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High Court of New Zealand Decisions |
Last Updated: 7 January 2019
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2018-404-515
[2018] NZHC 2301 |
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UNDER
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The Family Protection Act 1955 and the Court’s inherent
jurisdiction
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IN THE MATTER OF
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the will of JOHN AXFORD KENNETH COMMONS
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BETWEEN
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ANDREW HAMILTON JOHN COMMONS
Plaintiff
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AND
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HAMISH JOHN COMMONS JONNE BRYDE WILLCOX and PATRICIA ANNE COMMONS
as trustees, executors and beneficiaries under thewillof JOHN AXFORD
KENNETH
COMMONS
Defendants
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CIV-2018-404-1057
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UNDER
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The Wills Act 2007
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BETWEEN
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HAMISH JOHN COMMONS and JONNE BRYDE WILLCOX
Applicants
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AND
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HAMISH JOHN COMMONS, JONNE BRYDE WILLCOX and PATRICIA ANNE COMMONS
Respondents
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Hearing:
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21 August 2018
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Appearances:
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Andrew Commons (plaintiff acting in his own right) J N Briscoe and R J
Brown for the Defendants
K Muir and Ms Chung for Hamish Commons and Jonne Willcox as
beneficiaries
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Judgment:
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4 September 2018
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COMMONS v COMMONS [2018] NZHC 2301 [4 September 2018]
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 4 September 2018 at 11:00am
pursuant to Rule 11.5 of the High Court Rules.
.......................................
Deputy Registrar
Solicitors:
Tompkins Wake (J N Briscoe), Rotorua, for the Plaintiff Morgan Coakle (K Muir), Auckland, for the beneficiaries
Copy for:
Andrew Commons, Barrister, Auckland
Robyn von Keisenberg, Auckland, for Mrs Patricia commons (litigation guardian)
[1] In CIV 2018-404-515 the defendants, executors and trustees of the estate of the late Dr John Axford Kenneth Commons, apply to strike out parts of Andrew Commons’ statement of claim:
[a] that part of the first cause of action that alleges that assets held in trusts are to be counted as part of the estate of Dr Commons in establishing how the residue is to be distributed under his will; and
[b] the third cause of action, which alleges that by paying the entire net annual income of the estate to the widow, Patricia Commons, the defendants have not exercised their powers properly.
[2] The late Dr John Commons died on 20 April 2015. In June that year probate was granted for his will dated 11 May 2007. He married twice. There are two children of his first marriage, David Commons and Andrew Commons. That ended in separation in 1962 when Andrew was only a few months old. Dr Commons remarried in 1965. His widow, Patricia, has survived him. She is incapacitated under r 4.29 of the High Court Rules. I have appointed a litigation guardian for her as beneficiary. The children of his marriage to Patricia are Jonne Bryde Willcox and Hamish John Commons.
[3] In July 1987, Dr Commons as settlor established the John and Patricia Children’s Trust No.1. He and Patricia are the trustees. Jonne and Hamish are the only beneficiaries of the trust. At the end of the perpetuity period, 80 years, the trust assets are to be distributed to such beneficiaries as are living at that date. The deed gives the trustees powers to make earlier distributions and to bring the vesting date forward. They have a discretion as to the amounts of distributions and are not required to distribute trust assets equally to the beneficiaries. The trust deed does not provide any power for beneficiaries to be removed or for new beneficiaries to be added. At Dr Commons’ death, the trustees owned a property at Mount Maunganui. Dr Commons was not a beneficiary of the trust and did not hold any beneficial interest in any trust asset.
