made by the Board, recognising its knowledge of the needs of the Alpine Presbytery.

[19]   The Whakatū Presbyterian Church supports the congregation nearest to the Property. PCANZ proposes to develop a new church complex on a property in Richmond, which will be a hub for the life of the Presbyterian Church in the Nelson region. The Trustees want to apply Trust capital towards the construction of new buildings for this project. The current cost estimates for the new complex are around

$3 million. Approximately $1.5 million has been put aside for this project but there remains a material shortfall in the required funds.

[20]   The Trust would not acquire any ownership rights in the new complex as a result of an investment of capital but the complex will be an asset held by the Trustees subject to the Presbyterian Church Property Act.

2      This includes capital works such as church buildings, halls and housing or the refurbishment or extension of existing facilities.

[21]   The Trustees propose a power for the Trust to be wound up in the event that it is left without assets. This is a possibility if the Court allows the Trust’s capital to be applied to the new object, or alternatively towards the new complex for the parish of the Whakatū Presbyterian Church.

Variation of Trust Purposes

General principles

[22]   The jurisdiction of the Court to vary the Trust is based on s 32 of the Act, which supersedes the common law doctrine of cy-près. In Public Trustee v Attorney- General, the Court referred to the equivalent jurisdiction under s 15 of the Religious, Charitable, and Educational Trusts Act 1908, saying:3

Having regard to the terms of s 15, I do not think the approval of the scheme is hampered by any such limitation as is involved in the doctrine of cy-pres which the Court in the exercise of its general jurisdiction applies when turning the property over to a new charitable purpose. I find no such limitation expressed in the Act. All that appears to me to be required under s 15 is that the new purpose to which the property is applied is a charitable purpose within the meaning of Part III of the Act, without regard to its resemblance to the old purpose. No doubt the approximation of the new purpose to the old would not go unconsidered as an element in the matter of deciding upon the new purpose, but the Act does not appear to me to compel such approximation as the guiding principle.

[23]More recently in Re Tennant, Hammond J said:4

As to the principles which govern an application of this kind, I last had occasion to consider same in Re the Estate of Rogers (Deceased) (High Court, Hamilton, M4/95, 19 May 1995). The general considerations were there set out at pp 7–10. The application must come within the statutory jurisdiction (which includes a necessity for the purposes to have been charitable at the date of settlement, see Re Beckbessinger [1993] 2 NZLR 362). Second, the substituted arrangements must be charitable as that term is understood in law. Third, in deciding whether to approve the substituted arrangements the new scheme should accord as closely as is reasonably possible in the changed circumstances to the terms of the original trust. Fourth, the Court will dispose of the property in such a way as will best serve the interests of those intended to be beneficiaries and the public. …

3      Public Trustee v Attorney-General [1923] NZLR 433 (SC) at 442.

4      Re Tennant [1996] 2 NZLR 633 (HC) at 636.

[24]   The meaning of “inexpedience” was considered in the case of Re McElroy Trust.5 The Court of Appeal held that inexpedient “... in its present context is of the original charitable purpose or purposes having become unsuitable, inadvisable or inapt”.6 That term embodies a value judgment rather than simply an assessment of feasibility. It may remain possible and practicable to carry out the original purpose of a trust, but it may nonetheless have become inexpedient to do so.

[25]   It is generally desirable for proposed variations to accord as closely as is reasonably possible to the terms or intent of the original trust.

Updated purpose

[26]   The Property is not being used in accordance with the original object of the Trust. There is no Presbyterian congregation making use of the church on the Property, the Property is considered no longer fit for purpose and there is no future use for the Property under the purview of PCANZ.

[27]   Mr Gyles’ evidence focused on the impracticability and inexpedience of continuing the current purpose of the Trust. On the evidence, I am satisfied it is certainly inexpedient for the Trust to continue in accordance with the current purpose and that the Property should be sold with a view to applying the proceeds of sale to the new purpose.

[28]   The proposed purpose, being the furthering of PCANZ’s mission within the Alpine Presbytery, will continue to benefit the Presbyterian Church within the Presbytery to which the Trinity Presbyterian Church belonged. The proposed purpose will accord as closely as is reasonably possible to that of the Trust. Furthermore, the proposed new purpose is plainly charitable, that is, in the advancement of religion.

[29]The proposed variation of purpose is approved.

