|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
Last Updated: 10 August 2018
|
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
|
|
CIV-2017-404-424
[2018] NZHC 1884 |
|
BETWEEN
|
DEIDRE ANN LITTLE
First Plaintiff
JOHN LAWSON LITTLE
Second Plaintiff
|
|
AND
|
HOWICK TRUSTEE DL LTD AS
TRUSTEE OF THE WOODSIDE TRUST
Defendant
|
|
Hearing:
|
9, 10, 11 and 12 April 2018
|
|
Appearances:
|
First Plaintiff in person
P J Dale for Second Plaintiff (watching brief only) Z A Matheson for
Defendant
|
|
Judgment:
|
27 July 2018
|
|
Reissued:
|
31 July 2018
|
JUDGMENT OF BREWER J
This judgment was delivered by me on 27 July 2018 at 4:30 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Neilsons Lawyers (Onehunga) for Second Plaintiff Claymore Partners Ltd (Auckland) for Defendant
LITTLE v HOWICK TRUSTEE DL LTD AS TRUSTEE OF THE WOODSIDE TRUST [2018] NZHC 1884 [27
July 2018]
Introduction
[1] Mr and Mrs Little established Woodside Trust (“the Trust”) in 2002, shortly after their marriage. They were the trustees when they separated in 2013. At that time, in their capacities as trustees, they owned or controlled three major assets:
(a) A residential property at 7 Woodside Crescent, St Heliers, Auckland. This was used as the family home;
(b) A commercial property in Marua Road, Ellerslie, Auckland;
(c) A company, Prince & Princess Ltd (“PPL”), which imported and sold children’s products.
[2] The beneficiaries of the Trust are Mr Little and Mrs Little, and their teenage son, Oscar. Mr and Mrs Little are discretionary beneficiaries. Oscar is also a discretionary beneficiary and he is currently the sole final beneficiary.
[3] Mr and Mrs Little are bitterly estranged. They have been unable to work together or even to co-operate where reasonable co-operation would have been in their interests and those of Oscar. As I will come to, this bitter estrangement provides the hostile animus for Mrs Little to bring this wholly unnecessary proceeding.
[4] In 2014, Mrs Little applied to have Mr Little removed as a trustee of the Trust. Instead, Peters J removed both Mr Little and Mrs Little.1 In their place, Peters J appointed the defendant, Howick Trustee DL Ltd, as sole trustee. The sole director and shareholder of the defendant is Mr Hussey and for convenience I will refer to him as the trustee of the Trust.
[5] Mr Hussey had a difficult task. I accept the following description as accurate:2
(a) The trust was financially distressed: two properties (including 7 Woodside Crescent) were in arrears on their mortgages. There was an extensive history of missed mortgage payments and Westpac wanted the properties sold or refinanced with another bank.
1 Little v Little [2014] NZHC 3159.
2 Defendant’s list of issues, dated 9 April 2018.
(b) The relationship between Mr Little and Mrs Little was highly acrimonious. Mrs Little made serious accusations against Mr Little in respect of his actions while he was a trustee and urged the trustee to issue court proceedings against Mr Little and/or make deductions from Mr Little’s entitlements in Mrs Little’s favour. Mr Little would not be on the business premises at the same time as Mrs Little... He also objected to Mrs Little and Oscar living in the trust’s major asset, the property at 7 Woodside Crescent, St Heliers, without paying rent to the trust.
(c) No historical accounting had ever been undertaken for Woodside and accounting for transactions between (sic) was not reconciled and often treated differently, meaning the allegations made by Mrs Little could not easily be addressed.
(d) Despite their extensive disagreement about property matters, neither Mrs Little nor Mr Little had instigated any form of proceeding to resolve their relationship property issues. Instead, both parties, particularly Mrs Little, have required the trustee to resolve these issues.
(e) Given the trust’s dysfunction, Mr Hussey considered that his overall objective was to distribute or resettle the trust assets to enable there to be a financial separation between Mrs Little and Mr Little. Despite his best efforts to achieve this fairly and cost effectively, this has proved to be an almost impossible task.
