Winter v Attorney-General HC Auckland Cp609-Im01

[2001] NZHC 1209

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP609-IM01

IN THE MATTER of an application pursuant to Sections 64, 64A and 66 of the Trustee Act 1956

AND

IN THE MATTER of the Auckland Energy Consumer Trust

BETWEEN PAULINE ALICE WINTER, MICHAEL JOSEPH BUCZKOWSKI, JOHN GREGORY COLLINGE, KAREN ANNETTE SHERRY and CORALIE ANN van CAMP as Trustees of the Auckland Energy Consumer Trust
Applicant

AND THE ATTORNEY GENERAL
Respondent

Date of Hearing: 5 December 2001

Counsel: J Katz QC and D Bigio for applicant
R Willox for respondent
R Asher QC for consumers
M Bos for Manukau City Council, Auckland City Council and Papakura District Council
A Ferguson for Vector Limited

Judgment: 7 December 2001

JUDGMENT OF NICHOLSON J

Solicitors:
Ellis Gould, PO Box 1509, Auckland for Applicant
Meredith Connell & Co DX CP24063 Auckland for respondent
Davenports West, PO Box 21248, Henderson for consumers
Phillips Fox, PO Box 160, Auckland for Councils
Russell McVeagh, PO Box 8, Auckland for Vector

INTRODUCTION

[1] The Trustees of the Auckland Energy Consumer Trust (“the Trust”) apply pursuant to sections 64 and 66 of the Trustee Act 1958 for orders:

[a] Confirming that the Auckland Energy Consumer Trust Deed of Trust dated 27 August 1993 (“the Trust Deed”) authorises the trustees to distribute dividends received from Vector Limited (“Vector”) to consumers as defined in the Deed by way of credit to the accounts held by consumers with energy retailers; or in the alternative

[b] Authorising the amendment of clause 3.1(h) of the Trust Deed to allow the trustees to distribute dividends to consumers in the manner described in paragraph 1[a] above.

[2] Clause 3.1(h) of the Trust Deed provides that “any distribution of income to a consumer may be made or credited by the trustees in any manner which they may determine”. In respect of the first order, the applicants claim the discretion contained in that phrase is broad enough to allow the trustees to distribute the dividends in the manner described in paragraph 1[a] above.

[3] If the Trust Deed does not so provide then to enable distribution to be effected by way of credit to consumers’ accounts with energy retailers, the applicants submit the Trust Deed must be amended. Pursuant to clause 13.1 of the Trust Deed the Deed may not be altered or amended by the Trustees except as authorised by the High Court. Section 71 of the Electricity Industry Reform Act 1998 (“the Reform Act”) enables certain amendments to the Trust Deed to be effected by way of resolution of the trustees but the amendment sought by the trustees in this application does not fall within the power granted by s 71 of the Reform Act.

[4] The applicants submit the amendment is desirable for the following reasons:

(i) Effecting distribution by way of credit is less costly than by way of cheque, thereby making more funds available for distribution to consumers;

(ii) The method of crediting consumer accounts with energy companies was used for all distributions other than the distribution of the dividends declared in 1999 and 2000 by Vector, the latter having received a different treatment as a result of legal proceedings issued against the trustees in respect of those distributions;

(iii) The method of payment by way of credit is a more reliable means of making payment to consumers and presents fewer “logistical problems”;

(iv) The proposed amendment is consistent with the purpose of the Trust and in the interests of consumers as income beneficiaries under the Trust Deed; and

(v) The proposed amendment will not prejudice the position of the capital beneficiaries under the Trust Deed.

BACKGROUND

[5] The Trust was established by the Trust Deed. The Trust controls and owns the share capital of Vector (formerly known as Mercury Energy Limited). Pursuant to the provisions of the Energy Companies Act 1992 and the Energy Companies (Mercury Energy Limited) Vesting Order 1993/303 the electricity undertaking of the Auckland Electric Power Board was vested in Vector on 1 October 1993 and on the same date 300 million $1 shares in Vector were issued to the Trust, for no monetary consideration.

[6] Under the Trust Deed, the beneficiaries of the net income of the Trust are the consumers of Vector. A “Consumer” is defined in the Trust Deed. The trustees have recently amended the definition of “Consumer” pursuant to s 71 of the Reform Act. The beneficiaries of the capital of the Trust are Auckland City Council, Manukau City Council and Papakura District Council (“the Councils”).

