M W JAMES CHARITABLE TRUST HC DUN CIV-2008-412-874 [2009] NZHC 327 (17 March 2009)

IN THE HIGH COURT OF NEW ZEALAND
DUNEDIN REGISTRY
                                                                   CIV-2008-412-874

               UNDER                      the Companies Act 1993


                                          M W JAMES CHARITABLE
TRUST
                                          Plaintiff


Hearing:       13 March 2009

Counsel:       D J More for plaintiff

              D Tobin for Parafed Otago Inc, CCS Disability Action Otago Inc and
               IHC New Zealand Inc
            
  D Sim for Dunedin Diocesan Trust Board Inc
               K J Phillips for Order of St John - Dunedin Area
               B R Fraser
for National Heart Foundation of New Zealand (by
               memorandum only)

Judgment:      17 March 2009



              
     RESERVED JUDGMENT OF DOBSON J



[1]    This proceeding constitutes an application under s 25 of the Charitable Trusts
Act 1957,
in the name of the plaintiff charitable trust, seeking its liquidation by
Court order.


[2]    The last Will of Malcolm Wynen James
(the deceased), executed in
November 1982, described him as of Dunedin, Retired Electrician. After provision
for certain pecuniary
legacies, the deceased directed that the residue of his estate be
held on trust for investment by his trustees in trustee securities
or in other such
securities as the trustees considered wise and expedient, but not in any stocks or
shares. The Will directed the
trustees to distribute the net annual income from those
investments amongst such of the charitable organisations in the Otago province
as
were specific legatees under the Will:


M W JAMES CHARITABLE TRUST HC DUN CIV-2008-412-874 17 March 2009

       in such proportions
or to such of those charitable organisations as my
       trustees may in their sole and absolute discretion think fit.

[3]    The
deceased further directed that his residuary estate was to be entitled the
"M W James Trust" (the Trust), and that all distributions
were to be made from it in
the name of the Trust.


[4]    The deceased died in August 1986 and Probate of his Will was granted to
his
executors in October 1986.


[5]    Among a larger number of specific legatees, those qualifying as charitable
organisations,
and the current successors of the organisations as defined in the Will
that currently exist, are set out below, together with the
extent of the pecuniary
legacies made to each of them:


       a)     The Dunedin branch of the New Zealand Crippled Children Society
              Incorporated (now CCS Disability Action Otago Incorporated) -
              $2,000.00;


       b)     The Intellectually
Handicapped Society Incorporated (now IHC
              Otago) - $2,000.00;


       c)     The Otago and Southland division of the
Cancer Society of
              New Zealand Incorporated (now Cancer Society of New Zealand,
              Otago and Southland Division
Incorporated) - $3,000.00;


       d)     The New Zealand Heart Foundation (Otago branch) - $3,000.00;


       e)     The Otago
and Southland Paraplegic and Physically Disabled
              Association (now Parafed Otago Incorporated) - $2,000.00;


     
 f)     The Royal New Zealand Foundation for the Blind (Otago branch) -
              $4,000.00;


       g)     The Dunedin Sub
Centre of the St John's Ambulance Association
              (Order of St John ­ Dunedin Area) - $4,000.00;

         h)     The
Otago Branch of the Red Cross Society (now New Zealand
                Red Cross Incorporated) - $3,000.00; and


         i)   
 The Dunedin Diocesan Trust Board Incorporated, for the purpose of
                the St Paul's Cathedral Building fund - $5,000.00.


[6]      Mr More advised from the Bar that at an earlier time the trustees had received
advice that a specific legatee, the St
Ida Lodge, was not a charity. That view had
been conveyed to the Lodge which apparently did not contest the view. For the sake
of
completeness, he also acknowledged that the Dunedin City Council was similarly
excluded.


[7]      Mr Lachlan Ross of Dunedin, Solicitor, has sworn an affidavit in support
of
the application in his capacity as one of the trustees.        The trustees originally
appointed under the Will were Messrs Desmond
Walter Ernest MacAvoy and
Anthony Handel Borick. Mr Ross deposes that his firm acquired Mr Borick's
practice in 1992 when Mr Borick
had been struck off the Roll of Barristers and
Solicitors. At that time, Mr MacAvoy was residing in a rest home. The original
trustees
resigned and appointed Mr Ross, and Mr David James More who was then a
partner of Mr Ross, but is now a barrister sole and who appeared
as counsel in
support of the applications.


