Wallace v Wallace

[2023] NZHC 2928

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2022-419-188

[2023] NZHC 2928

IN THE MATTER

of an application seeking directions pursuant to the Trusts Act 2019

AND

IN THE MATTER

of Part 18 High Court Rules

AND

IN THE MATTER

of the IONE WALLACE TRUST

BETWEEN

SHANE CRAIG WALLACE and EDWARD

DEAN CLARKE as trustees of the IONE WALLACE TRUST

Plaintiffs

AND

GAVIN ROLAND WALLACE

Defendant

Hearing:	9 October 2023
Appearances:	D M O’Neill for Plaintiffs Defendant in person
Judgment:	19 October 2023

JUDGMENT OF LANG J

[on application by trustees for directions]

This judgment was delivered by Justice Lang

On 19 October 2023 at 10.00 am Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:…………………………

Solicitors/counsel:

Harkness Henry, Cambridge/D M O’Neill, Barrister, Hamilton

Copy to:
Mr G R Wallace

WALLACE v WALLACE [2023] NZHC 2928 [19 October 2023]

[1]                  The plaintiffs in this proceeding are the current trustees of the Ione Wallace Trust (the Trust). The Trust was settled by Mrs Beverley Ione Wallace by a deed dated 1 November 2004. Mrs Wallace died on 9 April 2021. The plaintiffs are the executors and trustees under her will as well as being the trustees under the deed of trust.

[2]                  The Trust’s sole asset is cash on deposit in the sum of just under $700,000. This represents the sale proceeds of the residential property in which Mrs Wallace had been living up until her death together with rental income subsequently derived from the property and accrued interest.

[3]                  Unless brought forward, the Vesting Day under the deed of trust is 1 November 2084, being 80 years from the date on which the Trust was settled.

[4]                  The trustees wish to bring forward the vesting date and distribute the funds they currently hold to the six final beneficiaries named in the Trust. One of those beneficiaries, Mr Gavin Wallace (Gavin), opposes the application. He considers the Court, and not the trustees, should be responsible for making the decision as to what should happen to the assets owned by the Trust.

[5]                  Gavin has filed interlocutory applications seeking freezing orders over the Trust’s assets and an order dismissing the plaintiffs’ application for directions.

Background

[6]                  Mrs Wallace was survived by her three children, namely Shane Craig Wallace (Shane), Cherie Beverley Luxton and Gavin. She was also survived by her three stepchildren, namely Timothy John Wallace, Bronwyn Mary Wallace and Vivien Clare Hibbert. In addition, Mrs Wallace had 11 grandchildren at the date of her death.

[7]                  Mrs Wallace was originally a trustee  of  the Trust  along  with  a  solicitor, Mr Edward Dean Clarke. Following Mrs Wallace’s death Mr Clarke and Shane signed a Deed of Appointment dated 21 May 2021 under which Shane was appointed as trustee of the Trust in his mother’s place.

[8]                  Clause 11 of the deed of trust provides for what should happen to the trust assets on the Vesting Day. It provides as follows:

On the Vesting Day the Trustee shall stand possessed of such of the capital and income of the Trust Fund as may then remain upon trust for the Discretionary Capital Beneficiaries, whether for all of them or one or more of them to the exclusion of another or others, as are living or in existence on the Vesting Day; and if more than one in such shares and proportions as the Appointor may in writing (revocable or irrevocable) or by Will at any time on or before the Vesting Day appoint and in default of and subject to any such appointment which has not been revoked before the Vesting Day for such of SHANE CRAIG WALLACE, GAVIN ROLAND WALLACE, CHERIE BEVERLEY LUXTON, TIMOTHY JOHN WALLACE, BRONWYN MARY

WALLACE and VIVIEN CLARE HIBBERT as shall then be living if more than one in equal shares as tenants in common absolutely provided however that in case any such child shall die before Vesting Day leaving issue who shall be living on Vesting Day such issue shall stand in the place of each such deceased child and take per stirpes and equally between them if more than one the share of the Trust Fund which the deceased child would have taken had he or she been living on the Vesting Day.

[9]                  On 21 September 2021, the trustees signed a resolution bringing the Vesting Day forward to 31 March 2022. On that date they proposed to distribute the trust assets to the final beneficiaries named in cl 11 of the trust deed in equal shares. A copy of the resolution is annexed as an appendix to this judgment.

