Hynes [2018] NZHC 2575 (1 October 2018)

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IN THE MATTER OF	s 66 of the Trustee Act 1956
IN THE MATTER OF	an application for a direction under s 66 of the Trustee Act 1956
BETWEEN	WENDY DEE HYNES, CALVIN TUI HART, JANIS BARBARA DE THIERRY, LEIGH EDWARD MACDONALD, JEREMY TATERE MACLEOD, HAYSLEY KENNY MACDONALD and MELANIE ROZAMUND RIWAI-COUCH as Trustees of the TE RŪNANGA A RANGITĀNE O WAIRAU TRUST and the RANGITĀNE O WAIRAU SETTLEMENT TRUST Applicants

Hearing:	24 September 2018
Appearances:	D H Stone for applicants
_Judgment:	_{1 October 2018}

[1] The Trustees of the Rangitāne o Wairau Settlement Trust (the Settlement Trust) have applied to the Court for an order under s 64 of the Trustee Act 1956 (the Act) approving certain transactions, or alternatively a direction under s 66 of the Act as to the steps, if any, it should now take in relation to those transactions.

[2] The transactions took place between 2012 and 2014. There has been a change of trustees of the Settlement Trust since then. The present trustees consider these

transactions may have been “major transactions” requiring approval from the Settlement Trust’s members. This approval was not obtained when the transactions were entered into. The Trustees seek the Court’s assistance as to the appropriate path forward.

[3] The application was served on the Attorney-General at the direction of the Court. The Attorney-General does not seek to take an active role as a contradictor or in the public interest.

[4] This proceeding arises out of the Crown’s settlement of the historical Treaty of

2006. The Charitable Trust’s objects are to act, amongst other things, as the mandated iwi organisation for Rangitāne o Wairau for the purposes of the Māori Fisheries Act 2004 and as the iwi aquaculture organisation for the purpose of the Māori Commercial Aquaculture Claims Settlement Act 2004.

(b) The Rangitāne o Wairau Settlement Trust (the Settlement Trust). The was Settlement Trust was established by deed of trust dated 25 October

2010 (the Settlement Trust deed). It was established as the post- settlement governance entity for Rangitāne o Wairau.

[7] Following formal negotiations which commenced in November 2005, a Deed of Settlement was initialled by the Crown and representatives of Rangitāne o Wairau around August 2010. Under the Deed of Settlement, Rangitāne o Wairau were to receive a Crown apology, cultural redress and financial and commercial settlement

$676,666 (an on-account payment made on 11 February 2009) and properties (the Settlement Properties). The Deed of Settlement recorded that the financial and commercial redress amount was calculated on a projected settlement date of 30 June

2011. If that did not occur, the cash settlement amount was to be recalculated accordingly.

[8] The Deed of Settlement was subject to the approval of Rangitāne o Wairau iwi members through a ratification vote. Between September and October 2010, a process for ratifying the Deed of Settlement was carried out. A ratification booklet explained to iwi members of Rangitāne o Wairau how the Settlement Trust, as the post-settlement governance entity for Rangitāne o Wairau, would fit within the existing corporate structure for Rangitāne o Wairau. It also explained how the Treaty settlement redress would be received and managed.

[9] Specifically, the ratification booklet explained there were two existing Rangitāne o Wairau entities: the Charitable Trust and, its subsidiary, Rangitāne Holdings Limited (RHL). The ratification booklet explained it was intended to establish a new non-charitable trust to receive the settlement assets and redress. This was because it was a Crown requirement that the receiving entity be non-charitable. The ratification booklet explained that assets and redress would be transferred to RHL in return for profit related debentures issued to the Settlement Trust. It gave further detail as follows:

- A new non-charitable trust, the Rangitāne O Wairau Settlement Trust, which will receive the commercial and financial settlement assets and redress on behalf of Rangitāne. All the commercial assets and redress received by the Rangitāne O Wairau Settlement Trust would be transferred post settlement to RHL in consideration for the issue of “profit-related debentures” equal to the fair market value of the settlement assets. In adopting the proposed Trust Deed you are approving this transfer. This enables all Rangitāne commercial interests to be managed by one commercial company.