[8]      Mr Ross describes the accounts of the Trust at the time of his appointment
as
being "in disarray". Most of the investments were on mortgage through Mr Borick's
solicitors' nominee company and a number were
in default. It transpired that some
$68,600 had been allocated in grants to organisations other than those named in the
Will.


[9]
     In November 1996, the current trustees held a meeting with the charitable
organisations named in the Will. Mr Ross deposes that
representatives of eight of
those charities attended, and although all the charities had received their pecuniary
legacies under
the Will, none had been allocated any income and none of them were
aware that they were among the beneficiaries entitled as to the
income from the
Trust.

[10]   Mr Ross deposes that all those present at the meeting took the view that the
trustees should not
seek to recover any of the unauthorised payments made to other
organisations, but that the Trust should be wound up and the capital
distributed
among the charities named in the Will. The trustees agreed to that course, Mr Ross
suggesting that it was highly unlikely
that any proceedings to recover unauthorised
payments would result in a greater figure than the costs of the recovery. It has
apparently
taken from 1996 until very recently for all of the investments that had
been made by the prior trustees to be repaid or liquidated.
As at 31 March 2008, the
excess of assets over liabilities in the Trust was $343,166.00. That was updated at
the hearing by advice
that the gross sum held is $346,635.21.


[11]   The trustees elected to incorporate the Trust under the Charitable Trusts Act
in
order to facilitate the present application that would enable it to be put into
liquidation. In all of these circumstances, the application
is now made on the ground
that it is just and equitable that the Trust be put into liquidation.


[12]   The Trust sought directions
as to service of the proceedings, proposing that
the proceedings be served on all of the charitable organisations named in the
Statement
of Claim. That order was duly made. No requirement was imposed to
serve the Attorney-General, which often arises given the recognition
of the Crown as
parens patriae to enforce the execution of charitable trusts - see generally, Laws of
New Zealand, Charities, para
273. The same text (para 274) recognises that the
Attorney-General should not be joined where the charities are ascertained,
substantial
institutions well able to support their respective trusts.


[13]   Of the named charities, service on those who have not entered
an appearance
is confirmed by affidavits of service. Mr More also provided at the hearing copies of
advertisements of the application
in early March in the Otago Daily Times, and in
the New Zealand Gazette.


[14]   The directions as to service also confirmed that
the trustees were able to
pursue both an application for liquidation of the Trust, and secondly an application
for directions as
to the way in which the net proceeds of the Trust were to be
distributed amongst the named charities on its liquidation.

[15] 
  Turning to whether it is just and equitable to order the liquidation of this
Trust, the concurrence of the present trustees and
the charities in their view that the
Trust should be liquidated is not determinative. It appears there is agreement on the
view that ongoing administration
of a fund of this size, with the restrictions on its
investment, would be uneconomic relative to the extent of income to be divided
annually among the nine charities. A valid point is that allocation of whatever their
entitlements are to the capital now is of more
ongoing utility to each of the charities
than an expectation of an annual supplement to their income.


[16]    As against that,
the deceased can reasonably be treated as having an interest
in the perpetuation of his memory as a donor to charities within the
Otago region.
His Will specified that the Trust was to be identified with him, and directed that
annual payments of income were to
be identified by the name of that Trust. The
viability of the Trust on an ongoing basis should not be influenced by its chequered
history when being administered by Mr Borick. One alternative means of dealing
with the constraints imposed by the relatively narrow
range of permitted investments
would be to seek a variation of the terms of the Trust so as to extend the range of
permitted investments,
even if a proposal to invest in, say, shares in New Zealand
listed companies may not appear the most attractive notion in the current
economic
climate. If such a variation was sought permitting a wider range of investments that
might enable the capital to appreciate,
then that would likely be at the expense of
significant income in the meantime.


[17]    Investments returning, say, five percent
per annum on $340,000.00 would
make some $17,000.00 of income before accounting for expenses, which would
presumably be relatively
modest on an ongoing basis. In one sense, the availability,
say, of equal distributions exceeding $1,750.00 per annum for the nine
charities is
certainly not de minimus. However, the point is also well made that the ongoing
benefit for the charities of such amounts
is less than the utility to them of access to
the capital.


