IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
CIV-2016-409-001231
[2017] NZHC 420
UNDER
Section 52 of the Trustee Act 1956
IN THE MATTER OF
The Godfrey Family Trust
BETWEEN
JOHN PLIMSOLL GODFREY
AND
ANDREW MAXWELL MCCORMICK
Hearing:
On the papers
Judgment:
13 March 2017
JUDGMENT OF NATION J
[1]
The trustees of the Godfrey Family Trust (the Trust) own a property at 32A
Gleneagles Terrace, Christchurch. Title is in the names of the three original trustees:
John Plimsoll Godfrey, his wife Fay Rachael Godfrey, and a solicitor Andrew
Maxwell McCormick. The beneficiaries are the settlors, Mr and Mrs Godfrey, their
children and grandchildren, any other person appointed as a beneficiary under the
trust deed, a trust for the benefit of any beneficiary, and any charity recognised as
such by the IRD. Distribution of income and capital is at the discretion of the
trustees but, if no other appointment has been made, then at the distribution date the
trust fund will be distributed between the settlors’ children in equal shares.
[2]
Mrs Godfrey suffers from dementia. Mr Godfrey has purported to exercise
powers pursuant to an enduring power of attorney (EPA) for her to retire as a trustee.
[3]
Mr Godfrey and Mr McCormick, as the remaining trustees, have filed an
originating application seeking:
GODFREY & MCCORMICK [2017] NZHC 420 [13 March 2017]
a) an order under r 19.5 of the High Court Rules to permit the proceedings
to be commenced by originating application;
b) an order that service of the proceeding on Mrs Godfrey be dispensed
with; and
c) an order vesting title in the Gleneagles Terrace property in Mr Godfrey
and Mr McCormick.
[4]
The vesting orders are necessary to ensure Mr Godfrey and Mr McCormick,
as remaining trustees, can deal with the title to 32A Gleneagles Terrace in a manner
which is acceptable to Land Information New Zealand (LINZ).
[5]
It is appropriate for these proceedings to be brought by way of originating
application. Leave is granted accordingly.
[6]
An order is made dispensing with service of the application on both Mrs
Godfrey and also any of the discretionary beneficiaries to the trust. Given she
suffers from dementia, service on Mrs Godfrey would serve no useful purpose.
There is no evidence as to whether current discretionary beneficiaries consent to the
orders sought but those orders are for an administrative step enabling the Trust to
continue operating and will not change any of the beneficiaries rights or entitlements
under the Trust.
[7]
The Court has been asked to make orders vesting title in Mr Godfrey and Mr
McCormick as the surviving trustees following the retirement of Mrs Godfrey. For
her to no longer be a trustee, she must have validly retired as a trustee. This has
purportedly been achieved through Mr Godfrey exercising an EPA from Mrs
Godfrey to take such a step.
[8]
An EPA does not give the attorney the power to act for the donor in relation
to the donor’s obligations, rights and powers as a trustee. The powers under an EPA
are governed by Part 9 of the Protection of Personal Property Rights Act 1988
(PPPRA). The Act provides that the donor of an EPA can authorise the attorney “to
act generally in relation to the whole or a specified part of the donor’s affairs in
relation to his or her property”.1 The Act defines property as:2
… any real or personal property; and includes any interest in any property;
and also includes any money, any business or undertaking, and any right or
power exercisable in respect of any property”.
[9]
While there appears to be no judicial authority on the matter, the more
common view is that property the donor holds on trust is not included in “his or her
property” and, as such, trustee powers are not exercisable by a donee of an EPA.
[10]
For example, Peter Eastgate writes: “If an incapacitated trustee has an EPA in
place, this only covers that person’s personal property, not the trust property.”3
Similarly, Kelly and Kelly argue:4
Because the EPA document relates to the donor’s own property, as opposed
to assets that he or she holds as trustee, it is clear that a trustee cannot
delegate his dispositive powers or discretions to an attorney.
[11]
The Law Commission, in its review of the law of trusts, also appears to agree
that this is the current state of the law. It advocated for legislative change to
empower holders of EPAs of incapacitated trustees to remove them and, where
necessary, appoint a replacement.5
[12]
This is also the position of LINZ, who has recently made it clear that they
will not accept documents executing the transfer of trust property when they are
signed by an attorney on behalf of a trustee who has lost capacity. As a result, this
Court has in recent times seen an increasing number of applications for orders
vesting trust property where a trustee has lost capacity to act.
1
2
3
4
5
Protection of Personal Property Rights Act 1988, s 97(1).
Section 2.
Peter Eastgate “The Ageing Trustee” (paper presented to the NZ Law Society Elder Law
Intensive, May 2016) at 93.