[10]              Initially the trustees proposed to distribute the trust assets without obtaining directions from the Court. Before doing so, they considered it prudent to obtain an indemnity from the six final beneficiaries in case any of the final or discretionary beneficiaries should later challenge their actions. They circulated an indemnity to the final beneficiaries for execution. The trustees maintain that all the final beneficiaries other than Gavin signed and returned the indemnity. Gavin contends that this was incorrect and that he was not the only final beneficiary to refuse to sign the indemnity. Gavin explains that he was not prepared to sign the indemnity because he did not wish to assume the risk of being personally liable for actions taken by the trustees. He maintains, however, that he has never indicated to the trustees that he intended to challenge their actions.

[11]              Shane and Gavin then endeavoured to negotiate a settlement. A settlement agreement was prepared setting out the terms on which Gavin would sign the indemnity. Shane contends that after he signed the agreement Gavin added a schedule

that Shane had not agreed to. Mr Clarke then declined to sign the settlement agreement because he did not consider it adequately protected his law firm from potential liability.

[12]              The issues surrounding the indemnity undoubtedly form part of the background to the present proceeding. However, they are now largely academic because the trustees will not require an indemnity if the Court makes the directions they now seek.

[13]              Before dealing with the trustees’ application for directions I propose to deal with the interlocutory applications Gavin has filed.

Gavin’s interlocutory applications

The application for a freezing order

[14]              This application commences by stating that the Trust has not been reviewed under the Trusts Act 2019 (the Act). It is unclear what this pleading refers to.

[15]              The application also states that the plaintiffs wrongly commenced the present proceeding by statement of claim when they ought to have commenced it by originating application. This assertion is misconceived because the trustees have applied for directions under s 133 of the Act. Rule 19.2 of the High Court Rules 2016 prescribes the types of proceedings that may be commenced as of right using an originating application. The only applications that may be brought using that procedure under the Act are those under s 136.1

[16]              The Court will only make a freezing order when it is satisfied there are grounds to believe assets will be dissipated or removed outside the jurisdiction if an order is not made.2 That is not the case here. There is no suggestion in the present case that the trustees intend to distribute the trust assets without first obtaining the directions they seek in this proceeding. There is therefore no need or justification for a freezing order to be made. The application is accordingly dismissed.

1      High Court Rules 2016, r 19.2(x).

2      Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.

The application for an order dismissing the proceeding

[17]              This application is also brought largely on the grounds contained in the application for a freezing order, including the assertion on the ground that the plaintiffs have wrongly commenced it by not using the originating application procedure.

[18]              None of the grounds pleaded in the application would justify the Court making an order summarily dismissing the proceeding. However, the proceeding will be dismissed if the plaintiffs fail to establish the necessary grounds for the directions they seek. Gavin is therefore not prejudiced by his application for summary dismissal being declined. It is accordingly dismissed.

The trustees’ application for directions

[19]              The trustees apply for directions under s 133 of the Act. This provides as follows:

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.

(2)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.

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

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

[20]              The trustees seek the Court’s approval or blessing to undertake an act that they consider is within their powers but which they apprehended Gavin was unlikely to consent to.

[21]              In Re Honoris Trust Fitzgerald J clarified the law on “blessing orders” and confirmed that the power to seek directions is not restricted to minor or procedural

issues and does not require the trustees to be in genuine doubt before making an application.3 The Judge found that a blessing order may be made under the Act:4

… 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.

The Court is required to adopt a thorough and active approach to testing the evidence filed in support of the directions sought, but it is not to deprive a trustee of approval without good reason.5

[22]              Re Honoris Trust considered the predecessor to s 133 of the Act, s 66 of the Trustee Act 1956. This Court has confirmed that s 66 continues to inform the application of s 133.6 Section 134 of the Act protects a trustee acting under a direction of the Court unless the trustee has acted in bad faith.

[23]              However, situations may arise where trustees surrender their discretion under a trust deed to the Court. This is what Gavin says should happen in the present case.

[24]              The most common situation in which the trustees of a trust surrender their discretion to the Court is where the trustees are deadlocked or disabled by virtue of a conflict of interest. The trustees are not deadlocked in the present case because they are unanimous in their view that the trust assets should now be distributed to the final beneficiaries named in the trust deed.

[25]              Gavin contends that Shane has a conflict of interest because he stands to receive one-sixth of the trust assets in his capacity as a final beneficiary. I do not accept this argument. The trustees’ proposal treats Shane in the same manner as the remaining final beneficiaries. I therefore do not accept that Gavin has established grounds that would justify the trustees surrendering their discretion to the Court.

3      Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [42]–[54].

4      At [42] and [54], citing Public Trustee v Cooper [2001] WTLR 901 (Ch) at 922–924.

5      Re Honoris Trust, above n 3, at [57]–[60].

6      Macnamara v Macnamara [2023] NZHC 715, citing Re Darlow [2021] NZHC 2184 at [30]; Re McMillan [2021] NZHC 1497; and Holland v Jonkers [2021] NZHC 3469 at [89].