- Rangitāne Holdings Limited (RHL) which will function as the asset holding company carrying out all the commercial activities for Rangitāne and allowing the tax-effective consolidation of commercial operations in one entity. The aim of this entity is to

generate financial returns and secure the growth of Rangitāne’s assets for its shareholder, the Charitable Trust. RHL is a Māori Authority in accordance with the Fisheries Act.

- The existing Charitable Trust, Te Rūnanga A Rangitāne O Wairau Trust, which will be responsible for distributing benefits for charitable purposes for the community of Rangitāne members. This organisation is a mandated Iwi organisation (MIO) in accordance with the Fisheries Act.

The commercial and non-commercial aspects have been separated to clarify the objectives of each entity, and ensure that there are appropriate accountability mechanisms in place. Rangitāne Holdings Ltd has commercial objectives to maximise financial returns from the settlement, whereas the objective of the Charitable Trust is to deliver cultural, social and educational benefits to the members of Rangitāne. The Trust also has the responsibility of overseeing the performance of Rangitāne Holdings Ltd.

Because both a charitable and non-charitable trust are incorporated within the operating structure Rangitāne will not be restricted to applying funds to purely charitable activities.

[11] The further benefits listed were efficient use of resources, tax effectiveness, accountability and the protection of beneficiaries’ interests.

[12] The ratification vote involved: a vote to accept the Deed of Settlement; and a vote to accept the Settlement Trust as the post-settlement governance entity. The former passed by a 98 per cent majority; the latter by 97 percent. Following the ratification vote, the Settlement Trust was established by the Settlement Trust deed.

[13] The Deed of Settlement was signed on 4 December 2010. It included provisions for the transfer of the Settlement Properties to the governance entity for Rangitāne o Wairau on the settlement date. However the settlement date was delayed due to litigation (known as the Wakatu proceedings). To address this delay, the Crown agreed to pay $22,321,402.37 to the Settlement Trust. This was the total

$676,666 already paid and two further amounts. The Settlement Trust was then to purchase the Settlement Properties on the deferred settlement date. In the meantime the Rangitāne o Wairau had the use of the funds advanced.

13 December 2012 (the Amended Deed). Pursuant to the Amended Deed, the Crown paid $22,321,402.37 on 19 December 2012. Pursuant to the Settlement Deed, and in accordance with the ratification booklet, this payment was to have been paid to the Settlement Trust.

[15] Instead, however, it was transferred by the Crown directly into the bank account of the Charitable Trust. Although it seems the Trustees of the Charitable Trust and the Settlement Trust at that time intended for this to happen, no documentation has been located by the current Trustees as to why this was.¹The subsequent transfer from the Crown of shares and cash, comprising the balance of the financial and commercial redress, made on dates between 14 May 2013 and 31 July 2014 were also received by the Charitable Trust.

[16] Between 19 December 2012 and 1 August 2014, the Crown settlement funds were held by, and were accounted for as capital of, the Charitable Trust.

[17] In October 2013, the accounting firm Deloitte was engaged to review the tax structure of the Rangitāne o Wairau group. It provided its report on 16 May 2014. In accordance with Deloitte’s advice, the following transactions, with effect on 1 August

(a) From funds transferred by the Charitable Trust into the trust account of the solicitors for the Charitable Trust and the Settlement Trust, the Settlement Trust transferred $21,835,000 to the Crown to purchase the Settlement Properties.

(b) Pursuant to a sale and purchase agreement dated 28 July 2014 (the Sale and Purchase Agreement) the Settlement Trust transferred the Settlement Properties to the Charitable Trust for the purchase price of

(c) In order to purchase the Settlement Properties from the Settlement Trust under the Sale and Purchase Agreement, the Charitable Trust borrowed

$21,835,000 from the Settlement Trust. This loan is recorded in a Deed of Indebtedness between the Settlement Trust (as creditor) and the Charitable Trust (as debtor) dated 1 August 2014 (the Deed of Indebtedness).

