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Presbyterian Support (Upper South Island) v New Zealand Guardian Trust Company Limited [2016] NZCA 556 (29 November 2016)

Last Updated: 13 December 2016

IN THE COURT OF APPEAL OF NEW ZEALAND
BETWEEN
 Appellant
AND
 Respondent
AND
 Intervener
BETWEEN
 Appellant
AND
 Respondent
AND
 Intervener
Hearing:
23 May 2016
Court:
Cooper, Clifford and Katz JJ
Counsel:
G M Brodie for Presbyterian Support (Upper South Island) JWA Johnson and H T Shaw for The New Zealand Guardian Trust Company Limited P J Gunn and K G Stone for Attorney-General
Judgment:


JUDGMENT OF THE COURT

A The appeal in CA244/2015 is allowed. In respect of that appeal, we:

(a) declare that the gift created by clause 5(b)(iii)(3) of the Will of Mrs Utterson-Kelso constitutes a valid charitable trust;
(b) declare that the gift created by clause 5(b)(iii)(3) of the Will has not lapsed;
(c) declare that clause 5(b)(iii)(5) of the Will does not apply to clause 5(b)(iii)(3);
(d) vary the trust created by the Will so that the income to be paid under the trust to the Green Gables Trust Board, for the period 2 June 2001 to the present, be paid to Presbyterian Support (Upper South Island) for the purposes of benefitting the elderly in the Nelson Region; and
(e) amend clause 5(b)(iii)(3) of the Will to read: “As to one (1) such part for Presbyterian Support (Upper South Island) for the purposes of benefitting the elderly in the Nelson Region;”.
  1. The appeal in CA72/2016 is dismissed save that clause 5(b)(ii) is amended to include the respondent as follows:

5(b)(ii) To accumulate for a period of 80 years an amount equivalent to ten per centum (10.00%) per annum of the net annual income arising from my estate by adding the same to the capital therefore, whereupon after the expiry of 80 years cl 5(b)(iii) shall cease to apply, and any distributions thereafter made shall be divided into four parts and:

(1) One part paid to the Salvation Army at Nelson for use among people in need in the City of Nelson;

(2) One part paid to the Nelson Diocesan Trust Board for the purpose of the Whareama Home Stoke Nelson;

(3) One part paid to Presbyterian Support (Upper South Island) for the purposes of benefiting the elderly in the Nelson Region;

(4) One part paid to the Nelson Regional Hospice Trust for the purposes of Hospice facilities and services within the Nelson health area.

In the event of any of these charitable organisations noted above ceasing to exist, any part that would have been paid to an organisation that no longer exists shall be divided equally between the remaining organisations.

  1. The costs of Presbyterian Support (Upper South Island) and The New Zealand Guardian Trust Company Limited in CA44/2015 are to be paid out of the estate/trust fund for a standard appeal on a Band A basis and usual disbursements. The costs of The New Zealand Guardian Trust Company Limited in CA72/2016 are to be paid out of the estate/trust fund for a standard appeal on a Band A basis and usual disbursements. By agreement, no costs are awarded in favour of the AttorneyGeneral.


____________________________________________________________________

REASONS OF THE COURT

(Given by Katz J)

Table of Contents

Para No
Introduction [1]
Factual background [6]
The lapse appeal (CA244/2015) [14]
Legal principles — variation of charitable trusts [15]
Has there been an initial failure of the gift to the Trust Board? [18]
Is there a general charitable intention manifest in the Will? [28]
Should the terms of the gift to the Trust Board be varied in the
way proposed by Presbyterian Support? [47]
The accumulation appeal [54]
The High Court decision [58]
Accumulation of income — legal principles [63]
Should the terms of the clause be varied in a way to provide
for the trust capital to be distributed to the beneficiary charities
at the end of the perpetuity period? [73]
Result [83]

Introduction

[1] Iris Maude Utterson-Kelso died on 2 June 2001. In her will (the Will), she left bequests of income to four named charities (the beneficiary charities), including the Green Gables Trust Board (the Trust Board). The bequest to the Trust Board was to be used for the purposes of a rest home in Nelson known as the Green Gables Home. In a somewhat unfortunate coincidence of timing, the Green Gables Home was sold the day before Mrs Utterson-Kelso’s death. Further, at the time of its sale, the home was no longer administered by the Trust Board but by Presbyterian Support (Upper South Island) (Presbyterian Support). There is also some uncertainty over the legal status of the Trust Board at the time of Mrs UttersonKelso’s death.
[2] The New Zealand Guardian Trust Company Limited (Perpetual Guardian),[1] is the executor of Mrs Utterson-Kelso’s will and the trustee of the capital comprising the residue of her estate. It applied to the High Court at Christchurch for orders pursuant to s 32 of the Charitable Trusts Act 1957 (the Act) to enable the income gifted to the Trust Board for the purposes of the Green Gables Home to be paid instead to Presbyterian Support for the purpose of benefiting the elderly in the Nelson region.
[3] In a judgment delivered on 13 March 2015 (the lapse judgment), Gendall J declined to make the orders sought.[2] He found that the gift to the Trust Board had lapsed. He delivered a second judgment on 22 July 2015 (the accumulation judgment) dealing with Perpetual Guardian’s application to amend clause 5(b)(ii) of the Will (the accumulation clause), which provided for 10 per cent of the trust income under the Will to be accumulated in perpetuity.[3] Despite Gendall J’s finding of lapse in relation to the gift to the Trust Board, the accumulation issue remained live in relation to the remaining three beneficiary charities. Gendall J limited the operation of the accumulation clause to 80 years to comply with the Perpetuities Act 1964. He did not, however, provide for the trust capital to be distributed to the beneficiary charities at the end of the 80 year period, as Perpetual Guardian had sought.
[4] Presbyterian Support appealed the lapse judgment, supported by Perpetual Guardian. Perpetual Guardian appealed the accumulation judgment. In the absence of a contradictor, the Attorney-General made submissions on the accumulation issue in his role as protector of charities. On the lapse issue, the Attorney-General relied on the report he had previously submitted to the High Court.
[5] The key issues raised by the appeals are:

Factual background

[6] The Will is dated 11 May 1995. Probate was granted on 25 June 2001. The clause that is at issue in both appeals is clause 5(b), which provides as follows:

SUBJECT to the payment provided herein for my sponsored children I DIRECT my trustee to hold the residue UPON TRUST as follows:

(i) TO invest the same in perpetuity as is by law or this my will allowed;

(ii) TO accumulate an amount equivalent to ten per centum (10.00%) per annum of the net annual income arising from my estate by adding the same to the capital thereof;

(iii) TO divide the remaining net annual income as shall not be accumulated as aforesaid into four (4) parts and to pay and apply such parts as follows:

(1) AS to one (1) such part for THE SALVATION ARMY at Nelson for use amongst people in need in the City of Nelson;

(2) AS to one (1) such part for THE NELSON DIOCESEAN TRUST BOARD for the purpose of the Whareama Home Stoke Nelson;

(3) AS to one (1) such part for THE GREEN GABLES TRUST BOARD at Christchurch to be used for the purposes of The Green Gables Home at Nelson;

(4) AS to the remaining one (1) such part for THE NELSON REGIONAL HOSPICE TRUST for the purposes of Hospice facilities and services within the Nelson health area;

(5) IN the event of any of the charitable organisations contained in my will ceasing to exist for any reason then the share of the trusts that fail or the shares of net annual income shall be added to the others or other of the said parts the trusts whereof do not fail in equal shares and shall be subject in all respects to the same trusts and provisions as herein appear concerning the parts or part to which the same shall attach;

(6) IT is my request without imposing any binding trust that such parts of the net annual income arising from my residuary estate received by the said Salvation Army, the Nelson Diocesan Trust Board and the Green Gables Trust Board should be used for the establishment and/or maintenance of self contained units and/or hospital wings.

[7] The lapse appeal relates to the gift to the Trust Board for the purposes of the Green Gables Home. Presbyterian Support purchased the home in 1957 and operated it until the early 1970s, when it entered into a partnership with the Methodist Central Mission. The two churches agreed to combine their resources for the purposes of benefiting the elderly, including through the operation of the Green Gables Home. The Trust Board was established as the legal entity through which the partnership would operate. The objects of the Trust Board, as set out in its constitution, were:
[8] Presbyterian Support continued to own the land and buildings, but provided the rest home facility rent-free to the Trust Board for use as a rest home. The Trust Board also carried out other charitable functions in the Nelson district, including the development of home-based services for the elderly.
[9] By the mid 1990s, the two churches decided to part ways due to philosophical differences as to how services to the elderly were best delivered. The Methodist Central Mission wished to focus on rest home care, while Presbyterian Support wished to increase its support to the elderly in their own homes. The partners therefore agreed to dissolve the Trust Board and move forward separately. Presbyterian Support resumed sole management of the rest home, but also used it as a platform for extended operations, including home visiting, home care and other outreach services.
[10] By the late 1990s, the Green Gables Home was finding it increasingly difficult to compete with the substantial commercial operators who were now providing modern rest homes with well-appointed facilities. Given that a large crosssection of elderly people now prefer to remain in their own homes for as long as possible, Presbyterian Support decided to refocus its efforts on supporting those people. It decided to sell the Green Gables Home and six other similar homes. The sale settled on 1 June 2001, the day before Mrs Utterson-Kelso’s death.
[11] Mrs Utterson-Kelso did not reside at the Green Gables Home, but at another rest home in Nelson. She benefitted, however, from the elderly support services provided by Presbyterian Support through the Green Gables Home. In particular, she received day care and took part in the Home’s Motivational Activities Club for Seniors until her death in 2001.
[12] Although both partners treated the Trust Board as defunct from the mid 1990s onwards, it was not formally removed from the Register of Incorporated Societies until 9 June 2005, four years after Mrs Utterson-Kelso’s death. Subsequently, on 30 November 2010, the Trust Board was restored to the Register following a declaration revoking the dissolution. By operation of s 28(6) of the Incorporated Societies Act 1908, the Trust Board was then revived as if no dissolution had taken place, with effect from the date of the original dissolution.
[13] Presbyterian Support now focuses on supporting elderly members of the Nelson community through a variety of programmes including a home meals service, a home care service, a motivational activities club and a day care service. The proceeds of the sale of the Green Gables rest home are used to support such services.

The lapse appeal (CA244/2015)

[14] In the lapse appeal, Presbyterian Support submits that the Judge erred in concluding that the gift to the Green Gables Home had lapsed.

Legal principles — variation of charitable trusts

[15] Section 32 of the Act relevantly provides that:

32 Property may be disposed of for other charitable purposes

(1) Subject to the provisions of subsection (3), in any case where any property or income is given or held upon trust, or is to be applied, for any charitable purpose, and it is impossible or impracticable or inexpedient to carry out that purpose ... then (whether or not there is any general charitable intention) the property and income or any part or residue thereof or the proceeds of sale thereof shall be disposed of for some other charitable purpose, or a combination of such purposes, in the manner and subject to the provisions hereafter contained in this Part.

...

(3) This section shall not operate to cause any property or income to be disposed of as provided in subsection (1) or subsection (2)—

(a) if in accordance with any rule of law the intended gift thereof would otherwise lapse or fail and the property or income would not be applicable for any other charitable purpose:

...

[16] In summary, where there is some failure of the original specified charitable purpose, s 32(1) of the Act provides for the application of property to another charitable purpose. It expressly states that s 32(1) applies whether or not there is any general charitable intention. However, s 32(1) cannot be used to dispose of property if s 32(3) applies. Section 32(3) preserves the common law doctrine of lapse. That doctrine applies where the charitable purpose has failed before the gift came into effect and where there is no general charitable intention to save the gift.
[17] Difficult issues of interpretation and construction arise when ss 32(1) and 32(3) are considered together.[4] However, where there is a general charitable intention present then the doctrine of lapse will not apply. We therefore accept Presbyterian Support’s submission that in such circumstances s 32(1) remains applicable and the need to reconcile s 32(1) with s 32(3) will not arise.

Has there been an initial failure of the gift to the Trust Board?

[18] It was not in dispute that a gift “for the purposes” of a rest home for the elderly is a gift for a charitable purpose within the first of Lord MacNaghten’s four categories in The Commissioners for Special Purposes of the Income Tax v Pemsel.[5] Rather, the key issue in this appeal is whether the relevant charitable gift has lapsed.
[19] The Will specifies the Trust Board as the recipient of the gift. Gendall J held that, at the time of Mrs Utterson-Kelso’s death in 2001, the Trust Board was dissolved in all but form.[6] In particular, in 1996, it had been agreed that dissolution was desirable and, in 1998, it was resolved that dissolution would occur. To that end, clause 17 of the Trust Board’s constitution became operative and the Methodist Mission was paid out. From that point forward, the Green Gables Home was managed under the sole auspices of Presbyterian Support. Gendall J concluded that all parties had considered the dissolution to be effective, at least in substance: “Through nothing other than anomaly the [Green Gables Trust Board] was not removed from the register.”[7] On that basis alone, he inclined to the view that there had been an initial failure of the gift. Despite the “shell” of the Trust Board remaining in existence, its substance had been eroded by agreement.[8]
[20] Gendall J’s view that there had been an initial failure of the gift was further fortified by the fact that the Will stipulates that the gift is “to be used for the purposes of the Green Gables Home at Nelson”. He noted that the Green Gables Home had been sold to a private concern the day before Mrs UttersonKelso’s death. As a result, the gift could not be applied to the purpose for which it was made.[9] Gendall J accordingly concluded that there had been an initial failure of the gift.[10]
[21] Presbyterian Support submitted that Gendall J erred in both of his findings, namely that:
[22] In relation to the first issue, Presbyterian Support submitted that the Trust Board was in legal existence at the time of Mrs Utterson-Kelso’s death and there was therefore no initial failure on that ground. Rather, when the Methodist Mission withdrew from the partnership, the operational need for a separate legal entity simply evaporated because Presbyterian Support resumed its former role as sole operator of the rest home. Although there was no longer any need for the Trust Board to run the Green Gables Home, Presbyterian Support kept the Trust Board in existence to hold notionally the rest home assets and, after 2001, to administer the trust created by the Will. It was simply an oversight that the Trust Board was dissolved in 2005. This was remedied when it was restored to the Register, with the effect that the Trust Board was revived as if no dissolution had taken place.
[23] We accept the submission that the fact that the Trust Board was largely defunct at the time of Mrs Utterson-Kelso’s death did not, in itself, result in an initial failure of the gift. The Trust Board still existed as a legal entity at the relevant time, and still exists today. It was legally capable of accepting the gift. It follows that clause 5(b)(iii)(5) of the Will (the accruer clause) has no application in this case. That clause provides for a gift-over to the remaining three charities named in the Will in the event “any of the charitable organisations contained in [the] will ceasing to exist”. The Trust Board has not ceased to exist in terms of this clause.
[24] The key difficulty, in our view, is not that the Trust Board had ceased to exist at the relevant time, but rather that the Green Gables Home was sold prior to Mrs Utterson-Kelso’s death. This squarely raises the issue of whether the Trust Board, at the time of Mrs Utterson-Kelso’s death, was able to apply the gift to the purposes specified in the Will. If not, there has been an initial failure of the gift.
[25] Presbyterian Support submitted that, notwithstanding the sale of the Green Gables Home, the Trust Board could still apply the gift for the purposes specified in the Will. It noted that the gift was “to be used for the purposes of the Green Gables Home at Nelson”.[11] Presbyterian Support drew a distinction between “the purposes” of the Green Gables Home and the Home itself. This submission, with some differences in emphasis, was advanced in support of two alternative propositions:
[26] In our view, the submissions that were made under this head are best considered in relation to the issue of whether Mrs UttersonKelso had a general or paramount charitable intention, and we proceed accordingly.
[27] On the issue of whether there has been an initial failure of the gift, we are satisfied that the effect of the sale of the Green Gables Home, the day before Mrs Utterson-Kelso’s death, is that the Trust Board is now unable to apply the gift for the purposes specified in the Will, namely “to be used for the purposes of The Green Gables Home at Nelson”. There has therefore been an initial failure of the gift.

Is there a general charitable intention manifest in the Will?

[28] Where there has been an initial failure of a gift, it may still be saved if the court finds that there is a general charitable intent manifest in the relevant document. Presbyterian Support submitted that Mrs Utterson-Kelso did have a general charitable intent when preparing her will, and that Gendall J erred in finding otherwise.
[29] Gendall J noted that Mrs Utterson-Kelso made a specific gift to the Trust Board to be used “for the purposes of The Green Gables Home”.[12] He referred to the following observations of Sir Robert Megarry VC in Re Spence (deceased):[13]

If a particular institution or purpose is specified, then it is that institution or purpose, and no other, that is to be the object of the benefaction. It is difficult to envisage a testator as being suffused with a general glow of broad charity when he is labouring, and labouring successfully, to identify some particular specified institution or purpose as the object of his bounty. The specific displaces the general. It is otherwise where the testator has been unable to specify any particular charitable institution or practicable purpose, and so, although his intention of charity can be seen, he has failed to provide any way of giving effect to it. There, the absence of the specific leaves the general undisturbed.

[30] Gendall J took comfort from the fact that, on his analysis (which differs from ours in this respect), the accruer clause had the effect of avoiding an intestacy. As a result, even though the gift to the Trust Board lapsed, the remaining three beneficiary charities would each receive a proportionate share of the gift that would have otherwise gone to the Trust Board.[14]
[31] Gendall J found that the selection of the entities that the deceased had provided for in her will was methodical and likely stemmed from the ties between the deceased and her intended beneficiaries. Mrs Utterson-Kelso received day care services run from the Green Gables Home, although she did not reside there. In his view, this connection supported the view that the gift was a specific gift intended for the Green Gables Home, and only the Green Gables Home.[15] It was therefore only a specific charitable intention and not a paramount charitable intention.[16]
[32] In Re Wilson, Parker J described the distinction between a general and a particular charitable intention in the following terms:[17]

First of all, we have a class of cases where, in form, the gift is given for a particular charitable purpose, but it is possible, taking the will as a whole, to say that, notwithstanding the form of the gift, the paramount intention, according to the true construction of the will, is to give the property in the first instance for a general charitable purpose rather than a particular charitable purpose, and to graft on to the general gift a direction as to the desires or intentions of the testator as to the manner in which the general gift is to be carried into effect. In that case, though it is impossible to carry out the precise directions, on ordinary principles the gift for the general charitable purpose will remain and be perfectly good, and the Court, by virtue of its administrative jurisdiction, can direct a scheme as to how it is to be carried out. In fact the will will be read as though the particular direction had not been in the will at all, but there had been simply a general direction as to the application of the fund for the general charitable purpose in question.