[26]              Gavin also contends that the Court should decline the application for directions because the trustees have not issued the present proceeding in good faith. He believes their underlying objective is have him bear the costs of the proceeding. He says this is demonstrated by the fact that the trustees have said they will seek an order for indemnity costs against him if their application succeeds.

[27]              I do not accept this submission. It seems inherently unlikely that the trustees would have gone to the trouble and expense of bringing this proceeding unless they thought it was necessary to do so. Given that Gavin objects to their proposal it is now clear that they were prudent to seek the Court’s approval before proceeding with it. Furthermore, all issues in relation to the costs of a proceeding are at the discretion of the Court.7 The determination of costs is solely a matter for the Court and not the trustees. It goes without saying that the trustees cannot know in advance how the Court will exercise its discretion regarding costs.

[28]              Gavin also submits that the Court should not grant the orders the trustees seek because they do not come to the Court with clean hands. He says several aspects of their performance in administering the trusts’ affairs call for answers. By way of example, Gavin contends the trustees have not accounted for all the rental income earned by the Trust before the property was sold. However, the evidence before the Court does not cover issues such as this. Gavin is obviously entitled to take such issues further if he considers he has not received an adequate explanation from the trustees. However, they are well beyond the scope of the present proceeding.

[29]              The underlying basis of Gavin’s opposition to the proposal appears to lie in his belief that the trustees have failed to take into account the interests of the discretionary beneficiaries who potentially stand to benefit under the Trust. Gavin says these comprise the 23 persons or entities named in the schedule that he added to the deed of settlement that Mr Clarke refused to sign. All of these persons or entities are related to or have an association with the final beneficiaries. His son Charlie, who is apparently incapacitated, is one of the discretionary beneficiaries. During the hearing

7      High Court Rules, r 14.1(1).

Gavin submitted that the trustees could not act without the consent of the discretionary beneficiaries because they have a vested interest in the assets of the trust.

[30]              As a general principle this is not correct. Discretionary beneficiaries under a trust do not ordinarily have a legal or equitable interest in trust assets unless the trustees or settlor exercise a power of appointment to appropriate or distribute assets to them.8 In the present case Gavin considers that the opening words of cl 11 require the trustees to hold the trust assets on trust for the discretionary beneficiaries. He says this requirement means the discretionary beneficiaries now have a vested interest in the trust assets. He therefore believes the trustees will be acting otherwise than in accordance with the terms of the Trust if they distribute the trust assets to the final beneficiaries without the consent of the discretionary beneficiaries.

[31]For convenience, I set cl 11 out again:

On the Vesting Day the Trustee shall stand possessed of such of the capital and income of the Trust Fund as may then remain upon trust for the Discretionary Capital Beneficiaries, whether for all of them or one or more of them to the exclusion of another or others, as are living or in existence on the Vesting Day; and if more than one in such shares and proportions as the Appointor may in writing (revocable or irrevocable) or by Will at any time on or before the Vesting Day appoint and in default of and subject to any such appointment which has not been revoked before the Vesting Day for such of SHANE CRAIG WALLACE, GAVIN ROLAND WALLACE, CHERIE BEVERLEY LUXTON, TIMOTHY JOHN WALLACE, BRONWYN MARY

WALLACE and VIVIEN CLARE HIBBERT as shall then be living if more than one in equal shares as tenants in common absolutely provided however that in case any such child shall die before Vesting Day leaving issue who shall be living on Vesting Day such issue shall stand in the place of each such deceased child and take per stirpes and equally between them if more than one the share of the Trust Fund which the deceased child would have taken had he or she been living on the Vesting Day.

[32]              I consider cl 11 comprises two separate and distinct parts. The first gives the Appointor the power at any stage prior to the Vesting Day to appoint one or more discretionary beneficiaries to receive the whole or part of the trust assets, whether income or capital, on the Vesting Day. The appointment must be in writing during the Appointor’s lifetime or by Will upon the Appointor’s death. Once such an appointment has been made, the trustees are required to hold this portion of the trust

8      Hunt v Muollo [2003] 2 NZLR 322 (CA) at [11].

assets for the person or persons who have been appointed to receive them on the Vesting Day. The Appointor also has the power to revoke any appointment so made.

[33]              The second part of cl 11 determines what shall happen on Vesting Day depending on whether the Appointor has exercised the power of appointment. Where the power of appointment has been exercised, but only in relation to part of the trust assets, the trustees will hold the remaining assets for the final beneficiaries in equal shares. Where, however, the Appointor has not appointed any of the discretionary beneficiaries to receive any portion of the trust assets, the trustees will hold the whole of the assets for the six named final beneficiaries.