[18]    In the end, I am satisfied that the greater utility to the designated
charities
arising from liquidation outweighs the interest that is to be recognised in the settlor's
perpetuating his status as a
donor within the Otago region. That consideration can be

reflected in a condition of payments to the charities, which I address
below. I am
accordingly prepared to make the order liquidating the Trust and appointing Murray
Neil Frost of Dunedin, Chartered Accountant
as liquidator, in terms of the Consent
to Appointment as Liquidator executed by him.


Directions as to distribution of surplus assets


[19]   In all cases where the Court assumes a power to direct any form of
disposition in relation to charitable property where
the settlor's intentions have
become impossible or impracticable to execute, the Court should do so adopting a
course as close as
possible to what can be discerned as the settlor's intention. (See
generally, Laws of New Zealand, Charities, paragraph 194.)


[20]
  Here, there are two competing contentions as to what that intention is. The
first is that the settlor intended to confer benefits
on the nine charities in all
subsequent circumstances, in the same proportions as he gifted pecuniary legacies to
them in his Will.
In all but one case, the terms of the specific bequests were for "the
general purposes" of the charity in its Otago operation. The
largest, to the Dunedin
Diocesan Trust Board, was specified to be "for the purpose of the St Paul's
Cathedral Building Fund".


[21]
  In contrast to that specificity, the charitable trust in respect of the residue was
established with the trustees having an absolute
discretion to apportion the annual net
income among any one or more of those organisations in any proportions.


[22]   A prudent
trustee might well respect the testator's preference as between the
charities by treating the income more or less similarly to the
bequests out of the
initial estate. However, it is just as likely that prudent trustees would treat their
discretion as being exercisable entirely equally
among all or any of the charities,
without regard to the history of the specific bequests under the Will.            Neither
approach
could be challenged as inappropriate.


[23]   When I pressed Mr More as to how the trustees would have been likely to
proceed if
the Trust was continuing, he suggested an annual inquiry might be made

as to whether any of the charities had particular projects
warranting a distribution,
subject to an overriding aim that, over time, they would all benefit equally.


[24]    If each $1,000.00
of the specific bequests made under the Will to charities is
treated as one share, then in total there are 28 shares, with the proportions
as
entitlements varying between 2/28ths and 5/28ths.        Again, assuming a net sum
available for distribution on the liquidation
of, say, $340,000.00, equal distribution
between the nine charities would result in payments to each of some $37,770.00. In
contrast,
distributions on the liquidation reflecting the proportionate shares would
see those entitled to 2/28ths getting some $24,285.00,
and the charity entitled to
5/28ths getting some $56,070.00.


[25]    The trustees have not made any recommendation as to how they
see the
distribution by the liquidator being made. I treat that as implying either a reluctance
or inability by the trustees to propose
any ranking between the respective merits of
the claims for any of the charities.        I did not press Mr More, but gained the
impression that to the extent the mode of distribution has been considered by them,
the trustees may take opposing views on equal
and proportionate distribution. In the
absence of agreement on proportionate distribution, if they were now empowered to
and were
distributing the capital, a responsible default position would be to distribute
it equally.


[26]    The charities who have responded
to the present application indicated the
following preferences:


        ·     Parafed and CCS (advantaged by equal distribution)
­ in favour of equal
              distribution.


        ·     IHC Otago (advantaged by equal distribution) ­ in favour of equal
              distribution.


        ·     National Heart Foundation (slightly advantaged by equal distribution) ­
            
 in favour of equal distribution.

       ·   Order of St John - Dunedin Area (materially advantaged by
           proportionate
distribution) ­ would support proportionate distribution, but
           happy to abide the decision of the Court as to the proportions
on
           distribution.


       ·   Dunedin Diocesan Trust Board (most advantaged by proportionate
           distribution)
­ in favour of proportionate distribution.