[4] In March 1994, the Whare Kamana Trust was established after Dr Commons and Patricia had successfully applied to the Family Court under the Matrimonial Property Act 1976 to authorise it. The settlor was a lawyer who acted for the Commons family. The trustees were Dr Commons, Patricia, and another lawyer in the firm that acted for them. There is a distribution date of 80 years after the deed, but the trustees may bring that date forward. The primary beneficiaries are Dr Commons, Patricia, Jonne and Hamish. The beneficiaries are the primary beneficiaries and any children of deceased primary beneficiaries. The deed has powers to distribute income and capital to the beneficiaries. The trustees have a power of re-settlement. The trust deed may be amended, but not so as to vary or affect in any way the definitions of the classes of beneficiary. The trustees have power to exclude a beneficiary but there is no power to add beneficiaries. According to the statement of claim, at Dr Commons’ death the trustees owned a commercial property in Rotorua, two properties at Mount Maunganui, bank accounts and shares in public companies. At his death Dr Commons did not hold any vested interest in any of the trust assets.
[5] Neither David nor Andrew are beneficiaries under either trust. The trusts cannot be varied or set aside to allow David and Andrew to take any assets held under those trusts.
[6] Leaving aside assets owned by the trusts, the statement of claim says that at his death Dr Commons owned these assets:
(a) the family home in Rotorua and its contents;
(b) a property at Arapuni Lake, including a quarry;
(c) a commercial property in Rotorua; and
(d) cash and shares which, since death, have been consolidated into a portfolio managed by investment advisers.
[7] In his last will, Dr Commons gave Patricia all his household and personal effects. After directing payment of all costs and debts, the will goes on:
5.2 My trustees must hold the remainder of my estate (“The Remainder”) on the trust described in the next clause.
6.1 My trustees must hold the Remainder:
(aa) as to eight of such parts, to apply the income but not the capital thereof for the benefit of my son HAMISH JOHN COMMONS
during his lifetime if he is then living. However if my said son shall not survive my wife and me, such parts shall be held by my trustees on trust for such of them his children and the children of my daughter JONNE BRYDE WILLCOX who are then living and who have attained or shall attain the age of 25 years per capita and not per stirpes and if more than one then in equal shares. For the purposes of the rule against perpetuities, the vesting in any grandchild or grandchildren of mine pursuant to this clause must occur no later than 80 years from the date of my death.
(bb) as to eight of such parts, to apply the income but not the capital thereof for the benefit of my daughter JONNE BRYDE WILLCOX during her lifetime if she is then living. However if my said daughter shall not survive my wife and me, such parts shall be held by my trustees on trust for such of them her children and the children of my son HAMISH JOHN COMMONS who are then living and who have attained or shall attain the age of 25 years per capita and not per stirpes and if more than one then in equal shares. For the purposes of the rule against perpetuities, the vesting in any grandchild or grandchildren of mine pursuant to this clause must occur no later than 80 years from the date of my death.
(cc) as to four of such parts for my son ANDREW HAMILTON JOHN COMMONS if he is
then living but if not then for such of his children who are living and if more than one in equal shares.
(dd) as to three of such parts for my son DAVID RICHMOND AITKEN COMMONS if he
is then living but if not then for such of his children who are living and if more than one in equal shares.
(ee) as to one of such parts for my grandson
ROBBIE GURNEY should he be then living
but if not then for my son DAVID RICHMOND AITKEN COMMONS.
(ff) if the trusts of any of the above parts fail, my trustees will add that part or those parts to the other parts which do not fail in the same proportion which those other parts bear to each other.
[8] Under clause 8, the trustees may lend capital interest free without security to Patricia and any loan need not be repaid until after her death, but they are not permitted to lend capital to “either of my children” in the same way as loans may be made to Patricia.
[9] The trustees are given wide powers of investment. Clause 11 says:
11.1 When selecting, and from time to time reviewing, investments which are part of the Remainder my trustees must:
[10] Clause 15 says:
15.1 “My estate” includes any property over which I have any power of appointment or disposing power and means all my estate or the Remainder as appropriate.