(d) The Settlement Properties were then sold by the Charitable Trust to Rangitāne Investments Ltd (RIL), a subsidiary of the Charitable Trust, in return for RIL issuing 21,835,000 shares in RIL to the Charitable Trust.

[18] Transfer of one property, Marlborough Boys’ College, was delayed due to the Crown needing to undertake survey work in order to obtain title. This transfer took place in June-July 2018. The Settlement Properties are now legally owned by RIL.

[19] On 9 July 2015 Deloitte provided advice about the above transactions. In accordance with that advice, on 4 October 2015 the Trustees were presented with a resolution, as recommended by Deloitte, to retrospectively confirm the intention of the Trustees in relation to the transactions described above. Namely:

(a) the Crown settlement funds be advanced by way of an interest-free loan to the Charitable Trust;

(c) that the loan has now been repaid in aggregate with the advances made by the Settlement Trust to the Charitable Trust as part of the completion of the settlement and transfer of the Settlement Properties.

[20] The Trustees seek the Court’s direction regarding the proposed course of action in respect of three transactions that appear to have been “Major Transactions” under the Settlement Trust deed. These transactions are:

(c) the loan arrangement (recorded in the Deed of Indebtedness) regarding the purchase price for the Settlement Properties (Transaction 3).

[21] Clause 1.1 of the Settlement Trust Deed defines “Major Transactions” as follows (in part):

(a) the acquisition of, or an agreement to acquire, whether contingent or not, Property by the Trust the value of which is more than half the value of the Trust Fund before the acquisition; or

(b) the disposition of, or an agreement to dispose of, whether contingent or not, Property by the Trust the value of which is more than half the value of the Trust Fund before disposition; or

(c) a transaction that has or is likely to have the effect of the Trust acquiring rights or interests or incurring obligations or liabilities, including contingent liabilities, the value of which is more than half the value of the Trust Fund before the transaction;

[22] Clause 1.1 then goes on to exclude the following transactions from the definition of Major Transaction:

(d) giving, or entering into an agreement to give, a charge secured over the Trust Fund the value of which is more than half the value of the Trust Fund for the purpose of securing the repayment of money or the performance of an obligation;

(f) any transaction entered into by a receiver appointed pursuant to an instrument creating a charge over all or substantially all of the Trust Fund (whether the assets are held by the Trust or any other member of the Iwi Group); or

(g) any acquisition or disposition of Property by the Trust from or to any member of the Iwi Group, including the transfer for consideration of any Settlement Assets to a Subsidiary (except to the extent that Iwi members did not have the opportunity to ratify any acquisition or distribution of Property during the contemplated mandating process for the Settlement, including the debenture arrangement referred to in the introduction.

[23] The Settlement Trust deed defines “Iwi” as meaning Rangitāne o Wairau, “Iwi Group” as meaning the Settlement Trust, the Charitable Trust, wholly owned or controlled companies or trusts and including wholly owned subsidiaries. Trust Fund is defined as including the settlement funds.

[24] If cl 1.1 is satisfied, and none of the exceptions apply, cl 6.1 of the Settlement

(a) has been approved by Special Resolution at a General Meeting which has been properly notified under, and held in accordance with, clause 9; or

(b) is contingent upon approval by way of Special Resolution at a General Meeting, and the Major Transaction is subsequently approved by Special Resolution at a General Meeting which has been properly notified under, and held in accordance with, clause 9.

[25] Clause 8 provides that a Special Resolution is a resolution which must be approved by not less than 75 percent of the adult members of Rangitāne o Wairau who are entitled to vote and who cast a vote in accordance with the voting and notice procedures. Clause 9 sets out the requirements for General Meetings.

[26] The Trustees consider Transactions 1, 2 and 3 appear to be Major Transactions for the purposes of cl 6.1 of the Settlement Trust deed. That is because:

(b) the exclusions set out in the definition of Major Transaction do not appear to apply.

[27] These transactions were not approved by a Special Resolution of a General Meeting of the Settlement Trust. Accordingly, the Trustees are concerned that there has been an error in the application of cl 6.1 of the Settlement Trust Deed and, responsibly, seek directions from the Court.