[6] In pursuit of his goal to distribute or resettle the Trust’s assets, Mr Hussey sponsored a formal mediation between Mr Little and Mrs Little conducted by the Hon Rodney Hansen QC. It took place in November 2015 and resulted in a signed settlement agreement. Mr Hussey thought he could then achieve his goal expeditiously. He was soon to be disillusioned.
[7] By the time of the mediation:
(a) The Trustee had sold the commercial property in Marua Road.
(b) The Trustee, after difficult negotiations with both Mrs Little and Mr Little, had agreed to sell the assets of PPL to Mr Little.
(c) Mrs Little had issued proceedings against the Trustee protesting the sale of PPL.
(d) The Trustee had applied to the Court for directions.
[8] The settlement agreement, dated 3 November 2015, provided relevantly as follows:
(a) Regarding the sale of PPL to Mr Little:
(b) Regarding the sale of 7 Woodside Crescent:
(a) That the Trustee shall make any and all decisions in respect of repairs and maintenance to be undertaken before, after or during the sales process and the means of meeting the costs of such works.
(b) That the Trustee shall in its sole and unfettered discretion determine the sale price of the property.
(c) That the Trustee shall in its sole and unfettered discretion determine the mode of sale, whether by way of auction, tender or a private treaty or otherwise.
(d) That the Trustee shall in its sole and unfettered discretion determine who will be commissioned to sell the property.
(e) That the Trustee shall in its sole and unfettered discretion determine how the property is to be marketed.
(a) [Mrs Little] will make the property available for open homes on at least two occasions per week between the hours of 10 am and 4 pm and on such days that the Trustee in his sole discretion shall determine.
(b) [Mrs Little] shall allow potential purchasers access to the property for the purpose of inspection of the property provided that she is given at least 24 hours’ notice of such inspection.
(c) If the Trustee determines that vacant possession is required to achieve the best possible sale of the property it will give [Mrs Little] fourteen (14) days (sic) written notice, on receipt of which [Mrs Little] will immediately vacate the property and leave it in a good and tidy condition.
(a) $465,000 will be paid to the trustees of the Deidre Dickason Family Trust on account of the funds owing to it pursuant to a deed of acknowledgement of debt dated 8 October 2004;
(b) Loan to [Mr Little] or his nominee of $465,000. If the loan is made to a nominee, [Mr Little] agrees to personally guarantee that loan.
[9] On 2 January 2016, the Trustee entered into an agreement to sell the Woodside Crescent property. Following settlement of the sale on 29 April 2016, the Trustee applied sale proceeds in accordance with the settlement agreement.
[10] In March 2017, Mrs Little, acting for herself, began the current proceeding.3 Initially, Mrs Little sought an order for interim relief relying on s 68 of the Trustee Act 1956. On 22 January 2018, following case management hearings, Mrs Little filed a statement of claim, relevant parts of which read:
(i) failed to manage the trust efficiently;
(ii) failed to keep accounts and provide information to the beneficiaries upon request;
(iii) failed to act personally;
(iv) failed to consider the beneficiaries and act in the beneficiaries’ best interests.
(a) The High Court’s inherent jurisdiction to supervise the operation of a trust.
(b) Re CP Clifton Children’s Trust Auckland CIV-2004-404- 4185, 5 November 2004; Chapman v Chapman [1954] UKHL 1; [1954] AC 429; Rajabali Jumabhoy and Others v Ameerali R Jumabhoy and Others [1998] 2 SLR 439.
(c) S. 13C of the Trustee Act.
(d) S. 13F of the Trustee Act.
(e) S. 13M of the Trustee Act.
(f) S. 40 of the Trustee Act.
(g) S. 51 of the Trustee Act.
(h) S. 68 of the Trustee Act.