[11] Under cl 6.1(c)(iv)(aa) and (bb) Hamish and Jonne have life interests. The clauses state that if they do not survive Dr Commons and Patricia, the shares pass to their children, but they do not deal with the position if Hamish and Jonne survive both their parents. In CIV-2018-404-1057 Hamish and Jonne have applied under s 31 of the Wills Act 2007 to have these parts of the will corrected. That proceeding has been consolidated with Andrew’s proceeding, CIV 2018-404-515, but the Wills Act application is not relevant to the trustees’ strike-out application.
[12] Andrews’ statement of claim has three causes of action. The first seeks a declaration as to the interpretation of the will. He says that the will addressed three categories of property:
(a) The first is those assets left to Hamish and Jonne in cl 6.1(c)(i), (ii) and (iii), the Rotorua home, the Arapuni Lake properties and the Fat Dog Café in Rotorua.
(b) The second is the assets held in the John and Patricia Commons Children’s Trust No.1 (one of the Mount Maunganui properties) and the assets held in the Whare Kamana Trust, a commercial property in Rotorua, other beach properties at Mount Maunganui, bank accounts and shares in public companies.
(c) The third category is the investments.
Andrew says that the assets in the second and third categories are part of the Remainder under cl 6.1(c)(iv), and that the assets held for Hamish and Jonne under the trusts are to be taken into account in calculating their respective eight twenty- fourth shares.
[13] In his second cause of action, Andrew seeks further provision under the Family Protection Act 1955. That cause of action is out of time under s 9 of the Family Protection Act, because this proceeding was filed more than one year after the grant of probate. Andrew has applied for an extension of time under the first proviso to s 9(1). The trustees do not require that to be decided pre-trial.
[14] In the third cause of action, Andrew sues the trustees for paying all the net annual income from the estate to Patricia during her lifetime. He contends that she is being paid more than is reasonably required for her standard of living, and that the income paid to Patricia is a device to accumulate income so that it will pass under Patricia’s will, which makes no provision for him. He alleges that the trustees have not exercised their powers properly.
The strike out application
[15] To repeat, the strike out application is directed against that part of Andrew’s first cause of action insofar as it relates to property within the second category (that is, assets held by the trustees of the John and Patricia Commons Children’s Trust No.1 and the Whare Kamana Trust), and all his third cause of action. The ground is that the pleadings do not disclose reasonably arguable causes of action.1 The test for strike out on that ground is well established.2 Facts pleaded in the statement of claim are assumed to be true but this does not extend to allegations which are entirely speculative and without foundation. The cause of action must be so clearly untenable that it cannot possibly succeed. The jurisdiction is to be exercised sparingly, and only in clear cases. The jurisdiction is not, however, excluded by difficult questions of law requiring extensive argument. The court should be particularly slow to strike out a claim in any developing area of the law, particularly when a duty of care is alleged in a new situation. It is helpful to bear in mind the extent to which the court can have regard to evidence in such strike out applications. In Attorney-General v McVeagh the Court of Appeal said:3
The Court is entitled to receive affidavit evidence on a striking-out application, and will do so in a proper case. It will not attempt to resolve genuinely disputed issues of fact and therefore will generally limit evidence to that which is undisputed. Normally it will not consider evidence inconsistent with the pleading, for a striking-out application is dealt with on the footing that the pleaded facts can be proved. ... But there may be a case where an essential factual allegation is so demonstrably contrary to indisputable fact that the matter ought not to be allowed to proceed further.
