Trustees Executors Limited v Nichols

[2022] NZHC 867

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2022-412-3

[2022] NZHC 867

UNDER

Trusts Act 2019

IN THE MATTER

of J.C. NICHOLS KIRIHEKA TRUST

BETWEEN

TRUSTEES EXECUTORS LIMITED

Applicant

AND

TIMOTHY JOSEPH COWIE NICHOLS, KATHRYN MARY HELEN TRYFIATIS, HAROLD GUY NICHOLS, SARAH VIRGINIA JANE SIMMONS, NICHOLAS BERNARD ORBELL, HENRY

SIMON ORBELL, NICHOLA ANNE WHITNEY HEDLEY, SUSAN VIRGINIA BLAKE, DAVID

JOHN THACKER, CHRISTINA MARY LUCAS, HANS

CORNELIUS VAN DER WILT, ARTHUR MARK VAN DER WILT, ANTON DAVID VAN DER WILT, MEGAN

ELIZABETH NICHOLS, BRONWYN HELEN NICHOLS, HUGH CHARLES NICHOLS

Respondents

Hearing:	(Determined on the papers)
Counsel:	F Barton and A Clark-Tahana for Applicant
Judgment:	29 April 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

TRUSTEES EXECUTORS LIMITED v T NICHOLS [2022] NZHC 867 [29 April 2022]

[1]        The applicant seeks directions as to service which, save for also seeking an order dispensing with service on three charities, would be routine.

Background

[2]        The applicant is the trustee of the J.C. Nichols Kuriheka Trust (the Trust). The Trust was established on 7 April 1935. The applicant applies for an order approving a proposal to vary the Trust, wind up the Trust and distribute the Trust property early.

[3]        The named respondents (Contingent Beneficiaries) are the great-grandchildren of the settlor of the Trust. They are beneficiaries of the Trust with their status as beneficiary being contingent on each being alive at the date of distribution of the Trust.

[4]        The date of distribution of the Trust is  two days prior to  the  expiration of  21 years from the date of death of the last survivor of the children and grandchildren of the settlor. One of the settlor’s grandchildren is still alive, aged 89 years old. Accordingly, the Trust will continue for at least another 21 years.

[5]        There are three charitable beneficiaries who will become eligible to receive   a distribution from the Trust in the event there are no living Contingent Beneficiaries at the date of distribution.

[6]        The application to dispense with service on the charities is based on the proposition that it would be highly unusual if none of the Contingent Beneficiaries were alive in 21 years. The two youngest of the Contingent Beneficiaries are in their early 50s. Three more are also in their 50s, six are in their 60s and five are in their 70s. Of course, the 21 year period assumes that the sole surviving grandchild of the Settlor does not live for much longer.

[7]        I have no evidence as to the life expectancy of the surviving grandchild of the settlor who, as I have said, is presently 89 years old. If that person was to live for another 10 years then the Trust would not vest for another 31 years. At that time, the person who is now the youngest Contingent Beneficiary would be in their early 80s.

[8]        Accordingly, there is uncertainty as to when the Trust will vest and whether any of the Contingent Beneficiaries will be alive at that time.

Motivation for the winding up of the Trust

[9]        Counsel for the applicant advises that the primary factor necessitating the application is the financial state of the Trust. The trustee has reviewed the projected finances of the Trust which indicates the Trust assets are likely to be exhausted by 2030. The Trust owns a property which is a listed historic building and its maintenance is a significant drain on the Trust’s resources.

[10]      Counsel submits that the financial situation compounds the low likelihood that the charitable beneficiaries will benefit from the Trust. The submission is that if the Trust is not wound up now, then none of the beneficiaries, whether the respondents or the charities, will receive a distribution as the Trust funds will likely be exhausted. Given the restrictions on the applicant’s ability to sell assets, that outcome is not likely, however, the point that the Trust in all likelihood will have no ability to maintain the Trust property after 2030 is a valid one.