[28] Transaction 1 (the transfer of funds by the Settlement Trust to the Charitable Trust) is a transaction which has or is likely to have the effect of the Settlement Trust acquiring rights or interests under sub-cl (c) of the “major transaction” definition. Transaction 2 (the transfer of the Settlement Properties from the Settlement Trust to the Charitable Trust for the purchase price of $21,835,000) is a disposition of property from the Settlement Trust under sub-cl (b) of the “major transaction” definition. Transaction 3 (the loan arrangement between the Charitable Trust and the Settlement Trust) is a transaction which has or is likely to have the effect of the Settlement Trust acquiring rights or interests under sub-cl (c) of the “major transaction” definition. The value of all three transactions is more than half of the value of the Trust Fund before the transaction or disposition.

[29] I therefore agree with the Trustees that Transactions 1, 2 and 3 are Major Transactions unless they are within the exclusions to the definition. Sub-clauses (d) and (f) are not relevant. Transactions 1 and 2 involve the Settlement Trust divesting itself of the settlement assets. As such, sub-cl (e) cannot apply. Transaction 3 involves the Settlement Trust obtaining rights or interests from the Charitable Trust, not rights or interests provided in the settlement for the Crown or contemplated by it. The

settlement with the Crown contemplates a settlement with the governing entity. This leaves only the exception in sub-cl (g) as potentially relevant.

[30] Sub-clause (g) is concerned with transactions by the Settlement Trust. It excludes from the major transaction definition any acquisition or disposition of the Settlement Trust’s Property, including any transfer by the Settlement Trust for consideration of the settlement assets to a subsidiary. However, this is subject to the requirement that Iwi members had the opportunity to ratify the acquisition or disposition during the mandating process of the settlement.

[31] Transactions 1, 2 and 3 are therefore only within the exception in sub-cl (g) if Iwi members had the opportunity to ratify them. In fact, as set about above, the ratifying process did not give Iwi members the opportunity to ratify these transactions. The ratifying process involved a different set of transactions, involving the transfer of the settlement assets from the Settlement Trust to RHL (not the Charitable Trust or RIL) in return for profit debentures.

[32] I therefore agree with the Trustees that Transactions 1, 2 and 3 are major transactions which required a Special Resolution in accordance with cl 6.1 of the Settlement Trust deed.

[33] The Trustees seek an order under s 64(1) of the Trustee Act approving the transactions. Section 64(1) provides:

(1) Subject to any contrary intention expressed in the instrument (if any) creating the trust, where in the opinion of the court any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, retention, expenditure, or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the same without the assistance of the court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by

law, the court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income:

provided that, notwithstanding anything to the contrary in the instrument (if any) creating the trust, the court, in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent to the order, may make such an order and may give such directions as it thinks fit to the trustee in respect of the exercise of any power conferred by the order.

[34] Section 64 does not provide the Court with the power to approve a transaction. It empowers the Court to “confer upon the trustee ... the necessary power” to effect a disposition or transaction. The relevant order under s 64 would be one retrospectively authorising the Trustees to have entered into Transactions 1, 2 and 3 without complying with the requirement to first obtain a Special Resolution or for the transactions to have been contingent upon such resolutions being passed.

[35] The last part of s 64(1) is concerned with order made in proceedings where all trustees, beneficiaries and other interested parties are parties or are represented or otherwise consent to the order. That is not the position here. Apart from this, for the court to exercise its powers under this provision, the following elements must be met:

(b) the transactions must be expedient in the management or administration of the trust property, or would be in the best interests of the beneficiaries; and

(c) it must be inexpedient, difficult or impracticable to carry out the transactions without the court’s assistance, or the transactions cannot be carried out because of an absence of power for that purpose vested in the Trustees by the Deed or by law.

[36] The Trustees submit there is no contrary intention expressed in the Settlement Trust deed. This is because the Settlement Trust deed contemplates “intra-group” transactions (i.e. transactions between the Settlement Trust and any member of the Iwi Group such as the Charitable Trust). The transactions are not inconsistent with that purpose.