(Citations omitted)
The first cause of action
[16] In his first cause of action, Andrew wishes to establish that when the remainder is divided after Patricia’s death under cl 6.1(c) the distribution is to take into account provision made for Hamish and Jonne under the John and Patricia Children’s Trust No.1 and the Whare Kamana Trust. To illustrate his case, he has given indicative
1 High Court Rules 2016, r 15.1(1)(a).
valuations. He calculates that under his approach, with the trusts’ assets included, Jonne and Hamish would each receive 37.2 per cent of all the assets, he would receive
12.9 per cent, David 9.68 per cent and Robbie would receive 3.22 per cent. On the other hand if the assets held in trust for Jonne and Hamish are excluded from the remainder, the shares that the Commons children would receive from both the trusts and under Dr Commons’ will are: Jonne 45 per cent, Hamish 45 per cent, Andrew 5 per cent, David 3.8 per cent, Robbie 1.2 per cent. While Andrew developed this argument in different ways, a major part relied on the definition of “estate” in cl 15.1 of the will as including in the property over which Dr Commons had any power of appointment, or disposing power. His case is that those words bring the assets held under the trusts into calculation when the remainder is distributed.
[17] The trustees see Andrew’s first cause of action as involving three potential propositions, none of which they say is reasonably arguable:
(a) The assets held in the trusts are part of Dr Commons’ estate.
(b) Dr Commons had a power of appointment or disposition of the property held by the trusts which can form part of his estate.
(c) Dr Commons intended that the assets held in the trusts be taken into account when making distributions under cl 6.1(c).
[18] In submissions, Andrew made it clear that he is contending only for the third proposition, not the first two. While the trustees’ strike out application is directed only at removing trust assets from the first cause of action, if it is successful, there is unlikely to be anything left to be litigated between Andrew and the trustees in the first cause of action.
[19] The question here goes to interpretation of the will. Is it reasonably arguable that the will provides as Andrew contends? The observation of Lord Romer in Perrin v Morgan still applies:4
4 Perrin v Morgan [1943] AC 399 (HL) at 420.
My Lords, I take it to be a cardinal rule of construction that a will should be so construed as to give effect to the intention of the testator, such intention being gathered from the language of the will read in the light of the circumstances in which the will was made. To understand the language employed, the Court is entitled, to use a familiar expression, to sit in the testator’s armchair. When seated there, however, the Court is not entitled to make a fresh will for the testator merely because it strongly suspects that the testator did not mean what he has plainly said.
[20] In Re Jensen, Fisher J set out certain principles as to the construction of wills:5
(a) The overriding objective is to give effect to the intentions of the testator. All canons of construction must be subservient to that end. The testator’s intentions are to be gleaned from an objective appraisal of the testamentary documents viewed as a whole but in cases of doubt the wording is to be interpreted in the context of those facts which must have been in the contemplation of the testator.
(b) If the testamentary language is unambiguous and discloses no obvious error, the Court must give effect to it as it stands. The Court must guard itself against conjecture as to the testator’s possible true intentions notwithstanding the actual testamentary provisions or as to what he might have intended had he been better advised; Re Joyce [1926] NZLR 835, 845; Re Lourie [1968] NZLR 541 at 543.
(c) Where a literal reading of the testamentary provisions shows clearly that an error has been made and the true intention can be deduced from the testamentary documents not by conjecture but with reasonable certainty, the Court will give effect to the true intention; Re Thomson (1910) 29 NZLR 398, 400; Re Hicks [1929] GLR 468 (and cases cited therein); Re Joyce; Re Doland’s Will Trusts [1970] 1 Ch 267, 273;
(d) To that end the Court can in appropriate cases supply omitted words (eg Re Redfern (1877) 6 Ch D 133; Re Lourie; Re Church (Hamilton A101/81, 17 May 1983, Prichard J)), and/or modify the words which have in fact been used (eg Re Church; Re Joyce) so long as this stems from a proper construction of the testamentary documents as a whole.
[21] That case was decided before the Wills Act 2007. As Dr Commons died after 1 November 2007, the Act applies.6 The principles stated by Fisher J are subject to the Court’s powers of correction under s 31 of the Wills Act 2007, and the ability to have regard to external evidence under s 32, but otherwise remain sound.