[7] The Reform Act came into force on 8 July 1998. The Reform Act requires electricity lines businesses to be owned and operated separately from electricity supply businesses. In March 1999, Vector sold its retail business, together with rights to the name “Mercury Energy” to Electricity Corporation of New Zealand (“ECNZ”) prior to ECNZ being split into three state-owned enterprises. Vector also sold its principal generating assets in 1999 and 2000.

[8] Vector’s electricity lines business includes ownership and operation of the distribution network of lines and cables that delivers electricity to approximately 265,000 household and business Consumers in Auckland and Manukau cities and part of Papakura District.

[9] The dividends paid by Vector to the Trust for the 1999 and 2000 financial years were the subject of Court proceedings initiated by the Councils. The substantive judgment of this Court in the proceedings was delivered on 24 November 2000 and is reported as Manukau City Council v Lawson [2001] 1 NZLR 599.

[10] In the week starting 26 March 2001, the Trust began to distribute the dividends for the 1999 and 2000 financial years to consumers by way of cheque posted to addresses compiled from the distribution roll of all consumers prepared in accordance with the trust deed.

[11] This was the first time in the history of the Trust that dividends had been distributed to consumers by way of cheques. In previous years all dividends had been distributed by way of credits against the accounts of consumers with Vector. When the Lawson decision was delivered, the Trust had received dividends from Vector totalling $182 million. The Trust had not made any distribution in either 1999 or 2000 because of the proceedings. Consequently the 2001 distribution payment was for the abnormally large sum of $560 per consumer as it was derived from the three dividends paid by Vector in 1999 and 2000. The Trustees considered that because of the circumstances and the size of the payment, the method of distribution by way of cheque through the post was the most appropriate.

[12] On 31 July 2001, Vector paid a dividend of $48 million to the Trust. Under the Trust Deed, the Trustees are required to distribute the net income of the trust to consumers not less frequently than once every 12 months, unless the income is insufficient to justify such a distribution.

[13] As the Trust began the 2001 distribution in the week starting 26 March that year, the Trust has to commence the distribution of the dividend paid by Vector for the 2001 financial year before the week starting 24 March 2002. The anticipated net payment to each consumer for the 2002 distribution is $142.

PRE-HEARING

[14] On 9 November 2001, Master Kennedy-Grant made orders directing:

[a] Mr Raynor Asher QC be appointed to represent those persons defined as “consumers” under the Trust Deed; and

[b] The applicant serve the substantive application on:

[i] Counsel for the consumers of the Trust;

[ii] Vector;

[iii] Manukau City Council;

[iv] Auckland City Council;

[v] Papakura City Council; and

[vi] The Attorney General for and on behalf of the Minister of Energy.

HEARING

[15] At the hearing, Mr Katz QC and Mr Bigio appeared for the applicant and Mr Asher QC appeared for the consumers of the Trust. Mr Willox appeared for the Attorney-General advising that the Attorney-General abided the decision of the Court. He sought leave to withdraw but requested leave to participate if any disputed question arose relating to costs. Ms Ferguson appeared for Vector Limited (“Vector”). She advised that Vector abided the decision of the Court. She also sought leave to withdraw. Mr Willox and Ms Ferguson were given leave to withdraw accordingly with leave reserved to participate in any application relating to costs.

[16] Mr Bos appeared for the Councils and confirmed that they do not oppose the payment of dividends by way of credit to the accounts held by consumers with energy retailers. The Auckland City Council would prefer to receive dividends payable to it directly, rather than by credit to its energy retailer account, however, it will abide the decision of the Court. Manukau City Council and Papakura District Council will also abide the decision of the Court.

[17] Mighty River Power Limited, Trust Power Limited, Genesis Energy Limited, Contact Energy Limited, Energy On Line Limited and Meridian Energy Limited, the energy retailers with whom Vector has network access agreements, have advised in writing they support distribution by credit to consumers accounts with them as proposed.

INTERPRETATION OF THE TRUST DEED

[18] The pertinent clause is clause 3.1(h). This states:

“Method of Payment

Any distribution of income to a Consumer may be paid or credited by the Trustees in any manner which they may determine (including payment through the agency of the Company by credit to the account of the Consumer with the Company) or may be made by cheque sent through the post to the address of the Consumer appearing on the Distribution Roll, or in the case of joint Consumers to any one or such joint Consumers at his or her address as aforesaid, or to any such person at such other address as the Consumer of such joint Consumers, as the case may be, may direct in writing, with the Trustees not being responsible for any loss arising from the making of a payment as aforesaid. A distribution to the members of an unincorporated body may be made by payment to a nominated representative of that body.” (emphasis added)

[19] Mr Katz submitted that on a purposive construction basis, the purpose of the Trust Deed is to enable the Trustees to pay out to the consumers, who are the beneficial owners, most of the profit earned by Vector. To achieve that purpose, the applicant claims the Trustees may effect that dividend distribution by any means they see fit.