Greg Kelly and Chris Kelly “Trusts” (paper presented to the NZ Law Society Elder Law
Intensive, May 2014) at 105.
Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130,
2013) at 31-32.
[13]
My view is that the Act is best understood as precluding trustee powers from
the scope of EPAs.6 If trustee powers were included, the Act would function as an
exception to the well established duty of a trustee not to delegate their powers as
trustee.7 If Parliament had intended the Act to operate in such a way, it is reasonable
to expect that they would have made it clear.
[14]
Furthermore, there already exists, in the Trustee Act, limited statutory
exceptions to the rule against delegation involving powers of attorney. Section 31
provides that a trustee who is either temporarily outside New Zealand or expects to
be outside New Zealand from time to time during the administration of the trust may
delegate his powers and duties by power of attorney. A similar exception is included
for temporary physical incapability. Permanent or mental incapacity are deliberately
excluded. Section 95(4) of the PPPRA provides that a power of attorney under s 31
of the Trustee Act “shall not have effect as an enduring power of attorney”. A power
of attorney can therefore not be both a s 31 power of attorney and an EPA under the
PPPRA.
[15]
The inclusion of trust powers within the scope of an EPA is also problematic
for a more principled reason. Section 97A(2) of the PPPRA provides that the
“paramount consideration of the attorney is to use the donor’s property in the
promotion and protection of the donor’s best interests.”
This is directly
contradictory to the obligations of a trustee, who must at all times have the best
interests of the beneficiaries in mind.
It is conceivable that these paramount
considerations might be in conflict.
[16]
It could be argued that the power to resign as trustee is not itself a trustee
power. If this is the case, then the duty not to delegate would not apply and the
PPPRA would not have to be construed as an exception to the duty in order to permit
an attorney to exercise the power.
6
7
Because this issue has been the subject of legal argument, it is appropriate for me to
acknowledge the valuable assistance provided by the Judges’ Clerk Thomas Simkiss.
Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009)
at 131; Re Mulligan (deceased) [1998] 1 NZLR 481 (HC) at 520; Niak v MacDonald [2001] 3
NZLR 334 (CA).
[17]
It is certainly true that the power to resign as trustee is fundamentally
different from dispositive powers involving trust property. Its exercise results in a
change in the status of the trustee, not any change in the status of the trust or the trust
property.
[18]
Further, at least in relation to the exercise of the power to resign under s 45 of
the Trustee Act, the principles behind the duty not to delegate do not seem to be
operative.
The duty is in large part designed to protect the interests of the
beneficiaries. While a trustee is obligated to act in the interests of the beneficiaries,
there is no guarantee that someone to whom he delegates his powers will be
similarly obligated. When retiring under s 45 of the Trustee Act, the beneficiaries’
interests are protected by the requirement that the consent of the remaining trustees
is adduced. In a situation such as the present, where the retiring trustee has lost
capacity, the interests of the beneficiaries are in fact overwhelmingly met by the
swift retirement of the trustee.
[19]
Nevertheless, the EPA is a statutory creation and, even if the duty not to
delegate does not apply, it must be shown that the PPPR empowers the holder of an
EPA to make decisions regarding the donor’s trustee status. In my view, this cannot
be shown. An EPA empowers the donee to act in relation to the donor’s property.
Even if the power to resign is not a trust power per se, if it is a power relating to
property at all, then it is a power relating to trust property.
[20]
For all these reasons, the PPPRA must be read as not extending to an attorney
the power to act for a trustee in relation to trust property.
[21]
All this means that, rather than rely on the retirement of Mrs Godfrey as a
trustee through the way Mr Godfrey purported to exercise powers under an EPA, the
applicants should have sought an order from the Court removing her as a trustee on
the grounds she was no longer able to act as a trustee. Because there is no dispute
that she is unable to act as a trustee, because the remaining trustees want to recognise
this and because no other person’s rights will be affected, I am amending the
application so that such an order is sought.
[22]
It is clearly appropriate for an order to be made vesting title to the Gleneagles
Terrace property in the names of the remaining trustees.
[23]
I accordingly make orders:
(a) removing Fay Rachael Godfrey as a trustee of the Godfrey Family Trust;
and
(b) under s 52(1)(b)(i) of the Trustee Act 1956, vesting the property at 32A
Gleneagles Terrace, Christchurch, being Flat 2 DP 60854 on Lot 13 DP
18597, identifier CB36A/624 held by John Plimsoll Godfrey, Fay
Rachael Godfrey and Andrew Maxwell McCormick as trustees of the
Godfrey Family Trust in the names of John Plimsoll Godfrey, retired of
Christchurch
and
Andrew
Maxwell
McCormick,
solicitor
Christchurch as the continuing trustees of the Godfrey Family Trust.
Solicitors:
Brandts-Giesen McCormick, Rangiora
of