[22] In a recent decision, Crawford v Phillips, the Court of Appeal said:7
5 Re Jensen [1992] 2 NZLR 506 (HC) at 510.
6 Wills Act 2007, s 4.
7 Crawford v Phillips [2018] NZCA 208 at [37],
There is no doubt that it is the task of a court to ascertain a will-maker or settlor’s intentions and to do its best to give effect to those intentions. Words are given their plain meaning and read in their immediate context. If that does not produce a clear answer, the court will examine the context in which the words were used and strive to give a reasonable meaning to the language.
I do not read that as departing in any significant way from Fisher J’s approach in Re Jensen.
[23] It is necessary to note a limitation on the evidence to be considered for the strike out application. While contextual evidence, the armchair view, may be admissible in interpreting a will, s 32 of the Wills Act potentially allows more wide- ranging evidence:
32 External evidence
(1) This section applies when words used in a will make the will, or part of it,—
(a) meaningless; or
(b) ambiguous on its face; or
(c) uncertain on its face; or
(d) ambiguous in the light of the surrounding circumstances; or
(e) uncertain in the light of the surrounding circumstances.
(2) The High Court may use external evidence to interpret the words in the will that make the will or part meaningless, ambiguous, or uncertain.
(3) External evidence includes evidence of the will-maker's testamentary intentions.
(4) The Court may not use the will-maker's testamentary intentions as surrounding circumstances under subsection (1)(d) or (e).
[24] In a strike out application, caution is required in admitting such external evidence, lest the court decide the matter on disputable questions of fact when not all the evidence may yet be available. Hamish’s affidavit in support of the application identifies the will (already in evidence), identifies assets of the estate, identifies assets of the John and Patricia Commons Children’s Trust No.1 and the Whare Kamana Trust and exhibits the trust deeds. None of that is contentious. The trustees say that, on that information alone, their strike out application for the first cause of action can succeed.
The bundle of documents provided for the hearing contained more extensive evidence going to the substantive merits of all the causes of action and on the application to correct the wills, but I do not consider it. If the strike out application is to succeed, it should do so on the non-contentious parts of Hamish’s affidavit. That means, for example, assertions that the assets settled on the trust that may have been contributed by Patricia do not count for the construction of the will – nor do any musings or comments by the parties as to the purpose of various parts of the will and as to Dr Commons’ subjective intentions not recorded in the will.
[25] A starting point in the interpretation is that Dr Commons could only give under the will anything over which he had a power of testamentary disposition. He could not give what did not belong to him. The will operates only on assets that he owned at the date of his death. If someone else owned an asset, it could not pass under his will as it did not form part of his estate.
[26] Recognising that, Andrew relies on the extended definition of “my estate” in cl 15.1. Here it is again:
15.1 “My estate” includes any property over which I have any power of appointment or disposing power and means all my estate or the Remainder as appropriate.
That gives an extended scope to “estate” because it also applies to property over which Dr Commons had any power of appointment. It is possible to have a power of appointment over property even if you do not own it. In general, “estate” does not include property over which a testator has a power of appointment. In Re Kensington, Kennedy J said:8
I think, without exhaustively defining the meaning of the word “estate”, one may say, by way of enumeration of what is included, that it includes, in general, property belonging to a testator which he may, if he wishes, by testamentary disposition dispose of as his own. It will also include property which, although it could not be said to belong to a testator during his lifetime, in some manner became property belonging to his estate on death. But it will not include property over which he had a general power of appointment which was not his property during lifetime, and which in no way, by the testamentary instrument exercising it, was made part of his estate on death. In a substantial sense, property, subject to a general power of appointment, may be equivalent
8 Re Kensington [1949] NZGazLawRp 22; [1949] NZLR 382 (CA) at 392.
to property belonging to a testator, but it is not necessarily, on his death, his estate, or part of it. During lifetime, it is not his property, and the appointment by his will may mean that, on death, it directly becomes the property of someone else.
It is possible, however, for a testator to make property held under a general power of appointment part of his estate, as the decision in Re Kensington illustrates. But as that decision of the Court of Appeal shows, the matter is not straightforward. One way for the testator to address the matter is to state in his will whether his estate comprises property over which he holds a power of appointment or not. That, then, is the purpose of cl 15.1.
[27] The next question is whether there is any property over which Dr Commons had a power of appointment, but which did not otherwise belong to him. As one of the trustees of the John and Patricia Commons Children’s Trust No.1 and one of the trustees of the Whare Kamana Trust, Dr Commons had powers under the trust deeds to make distributions to Hamish and Jonne. Those were not powers of disposition within the extended definition of “estate” under cl 15.1. Those are powers exercised by trustees acting together by resolution, not by a single trustee in a will.
[28] Under the deed for the John and Patricia Commons Children’s Trust No.1, clause 34 of the schedule of powers, authorities and discretions provides that where there are more than two trustees, powers may be exercised by a majority. By inference, where there are only two trustees, they must act jointly. The exercise of a trust power by one alone is ineffective. Accordingly, Dr Commons could not exercise any of the powers conferred on him under the trust deed by disposing of property in his will.
[29] For the Whare Kamana Trust, he is one of three trustees. Clause 15.2 of the trust deed provides that there shall be no fewer than three trustees except in the case of an incorporated company, which may be a sole trustee. The trust deed provides for decision by majority,9 but it does not allow for a single trustee to exercise a power to dispose of trust assets. Again, any powers conferred on trustees under the Whare Kamana Trust deed are not powers of appointment or powers of testamentary disposition under cl 15.1 of the trust deed.
9 Clause 16.2.
[30] No one suggests that there are any other assets over which Dr Commons had a power of appointment that would not otherwise fall within his estate as that term is ordinarily understood.
[31] The result is that the words, “any property over which I have any power of appointment or disposing power”, are redundant, as they do not refer to any identifiable asset. It is not, however, fatal to the interpretation of a will that a provision may be redundant. It may indicate nothing more than prudent drafting to address a contingency that may or may not occur. Surplus provisions are not uncommon. After all, all wills contain a revocation clause, even if the will-maker has never made a will before. There may be directions to pay debts, even if the deceased does not owe any at death. The will in this case provides a forgiveness of any debts owed by the trustees of the Whare Kamana Trust, but apparently they owed none when Dr Commons died.
[32] The point reached now is that the assets settled on the trusts were not part of Dr Commons’ estate, in its ordinary sense or under the extended definition in cl 15.1. He had already disposed of his interests in those assets so that they did not fall in his estate and under the trust deeds he did not have any power of appointment or disposition which could be exercised by his will.
[33] Andrew says that under cl 15.1 assets settled on the trusts should be counted in working out the distributions under cl 6.1(c)(iv)(aa)-(ee). This is a kind of hotchpot argument. Under a hotchpot clause, trustees making distributions may bring into account earlier distributions to beneficiaries. Andrew wants the will to be interpreted as meaning that even though Dr Commons did not have any disposing power over the assets settled on the trusts, they can be notionally brought back into the estate, as Hamish and Jonne are already beneficially entitled to them.
[34] If Dr Commons had really intended that assets he had settled on the trusts during his lifetime should be brought into account when working out the distributions amongst his children under his will, he would have used much clearer language than cl 15.1. Clause 15.1 does not do that. It is a stretch to say that the definition of “my estate” extends to property which Dr Commons had already disposed of and over which he no longer had any power of appointment or disposing powers. In my
judgment, the effect of cl 15.1 is clear and unambiguous. There is no uncertainty or ambiguity under s 32 of the Wills Act that would warrant allowing external evidence to disturb the meaning of the clause and the effect of cl 6.1(c).
