The Saint John's College Trust Board

[2022] NZHC 259

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2021-404-1550

[2022] NZHC 259

IN THE MATTER OF

AND

An application for directions under s 33 of the Trusts Act 2019

IN THE MATTER OF

An application by THE SAINT JOHN’S COLLEGE TRUST BOARD

Applicant

On the papers
Counsel:	B D Gray QC for the applicant
Judgment:	23 February 2022

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 23 February 2022 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

THE SAINT JOHN’S COLLEGE TRUST BOARD [2022] NZHC 259 [23 February 2022]

Introduction

[1]    The Saint John’s College Trust Board (SJC Trust Board) is a  charitable trust board incorporated under the Charitable Trusts Act 1967. It administers the assets of the St John’s College trusts, which are held, managed and distributed in accordance with the St John’s College Trusts Act 1972.

[2]    The SJC Trust Board applies for directions under s 133 of the Trusts Act 2019. It seeks the Court’s approval of the trustees’ unanimous decision to forgive the Te Aute Trust Board’s (TA Trust Board) $14.85 million debt to the SJC Trust Board.

[3]    Both Trust Boards operate under the auspices of the Anglican Church in Aotearoa, New Zealand and Polynesia (Church).

Background

[4]    The TA Trust Board supports two Māori-Anglican schools in Hawke’s Bay, being Te Aute College and Hukarere Girls’ College. In 2012, its ability to provide financial support to the two schools became a cause for concern within the Church. The Church, wishing to prevent the schools’ closure, decided that the SJC Trust Board was the appropriate entity within the Church to assist.

[5]Between 2014 and 2020, the SJC Trust Board advanced approximately

$14.85 million to the TA Trust Board. The advances were conditional on members of the SJC Trust Board becoming trustees of the TA Trust Board — a proposal approved by various stakeholders  within  the  Church,  including  Te  Kotahitanga,  the General Synod Standing Committee and Te Pīhopatanga o Aotearoa. Accordingly, between three and seven members of the SJC Trust Board were also trustees of the TA Trust Board during the relevant period.

[6]    When it resolved to make the advances, the SJC Trust Board anticipated that the TA Trust Board would likely never be able to repay its debt. That prediction proved correct.

[7]    The SJC Trust Board now proposes to forgive the TA Trust Board’s debt. On 16 June 2021, it resolved to do so, subject to the Court making orders granting its approval. The Court’s approval is sought “out of an abundance of caution” because the sum at stake is substantial and the SJC Trust Board has identified a possible historical conflict of the trustees’ duties.

[8]    The possible conflict arose as a result of the appointment of SJC Trust Board trustees to the TA Trust Board. Those trustees were “dual trustees” in the period in which the advances were made. There is, however, no suggestion the trustees were influenced by the possible conflict of duty, or that they acted improperly or otherwise in bad faith in making the advances.

[9]    The SJC Trust Board’s decision to forgive the debt is uninfluenced by the possible  conflict.  The  present  three   dual   trustees   (Maui Tangohau,   Archbishop Don Tamihere and Archbishop Philip Richardson) absented themselves from the discussion and did not vote on the resolution.

[10]   The SJC Trust Board views forgiving the debt as appropriate and in accordance with its charitable objects and governing instruments.1 It is satisfied that forgiving the debt will not prevent it from fulfilling its other objects.2

[11]   Significantly, Te Kotahitanga and the General Synod Standing Committee have endorsed the debt forgiveness proposal. They do not oppose the application. The application was served on the Attorney-General, on whose behalf a detailed memorandum was filed.3 The Attorney-General does not oppose the application.

1      St John’s College Trusts Act 1972, s 3(1)(c).

2      Sections 3, 7 and 8.

3      The Attorney-General has protective responsibilities in respect of charitable trusts. See, for example, Charitable Trusts Act 1957, ss 58 and 60.

Applicable law

Trust framework

[12]   Both  the  SJC  Trust  Board  and  the  TA  Trust  Board  are  “authorised Trust Boards” for the purposes of s 3 of the Anglican Church Trusts Act 1981.4 An authorised Trust Board is empowered to transfer any trust funds or real or personal property to any other Trust Board.5 An authorised Trust Board may also lend money with or without security, without limitation, and in whatever manner it thinks fit.6

[13]   The Church’s Constitution/Te Pouhere (Constitution) establishes the  General Synod as the representative governing body managing the Church’s affairs. The General Synod exercises certain functions under the St John’s College Trusts Act.7 It also describes three tikanga within the Church in New Zealand, being tikanga Māori, tikanga Pākehā and the tikanga of the Diocese of Polynesia.

[14]   Title E, Canon II of the Code of Canons of the Church in New Zealand establishes Te Kotahitanga as a standing commission of the General Synod. It comprises members from each of the three tikanga described in the Constitution, and one member who may be appointed by the SJC Trust Board. Its functions include advising the SJC Trust Board regarding disbursement of college and scholarship funds, and disbursement of funds for work consistent with each tikanga’s planning objectives.

Trustee directions

[15]Section 133 of the Trusts Act provides:

133     Trustee may apply to court for directions

(1)A trustee may apply to the court for directions about—

(a)the trust property; or

(b)the exercise of any power or performance of any function by the trustee.

4      Anglican Church Trusts Act 1981, sch 1.

5      Section 5.

6      Schedule 2.

7      St John’s College Trusts Act, ss 3–8.

(3)The application must be served, in accordance with the rules of court, on each person interested in the application or any of them as the court thinks fit.

