Rathbun [2013] NZHC 562 (21 March 2013)

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Rathbun [2013] NZHC 562 (21 March 2013)

Last Updated: 10 April 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-174 [2013] NZHC 562

BETWEEN GREGORY NOEL RATHBUN, ALLAN MCKENZIE FRASER AND ANDREW MCKENZIE FRASER AS TRUSTEES OF THE BALFOUR TRUST

Applicants

CIV 2013-404-175

AND BETWEEN GREGORY NOEL RATHBUN AND KEVIN PATRICK MCDONALD AS TRUSTEES OF THE EAMON TRUST Applicants

Hearing: 18 March 2013

Counsel: D J Chisholm for Applicants

T P Mullins appointed by Court for interests of discretionary or contingent beneficiaries not sui juris

Judgment: 21 March 2013

_{JUDGMENT OF KEANE J}

This judgment was delivered by on 21 March 2013 at 12.30pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

Solicitors:

Brookfields, Auckland

Lee Salmon Long, Auckland

GREGORY NOEL RATHBUN, ALLAN MCKENZIE FRASER AND ANDREW MCKENZIE FRASER AS TRUSTEES OF THE BALFOUR TRUST HC AK CIV 2013-404-174 [21 March 2013]

[1] The Balmon group of companies, which undertakes property investment, is owned ultimately by the Balfour and Eamon trusts, which are associated with the founders of that group, and Balfour Group Limited is in each instance a discretionary beneficiary, appointed by the trustees by deed dated 5 October 2012.

[2] The trustees in each instance wish to distribute to Balmon income and capital to obtain investment, cashflow and planning benefits, ultimately for the benefit of the natural beneficiaries, but there is this uncertainty as to their power.

[3] Under each trust deed the trustees have the power to apply net income and capital for the benefit of discretionary beneficiaries then 'living'. They are not given explicitly any equivalent power in respect of those then 'existing'. That puts in issue their ability to distribute to discretionary beneficiaries that are not naturally living persons.

[4] To resolve that issue the trustees apply for an order under s 64A of the Trustee Act 1956 varying the two powers to confirm that they are not confined to living natural persons, or for an order under s 66 confirming that they are entitled to distribute income and capital to discretionary beneficiaries that are not natural living persons.

[5] The application, I am told, has the support of the adult beneficiaries of each trust and counsel appointed for the discretionary or contingent beneficiaries, lacking capacity to consent, confirms that the variations proposed are not to their detriment. They stand to benefit.

Terms of trust

[6] The trusts, which as to this issue are identical, each creates a residual class of discretionary beneficiaries defined in this way in the first clause:

Such other persons or bodies (not being Ineligible Beneficiaries) as the Trustees (with the written consent of both the Parents) revocably or irrevocably appoint by deed during the lifetime of the Parents and before the Vesting Day.

[7] The word 'bodies', I accept, confirms that the trustees have the power to appoint discretionary beneficiaries that are not naturally living persons, that is to say corporate entities.

[8] Clause 4(a) of each trust enables the trustees to distribute net income to the discretionary beneficiaries in the following way:

To pay, apply or appropriate the same to, for or towards the personal support, maintenance, comfort, education, advancement in life or other benefit howsoever of such of the Discretionary Beneficiaries as may from time to time be living during the Trust period or such one or more of them to the exclusion of the others or other of them at such time in such manner and if more than one in such shares and proportions as the Trustees in their absolute and uncontrolled discretion shall think proper.

[9] Clause 7(a) of each trust enables the trustees to pay, apply, appropriate or transfer the capital, in whole or part:

To or for the benefit of such of the Discretionary Beneficiaries as may then be living or such one or more of them to the exclusion of the others or other of them at such times and if more than one in such proportions and in such manner and subject to such terms and conditions as the Trustees shall think fit and without limiting the generality of the foregoing so to pay, apply, appropriate or transfer the same for the maintenance, comfort, education, advancement in life or other benefit howsoever of such beneficiary or beneficiaries.

[10] These two powers may be exercised to confer any 'benefit howsoever' on any discretionary beneficiary, but most intelligibly on those who are natural persons,

'then living', and for such traditional purposes as 'personal support ... or maintenance, comfort, education, advancement in life'. Neither power speaks so obviously of distributions to non naturally living discretionary beneficiaries.

[11] As the trustees say, the power to appoint discretionary beneficiaries who are not naturally living persons, may be frustrated partly or wholly if there is no correlative power to distribute to them income and capital. But the trustees need the sanction of this Court to do so.

[12] Section 64A enables this Court to approve by order on behalf of any person with a direct or indirect or vested or contingent interest, who is incapable of assenting because of infancy or other incapacity, or anyone who may become entitled in the future and may yet not be born, any arrangement varying a trust, unless that would be to their detriment.

[13] Section 64A can call for a wide ranging analysis weighing the benefits and detriments involved in the variation proposed. But that is against the reality that the power to vary does not lie with the Court. As Tipping J said in Re Greenwood, and as I accept:[1]

The Court does not vary ... the trust ..., it approves, on behalf of those who are in law incapable of giving that approval for themselves, an arrangement having one or more of the relevant effects and proposed by whoever brings the matter to the Court.

[14] In this Tipping J assumed that those beneficiaries with capacity could decide for themselves whether or not to consent to the variation proposed. He continued to say, and as I also accept:

The proper course is for those who are capable of consenting to execute an appropriate deed, which should recite the fact that the Court has approved on behalf of the relevant persons the arrangement effected by the deed.

[15] Section 66 of the Trustee Act 1956 gives this Court a wide power, when a trustee applies, to give directions 'concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee'. It has been as widely applied. But it assumes a 'power of discretion'. Where the extent of that power is in

_{issue and any doubt may be cured by a simple variation, that appears preferable.}

[16] The power which the trust deeds confer on the trustees to appoint as discretionary beneficiaries 'bodies', that is to say, corporate entities, makes little sense if they are not also able to advance income and capital to those entities, just as they are able to in the case of discretionary beneficiaries who are natural persons. Nor is there anything in those powers, or in the deeds as a whole, to suggest they should not have that power.

[17] The variations proposed are simple and, I accept, will be for the benefit, not the detriment, of those discretionary or contingent beneficiaries who lack capacity to consent. There is also the safeguard that to take effect these variations will have to have the formal consent of the adult beneficiaries. I grant the orders for variation applied for under s 64A of the Trustee Act 1956. I have, therefore, no need to make any order under s 66.

[18] I direct also that the reasonable solicitor and client costs of Lee Salmon Long, the solicitors for the discretionary or contingent beneficiaries, who lack capacity to consent, be borne by the two trusts. I do not understand any other order as to costs to

_{be called for.}

P.J. Keane J

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[1] Re Greenwood [1988] 1 NZLR 197, 206.