Then there is the second class of cases, where, on the true construction of the will, no such paramount general intention can be inferred, and where the gift, being in form a particular gift, — a gift for a particular purpose — and it being impossible to carry out that particular purpose, the whole gift is held to fail.

[33] The issue requires consideration of the mode and the substance of the gift in question. In Re Willis, Younger LJ said:[18]

If on the proper construction of the will the mode of application is such an essential part of the gift that you cannot distinguish any general purpose of charity but are obliged to say that the prescribed mode of doing the charitable act is the only one the testator intended or at all contemplated, then the court cannot, if that mode fails, apply the money cy pres.

[34] Although there is no presumption in favour of a general charitable intention, the Courts tend to lean that way. In Re Collier (Deceased), Hammond J noted: “Judges routinely behave as if there is a presumption, but justify it in terms of ‘construction’”.[19]
[35] In Attorney-General for New South Wales v Perpetual Trustee Co Limited, Dixon and Evatt JJ held that:[20]

... no definite presumption has been established in favour of a general charitable intention. At the same time the court leans, it is said, in favour of charity and is ready to infer a general intention. But little is therefore required as a ground for treating a wider purpose as the essential object of the trust.

[36] Chilwell J acknowledged this approach in Re Pettit.[21] More recently, Ellis J observed in Re Culpan that:[22]

While there is no presumption in favour of the existence of a general charitable intention, the courts have been willing to lean in favour of charity and to infer such an intention in the absence of clear indicia to the contrary[.]

In that case, the inclusion of the words “for the general purposes thereof” was taken to support an inference of general charitable intention.[23]

[37] Reflecting this approach, the courts have found a general or paramount charitable intention in a number of cases where property has been left for a specific charitable purpose and the donor has indicated with some degree of particularity the mode in which he or she desires the gift to be applied.[24] This reflects both the preference of the courts to avoid intestacy where possible and also, in public policy terms, the important position and status of charities in the provision of welfare services in New Zealand. As a result, the courts will generally accept even a fairly small indication of a donor’s intention as showing that a purpose, and not a specific person or institution, was the intended beneficiary.[25]
[38] In some cases, however, it will be indisputable that the deceased intended to benefit a specific institution only. In Alacoque the gift was to be applied “for the benefit absolutely and exclusively of the Saint Joseph Convent at Eltham”.[26] The Convent was closed before the testatrix died and there had ceased to be a religious order in existence that could answer the description contained in the Will. The words “absolutely and exclusively” were apparently relevant to the Court’s finding that there was no general charitable intention. The Court held that the deceased intended to benefit only that Convent and no other institution or broader purpose.[27]
[39] Although the issue is fairly finely balanced, we have been persuaded that there is a general charitable intention manifest in the Will for the reasons we set out below.
[40] First, Mrs Utterson-Kelso directed that the income from the residue of her estate (which comprised the bulk of her estate) be shared equally among the four beneficiary charities. Re Satterthwaite’s Will Trusts is authority for the proposition that a general charitable intention may be found by reason of other similar charitable gifts made in the same will.[28]
[41] There can be no doubt that Mrs Utterson-Kelso intended that the residue of her estate be applied for charitable purposes. To minimise the risks of an intestacy arising in respect of one or more of the gifts to the four beneficiary charities, she included the accruer clause in the Will. This covered the possibility that one of the four listed charities might cease to exist. In effect, the accruer clause ring-fenced the income of the residue of Mrs Utterson-Kelso’s estate for charitable purposes, by providing for a gift-over to the remaining charities if one should fail. Mrs UttersonKelso could have provided for a gift-over to a friend or family member if one of the beneficiary charities ceased to exist, but elected not to do so. Her clear wish was that the income from the residue of her estate be used for charitable purposes, to support the elderly and the needy in the Nelson area.
[42] The accruer clause has no application in the present circumstances, however, because the Trust Board has not ceased to exist. Accordingly, if the gift lapses there will be an intestacy in respect of that portion of the income.
[43] Mrs Utterson-Kelso did not specifically turn her mind to the prospect that one of the listed beneficiary charities may still exist at the time of her death, but may not be able to apply the gift for the specific purpose specified in her will, in this case being the purposes of the Green Gables Home. We are satisfied, however, that in such circumstances Mrs Utterson-Kelso would have intended that the gift to the Green Gables Home be used for purposes that approximate, as closely as possible, the purposes she identified in her will. This is consistent with her clear wish that the residue of her estate be used to provide for people in need (including, in particular, elderly people) in her home region, with the nomination of the four beneficiary charities reflecting her desires as to the specific manner in which that charitable intent should be carried out.
[44] We also accept Presbyterian Support’s submission that the words “for the purposes of Green Gables Home” can be relied on, to some extent at least, as indicating a broader focus than simply the bricks and mortar that comprised the rest home. The Green Gables Home did not only provide a residential care facility, but also provided a base for the provision of fairly wide-ranging support services to elderly persons in the Nelson region. Such broader purposes are reflected in the objects of the Trust Board itself, which extend to the “maintenance, care and welfare of elderly persons” and “such matters and things as may be incidental to or connected with ... any or all of the foregoing purposes”. Indeed, Mrs UttersonKelso’s own contact with the Green Gables Home was not as a resident, but as a recipient of the broader support services it provided, such as the Motivational Activities Club. Although Presbyterian Support (as the successor to the Trust Board) no longer operates the Green Gables Home, the broader support services, previously provided through the Home, continue.
[45] In Re Broadbent (deceased), the Court was satisfied that, if a gift is for a charitable purpose promoted in the work of an institution, rather than only for the benefit of the institution itself, and there are existing funds dedicated towards promoting the charitable purpose, the gift will not be allowed to fail on the grounds that the particular institution used as a means of attaining the charitable end has ceased to exist.[29] Presbyterian Support also referred to a number of cases involving gifts made to hospitals that, at the relevant date, no longer existed, but where the courts were willing to save the relevant gifts on the basis of a general charitable intention.[30]
[46] Each case will turn on its own facts. Clause 5(b)(iii)(3) is expressed fairly narrowly. On the other hand, the wording of clause 5(b) as a whole is consistent with a broader charitable intent, particularly when viewed in the relevant factual context. Ultimately we have been persuaded that clause 5(b) of the Will evidences a general charitable intent and that the gift to the Trust Board has accordingly not lapsed. We therefore accept Presbyterian Support’s submission that the Judge erred in finding that it had.

