Contents

Chapter 10
Revocation and variation

Revocation and variation by the court

RECOMMENDATION

R30 The new Trusts Act should provide that:
(1) The court may:
(a) approve any revocation, variation or resettlement of a trust or any change to the scope or nature of the powers of the trustees to manage or administer the trusts on behalf of the following beneficiaries:
(i) persons under the age of 18 years;  
(ii) incapacitated persons;  
(iii) persons who may become entitled at a future date or on the happening of a future event or once they become a member of a certain class; and
(iv) future persons; and
(b) waive the requirement for the consent of any other person and approve any revocation, variation or resettlement of a trust or any change to the scope or nature of the powers of the trustees to manage or administer the trusts.
(2) When considering whether to approve or waive the requirement for consent to a revocation, variation or resettlement of a trust or any change to the scope or nature of the powers of the trustees under (1) the court must take into account the following factors:
(a) the nature of any person’s interest and the effect any proposed varying arrangement may have on that interest;
(b) the benefit or detriment to any person that may result from the court approving any proposed varying arrangement;
(c) the benefit or detriment to any person that may result from the court declining to approve any proposed varying arrangement; and  
(d) the intentions of the settlor to the extent these can be ascertained.
(3) The court must not make an order under (1) of the proposed provision if its effect would be to reduce or remove any fixed indefeasible interest or interest that has vested absolutely in a beneficiary.
(4) Any order of approval or waiver that is made by the court under (1) should be binding on all persons on whose behalf it is made (including any person who is the subject of an order of waiver) and the trusts should take effect as rearranged.

Current position and issues

10.7Where a trust has minor, incapacitated or unborn beneficiaries, the rule in Saunders v Vautier cannot be used and the trust can only be revoked, varied or resettled by the court unless specific provisions addressing this situation have been included in the trust deed.

10.8Under section 64A of the Trustee Act the High Court has a discretionary power to approve on behalf of a minor, and certain incapacitated or unascertained beneficiaries, an arrangement that varies or revokes a trust or enlarges the powers of the trustees in respect of property subject to a trust.248 The court may only approve an arrangement if it is not to the “detriment” of the beneficiary on whose behalf it is consenting. Under its inherent jurisdiction the High Court can also authorise variations of trusts on behalf of incapable beneficiaries in other limited circumstances.249
10.9 The main problems the Commission identified with the current provision, which we discussed in detail in the Preferred Approach Paper,250 are briefly that:
(a) There is uncertainty over the range of varying arrangements the courts can approve on behalf of beneficiaries.
(b) The classes of beneficiaries for whom the court can approve varying arrangements are somewhat unclear and are also too limited. We consider that it is clear that the current provision does not adequately cater for the range of situations where the consent of beneficiaries cannot be reasonably obtained.
(c) The requirement in section 64A that any varying arrangement must not be to the “detriment” of those beneficiaries on behalf of whom the court provides consent is restrictive and arguably does not give the court sufficient discretion to consider the broader consequences of any proposed variation and its potential effect on all the beneficiaries of the trust.

Recommended reformTop

10.10We recommend replacing section 64A with a new provision that addresses these issues (see clauses 55 and 56 of the indicative draft below).

Range of varying arrangements the court may approve

10.11In relation to the issue concerning the range of varying arrangements the courts should be able to approve on behalf of beneficiaries (issue (a) above), we recommend that the court have the power to approve any revocation, variation or resettlement of a trust or any change to the scope or nature of the powers of the trustees to manage or administer trusts. This clarifies that the court in its protective role is able to approve any variation or resettlement that a competent adult could approve. In our view it is logical that the court should be able to agree to any variation that an adult beneficiary might agree to under the extended rule in Saunders v Vautier because the purpose of the provision is for the court to make a protective decision for those beneficiaries who are not adults of full capacity, and are unable to reach their own view on proposed changes to the trust.

10.12Some submitters were concerned that this approach would allow far-reaching revisions of trusts, extending beyond what the settlor would have wished. While we acknowledge their concern, we consider that it is preferable to leave it to the court to determine whether it should in all the circumstances approve an arrangement that extends beyond or differs from what the settlor may have wished. As discussed further below, the intention of the settlor and the primary purpose of the trust must be considered by the court as one of a number of relevant matters that the court weighs up when deciding whether to approve a revision of the trust.

Classes of persons

10.13On the issue of the classes of beneficiaries for whom the court should be able to approve varying arrangements (issue (b) above), we recommend broadening the current classes because we consider that the classes of person for whom the court can currently approve an arrangement under section 64A are too limited.

10.14We also recommend giving the court discretion, subject to some important safeguards, to waive the requirement for the consent of any other person. This is to prevent desirable variations being thwarted in situations where one or more ascertainable beneficiaries cannot be traced or contacted despite reasonable efforts, or to deal with situations where there are numerous beneficiaries with a remote or negligible interest in a trust. In such situations it is impractical and costly to require the personal consent of each of them. We consider that it is unreasonable to allow people with interests of a remote or negligible nature to have power of veto over variations that are desired by beneficiaries with far more significant interests.

10.15However, it is equally important to protect the position of a recalcitrant adult beneficiary with a fixed or indefeasible interest where he or she refuses to consent to a variation. Overriding the views of a beneficiary in this situation would not be consistent with the underlying principle in Saunders v Vautier. Those with the right of enjoyment in the property should be able to dictate the manner of enjoyment. Where a beneficiary with a fixed or indefeasible interest refuses to agree to a variation, overriding his or her refusal in a manner that removes or reduces that interest arguably amounts to an expropriation of property.

10.16Our recommended approach addresses this issue by requiring that the court, when considering whether to waive the requirement for the consent of any beneficiary, take into account the nature of the interests of everyone affected by the proposed arrangement, and the benefits or detriments to those affected if the court approved that arrangement or if the court declined to approve the arrangement. In addition, the provision should include the important protection that the court must not use its discretionary power to reduce or remove any vested or indefeasible interest held by a beneficiary.

The requirement for no detriment

10.17On the issue of whether the current detriment test should be retained (issue (c)), we recommend changing to a broader test under which the court must consider the nature of the person’s interests and the effect the proposed variation will have on that interest, as well as the benefits or detriments that approving or not approving the change will have on all those beneficiaries who would be affected by the proposed arrangement. In addition, we recommend that the intentions of the settlor, to the extent that these can be ascertained, should also be considered by the court when determining whether to approve a variation.

10.18We think that the intention of the settlor and the primary purpose of the trust should be considered as one of a number of relevant matters that the court weighs up when deciding whether approval should be given. We favour this approach because it strikes a balance between the competing interests. It does not limit the court’s ability to approve varying arrangements that conflict with the settlor’s primary intention or the trust’s substratum where other relevant factors argue compellingly for such change. Equally, this approach does not allow the court or others to simply ignore the settlor’s intention or wishes either.

248Re Clifford (deceased) HC Christchurch A30/82, 22 July 1993 at 11.
249Chapman v Chapman [1954] AC 429 (HL); Re Ebbett [1974] 1 NZLR 392 (SC) at 396; Re Gray (deceased) [1956] NZLR 764 (SC).
250Preferred Approach Paper, above n 243, at [9.14]–[9.45].