5      Re McElroy Trust [2003] 2 NZLR 289 (CA).

6 At [14].

Variation of Trust Administration

[30]Section 33 of the Act provides:

In any case where it is made to appear that any property or income is given or held upon trust, or is to be applied, for any charitable purpose, and the administration of the property or income or the carrying out of the trust could be facilitated by extending or varying the powers of the trustees or by prescribing or varying the mode of administering the trust, the powers of the trustees may be extended or varied, and the mode of administering the trust may be prescribed or varied, in the manner and subject to the provisions hereafter contained in this Part…

[31]   The jurisdiction under s 33 of the Act is intended to deal with problems of administration faced by charitable trustees in giving effect to the intended purpose. All that must be established under s 33 of the Act is that the variation proposed would facilitate the carrying out of the Trust.

Proposed application of income

[32]   The proceeds of sale from the Property will form the Trust Fund. The Trustees propose an amended power to apply income from the Trust Fund for each financial year towards one or more of the objects of the Trust. This proposal is properly considered under s 33 of the Act.

[33]This is an orthodox proposal and is approved.

Retention of income

[34]   The Trustees propose a power to retain any income of any financial year that is not applied and apply it at any time towards one or more objects of the Trust.

[35]   This is an acceptable proposal. Trustees of a charitable trust have a duty to apply the income for their charitable objects within a reasonable period of receipt of the income.7 However, the retention or saving of surplus trust income on the basis that the retained income will be applied towards the charitable purposes at a later time is acceptable (within reasonable limits) because it does not equate to accumulation. The

7      Presbyterian Support (Upper South Island) v New Zealand Guardian Trust Company Ltd [2016]

NZCA 556, [2017] NZAR 84.

retention of income may be distinguished from the accumulation of income, which involves the addition of trust income to capital and attracts objection because it deprives the interests of those entitled to income.

[36]   The Trustees propose a power to apply capital for or towards one or more of the objects of the Trust and/or the Whakatū proposal. The flexibility of this proposal would allow the Trustees to fund objects as opportunities present themselves to further PCANZ’s mission within the Alpine Presbytery and enable the Trust to adapt to changing circumstances.

[37]   The proposal will allow the proceeds of the sale of the Property to be put towards a permanent “bricks and mortar” replacement for the Trinity Presbyterian Church. There is the potential for the Trust to be eroded requiring termination of the Trust. To my mind, however, the use of the Property to enable construction of a new church within the Nelson region is consistent with Mr Cullen’s overall purpose. In this way, the Trust will continue to contribute to the life of the Presbyterian Church in the Nelson region.

[38]   The Trustees propose to be guided in their funding decisions by the Alpine Mission Fund Board. It is relevant to this proposal that the financial support presently offered by that Board includes capital expenditure (payment for capital works including church buildings, halls and housing or the refurbishment or extension of existing facilities). This seems entirely appropriate.

Termination of a charitable trust

[39]   The general rule is that a charitable trust cannot be terminated. The purpose of the Court’s jurisdiction under the Act to vary trusts is to enable trustees to continue applying funds to charitable purposes when the original purpose has become impossible, impracticable or inexpedient and it is not to terminate the trust by winding it up or making a payment of the capital.8

8      At [78] and [79].

[40]There are three exceptions to the general rule:9

(a)Where the trust is set up in such a way that the property is applied for charitable purposes for a limited duration and the trustees are given express powers to terminate.

(b)A charitable trust will terminate if it no longer has funds. This can only occur in the case of a charity that has the power to spend both income and capital.

(c)Where the objects of the charity are dependent on the existence of a particular institution or premises. If that institution closes down or the premises are no longer available, the trust will terminate (unless there is evidence of some general charitable intention on the part of the settlor that might save the trust from lapsing).

[41]In New Zealand, a trust may also come to an end in one of two additional ways:

(a)section 24 of the Act provides for the voluntary liquidation of societies incorporated as boards pursuant to s 8 of the Act; and

(b)section 25 of the Act provides for liquidation by the High Court of societies and trustees incorporated under ss 7 and 8, on just and equitable grounds.

[42]   Of particular relevance in this case, a charity that is permitted to spend capital and income, will terminate if it no longer has funds.

[43]   I have already approved the variation to allow expenditure of capital and income and this anticipates the possibility that the Trust fund will be exhausted. It is only in that event that the winding up provision will be operative.

9      William Henderson, Jonathan Fowles and Julian Smith Tudor on Charities (10th ed, Sweet & Maxwell, London, 2015) at [21-024]–[21-025].

[44]   In my assessment, given the likelihood that the Trust’s assets will be used in the creation of the Whakatū hub, it is highly unlikely that any Trust funds will remain. In those circumstances, it is appropriate that the winding up clause be included.

Result

[45]For the reasons given, the application is granted.

[46]   All reasonable costs and expenses of the application are to be paid out of the Trust Fund.

Thomas J

Solicitors:
DLA Piper, Wellington