Should the terms of the gift to the Trust Board be varied in the way proposed by Presbyterian Support?

[47] Given that the gift to the Trust Board has not lapsed, it is necessary to consider the merits of Perpetual Guardian’s application, under s 32(1) of the Act, to dispose of the gift “for some other purpose”, on the basis that the purpose specified in the Will is impossible, impracticable or inexpedient.
[48] The guiding principles in such circumstances are well established. Although s 32 does not specifically require a cy pres approach by expressly requiring that the substituted trust accord as closely as possible to the testator’s original intentions as the changed circumstances allow, the courts will generally take such an approach.[31]
[49] The proposed scheme seeks changes to both the purpose of the trust established by the Will and the institution administering the trust. In particular, it is proposed that clause 5(b)(iii)(3) be amended by substituting the words “Presbyterian Support for the purposes of benefitting of the elderly in the Nelson Region” for the current clause.
[50] The evidence before us is that the provision of rest homes is now well accommodated by substantial commercial enterprises, against which it is fairly difficult for smaller organisations to compete. As a result, a number of charitable organisations that work with the elderly, including Presbyterian Support, have shifted their focus to supporting the increasing number of elderly people who prefer to remain living in their own homes. Mrs Utterson-Kelso was herself a beneficiary of such social support services, which appears to have inspired her to make provision for the Trust Board in her will. We are therefore satisfied that the purpose of “benefitting the elderly in the Nelson Region” accords as closely as reasonably possible in the changed circumstances to the terms of the original trust and should therefore be approved.
[51] The remaining issue is whether we should substitute Presbyterian Support for the Trust Board as the recipient of the gift. That course is supported by all concerned, including the Attorney-General.
[52] Although the Trust Board still exists as a legal entity, it was common ground that, to all intents and purposes, Presbyterian Support is the successor of the Trust Board. When the Trust Board resolved to dissolve itself in accordance with its trust deed, the Methodist Mission was paid out a sum in proportion to its contribution to the capital of the Board. Presbyterian Support then assumed sole responsibility for the Green Gables Home. It has continued to provide support services for the elderly in the Nelson region following the sale of the Home. In this sense, there has been an unbroken continuance of the charity.
[53] The constitution of the Trust Board is also specifically tailored for the (now defunct) partnership between Presbyterian Support and the Methodist Central Mission. For example, the Board of Governors of the Trust Board is specified as requiring three appointees from each organisation. This is no longer appropriate and is unworkable. We therefore accept that the Trust Board is not the appropriate entity to administer and apply the gift of income established by the Will, in perpetuity. It would be inefficient and undesirable to require Presbyterian Support to, in effect, conduct its support activities for the elderly in the Nelson region through two separate legal entities. It should be able to bring all its related activities under one umbrella. We are therefore satisfied that it is appropriate to substitute Presbyterian Support as the recipient of the gift.[32]

The accumulation appeal

[54] We now turn to consider the second appeal before us, which is Perpetual Guardian’s appeal against the accumulation judgment.
[55] It was common ground that the accumulation clause requires amendment so as not to infringe the rule against perpetuities, as reflected in ss 6 and 21 of the Perpetuities Act. Perpetual Guardian and the Attorney-General disagreed, however, as to precisely how the clause should be amended.
[56] Perpetual Guardian proposed that the power to accumulate be limited to the maximum perpetuity period of 80 years, following which the trustee should be entitled to distribute the capital and accumulated income to the beneficiary charities, effectively winding up the trust. This was proposed on the basis that once the trustee could no longer accumulate income the trust capital would erode in real terms, resulting in the trust becoming uneconomic.
[57] The AttorneyGeneral supported limiting the power to accumulate to 80 years, but did not support the proposal for subsequent distribution of the capital and accumulated income. In his view, any suggestion that the trust would become uneconomic at some future time was speculative. Further, winding up the trust by distributing capital at the end of the accumulation period would be contrary to Mrs Utterson-Kelso’s intention to create a charitable trust in perpetuity.

The High Court decision

[58] Gendall J amended the accumulation clause (the original of which is set out at [6] above) so that it now directs t[33] trustees:33

(ii) To accumulate for a period of 80 years an amount equivalent to ten per centum (10.00%) per annum of the net annual income arising from my estate by adding the same to the capital therefore, whereupon after the expiry of 80 years cl 5(b)(iii) shall cease to apply, and any distributions thereafter made shall be divided into three parts and:

(1) One part paid to the Salvation Army at Nelson for use among people in need in the City of Nelson;

(2) One part paid to the Nelson Diocesan Trust Board for the purpose of the Whareama Home Stoke Nelson;

(3) One part paid to the Nelson Regional Hospice Trust for the purposes of Hospice facilities and services within the Nelson health area;

In the event of any of these charitable organisations noted above ceasing to exist, any part that would have been paid to an organisation that no longer exists shall be divided equally between the remaining organisations.

[59] The amended accumulation clause therefore limits the accumulation period to 80 years, but does not provide for the capital to be distributed to the beneficiary charities at the end of that period, as Perpetual Guardian had sought. The amended clause also provides that any distributions made after the 80 year period expires are to be made, in equal parts, to the beneficiary charities (not including Presbyterian Support, given Gendall J’s finding that the gift to the Green Gables Trust Board had lapsed).
[60] Gendall J was not persuaded that the trust would necessarily become uneconomic once the accumulation period ended. Rather:[34]

[21] Once the accumulation period expires then, in my view there should be no obligation on the trustee to vest the capital in the named charities, thus winding up the trust. Instead, the trustee should be empowered to continue to invest capital and accumulate income in the usual ways (in accordance with the normal powers and obligations of trustees under the Trustee Act 1956). Although the mandated accumulation must end after the maximum Perpetuities Act 1964 period of 80 years, there is no limit on the amount of time the trustee can continue to invest and apply the Trust funds.