[34]              The deed of trust named Mrs Wallace as the sole Appointor. It also gave her the power to appoint an Appointor to replace her by deed or in her will. There is no evidence to suggest she appointed any other person as Appointer either during her lifetime or in her will. The deed of trust provided that, should no such appointment be made, the Appointor would be the executor and trustee under Mrs Wallace’s will. As noted earlier,  Shane  and  Mr  Clarke  are  the  executors  and  trustees  under Mrs Wallace’s will.

[35]              There is also no evidence to suggest that Mrs Wallace appointed any of the discretionary beneficiaries to receive a portion of the trust assets during her lifetime or in her will. Following Mrs Wallace’s death, Shane and Mr Clarke had the power to make such an appointment but have thus far taken no steps to do so. If they do not exercise that power prior to the Vesting Day they will hold the whole of the trust assets for the benefit of the named final beneficiaries in equal shares on the Vesting Day.

[36]              It now seems clear that Shane and Mr Clarke do not intend to appoint any of the discretionary beneficiaries to receive a share of the trust assets on the Vesting Day. Instead, they have endorsed their consent as Appointor to the winding up of the Trust and the distribution of trust assets to the final beneficiaries. They have also consented to the Vesting Day being brought forward, thereby depriving themselves of the power to appoint discretionary beneficiaries to receive a share of the trust assets in the future.

[37]              It follows that I do not accept Gavin’s interpretation of cl 11. The 23 discretionary beneficiaries would only have obtained a legal or equitable interest in trust assets if one or more had been appointed to receive a share of those assets by Mrs Wallace or by Shane and Mr Clarke. That has not occurred.

[38]              This does not mean the trustees were entitled to completely ignore the interests of the discretionary beneficiaries. In the present case, however, paragraph 5(d) of the trustees’ resolution makes it clear that they considered that the interests of Mrs Wallace’s grandchildren would be provided for and protected by their parents.

Decision

[39]              Paragraph 5 of the trustees’ resolution sets out the factors they took into account in deciding to wind the Trust up and distribute the assets to the named final beneficiaries now. As I have just noted, these include the fact that the trustees considered that interests of Mrs Wallace’s grandchildren would be provided for and protected by their respective parents.

[40]              I consider the factors taken into account by the trustees provide a rational basis for their decision. It recognises the fact that Mrs Wallace plainly intended her six children and stepchildren to be the final beneficiaries of the Trust. It also reflects the fact that she had the power to appoint discretionary beneficiaries to share in the trust assets but elected not to do so during her lifetime or in her will. Gavin has not suggested that the current Appointors should now exercise their power of appointment under cl 11 in favour of any of the discretionary beneficiaries. It is difficult to see why the current Appointor should be required to take a different approach to that taken by Mrs Wallace during her lifetime.

[41]              I would also add two other factors that I consider support distribution of the trust assets to the final beneficiaries now and not in 2084. The first is that the trust assets are not substantial in today’s terms. It would be very difficult to invest such a sum in a manner that ensured significant capital growth in the future. In addition, the trust assets must be divided into six equal shares. Once the costs of administering the Trust have been deducted it is likely that each of the final beneficiaries will receive slightly more than $100,000. This is not a particularly large sum of money and it

would be diluted further if discretionary beneficiaries were to take a share of the assets. Furthermore, there seems little point in preserving the trust fund until 1 November 2084. By that date it is highly unlikely that any of the final beneficiaries will still be alive.

[42]              The second factor flows from the fact that this family has been in a state of conflict for many years. It began with litigation in this Court in 2008 following the death of Mrs Wallace’s husband. This has no doubt been costly for all involved in both financial and emotional terms. It is virtually inevitable that further conflict will arise in the years to come if the trust assets are not distributed now. It is time for the family to get on with their lives free of the disharmony that has been a constant feature of the last 15 years.

Result

[43]              I make a direction under s 133(1)(a) of the Act that the Vesting Day for the trust assets shall be 30 November 2023. On that date the trustees shall distribute the trust assets equally between the persons named in cl 11 of the Trust Deed.

Costs

[44]              The trustees have been the successful parties and would ordinarily be entitled to an award of costs in their favour. If the parties cannot reach agreement regarding costs they have leave to file memoranda not exceeding five pages in length and I will determine costs on the papers.

Lang J

IONE WALLACE TRUST RESOLUTION OF TRUSTEES

By Resolution da ted this “     *     day of      ** '        2021

PresenI:    Edward Dean Clarke

Shane Craig Wallace

BAC KG ROUND

The Trustees are the current Trustees of the IONE WALLACE TRUgT having been progres fively appointed following the death of the settlor, BEVERLEY IONE WALLACE

EDwARD DEAN CLARKE is an original Trustee of the Trust.

