History of the trusts

Efforts to support and development of junior chess in New Zealand have been made through several decades, with mixed success. The Council of New Zealand Chess Federation, when based in Wellington in the mid-1990s, determined to consolidate previous efforts in a policy which would try to avoid past mistakes and provide for a long-term, growing programme of support for junior chess development.
The crucial decisions were made at the annual meeting of the Chess Federation in January, 1998, which led to formal incorporation of the Chess Friends of New Zealand Trust later that month.
The background to the decisions made at that time was set out in the following report to councillors and circulated to all chess clubs in July, 1997.

New Zealand Chess Foundation and
Chess Friends of New Zealand Trust
Summary by E G A Frost
7 July, 1997

1. Background

In 1969 Alvan Hollander, president of NZCF when the association (as it was then) was based in Christchurch, was responsible for setting up the New Zealand Chess Foundation Trust. Its objective was "furtherance of the game of chess in New Zealand." The original trustees were Mr Hollander, R E A Baeyertz of Auckland, and D M Stracy of Wellington, whose names appear in the trust deed lodged on November 10, 1969.
When the trust was established Mr Hollander was (as I understand it) hopeful of a regular source of income from an arrangement with an insurance company. The foundation functioned for some time, and I have no knowledge of the sums raised and distributed during that period.
Since rejoining Council in 1990 I have made a series of inquiries about the trust, without success. Don Stracy had no knowledge of activity after the initial period. Graham Haase was mentioned as a trustee, but had no recollection of what might have happened to it and could not give any leads on who might be responsible. He felt that it had languished. Last year I asked my lawyer to pursue inquiries, which he did, but as trusts do not have to lodge accounts with any authority, inquiries in Christchurch led into a dead end.
My interest in an organisation to handle sponsorship and financial promotion of chess, particularly junior development, goes back to the time when Rodney Phillips was our most promising junior. NZCA was cool on support for overseas play (a feeling of disappointment over arrangements with Bob Wade was behind this). I was running a magazine at the time, and launched a Chess Friends fund on an informal basis, to assist Rodney to go to the World Junior in Switzerland.
This fund also languished when I gave up publication of the magazine. To my surprise, it resurfaced about three years ago when ANZ Bank sent me a statement of account. The Chess Friends account was still alive, with a balance of some $200. Later, Brian Foster approached me with the information that a supporter of chess was disposing of his library and wished to donate the proceeds to chess development, but not by giving the proceeds to NZCF for general funds. I expressed the intention of reviving Chess Friends and having it established as a trust, and it was agreed that the proceeds of the sale of this library go into Chess Friends. Bill Poole agreed to act with me as a trustee of Chess Friends.
Funds from that source have been deposited in the Chess Friends account, which stands at $1238.00 (a current balance $1538.00, less $300 which I have paid on its account - $100 to Mark Noble towards travel to the last Olympiad, in recognition of his coaching of the Sheehan sisters, and $200 towards David Guthrie travel last year).
Until recently I had not proceeded further with revival of Chess Friends because of pressure of other activities, lingering doubts about what had happened to the Chess Foundation, and knowledge that setting up Chess Friends as a trust required careful consideration because of the legal requirements and the need to avoid deficiencies evident in Chess Foundation trust deed. These are set out in detail below.
Early this year, pursuing my intention of reviving Chess Friends and what I have seen as high priority needs to set up a channel for raising funds for support of chess development independent of the day-by-day accounting of the federation, and with the need to get into fund-raising for next year's Olympiad, I raised the matter with councillors and consulted my lawyer and Richard Sutton about the best way to proceed.
Peter Stuart attended the March meeting of Council and dropped what to me was a bombshell when he suggested that it was unnecessary to set up a second such fund when the foundation was still in existence, based in Auckland, and mentioned Michael Whaley, Bob Smith and Graham Haase as trustees. The amount in hand was $4160, a large part of which was accrued interest during the inactive years.
I also had a personal approach last year regarding the best way to dispose of funds held on behalf of a club (Tawa) long-since defunct, putting them to good use without allowing them to be absorbed in the general funds of the federation. The outcome of this is that $3472 plus interest will be credited to the Chess Friends accounts on August 8.
This led to a thorough review of the available alternative courses of action -to revive the Foundation, or proceed with establishing a second trust.

2. The New Zealand Chess Foundation Trust

Review of the original trust deed revealed the following deficiencies and difficulties:
I. Decisions of the three trustees were required to be unanimous.
2. The three trustees were each appointed for a three-year term, retiring in sequence. It was recommended, but not binding, that they reside in different provinces. Investigation has not revealed when the last appointments of trustees were made (relevant minutes are in the National Library). However, the annual report, minutes of meetings at the time of the changeover (end of 1984), and notes raising points for consideration by the Wellington executive do not mention the foundation. It appears that the foundation languished before that date and there is no record or recollection of its continued existence being drawn to the attention of the Wellington-based executive until March this year. No appointments or reappointments of trustees have been made for at least 13 years.
3. The trust deed states specifically that trustees shall vacate office at the expiry of three years after the date of election. There is no provision for trustees to remain in office if not re-elected or if successors are not appointed. There is provision for Council to fill casual vacancies, but failure to reappoint or non-appointment of new trustees is not listed among the circumstances causing a casual vacancy. Consequently, the powers of the trustees last appointed is unclear, and the present Council does not appear to have power to make appointments.
4. The trustees are required to hold one-tenth of income to provide for growth in the capital fund; the other nine-tenths is to be spent on furthering the game.
5. By the end of June the trustees are required to hand to the association (federation) for general purposes any unexpended income from the previous year.
The provisions of 4 and 5 are specific and inflexible. They have not been met, but in light of 3 above Council has taken no further action.
6. There is provision for the trustees to wind up the foundation and to dispose of assets at the direction of the federation (association). However, existing legislation limits those powers and the advice we have received is that to wind up the foundation would require application to the High Court, at considerable cost and delay.
7. There is no provision for consultation with and reporting to the federation.
8. There is no provision in the original trust deed for amendment of its provisions.