[61] Perpetual Guardian submitted that the Judge erred in amending the clause in the manner he did. In particular, he is said to have fallen into error as a result of an erroneous belief that the trustee could continue, in effect, to accumulate income following the expiry of the perpetuity period. The correct position, it was submitted, is that no accumulation is permitted, in any form, after the perpetuity period. Section 32 of the Act therefore applies, as the trust capital will become so eroded once the accumulation period ends that it will be simply uneconomic for the trust to continue.
[62] We will first outline the legal principles relating to accumulation of income by trustees, before turning to consider the merits of the particular arguments advanced by Perpetual Guardian in this appeal.

Accumulation of income — legal principles

[63] Section 21 of the Perpetuities Act relevantly provides:

21 Accumulation of income

(1) Where property is settled or disposed of in such manner that the income thereof may or shall be accumulated wholly or in part, the power or direction to accumulate that income shall be valid if the disposition of the accumulated income is, or may be, valid, and not otherwise.

(2) Nothing in this section shall affect the power of any person or persons to terminate an accumulation that is for his or their benefit, or any jurisdiction or power of the court to maintain or advance out of accumulations, or any powers of a trustee under the Trustee Act 1956 or under any other Act or law or under any instrument creating a trust or making a disposition.

[64] The learned authors of Garrow and Kelly Law of Trusts and Trustees summarise the effect of s 21 as follows:[35]

[8.172] In other words, income may be accumulated but only for as long as the time period permitted under the rule against perpetuities. If a period up to 80 years has been selected under s 6 (that is, specifically stated as the perpetuity period applicable to the trust document), then accumulation is allowed for that time. Otherwise, accumulation is allowed for the traditional ‘life or lives in being and 21 years.’ If there is no such life (as is often the case with trusts for charitable purposes, for instance), then accumulation is allowed only for 21 years.

[65] The prohibition on perpetual accumulations applies equally to charities. Although the rule against perpetuities does not prevent the creation of a charitable trust in perpetuity, it does prevent charities accumulating income beyond the perpetuity period. The rationale for this, as explained in Trustees, Executors, And Agency Co (Ltd) v Bush, is that, where there is a trust for a charitable purpose and a direction to accumulate a portion of the income indefinitely, such a direction is not a trust in favour of a charity. It is a fetter on the charitable trust, as it prevents the use of the property for charitable purposes during the period for which the accumulation is directed.[36] Accordingly, in Bush, the Court held that the trust for perpetual accumulation was void.
[66] In Perpetual Trust Ltd v Roman Catholic Bishop of Christchurch, Chisholm J followed Bush in finding that a similar accumulation clause was void, stating that “accumulations that are to be held in perpetuity do not fall within the umbrella of a charitable trust because they cannot be used by the charity”.[37]
[67] Accumulation of income is therefore only permitted if authorised by the terms of the trust, and then only during the perpetuity period that applies to the trust. If a power or direction to accumulate is not specifically limited to the appropriate perpetuity period by the trust instrument, the accumulation power or direction is generally treated as valid but only until the end of the relevant perpetuity period, and no longer.[38]
[68] The inability to continue to accumulate income after the perpetuity period ends may obviously pose challenges for income (only) trusts, given the risk of capital erosion after the end of the perpetuity period and the consequential effect this will have on the income available for distribution. Such challenges are ameliorated to some extent, however, by the recognition in the case law that not every retention or building up of income will constitute an accumulation of income. For example, in Moncrieff (Lindsay’s Trustees), Petitioners, Lord Dunedin observed that:[39]

... The Thellusson Act [the Accumulations Act 1800] strikes at accumulations, and therefore, so far as the directions of the trust necessitate accumulations, those directions are gone after twenty-one years. But the Thellusson Act does not prevent trustees or anyone else from saving out of income. Accordingly we are not inclined to think that the trustees will commit any impropriety which is struck at by the statute if they choose to go on saving.

[69] A similar position was taken in Re Berkeley (Earl of) (Deceased).[40] In that case, the testator’s will provided for the payment of annuities from income to the testator’s wife and stepdaughter. The income proved to be insufficient in the early years. The trustees subsequently wished to retain surplus income in later years, in case the income should again prove insufficient to make the annual payments required. The England and Wales Court of Appeal approved such an approach, with Harman LJ expressing the view that:[41]

Accumulation to my mind involves the addition of income to capital, thus increasing the estate in favour of those entitled to capital and against the interest of those entitled to income.

[70] In the same case, Widgery LJ observed that:[42]

The mischief at which the Act is aimed is a direction or power to accumulate income which is excessive in duration and unduly penalises the present generation of potential beneficiaries in order to amass capital for the benefit of a generation to come. ...

[T]he reference to accumulation for a period clearly implies, in my judgment, a mounting fund which reaches a climax at the end of the period. The mere fact that the testator has authorised interim payments out of the accumulating fund would not in itself exclude the operation of the section, but unless the effect of the disposition is the building up of a fund which is to become available for some specific object at the end of a period, the case is prima facie not within the mischief of the statute at all.

[71] Accordingly, retention of income as an administrative “precaution against future deficiencies” is not seen as an accumulation of income and is therefore permissible.[43] The authorities essentially draw a distinction between:
[72] The distinction between accumulation and administrative retention of income applies equally to charitable trusts. The trustees may not accumulate income beyond the perpetuity period, but may save income on the basis that the retained income can be paid out for the charitable purposes of the trust at a later time. The United Kingdom Law Commission has summarised the legal position as follows:[44]

[9.32] By analogy, charities may retain income on an administrative basis provided that they can justify the retention. It is the underlying duty of charities to apply such income for its charitable objects within a reasonable period of receipt. The regime is intrinsically flexible. It can, for instance, be relied upon as the basis for creating long term repair and maintenance funds for buildings, where appropriate, in just the same way as it can be relied upon to justify the retention of income for short term operational needs. The Charity Commission requires charities to justify the retention of income, and has issued guidance as to when it is appropriate for them to build up reserves. The position is different where the instrument creating the charitable trust contains an express power of accumulation. Although such powers have to be employed responsibly by trustees, and (if applicable) in accordance with the statutory restrictions on accumulation, the income once capitalised forms part of the charity’s endowment. It does not have to be applied in furtherance of the charity’s purposes (as it would if it retained its character as income).