[11]      A further issue arises, the charities as named in the 1935 Trust Deed do not accord with the current iterations of two of the three entities.

The financial position of the Trust

[12]      Mr McAuliffe, a trust manager employed by the applicant, has sworn a detailed affidavit as to the history of the Trust and its financial position.

[13]      The Trust property includes an historic building near Maheno in North Otago (the mansion), the contents of the mansion and some adjacent land. Farm buildings and workers’ cottages are located on the land. The contents of the mansion, known as “the collection”, comprises antique furniture chattels, paintings and weapons. The Trust property also includes various securities which provide the Trust with an income.

[14]      Under the Trust Deed, the income available to the trustee to maintain the property and pay the outgoings was constrained. The only assets that could be sold to

generate income were the securities. The trustee is not permitted to sell the land, the dwelling or the collection.

[15]      There have been previous applications to the Court for consent to sell Trust land and other assets to generate funds for payment of outgoings and for maintenance of assets.

[16]      Orders of the Court varied the Trust Deed in March 1999, June 2000 and April 2008. The need for continuous litigation requesting the Court’s permission to remedy the Trust’s  cashflow is one of the factors leading to the current application  to wind up and finally distribute the Trust.

[17]      In May 1997, the trustee sought directions regarding its power, if any, to sell Trust assets and whether a power could be conferred upon the trustee under the Trustee Act 1956. In a judgment in 1999, Eichelbaum CJ gave guidance concerning the trustee’s powers pursuant to the Trust Deed.1 In particular, the trustee was concerned to establish whether it could sell any part of the Trust assets in order to provide funds for repairs and maintenance. His Honour was not able to issue firm directions because there was an issue about the non-presence of the charities in Court. His Honour nonetheless made observations. His Honour indicated that the trustee had neither the power to sell any of the Trust property, except as provided for in the clause permitting the sale of the securities, nor the power to use the capital of the Trust funds for maintenance purposes.   His Honour also considered the Court had no power under   s 64(1) of the Trustee Act 1956 to confer a power of sale on the trustee on account of the contrary intention expressed in the Trust Deed.

[18]      In 2000, a further application in respect of the sale of Trust assets was brought before Panckhurst J.2 In the application the scope of assets sought to be sold was narrowed. The trustee sought an order that it be directed to sell a rare book collection and stamp collection. There was agreement between the beneficiaries as to that step. Originally, the trustee also sought to sell a medal collection which would have raised

1      Trustees Executors Estate and Agency Company of New Zealand Ltd v Nichols HC Dunedin M104/96 18 March 1999.

2      Trustees Executors Estate and Agency Company of New Zealand Ltd v Nichols HC Dunedin M104/96 (Panckhurst J’s judgment is undated but the sealed order is dated 27 April 2001).

substantially more than the other collections, but the application was withdrawn as the family did not agree to its sale.

[19]      Mr McAuliffe swore an affidavit in support of the application at that time and he estimated then, that $500,000 would be required to put the Trust on a sound footing for the future – which would have been raised if the medals had been sold.

[20]      In Panckhurst J’s decision, he anticipated that the sale of the book and stamp collections would not be sufficient to generate any marked increase in annual income. The order permitting their sale was viewed as a modest first step towards restoration of the required income position.

[21]      Panckhurst J was of the opinion that the sale of the stamps and rare book collection would be in the best interests of the persons beneficially interested under the Trust and he approved the sale.

[22]      There was a further application to the Court which was dealt with by way of  a consent order by Hansen J in 2008. The Deed was varied in accordance with agreed amendments.

[23]      I note the contingent charities were not represented in the application before Panckhurst J, and apparently not represented in the consent orders granted by Hansen J.