(4)On an application under this section, the court may give any direction it thinks fit.

(5)This section does not restrict the availability of alternative proceedings within the court’s jurisdiction, including a declaration interpreting the terms of the trust.

[16]   This provision is materially  similar  to  its  predecessor,  s  66  of  the  Trustee Act 1956. The case law under the earlier provision informs the interpretation of the new provision.8

[17]   Absent bad faith, a trustee acting under the Court’s direction is treated as having discharged the trustee’s duties in relation to the direction.9

[18]One situation in which the Court may give directions under this provision is:10

… where the issue is whether the proposed course of action is a proper exercise of the trustees’ powers where there is no real doubt as to the nature of the trustees’ powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers.

[19]   The SJC Trust Board says, given the size of the debt proposed to be forgiven, that the present application falls within this category.

[20]In deciding whether to make the sought direction, the Court will ask:11

(a)First, has the trustee in fact formed the opinion which the court is asked to bless?

(b)Second, is the opinion formed one at which a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the trust deed, could properly have arrived?

(c)Third, is the opinion vitiated by any conflict of interest under which any of the trustees might have been labouring?

8      Re Darlow [2021] NZHC 2184 at [30].

9      Trusts Act 2019, s 134.

10     Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [42(2)], [47] and [54]; Re Darlow

[2021] NZHC 2184 at [31].

11     Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [56]; Re Darlow [2021] NZHC 2184 at [33]. See also Public Trustee v Cooper [2001] WTLR 901 (Ch) at 925.

[21]   The third limb of the test implicates the rule against self-dealing, which provides that a trustee must not place themselves in a position where a personal interest, or interest in another fiduciary capacity, conflicts (or may conflict) with their duties as trustee.12 Relevantly, a person who is a trustee of two trusts that are transacting with one another is in a position where his or her duties of loyalty to both trusts may conflict.13

Decision

Has the SJC Trust Board in fact formed the opinion that the Court is asked to bless?

[22]   The SJC Trust Board  has  formally  resolved  to  forgive  the  debt  to  the  TA Trust Board, subject to this Court’s approval. It was within the SJC Trust Board’s powers to make that resolution. There is no question that it has in fact formed the opinion that the Court is asked to bless.

Is the opinion one at which a reasonable body of properly instructed trustees could properly have arrived?

[23]   The proposal to forgive the debt is consistent with the legal framework within which the SJC Trust Board operates. Section 3(1)(c) of the St John’s College Trusts Act provides that the SJC Trust Board’s objects include:

[to hold college funds on trust] for the costs of the education of students of all races in such manner and in such places as the General Synod shall from time to time direct so long as such education includes instruction in the principles of the Christian faith.

[24]   Te Aute College and Hukarere Girls’ College are schools with a special Māori-Anglican character. Their maintenance and support plainly come within the charitable objects set out in s 3(1)(c).

[25]   Further, it is clear the SJC Trust Board used robust processes in resolving to make the advances and to forgive the debt. It has satisfied itself that forgiving the debt will not prevent it from fulfilling its other objects. As of the 2019 financial year, the

12     Lynton Tucker, Nicholas Le Poidevin and James Brightwell (eds) Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2020) vol 2 at [45-001].

13     Fenwick v Naera [2015] NZSC 68, [2016] 1 NZLR 354 at [54]–[55].

SJC Trust Board maintained a substantial operating revenue and significant operating surplus.

[26]   In those circumstances, I will not second guess the SJC Trust Board’s express wish to forgive the TA Trust Board’s debt. I consider the proposal to forgive the debt is one at which a reasonable body of trustees, properly instructed as to the proper meaning of the St John’s College Trusts Act and other governing instruments, could properly have arrived.

Is the opinion vitiated by any conflict?

[27]   A possible conflict of duty arises in respect of the SJC Trust Board’s advances to the TA Trust Board. Trustees are bound by a duty of absolute loyalty and, as already discussed, may sometimes be placed in a position where their duties to different trusts conflict. That is an especially live risk where, as here, the relevant trusts transact with one another.

[28]   I note that the affidavit  evidence of the secretary of the SJC Trust Board,   Mr Grant Hope, discloses that the initial steps leading to the advances were taken in late 2012 to December 2013, before any SJC Trust Board trustees were appointed to the TA Trust Board. The appointment of some of the SJC Trust Board trustees to the TA Trust Board was endorsed by relevant entities within the Church. Further, the charitable objects of the two Trust Boards are substantially aligned. There is no suggestion of bad faith or impropriety on the trustees’ part.

[29]   Notwithstanding those considerations, I consider it is at least arguable the dual trusteeships gave rise to a conflict of duties during the period of the advances.

[30]   Importantly, however, it is  the SJC Trust Board’s decision to  forgive  the  TA Trust Board’s debt, rather than the decision to make the advances, in respect of which the SJC Trust Board seeks a direction under s 133 of the Trusts Act. I accept the submission of Mr Gray QC, for the SJC Trust Board, that the decision to forgive the debt is not affected by any conflict of duty. That is because the three dual trustees took no part in that decision. The Attorney-General made a similar submission.

Result

[31]   Pursuant to s 133 of the Trusts Act, I direct that it is proper and lawful for the SJC Trust Board to forgive the TA Trust Board’s debt to the SJC Trust Board of approximately $14.85 million.

Campbell J