Should the terms of the clause be varied in a way to provide for the trust capital to be distributed to the beneficiary charities at the end of the perpetuity period?

[73] Perpetual Guardian submitted the High Court’s error in declining to provide for the trust capital to be distributed to the beneficiary charities at the end of the accumulation period resulted from an erroneous view as to the scope of the trustee’s investment powers after the accumulation period had expired. As a result, it was submitted Gendall J failed to appreciate that s 32 of the Act was engaged. In particular, he is said to have failed to appreciate:
[74] Perpetual Guardian is correct that the right to accumulate income (by adding it to capital) ceases at the end of the perpetuity period (80 years). However, not every retention or building up of income constitutes an accumulation. After the accumulation period comes to an end, the trustee will be entitled to build up reserves by retaining income on an administrative basis, as discussed at [68]–[72] above. Further, the extent to which the capital is (or is not) eroded once the accumulation period comes to an end is likely to depend on the particular investment strategy adopted by the trustee at that time. The trustee (in the exercise of its investment powers under pt 2 of the Trustee Act 1956) may well decide to invest at least some of the trust fund in investments that will maximise capital growth, rather than focussing exclusively on generating income.
[75] We note that there is nothing unique or unusual about the fact that Perpetual Guardian will not be able to continue to accumulate income once the permitted accumulation period ends. This reflects the common law position dating back to at least the eighteenth century, and probably significantly longer.[45] All income trusts are in the same position. There is no evidence, however, that such trusts are routinely wound up by the Courts once the perpetuity period comes to an end. Nor are we aware of any case where the Court has directed, many decades in advance of the accumulation period ending (as is sought in this case), that a perpetual income trust be wound up once the permissible accumulation period ends, due to concerns regarding the inability of the trustee to continue to accumulate income after that time.
[76] We can see no basis for assuming that, in 65 years or so when the accumulation period ends, the income trusts established by the Will will become uneconomic due to inevitable erosion of the trust capital. That may or may not happen. If it does, then the appropriate course will be for the trustee to make an application to the court under s 32 at the relevant time.
[77] Gendall J was therefore correct to find that, once the accumulation period ends, the trustee would assess the state of the trust and make prudent investments or distributions to the listed charities. To the extent that he suggested that the trustee would continue to have a power to accumulate income (by adding it to capital) after 80 years, that was in error. The trustee will, however, have the power administratively to retain income and to make prudent investments aimed at maintaining the real value of the capital of the trust. Perpetual Guardian’s concern about the erosion of the trust fund should be able to be mitigated through the exercise of usual trustee powers of investment. If not, an application can be made to the court if and when difficulties arise.
[78] Mrs Utterson-Kelso clearly intended to establish a charitable trust in perpetuity, not a finite one that would come to an end after 80 years (or any other finite period). She directed her trustee to hold the residue of her estate upon trust and to invest it “in perpetuity as is by law ... allowed”.[46] This is a clear expression of a perpetual trust in respect of the capital. Mrs Utterson-Kelso intended that the charities named in her will benefit from the income generated from that capital. There is nothing in her will to suggest that she ever intended the charities to acquire the capital, whether after the lawful accumulation period expires or otherwise. Where there is a perpetual gift of income to a charity, and it is clear that the testatrix intended the charity should be entitled to the income only and not the capital, the charity may not terminate the trust by seeking payment of the capital of the fund.[47]
[79] Winding up the trust by distributing the capital to the beneficiary charities is not necessary to comply with the rule against perpetuities, and would conflict with Mrs Utterson-Kelso’s lawful intention to create a perpetual charitable trust. Although accumulation must not be perpetual, a charitable trust may be.[48] Gendall J was therefore correct to amend the accumulation clause to make it compliant with the Perpetuities Act, but not to accede to the request to distribute the capital to the beneficiary charities once the perpetuity period expired.
[80] In our view, the provision in the amended accumulation clause enabling the trustee, after the accumulation period ends, to distribute income at its discretion (rather than being required to distribute all income each year) is also appropriate. Mrs Utterson-Kelso clearly intended that the trust be able to continue to operate in perpetuity. That is why she included an accumulation clause. Consistent with such an intention, once the accumulation period comes to an end, the trustee should be able to make prudent administrative retentions from income if it sees fit. This will enhance the prospect of the trust being able to continue to operate in perpetuity, as Mrs Utterson-Kelso intended.
[81] It necessarily follows from our analysis that s 32 is not engaged. Mrs Utterson-Kelso’s original purpose will not become impossible, impracticable or inexpedient once the accumulation period comes to an end. Rather, the High Court’s jurisdiction to modify the accumulation clause is found in s 10 of the Perpetuities Act (or in the Court’s inherent jurisdiction), as Gendall J correctly identified.[49]
[82] Overall, we are satisfied that the Judge’s amended accumulation clause accords as closely as is reasonably practicable in the circumstances to Mrs UttersonKelso’s intentions, as expressed in clause 5(b) of the Will. Gendall J did not err in declining to provide for the trust capital to be distributed to the beneficiary charities at the end of the perpetuity period. Such an amendment was inappropriate in all the circumstances.

Result

[83] The lapse appeal (CA244/2015) is allowed. In respect of that appeal, we:
[84] The accumulation appeal (CA72/2016) is dismissed save that the accumulation clause is amended to include Presbyterian Support as follows:

5(b)(ii) To accumulate for a period of 80 years an amount equivalent to ten per centum (10.00%) per annum of the net annual income arising from my estate by adding the same to the capital therefore, whereupon after the expiry of 80 years cl 5(b)(iii) shall cease to apply, and any distributions thereafter made shall be divided into four parts and:

(1) One part paid to the Salvation Army at Nelson for use among people in need in the City of Nelson;

(2) One part paid to the Nelson Diocesan Trust Board for the purpose of the Whareama Home Stoke Nelson;

(3) One part paid to Presbyterian Support (Upper South Island) for the purposes of benefiting the elderly in the Nelson Region;

(4) One part paid to the Nelson Regional Hospice Trust for the purposes of Hospice facilities and services within the Nelson health area.