[24]      In Eichelbaum CJ’s decision, while the charities were not represented, his Honour said: “… the prospect that the charities will succeed to the trust property is remote”.3

[25]      Mr McAuliffe says he recalls the question of the charitable beneficiaries arose in the 2000 application before Panckhurst J. He advises the Court was informed the charitable contingent beneficiaries had been served. The applicant’s solicitors obtained the consent of the Dunedin Public Art Gallery Society Incorporated to the sale of some of the Trust’s assets as a capital raising exercise. It is clear that in 2000,

3      Trustees Executors Estate and Agency Company of New Zealand Ltd v Nichols, above n 1, at 13.

the applicant’s solicitors were prepared to serve the Dunedin Public Art Gallery Society Incorporated. Mr McAuliffe says it was suggested to Panckhurst J that the draft order be prepared and considered by the charities who were not represented at the hearing. His Honour was happy with that approach. It appears that the draft order was shown to the charities who did not have an issue with it. In 2005, the applicant’s solicitors again wrote to the Dunedin Public Art Gallery Society Incorporated and the Otago Museum Trust Board asking for consent to the sale of one of the Trust’s medals as a capital raising exercise.

[26]      On Mr McAuliffe’s evidence, it seems clear that the Trust funds are insufficient for the trustee to discharge its obligations as to the maintenance of the property and the collection for the next 21 years, let alone provide for a distribution.

[27]      One of the family members is prepared to buy the mansion and collections at valuation. The trustee does not consider it prudent and financially viable to seek the Court’s permission to sell property whenever the Trust has a lack of funds, as that would only see the Trust funds eaten up by administration and continuous court proceedings.

[28]      The practical wisdom of what is proposed by the application is evident but, at the end of the day, I am not satisfied it is appropriate to dispense with service on the charities. That they were not before the Court was a concern to Eichelbaum CJ and was a matter that was dealt with at a practical level before Panckhurst J.

[29]      I intend to adopt a similar practical approach. I have already referred to the Dunedin Public Art Gallery Society Incorporated. Mr McAuliffe says he is unsure whether the Dunedin Public Art Gallery Society Incorporated was in existence at the time of the Deed and whether it has remained the same entity since that date. However, that is the body that has been approached in the past in relation to court applications.

[30]      The second charity named in the 1935 Deed is the “Museum” at Dunedin. There were two Museums in Dunedin in 1935; the Otago Museum and the Toitu Otago Settlers Museum (the Settlers Museum). The Otago Museum was founded in 1868 and the Settlers Museum in 1898. Mr McAuliffe says it is not clear which Museum

was intended to be the recipient under the Deed and he believes the distribution would fail due to uncertainty. The third entity is the Dunedin Diocesan Trust Board. There is no issue as to that entity.

[31]      The reality is, in 2000 and 2005 the applicant’s solicitors were content to deal with the Otago Museum Trust Board and the Dunedin Public Art Gallery Society Incorporated.

[32]      I decline the application to dispense with service on the three charities. While there is real force in the submission that it is unlikely all 16 great-grandchildren will die before the Trust’s vesting date and that the financial position of the Trust means the status quo cannot continue, I am left in doubt as to the appropriateness of dispensing with service, particularly when in the past the Court has required the charities to be consulted.

[33]      I direct that the Dunedin Public Art Gallery Society Incorporated, the Otago Museum Trust Board and the Dunedin Diocesan Trust Board be served with the application.

[34]      I direct that the Contingent Beneficiaries may be served by email as per the application, but with the condition that if the email “bounces” back or the applicant otherwise receives a message that the email is unread or undeliverable because of its size, that further directions as to service are sought if personal service is not practical. I have a concern that the size of Mr McAuliffe’s affidavit may mean it is too large an attachment for service by email. Accordingly, the applicant is to serve the statement of claim and notice of proceeding in one email, with a covering note that the affidavit of Mr McAuliffe will follow separately and that the recipient is to contact Anderson Lloyd, the applicant’s solicitors, if the email with the affidavit attachment is not received.

[35]The same process of service may be used in relation to the charities.

Associate Judge Lester

Solicitors:
Anderson Lloyd, Dunedin