3. Summary

The foregoing is a brief account, in general terms, of a complex situation. Councillors have been kept in touch with developments by vernal reports, and this led to the disclosure in March that the foundation remains in existence. Councillors have not been concerned about investigating how and why the foundation was permitted to languish and why its continued existence was not drawn to the attention of Council over a prolonged period. Instead they have dealt with the matter - to determine the need to activate an independent funding channel which could attract financial support and sponsorship, for chess development and funding special events such as Olympiad participation; and what steps should be taken to meet this need. The central conclusions which have been reached are:
I. An ongoing channel of funding, including a capital sum, and independent of general funds of the federation, is required. The need is urgent, because of the 1998 Olympiad.
2. The Chess Foundation is not suitable to meet the present requirements; some of the provisions of the trust deed are too inflexible and there are significant omissions.
3. Chess Friends of New Zealand is in existence, informally, and the name suits the purpose.

4. Chess Friends of New Zealand Trust

The outcome of all this was that, with the consent of Council, my lawyer drew up a trust deed for Chess Friends of New Zealand Trust. The draft was examined by Richard Sutton and by and large suggestions which he has made have been incorporated in the final draft.
Key points are:
• The purpose of the trust is to promote the development and playing of chess, including chess education.
• There shall be three trustees, appointed for three-year terms, one retiring each year.
• NZCF Council to appoint initial members, NZCF annual meeting to make subsequent appointments. Initial members to be Ted Frost (to end of 1997), Richard Sutton (to end of 1998) and a third appointment (to end of 1999) on nomination of Auckland clubs.
• Trust to control investment and disbursement of funds in pursuit of the trust's charitable purposes.
• Trust board to meet as and when it determines, majority to form a quorum, decisions by consensus and if consensus not achieved by majority vote. Audio, visual or electronic communication can be used for meetings.
• Trust to report regularly on activities to NZCF, with annual report to AGM.
• The board is to consult with the federation on the policies it proposes to carry out, but remains responsible for carrying out the terms of the trust and is not subject to direction from the federation.
• The board can delegate its powers.
• The board may alter the trust deed, but alterations must be confirmed by resolution of NZCF Council, shall not detract from the charitable nature of the trust, and must be approved in writing by the Department of Inland Revenue.
• If the trust is wound up, assets shall be given to a charitable organisation as decided by NZCF.
Application has been made to the Commissioner of Inland Revenue for trust income to be tax-free, also for the trust to be defined as a charitable trust with donations tax-free. Response to these applications is awaited. Completion of the legal processes and registration of the trust awaits the response of the Commissioner of Inland Revenue and appointment by Council of the third member of the trust.
Council has decided that in view of the difficulties involved in winding up the Foundation, that it remain in existence but will receive no extra funds. Funds due to the federation from the foundation will be deposited in the new trust. Council has been advised that the funds due include nine-tenths of the income of the foundation from the time expenditure of nine- tenths of the income ceased, including subsequent interest on the amounts due from the time they became due.
The next annual meeting of NZCF will be asked to appoint the same trustees, for the same terms, for the Chess Foundation as for the Chess Friends Trust.
Council has also stipulated that for the first two years after the Chess Friends trust is set up there be no disbursements except for income or donations made to the trust for a specific purpose such as helping to fund the 1998 Olympiad.

5. Further action

While the formal establishment of the Chess Friends Trust awaits decision on tax-free status by the Department of Inland Revenue, effective action to raise funds for the 1998 Olympiad needs to be initiated without delay. Trustees will not need to be involved in direct fund-raising (which is the responsibility of the chess community at large, including Council and the clubs), and it is proposed:
That a brochure setting out the purposes of the Trust be prepared, including some background on the support earlier received from the Hillary Commission and the reasons why that ceased; the case for recognition of chess as a sport including the FIDE negotiations with the IOC; the general benefits of chess; the extent of chess-playing in New Zealand and particularly in the schools. This brochure to be an introduction to an ongoing campaign and invite contributions to either the general purposes of the Trust or to the 1998 Olympiad (but not designed at this stage to attract major sponsorship). The brochure to be simple but elegant, and be widely distributed among businesses, schools and potential individual supporters.
That clubs be asked to undertake activities which will raise funds for the trust and/or the Olympiad and at the same time publicise and promote chess generally. Alan Aldridge has prepared a position paper on this and the promotions and publicity committee will be considering various possibilities in preparation for discussion at the next Council meeting in mid-August.