[35] There is also the difficulty that the assets in the trusts had not apparently been distributed to Jonne and Hamish. Both trust deeds allow trustees in their discretion to make unequal distributions to the beneficiaries. It is not clear how an eight twenty- fourth share of a remainder, including trust assets, could be worked out under clauses 6.1(c)(iv)(aa) and (bb) of the will, when it may not be known what each may receive under the trusts.
[36] Andrew developed an argument that the will should be interpreted as consistent with his father acting as a wise and just testator under the Family Protection Act. That approach is not open under the principles stated by Fisher J in Re Jensen10 and by Lord Romer in Perrin v Morgan.11 If the court were to interpret the will in that way, it would be making a will which the testator did not necessarily intend. If the effect of a will, correctly interpreted, is that the testator has not made adequate provision for the proper maintenance and support of those entitled to claim, the remedy is to seek relief under the Family Protection Act 1955, as Andrew has recognised in his second cause of action.
[37] Cases cited by Andrew do not support his interpretation. In Dever v Knobloch trustees of a farming family trust distributed trust assets equally to four of the five children.12 The other child had received inter vivos dispositions. He sued the trustees for omitting him from the distribution. All the beneficiaries were discretionary. The settlors had made memoranda of wishes, not binding on the trustees, which reflected a policy of everything going in to “one pot”. The case was about whether the trustees had correctly exercised their powers under the trust deed. The proceeding narrowly survived the defendants’ summary judgment application. There is nothing in the circumstances of that case or in the decision of Dobson J that can assist with interpreting the will in this case.
10 Re Jensen [1992] 2 NZLR 506 (HC) at 510.
11 Perrin v Morgan [1943] AC 399 (HL) at 420.
12 Dever v Knobloch (2009) 2 NZTR 19-042 (HC).
[38] Flathaug v Weaver was a family protection case.13 The meaning of the will was not in issue. The Court of Appeal noted that an entitlement to benefit under a trust, even a fully discretionary trust, could be taken into account in assessing the testator’s duty to make provision.14 The testator had left his entire estate to the trust. The court saw that as a way by which he would provide for his children and grandchildren, viewing it as equivalent to direct testamentary provision. While those observations are important in a family protection case, they do not help in interpreting Dr Commons’ will.
[39] In Ashworth v Lambie, another family protection case, one child received substantial inter vivos dispositions but other children had not.15 David Gendall J observed:16
It may well be that if the testator’s assets have been substantially diminished and/or depleted by inter vivos provisions to another, and as a result the estate is insufficient to meet the moral claims of others, awards to those claimants should be increased.
That may be relevant in a family protection case but not to Andrew’s first cause of
action and the construction of the will.
[40] The trustees have made out their case for striking out those parts of Andrew’s first cause of action that contend that the assets settled on the John and Patricia Commons Children’s Trust No.1 and the Whare Kamana Trust can be taken into account in any way on the distribution of assets under cl 6.1(c)(iv) of the will. Their application did not specify the parts of the statement of claim, but they include:
(a) paragraphs 29.2(b), 30.2, 33.1, 33.2, 36, 37 and 38; and
(b) references to “Second Category” in the heading to the first cause of
action, paragraph 35 and the prayer for relief.
13 Flathaug v Weaver [2003] NZCA 343; (2003) 22 FRNZ 1035 (CA).
14 At [36].
15 Ashworth v Lambie [2012] NZHC 1110.
16 At [41].
The third cause of action
[41] In his third cause of action, Andrew says that the trustees have not exercised their powers properly, because they are paying the entire net annual income of the estate to Patricia when it is far above what she might require to live to the standard she was accustomed to before Dr Commons died. While cl 6.1(a) of the will directs the trustees to pay the net annual income to her during her life, the trustees also have a discretionary power to accumulate all or any part of the net annual income. He points out that the trustees will be motivated to divert income to Patricia during her lifetime, even if it is far more than is required to maintain her appropriate standard of living, because it will fall into her estate, which will pass to Hamish and Jonne under her will. He refers to evidence by Hamish which suggests that the trustees believed they had no discretion in the matter and were required to pay the annual income to Patricia. Andrew relies on their failure to consider their discretion to accumulate part of the net annual income. He notes the interests of Hamish and Jonne in having assets put in their mother’s name, the requirements to act in good faith and their obligations of even-handedness.