The Trustees have the power pursuant to the Trust Deed at their absolute and contro lied discretion and any lime to determine in writing to vary the date of final distribution of the Trusts assets following determination by the Appointers o f the Trust Deed to brlng the resting date forward The appointers EDWARD DEAN CLARKE and SHANE C RAIG WALLACE having consented to an early vesting date by Deed direct the Trustees to wind up the Trust effective from 1 October 2021 provided all the appropriate resolutions and directives are in place.

4 The Trustees acknowledge that the provisions of the Trust Deed do not prevent an early dislribufion date because the appointment of EDWARD DEAN CLARKE as lndependen I Trustee remains in place.

The True tees intend to resolv e to vary the date of distribution to October 2021. the dale of distrT bullon is therefore amended from November 2084 to 1 October 2021.

The Trustees resolve further to lake into account the wishes of the senior as set out in clause 11 of the Trust Deed which states when exercising their discretion to distrtbu te the capital or income aI the Trust fund, the settlor directed that in exercising any discretio n g Ave preference to the directions of the settlor as set out in clause 11. In the absence of any contrary appoinlment which has revoked the Settlors wishes before the vesting date distriL'ute the Trust Fund to SHANE CRAIG WALLACE, CHERIE BEVERLEY LUXTON TIMOTHY JOHN WALLACE, GAVIN ROLAND GRAHAM WALLACE BRONWYN MARY

WALLACE and VIVt EN CLARE HIBB€ RT as spoil then be IivJng on an equal share basis.

The +rustees resolve to distribute the capitai in equal shares for the benefit of SHANE CRAIG WALLACE, CHEBIE BEVERLEY LUXTON, TIMOTHY JOHN WALLAC E, GAVIN ROLAND GRAHAM  WALLACE,  BRONWYN MAPY WALLACE  and  VIVIEN  C LARE

HIBBERT in equal shares.

REgOLUTïOM:

The Trustees do therefore resolve to distlflbute all of the remaining cash assets held in Cambridge Law Centre’s Trrist account as to a 1/6 sfiara of che accumulated capital and any income To GHANE CRAIG WAN ACE, CHERIE BEVERLEV LUXTON, TIMOTHY JOHN WALLACE, GAVIN ROLAND GRAHAM WALLACE, BRONWYN MARY WALLACE and VIHEN CLARE HtBBERT.

The date of distribution of the Trust funds shall be brought forward no later than 31 MamFi

3   The Trustees resolve the appmpriate and whole of the Trust funds accordingly in equel eheres batween:

(a)9HANE CRAIG WALLACE

(b)CHERIE BEVEpLEY LUXTOM

(c)TIMOTHY JOHN WALLACE

td) GAHN.ROLANO GRAHAM WALLACE

(e)BRONWYN MARY WALLACE

(f)VIVIEN CLARE HUBERT

The Trustees resolve to retain auch writing contingency fund at an agreed amount to cover:

(a)Any final Ian obligabona of the Trust feletlng to the 2021/2022 taX year.

(b)The final casks of compleéng the final finencial statements of tne Trust to be prepared by Accounted4 Limited.

(c)Ttje final costs of Cambridge Law Centre relating to these matters.

(d)The alnount they propo6e Ïs the a+Jul of $5,000.00.

The Trustees ackmm/fedge that thay heve carefully considered all me fo)iowinp Information when carrying out their obligation aa Trustees, namely:

(a)The baQground to the original soume of the Truste funds from the settlor BEVERLEY IOME WALLACE (the qarent of SHARE CRAIG WALLACE, CHERIE BEVERLEY LUXTON, TIMOTHY JOHN WALLACE, GAVIN ROLAND GRAHAM WALLACE, BRONWYN MARY WALLACE and WVIEN CLARE HIBBERT).

(b)The wishes of the settlor having been previously communicated by the settlor to her family during her lifetime ere now being compiled with.

(c)The sok asset of tha Trust has now been so\d lol ›wlng the death of the seü\oT.

(d)That the interest of any of the grandchildren will be provided for and protected by virtue of their respective parenB providing for them no(ing that all the family as financiaJly independent.

Resolved thisI   day of           2021

”””   ”Edward Dean Clarke  

EDWARD DEAN CLARKE and SHANK CRAIG WALLACE as Appoin tors consent and direct the early vestlng of the Trust assets and winding up of the Trust as set out in the attached resolution

Resolved this \ 6  day of     zm     2021