Trustee variations: mind the gap

Dentons
Contact

Dentons

The Trusts Act 2019 (the Act) endeavored to simplify trust law and make it more accessible. It is early days but for the most part, the Act seems to have achieved its mission.

However, there is one change that has not quite stuck the landing.

In the recent case of Setter1 (which the writers acted in), the trustees of the Central Hawke’s Bay Consumers Power Trust (the Trust) applied to the court to vary the trust deed under section 130.

The trustees hold shares in Centralines Ltd, which is an electricity distribution company in Central Hawke’s Bay. The beneficiaries of the Trust are electricity consumers. The trustees wanted to vary the Deed so that in future, all seven of the trustees would be appointed by the beneficiaries of the Trust. Currently, three of the trustees are appointed by the Mayor of Central Hawke’s Bay District Council, the Council, and the Manager of the largest consumer of electricity supplied by Centralines. The benefit in having all the trustees consumer-appointed is that Centralines would be exempt from complying with DPP regulations2 as the Trust would be ‘consumer-owned’. Centralines would avoid financial penalties and be able to achieve greater pricing stability for the beneficiaries if the variation was authorised.

The trust deed prevented changes to the trustee appointment provisions ‘except as authorized by a Court of competent jurisdiction’. The question before the Court was whether section 130 or alternatively, section 124, was the appropriate statutory gateway.

The first gateway: section 130

Section 130 allows the court to vary or extend trustees’ powers in relation to property, provided that:

  1. the court considers that the variation or extension is necessary or desirable for the proper management or administration of the trust property;
  2. the variation or extension does not alter a beneficiary’s interest under the trust; and
  3. the variation or extension does not involve a power to distribute trust property to a beneficiary.

The problem identified by Justice Isac was that the proposed variation in this case did not, on the plain meaning of the words, appear to relate to the trustees’ powers. Counsel for the trustees argued, however, that the Court should adopt a wider interpretation.

Section 130 is the replacement of section 64 of the old Trustee Act 1956. Like its successor, section 64 had its issues – on its natural wording, it only allowed the court to permit specific trustee transactions. The courts, however, interpreted the section widely so that it applied to variations of trust deeds,3 provided that the variations did not impact on the interests of the beneficiaries.4

The trustees in this case urged the court to adopt a similar approach regarding the reference to trustees’ powers under section 130. It was clear, they argued, that Parliament had not intended to narrow the courts’ statutory jurisdiction. In fact, the Law Commission Report underpinning the 2019 Act had stated the opposite: ‘[w]e recommend that the scope of the current provision be broadened to permit the court to make amendments to the non-distributive administrative provisions of the terms of any trust where this necessary to enable the trustees to efficiently manage trust property'.

In the same vein, section 130 was intended (according to the report) to do away with the 'unnecessary and confusing distinction [in section 64] between the court making an order conferring on the trustees the necessary powers to undertake a class of transactions and an order that simply amends the administrative provisions of the trust deed'.

The Court could not, however, see any way around the its view that the trustees’ application did not relate to altering the trustees’ powers.

The second gateway: section 124

The alternative statutory gateway was section 124, which applies to variations that would impact on the interests of beneficiaries, when the consent of all beneficiaries is not possible due to a lack of capacity or one of the other statutory grounds. Such applications are therefore made on behalf of those beneficiaries who cannot presently consent; the court is being asked to consent on their behalf.

Neither the court nor the trustees considered that this was an appropriate gateway in this case.

The Court was therefore faced with a problem that was not of its own making.

Mind the gap

In the end, the Court left open the interpretation of section 130 and made the orders under its inherent jurisdiction.5 This was good for Centralines and their consumers, however the decision leaves the legal situation in murky waters.

If a narrow interpretation of section 130 is followed / adopted by the courts, then a large number of variations that would have been granted under section 130’s predecessor will now fall outside the courts’ statutory jurisdiction. Those cases will therefore fall to be determined pursuant to the High Court’s inherent jurisdiction, with relatively little guidance as to the applicable principles.

Hopefully matters can be remedied through the courts or (if necessary) the legislature. In the meantime, the message to trustees and practitioners seeking the courts’ approval of a variation is this: mind the gap.

 

  1. [2021] NZHC 1603.
  2. ‘Price Quality Paths’ set by the Commerce Commission.
  3. Banicevich v Gunson [2006] 2 NZLR11 (CA) at [41].
  4. Butler, Equity and Trusts in New Zealand (online ed, Thomson Reuters) Chapter 62.9 Variation and Resettlement at [69.9.5.2(1)].
  5. This is consistent with a previous case, Clifton v Clifton (2004) 1 NZTR 14-018 which found that neither sections 64 or 64A (now sections 130 and 124) provided the Court with jurisdiction to vary the power to appoint trustees.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:

Dentons
Contact
more
less

Dentons on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.