[42] The trustees submitted that this cause of action should be struck out, essentially because the trustees’ powers under cl 6.1(a) could not be reviewed. They referred to cl 9.1(a), which provides that the trustees may invest as freely as if they are beneficially entitled, and cl 11.1 which directs the trustees to give preference to Patricia’s interests over the other beneficiaries. They also contended that Andrew was wrongly alleging that the trustees were under a duty to accumulate income which was surplus to Patricia’s requirements.
[43] In the hearing, Mr Briscoe submitted, by reference to evidence, that the investment portfolio is made up primarily of growth assets, with only a smaller part in income assets. This was to demonstrate that the trustees had balanced competing interests. He cited authorities as to the limited circumstances in which the court will interfere with decisions made by trustees.17
[44] I queried the trustees’ reliance on evidence to say that the third cause of action was not arguable. With that, Mr Briscoe withdrew his application to strike out the third cause of action. I did not require Andrew to address me on it.
[45] The withdrawal of the application against the third cause of action was appropriate. The trustees’ obligation to pay the net annual income to Patricia is subject to a discretionary power to accumulate income. The trustees’ exercise of powers and the failure to exercise powers may be reviewable, even though the grounds of review are limited and the courts will not lightly interfere with trustees’ exercise or non- exercise of their powers.18
[46] Notwithstanding that, Andrew should have the opportunity of testing the matter in a full hearing with evidence. There are indications that the trustees’ non-exercise of their power to accumulate may be reviewable:
(a) Hamish and Jonne are in a position to benefit personally from ensuring that as much income from the estate as possible goes to their mother;
(b) they do not appear to have turned their minds to their power to accumulate income in the estate; and
(c) there is evidence that the income earned by the estate is so substantial that it might be considered perverse to pay it all to Patricia.
[47] The trustees also submitted that the third cause of action was frivolous, vexatious or an abuse of process because the cause of action did not properly form part of a claim under the will or under the Family Protection Act. But a plaintiff is entitled to combine more than one cause of action in a statement of claim.19 Rule 5.28(3) contemplates that claims against executors or trustees in their personal
18 For a convenient statement of the principles see Wrightson Ltd v Fletcher Challenge Nominees HC Auckland CP129-96, 21 August 1998 at 40-43 (set aside on appeal but not on these points); Fletcher Challenge Nominees Ltd v Wrightson CA223/98, 20 July 1999; and Wrightson Ltd v Fletcher Challenge Nominees Ltd [2001] UKPC 23, [2002] 2 NZLR 1.
19 High Court Rules 2016, r 5.28.
capacity may be combined with claims against executors or trustees as such, if the personal claims relate to the applicable estate or trust. Here the trustees are sued in all causes of action as trustees of the estate of the late Dr Commons. The causes of action are all appropriately brought in the same proceeding. It would be inconvenient if the third cause of action were run in a separate proceeding. An order consolidating the proceedings would be almost inevitable.
Result
[48] The trustees have succeeded in striking out that part of the statement of claim directed at showing that assets within the John and Patricia Commons Children’s Trust No.1 and the Whare Kamana Trust are to be taken into account in distributing assets under the will, but the third cause of action stands and should go to hearing. As the parties have had divided success, I make no order for costs.
[49] I make these orders:
(a) Those parts of the first cause of action which relate to assets within the John and Patricia Commons Children’s Trust No.1 and the Whare Kamana Trust are struck out.
(b) The application to strike out the third cause of action is dismissed.
(c) There is no order as to costs.
(d) The Registrar is to arrange a case management conference for further directions.
.....................................
Associate Judge R M Bell
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