In the event of any of these charitable organisations noted above ceasing to exist, any part that would have been paid to an organisation that no longer exists shall be divided equally between the remaining organisations.

[85] The costs of Presbyterian Support and Perpetual Guardian for the lapse appeal (CA244/2015) are to be paid out of the estate/trust fund for a standard appeal on a Band A basis and usual disbursements. The costs of Perpetual Guardian for the accumulation appeal (CA72/2016) are to be paid out of the estate/trust fund for a standard appeal on a Band A basis and usual disbursements. By agreement, no costs are awarded in favour of the AttorneyGeneral.




Solicitors:
Saunders Robinson Brown, Christchurch for Presbyterian Support (Upper South Island)
Wynn Williams, Christchurch for The New Zealand Guardian Trust Company Limited
Crown Law Office, Wellington for Attorney-General

[1] New Zealand Guardian Trust Company Limited and Perpetual Trust Limited have formally amalgamated and are now known as Perpetual Guardian.

[2] Re Utterson-Kelso [2015] NZHC 468, [2015] NZAR 922.

[3] Re Utterson-Kelso (No 2) [2015] NZHC 1693, [2015] NZAR 1488.

[4] See for example Re Pettit [1987] NZHC 110; [1988] 2 NZLR 513 (HC); and Alacoque v Roache [1998] 2 NZLR 250 (CA).

[5] The Commissioners for Special Purposes of the Income Tax v Pemsel [1891] UKHL 1; [1891] AC 531 (HL) at 583.

[6] Re Utterson-Kelso, above n 2, at [28].

[7] At [29].

[8] At [29].

[9] At [30].

[10] At [31].

[11] Emphasis added.

[12] At [42].

[13] At [43]; Re Spence (deceased) [1979] Ch 483 (Ch) at 493.

[14] At [43]–[44].

[15] At [45]–[46].

[16] At [47].

[17] Re Wilson [1913] 1 Ch 314 (Ch) at 320–321.

[18] Re Willis [1921] 1 Ch 44 (CA) at 54.

[19] Re Collier (Deceased) [1998] 1 NZLR 81 (HC) at 96.

[20] The Attorney-General for New South Wales v The Perpetual Trustee Co (Ltd) [1940] HCA 12; (1940) 63 CLR 209 at 228.

[21] Re Pettit, above n 4, at 549.

[22] Re Culpan HC Auckland CIV-2006-404-5110, 8 February 2011 at [8].

[23] At [8(b)(i)].

[24] William Henderson, Jonathan Fowles and Julian Smith Tudor on Charities (10th ed, Thomson Reuters, London, 2015) at [9–027]–[9–028].

[25] At [9–065]. See also Re Petitt, above n 4, at 547 and 551; and Public Trustee v Attorney General [2005] NSWSC 1267 at [19].

[26] Alacoque v Roache, above n 4, at 252.

[27] At 254–255.

[28] Re Satterthwaite’s Will Trusts [1966] EWCA Civ 3; [1966] 1 WLR 277 (CA) at 286. See also Henderson, Fowles and Smith, above n 24, at [9–034]; and Hubert Picarda The Law and Practice Relating to Charities (4th ed, Bloomsbury Professional, Haywards Heath (UK), 2010) at 469–470.

[29] Re Broadbent (deceased) [2001] EWCA Civ 714, [2001] WTLR 967 at [36].

[30] Re Withall [1932] 1 Ch 236 (Ch); Re Roberts (deceased) [1963] 1 WLR 406 (Ch); Re Hutchinson’s Will Trusts [1953] Ch 387 (Ch); Re Vernon’s Will Trusts [1972] Ch 300 (Ch); Re Meyers [1951] Ch 534 (Ch); Re Lucas (deceased) [1948] Ch 424 (CA); and Re Faraker [1912] 2 Ch 488 (CA). See also Re Twigger [1989] 3 NZLR 329 (HC) at 342; and Re Tennant [1996] 2 NZLR 633 (HC) at 637–640.

[31] Re Goldwater (deceased) [1967] NZLR 754 (SC) at 755; Re Estate Whatman (1965) 1 NZTR 0004 (SC); and Re Twigger, above n 30, at 342.

[32] This is consistent with the approach taken by the Courts in a number of cases including Re Watt [1932] 2 Ch 243 (Ch); and Re Withall, above n 30.

[33] Re Utterson-Kelso (No 2), above n 3, at [23].

[34] Re Utterson-Kelso (No 2), above n 3.

[35] Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013).

[36] The Trustees, Executors, And Agency Co (Ltd) v Bush [1908] NZGazLawRp 203; (1908) 28 NZLR 117 (SC) at 119–120.

[37] Perpetual Trust Ltd v Roman Catholic Bishop of Christchurch [2006] 1 NZLR 282 (HC) at [13].

[38] Kelly and Kelly, above n 35, at [8.176]; Griffiths v Vere [1803] EngR 700; (1803) 9 Ves Jun 127, 32 ER 550 (Ch); Re Clothier (deceased) [1971] NZLR 745 (CA) at 749; and Bush, above n 36, at 119.

[39] Moncrieff (Lindsay’s Trustees), Petitioners 1911 SC 584 (IH (1 Div)) at 588.

[40] Re Berkeley (Earl of) (Deceased) [1968] Ch 744 (CA).

[41] At 772.

[42] At 780.

[43] At 780–781.

[44] United Kingdom Law Commission The Rules Against Perpetuities and Excessive Accumulations (LC251, 1998) (footnotes omitted).

[45] We note that the position was well established by 1799: Thellusson v Woodford (1799) 4 Ves Jun 227 at 338, 31 ER 117 (Ch) at171; and Thellusson v Woodford (1805) 11 Ves Jun 112 at 147, 32 ER 1030 (HL) at 1044.

[46] Clause 5(b)(i).

[47] Re Westphal (deceased) [1972] NZLR 792 (SC) at 794–795; and Re Clark [1961] NZLR 635 (SC) at 640–641, which followed Re Levy (deceased) [1960] Ch 346 (CA) at 361–363.

[48] Bush, above n 36, at 119; and Perpetual Trust Ltd v Roman Catholic Bishop of Christchurch, above n 37, at [12].

[49] Re Utterson-Kelso (No 2), above n 3, at [5]–[9].

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