//
you're reading...
Memoranda of Wishes, Trusts

Update on memorandum of wishes case

“The last of the Memoranda shows that Mr White Senior wished each of his three children to enjoy the benefit of his estate equally and that the property be sold to one of his three children. We will return to the words of the Memoranda in due course.”

Thus starts the Court of Appeal decision in Chambers v SR Hamilton Corporate Trustee Limited.  With all due respect, in part, therein lies the problem.  Fundamental to the establishment of a trust is the intention to part with control.  A settlor has no estate.  Assets sold or gifted to a trust no longer comprise the settlor’s estate.

Perhaps Memoranda of Wishes are in part anachronistic in that they reflect adherence in principle to settlor’s wishes, but in the closing words of “A strange thing happens in the town of parrots”  (The birds walk round on tied on carrots Instead of winging their song in the sky  They walk on the ground like us)  But why?

Regardless, this case, and the judgment that is appealed, give important guidance regarding adherence (or not) to memoranda of wishes. See Family at war – but which war?

By way of background the trustees could not following the terms of memoranda of wishes due to facts not known to the settlor.  However, the High Court directed as much adherence with the terms as possible.  Editor’s note – suggesting, as with Family Protection Act 1955 claims, that the instrument out not be re-written but rather that it is amended to the extent necessary and no more …

This appeal concerns the Judge’s rejection of the request for directions for a sale to one of beneficiaries at $945,000 and … the decision that the property should be offered on terms in accord with the memorandum of wishes to all three beneficiaries for $1,725,000 (the current value at the time).

Of interest is the challenge to the decision of the High Court on the basis that the Court should not have treated the application as one where the Trustees wished to surrender their discretion to the Court so that the Court could make orders as it saw fit.  See the analysis of the trustee directions jurisdiction set out by Robert Walker J as  set out in large part in the English High Court decision of Public Trustee v Cooper, which is summarised as follows:

(a) First, an application by trustees for guidance as to whether a proposed action was within their powers. This will ultimately be a question of interpretation of the trust instrument or a statute or both.

(b) Second, an application for directions on whether a specific proposed action is a proper exercise of a power. In these situations the trustees are essentially seeking the blessing of the court for an action that they have resolved is within their powers, but is particularly momentous. In a case like that, there is no general surrender of discretion.

(c) Third an application by trustees where they surrender their discretion to the court, and there is good reason for the court to intervene such as the trustees being deadlocked or the trustees being disabled by a conflict of interest.

(d)Fourth an application where the trustees have taken action that is being challenged as outside their powers or an improper exercise of their powers.

The Court of Appeal was of the view that the Trustees had in fact surrendered their discretion to the court and that accordingly the appeal raised the question of the nature and extent of the jurisdiction under s 66 of the Trustee Act 1956 and essentially – who gets to properly decide?  The trustees in Chambers have essentially sought the rubber stamp of the court to the trustees’ decision to sell at Dr Chambers at the price nominated.

Section 66

66 Right of trustee to apply to court for directions

(1) 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 of discretion vested in the trustee.

(2) Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the court thinks expedient.

As noted in [32] of the decision:

The nature of that English jurisdiction was summarised by Lord Oliver in Marley & Ors v Mutual Security Merchant Bank and Trust Co Ltd where he said:

“A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper and professional advice and, if so advised, to protect his position by seeking the guidance of the court.”

What then are trustees to do when considering memoranda of wishes?  As noted at [36]

“Settlors are entitled to express their wishes for the benefit of trustees, and trustees are entitled to take them into account. They can be important guidance to them in the exercise of discretionary powers. However trustees, whatever a settlor’s wishes, must conscientiously apply their independent discretion in exercising their powers. Wishes can only be taken into account if they are not inconsistent with the purposes of the trust as appear from its written terms.Trustees should not blindly obey all settlor instructions. It is necessary for trustees to read and understand a memorandum of guidance to discern the settlor’s wishes, and then with those wishes in mind make an independent assessment of the appropriate course of action, taking into account not just the memoranda, but all relevant factors. “

Ultimately the court was moved by the settlor’s wish that the children benefit equally and the court did not agree that Dr Chambers was entitled to any windfall.

Although memoranda of wishes are common place, they are rarely litigated.  Accordingly, the decision warrants consideration.

References:

  • Family at war – but which war?
  • Chambers v SR Hamilton Corporate Trustee Ltd [2017] NZCA 131
  • Family Protection Act 1955
  • Public Trustee v Cooper [2001] WTLR 901 (Ch) at 923–924. Robert Walker J’s four categories are referred to in many leading texts. See for example David Hayton (ed) Underhill and Hayton Law of Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [85.4]–[85.10]; Lynton Tucker and others (eds) Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at 1135; and Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington 2013) at [24.34]
  • Marley & Ors v Mutual Security Merchant Bank and Trust Co Ltd [1991] All ER 198 (PC) at 201.

Discussion

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: