Re the Ruby Trust [2022] NZHC 282

This decision of the High Court dealt with three trust variations by reference to statutory and inherent jurisdictions. The variations arose from the settlement of two sets of proceedings. Gendall J began by noting that the starting point on variation powers is section 122 of the Trusts Act 2019 (“TA”) which empowers trustees to vary the terms of a trust deed by unanimous consent. He noted that the Court can supplement that with the power under section 124 to consent on behalf of incapacitated, minor or unborn beneficiaries and section 125, permitting the Court to waive the need for consent to a section 122 variation.

Alongside these provisions the inherent jurisdiction of the Court was canvassed. His Honour cited with approval the decision of Isac J in Re Setter [2021] NZHC 1603 at [36] who considered that the inherent jurisdiction should now be seen as available “to fill gaps left by Parliament (to the extent…consistent with the statute).”

The first variation considered was styled the appointment variation. It sought to alter the power to appoint and remove trustees by excluding from that power family members not directly involved in the trust’s future administration as a result of the settlement. Jurisdiction lay in section 130 of the TA or the inherent jurisdiction. By the former the Court could vary or extend the powers of the trustees. The circumstances of the settlement supported this variation being made.

The second variation was styled the distribution variation. It was to align the distribution power in the relevant trust deed with the agreements reached in the family settlement. Without the variation there was a concern that the family settlement might fetter the discretion of the trustees, contrary to the default duty under the TA. Continued general powers of distribution were also seen as potentially undermining the family settlement. Jurisdiction lay in the inherent jurisdiction or in sections 122, 124 and 125 of the TA, though the statutory mechanisms were seen as more complicated.

That said, section 124 was noted as a deliberate broadening of the old variation power in section 64A of the Trustee Act 1956. Considered in that light, the variation was seen as providing all beneficiaries with parity and certainty which outweighed any detriment to distant discretionary beneficiaries who “only ever enjoyed a vague hope of benefiting…” Importantly, the Judge also saw the variation as delivering a benefit to the whole family in that it cleared the decks, hopefully allowing relationships to mend after a hard-fought settlement of proceedings.

Section 125, permitting the waiver of consent, was then considered and the Judge covered the relevant principles before concluding that they each supported the distribution variation being made. Again the fact that affected beneficiaries had only a very remote possibility of benefiting, that detriment would be greater to “core beneficiaries” without the waiver, and that the settlors’ intentions would be facilitated by the variation all supported it being made. It was also supported by the Courts obligation to have regard to a trust being administered without unnecessary cost and complexity, under section 4 of the TA.

The third variation was styled the beneficiary variation and was to align the trust beneficiaries with those family members who were to benefit under the family settlement. The beneficiaries to be removed by the variation had not been involved in the proceedings that led to the variations being before the Court, and neither had they been served. They were at some distance from the core beneficiaries identified by the Court.

Not surprisingly, jurisdiction to deal with this variation was broadly the same as applied to the distribution variation and for much the same reasons the variation was approved. The Court helpfully distinguished between the terms of a trust and its objectives, given the need to reflect those under section 4 of the TA. The trust’s objectives and purpose must be divined from the underlying factual context and matrix of the trust. In the instant case the Judge found that the trust had been established when first generation beneficiaries had started to accumulate wealth and had children just finishing their schooling. It was designed to hold wealth and give the family a flexible vehicle as the family evolved over time. That would have been in the settlor’s mind and section 4 allows the Court to consider present objectives as they have evolved. Taking that broad approach the Court concluded that the variation was in the best interests of all parties.

As a final note the Court confirmed that, had the trust deed permitted variation, none of the proposed variations would have been regarded as affecting the substratum of the trust ad so could have ben made without recourse to the Court. This is a helpful indication of where that line can be drawn. The need to address consent issues arose because the deed did not contain an express variation clause as more modern trust deeds often do.

The final thing to observe is that the published judgment is redacted, in that all names and identifying references have been fictionalised. This reflects the particular circumstances that led to the judgment. The proceedings by which trust interests were contested were resolved by the family settlement. On the basis of that settlement the parties compromised their proceedings without the Court having to deliberate and suppression orders were sought and granted. The Court recorded its decision on the variation applications in a way that did not disturb the earlier suppression order.

© G D Clews, 2022