[27]   Arguments can readily be made for both forms of distribution. Mr Tobin,
who represented
three of the charities that would be advantaged by equal distribution
because they received relatively smaller specific bequests
under the Will, suggested
it was significant that the deceased could have stipulated that subsequent
entitlements were to be in the
same proportions, but he did not. One could therefore
discern that his wish was to gift specific legacies for specific purposes (including
those to non-charitable legatees), but that analysis did not extend to his consideration
of the administration of the subsequent
Trust. Since the trustees in whom the residue
would vest were left with a completely unfettered discretion, it readily led to a
presumption
that they should all be treated equally on creation of the Trust.


[28]   For the Order of St John, Ms Phillips explained that that
charity had
recognised the pragmatic need to resolve the matter as inexpensively as possible, and
that whilst it would prefer a distribution
reflecting its proportionate entitlement
relative to the other bequests, it would abide the decision of the Court and would be
entirely
happy to receive distribution on an equal basis.


[29]   For the Dunedin Diocesan Trust Board, Mr Sim suggested that all that could
be discerned from the terms of the Will was that the Trust was created giving all the
charities an equality of opportunity to share
in the fund. He resisted any notion that
it was a necessary approach for prudent trustees to infer an intention that they be
treated
equally, even over time. Mr Sim suggested there was no point in looking in
the terms of the Will for clues as to how the capital
be distributed, when it is clear
the testator did not turn his mind to it at all. He suggested that because of the focus
given to
the specific bequests, it was more probable than not that, if the testator had
been asked at the time of giving instructions for
the Will what he would do in

relation to the capital, he would respond by suggesting it be divided in the same
shares.


[30] 
    With respect to the attractive way in which this last notion was put, the Court
cannot be confident that that inference arises.
In the circumstances in which this
charitable initiative is being brought to an end, I consider the just and equitable route
to discerning
the intention of the settlor to be by way of equal payments to each of
the charities.


Terms of payments out of liquidation


[31]
     These orders bring to an end a charitable trust which began with the death of
the deceased in 1986 and appears to have been
misdirected until about 1992. The
testator might reasonably have expected the Trust to continue for substantially more
than 23 years,
even if one attributed to him an appreciation that distributions of
income from his residuary estate were likely to be ravaged by
the effects of inflation.


[32]      Were distribution of the capital to have been addressed, it seems most likely
that the deceased
would have wished that the capital be identified with his Trust.
Accordingly, as a condition of the distributions, I direct that
the liquidator is to
impose a condition of acceptance by each charity that the payment is allocated to a
purpose identified with
the gift from the M W James Charitable Trust.


[33]      In the case of the Dunedin Diocesan Trust Board, the original bequest was
made to the Board for the purpose of the St Paul's Cathedral Building Fund. An
affidavit from the Diocesan Manager confirms this
reference in relation to the legacy
was taken at the time to refer to a building fund that is officially titled "The
Cathedral Fabric
Combined Fund 2007", and more commonly referred to as "The
Cathedral Fabric Fund".         The legacy was allocated to that fund
and Mr Sim
acknowledges the appropriateness of a similar specified recipient of the distribution
of capital to which the Diocesan
Trust Board is entitled. The liquidator should direct
the distribution in that way.

Costs


[34]    It is appropriate that the
trustees recover all reasonable costs of and incidental
to these proceedings from the Trust before it is liquidated. Mr More supported
the
notion that the charities participating in the proceedings should receive a modest
contribution to the costs incurred in doing
so.


[35]    I order costs awards out of the Trust funds:


        a)      in favour of Parafed Otago Incorporated and CCS Disability
Act
                Otago Incorporated, one award of $500;


        b)      awards of $500 to each of the Order of St John ­ Dunedin
Area and
                the Dunedin Diocesan Trust Board Incorporated;


        c)      awards of $250 to each of IHC Otago and
the National Heart
                Foundation of New Zealand (Otago branch).




                                               
                           Dobson J




Solicitors:
Solomons, Dunedin for plaintiff
Antony Hamel, Dunedin for Parafed Otago Inc and
CCS Disability Action Otago Inc
Duncan Cotterill, Wellington for IHC Otago
Wilkinson Adams, Dunedin for Order of St John ­ Dunedin
Area
Gallaway Cook Allan, Dunedin for Dunedin Diocesan Trust Board Inc
Fletcher Vautier Moore, Nelson for New Zealand Heart Foundation