[37] The Trustees submit the transactions are expedient and in the best interests of the beneficiaries because: the transactions were part of broader structural recommendations made by Deloitte; the current Trustees have since obtained commercial advice that the transactions were commercially prudent; and the transactions have not resulted in any detriment to the beneficiaries.

[38] The Trustees submit it is inexpedient for the Trustees to properly effect the transactions now without the assistance of the Court. If they were to seek retrospective approval from the beneficiaries, this would give rise to significant cost and uncertainty, and it would risk serious consequences if approval was not granted. In the event the Court approves the transactions, the Trustees would notify the beneficiaries of these proceedings and the reason they were brought.

[39] I consider s 64 is not available to approve the Transactions. Nor is it available to authorise the Trustees to have entered into those transactions. The transactions may well be in the best interests of beneficiaries for the reasons advanced by the Trustees, and it may be expedient to provide this authorisation. However the problem is the requirement set out in [35(a)] above. There is a contrary intention in the Settlement Trust deed. That is because the Settlement Trust deed requires these transactions to have approved by a Special Resolution at a General Meeting.

[40] If the Special Resolution is passed, the entry into the transactions would be consistent with the Settlement Trust deed in that they would have the approval of the requisite percentage of those entitled to vote, who do so vote. ²

²Re Havill (deceased) [1968] NZLR 1116 at 1126 per North P: the correct approach is to consider whether “on a fair reading of the instrument in question, one can say that such application would be inconsistent with the purport of the instrument”.

[41] In the alternative, the Trustees seek orders from the Court under s 66 of the Trustee Act either directing that the Trustees take no further action; or sanctioning (“blessing”) proposed actions by the Trustees. These actions would involve the Trustees:

(a) including an explanation of the transactions in the Annual Report to be presented at the next Annual General Meeting;

(b) providing an opportunity for the beneficiaries to discuss these issues at the next Annual General Meeting; and

Any trustee may apply to the court for 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 or discretion vested in the trustee.

Any trustee acting under any direction of the court shall be deemed, so far as regards his own responsibility, to have discharged his duty as such trustee in the subject matter of the direction, notwithstanding that the order giving the direction is subsequently invalidated, overruled, set aside, or otherwise rendered of no effect:

provided that this subsection shall not extend to indemnify any trustee in respect of any act done in accordance with any such direction if he has been guilty of any fraud or wilful concealment or misrepresentation in obtaining the direction or in acquiescing in the court making the order giving the direction.

“[t]hese sections are intended to provide a ready and easy method for trustees to obtain

the opinion of the Court on matters connected with the administration of a trust”.³The Trustees refer to Re Motorola NZ Superannuation Fund to advance the submission that the Court is able to use s 66 to approve a course of action aimed at correcting a previous error.⁴There McGechan J held that a minor or significant error can be corrected if there is no legal impediment to make such an order and it would be fair to do so.⁵

[45] I am sympathetic to the Trustees’ position. Transactions 1, 2 and 3 have occurred acting on advice and in the interests of the beneficiaries. The fact that they first required a Special Resolution because the structure was different from that contemplated during the ratification process seems to have been overlooked. However, in my view, directing the Trustees to do nothing would be inappropriate. The beneficiaries were entitled to the opportunity to approve the structure and have not done so. The steps now proposed to inform the beneficiaries of what has occurred do not provide the beneficiaries with that opportunity either.

[46] I therefore decline to make the directions sought under s 66. Instead I direct the Trustees should take steps to have Transactions 1, 2 and 3 approved by Special Resolution.

[47] Pursuant to s 66 I direct the Trustees to seek approval for Transactions 1, 2 and

3 by Special Resolution in accordance with clauses 8 and 9 of the Settlement Trust deed. I record that the Trustees have acted responsibly by bringing this matter to the Court in order to regularise the error which previously occurred.

³C Kelly and G Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis NZ, Wellington, 2013) at [24.5]. See also New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [46].

⁵At [89] per McGechan J. McGechan J (at [84]) also drew a distinction between an error that is a simple oversight or inadvertence and an error that is a mistake or misjudgement in full knowledge

High Court of New Zealand Decisions

Hynes [2018] NZHC 2575 (1 October 2018)