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Charities, Deed of Trust, Trusts

Principles of interpretation

While much writing about trusts focuses on the intrinsic aspects of trusts that separate trusts from other forms of ownership, such as companies; there are areas where the same principles can apply to both.

One of these areas is the principles of interpretation that apply when the terms of a trust are unclear.  This is confirmed in the matter of McCaw Lewis Trustees (No. 4) Limited and Vazey Child Trustees (2011) Limited as trustees of the LJ Reynolds No. 2 Trust where the trustees sought a declaration that a particular trust came within the definition of “public charitable institution” for the purposes of the deed of trust in question.

In that case it was noted at [19] that:

“Similar principles apply to the construction of trust deeds as apply to the construction of contracts.1 Clifford J set out the principles in Bulley v Attorney General (affirmed by the Court of Appeal2):

…it is now well settled in New Zealand that questions of contractual interpretation are to be approached on the basis of the principles set out in Investors Compensation Scheme Ltd v West Bromwich Building Society, as originally adopted by the Court of Appeal in Boat Park Ltd v Hutchinson, and as subsequently confirmed by the Supreme Court in such cases as Wholesale Distributors Ltd v Gibbons Holdings Ltd and Vector Gas Ltd v Bay of Plenty Energy Ltd. As Tipping J observed in Vector:

“The ultimate objective in a contract interpretation dispute is to establish the meaning the parties intended their words to bear. In order to be admissible, extrinsic evidence must be relevant to that question. The language used by the parties, appropriately interpreted, is the only source of their intended meaning. As a matter of policy, our law has always required interpretation issues to be addressed on an objective basis. The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds. Evidence is not relevant if it does no more than tend to prove what individual parties subjectively intended or understood their words to mean, or what their negotiating stance was at any particular time. ”

[50] In Vector, five separate judgments were given reflecting differing views amongst the Court on various aspects of contract law. In Trustees Executors Ltd v QBE Insurance (International) Ltd the Court of Appeal has provided, given that difference of views, some helpful comments on the Vector decision:

“The majority of the judges in Vector adopted the approach in Investors Compensation whereby the language the parties have used must be read in the context of the document as a whole and the surrounding circumstances. Under that approach, the wider background and circumstances should always be considered, even if there is no ambiguity or other interpretive difficulty with the words used by the parties. Evidence of background circumstances is not, however, relevant if it does no more than tend to prove what individual parties subjectively intended or understood their words to mean or to prove what a parties’ negotiating stance may have been at a particular time.

While it usually makes sense to start with the words of the contract and then move to the context of the contract before considering the wider background and circumstances, there is no presumption in favour of ordinary meaning. A meaning that may appear, when devoid of external context, to be plain and unambiguous, may not ultimately be what the parties intended when considered against all the relevant circumstances. As was noted by Tipping J in Vector, any initial view of the meaning must be provisional only and the reader must be prepared to accept that the provisional meaning may be altered once context has been brought to account. ”

In the same way that evidence of subsequent conduct can be admissible to construe a contract, such matters can also be taken into consideration when determining the terms of a deed of trust.

…properly focused and limited evidence of post-contract conduct will often be capable of shedding more light on contractual meaning than a lot of the pre-contractual material which is said to bear on that meaning. Post-contract evidence that logically indicates that at the time they contracted the parties attached a particular meaning to the words in dispute can be good evidence that a later attempt by one party to place a different meaning on those words is unpersuasive.

Even if the meaning suggested by the post-contract conduct is not the most immediately obvious objective meaning, the parties’ shared conduct will be helpful in identifying what they themselves intended the words to mean. That, after all, must be the ultimate determinant. If the court can be confident from their subsequent conduct what both parties intended their words to mean, and the words are capable of bearing that meaning, it would be inappropriate to presume that they meant something else: Wholesale Distributors Ltd v Gibbons Holdings Ltd

 

 

References:

  • Bulley v Attorney-General [2014] NZHC 615
  • McCaw Lewis Trustees (No. 4) Limited and Vazey Child Trustees (2011) Limited as trustees of the LJ Reynolds No. 2 Trust [2014] NZHC 2627
  • Proyer v Bulley [2013] NZCA 559
  • Wholesale Distributors Ltd v Gibbons Holdings Ltd [2007] NZSC 37

 

Discussion

One thought on “Principles of interpretation

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    Posted by Elizabet | February 9, 2016, 8:03 pm

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