[20] Further, Mr Katz submitted that notwithstanding the effect of the Reform Act on the manner in which the Trust Deed must now be read, it is arguable that a current distribution to consumers by way of credit to consumers’ accounts with energy retailers falls within the broad discretion conferred by the clause as to how a distribution may be “paid or credited”.

[21] 1f this approach was accepted, then no amendment to the Trust Deed is required and the Court may confirm the power of the Trustees pursuant to s 66 of the Trustee Act 1958 to make payment in the manner sought in this application.

[22] On behalf of the income beneficiaries, Mr Asher emphasised that clause 3.1(h) does not directly authorise the trustees to pay consumers by crediting their accounts with third parties. It does, he submitted, envisage payments by credit to the account of the consumer, in the parenthesis in the second line, but this envisages that the credit will be to the account of the consumer with the company.

[23] Mr Asher accepted that the words of clause 3.1(h) are wide enough to be interpreted as giving the trustees a discretion as to how they pay or credit income. In his submission, this is because the word “credited” is actually used, and in the parenthesis referring to crediting consumers of the company, the initial word is “including”. Therefore, it is clearly envisaged, Mr Asher submitted that there may be other methods of payment or credit.

[24] However, Mr Asher emphasised there is a possible argument that clause 3.1(h) having expressly stated one form of direct credit, has thereby impliedly excluded any other form of direct credit. He perceived the need to proceed with caution and commented that it was understandable that the trustees considered it prudent to apply to the Court.

[25] I agree. Even giving cl 3.1(h) of the trust deed a purposeful interpretation, there is room for the view that because the power to distribute income by credit to the account of the consumer is specifically stated to be through the agency of the company (Vector) to the account of the consumer with the company, such power of credit to consumers accounts was intended to be limited to accounts with Vector. It is prudent to avoid such uncertainty by variation of the Trust Deed if there is power to do so and it is appropriate to do so.

POWER TO VARY

[26] Section 64 of the Trustee Act 1956 confers upon the Court the power to vary trusts where this is “expedient in the management or administration of any property vested in a trustee” or “would be in the best interest of the persons beneficially interested under the Trust”.

[27] Section 64 is subject to two restrictions. First, there must not be any contrary intention expressed in the Trust Deed and second, the section cannot be used to redraw the Trust Deed and alter the beneficial interests. I am satisfied that neither restriction is applicable in the present case.

APPROPRIATENESS OF VARIATION

[28] I am satisfied from the affidavits filed that the best guarantee for a consumer of obtaining the benefit of an income payment, is to receive it by way of direct credit. Also that distribution by way of credit is significantly less costly than by way of cheque. The Trust contracted Independent Election Services Limited (“IESL”) to manage the 2001 Distribution. The Trust asked IESL to estimate the cost of distributing the 2002 Distribution by way of cheque to consumers and by way of credit against the accounts of consumers with energy retailers. IESL estimated that approximately $600,000 would be saved by crediting consumer’s accounts which could, in turn, be added to the distribution by way of dividend to the consumers.

[29] I am also satisfied that the method of payment by way of credit is a more reliable means of making payment to consumers than payment by way of cheque and presents fewer logistical problems.

[30] I am therefore of the opinion that it is expedient in the management and administration of the property vested in the trustees and would be in the best interests of the persons beneficially interested under the trust to confer upon the trustees the necessary power to distribute income to consumers by credit to the accounts of consumers with third parties who charge consumers for the availability or use of Vectors electricity lines business by ordering that the Trust Deed be varied accordingly.

VARIATION

[31] Counsel made submissions on appropriate variation and, after the hearing signed a joint memorandum recording agreement that the appropriate variation was deletion of the words in parenthesis in para 3.1(h) of the Trust Deed and substituting the following:

“(including by credit to the account of the Consumer with the Company or with any third party who charges that Consumer for the availability or use of the Company’s electricity lines business.)”

[32] The Trust Deed is varied accordingly. There is an order as stated in the Draft Order submitted with counsels’ joint memorandum dated 5 December 2001 except that the phrase “be varied” is changed to “is varied”.

COSTS

[33] Costs are reserved. If counsel cannot agree on appropriate costs, memoranda are to be filed about the dispute and the time and manner in which it is submitted it should be resolved.