(i) The Attorney-General of New Zealand v Ngati Karewa and Ngati Tahinga Trust; McKinnon v Ngati Karewa and Ngati Tahinga Trust (2001) 1 NZTR 11-012; Clark v Ngati Karewa and Ngati Tahinga Trust CA; Kain v Hutton (2002) 1 NZTR 12-004 (CA) 112/04, 14 September 2004; Jaspers v Greenwood [2012] NZHC 2422; (2012) 3 NZTR 22-028 (distd).
(j) S. 126 Companies Act.
(k) S. 141 Companies Act.
(l) S. 149 Companies Act.
...
(a) Removal of the current trustee.
(b) Appointment/replacement by the Court of a new and independent trustee.
(c) A full accounting of the current trustee’s management of the trust and its assets.
(d) Tracing and recovery of monies due and owing to the trust, not returned to it, in particular:
(i) the profits of the operation of PPL in year 2013-June 2017 (financial; periods March 2013-March 2018);
(ii) advances made to NZ Natural Therapy, Bella Charters, [Mr Little] (in respect of monies retained and/or banked off-shore).
(e) To have the sale of the company PPL to [Mr Little] suspended, and a new sale process commenced.
(f) Recovery from the current trustee of any monies expended in breach of his trustee duties.
(g) Such other relief as is deemed appropriate by the Court.
[11] Mrs Little does not accept that the settlement agreement constrains her in any respect.
Jurisdiction and standing
[12] Mr Hussey’s position is that Mrs Little has no standing to bring her claim because she is a discretionary beneficiary. She has no beneficial interest in the assets of the Trust. Moreover, as a party to the settlement agreement, Mrs Little is estopped from bringing any issue before the Court which has been settled by the agreement. Nevertheless, Mr Hussey gave evidence and responded to Mrs Little’s criticisms because he wants to advance his counterclaim for directions and he saw the criticisms as relevant to the Court’s evaluation of the directions sought. Mr Hussey is also aware of the Court’s inherent jurisdiction to supervise the operation of a trust and felt it better for the issues to be aired rather than to seek to strike out the proceeding. I acquiesced.
[13] Mrs Little is not a lawyer and, therefore, her statement of claim is clear as to what she wants but unclear as to the Court’s jurisdiction to grant it. The sections of the Trustee Act 1956 (“the Act”) cited by Mrs Little which are of direct relevance to the relief she seeks are s 51 (which gives the Court powers to remove trustees and to appoint trustees) and s 68 (which empowers the Court to review the acts and decisions of trustees). I shall first consider whether Mrs Little can invoke the latter.
Does Mrs Little have standing to bring an application under s 68 of the Act?
[14] Section 68 provides, relevantly:
(1) Any person who is beneficially interested in any trust property, and who is aggrieved by any act or omission or decision of a trustee in the exercise of any power conferred by this Act, or who has reasonable grounds to anticipate any such act or omission or decision of a trustee by which he will be aggrieved, may apply to the court to review the act or omission or decision or to give directions in respect of the anticipated act or omission or decision; and the court may require the trustee to appear before it, and to substantiate and uphold the grounds of the act or omission or decision that is being reviewed, and may make such order in the premises as the circumstances of the case may require: provided that no such order shall—
(a) disturb any distribution of the trust property made without breach of trust before the trustee became aware of the making of the application to the court:
(b) affect any right acquired by any person in good faith and for valuable consideration.
...
(Emphasis added)
[15] Mrs Little is a discretionary beneficiary. The issue is whether a discretionary beneficiary is “beneficially interested in any trust property”. This has never been fully determined by the Courts. However, I consider the bulk of authority and commentary is to the effect that discretionary beneficiaries may not bring an application under s 68.
[16] The extent of a discretionary beneficiary’s interest in trust property was discussed by the Lord Wilberforce in Gartside v Inland Revenue:4
No doubt in a certain sense a beneficiary under a discretionary trust has an ‘interest’: the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion ‘fairly’ or ‘reasonably’ or ‘properly’ that indicates clearly enough that some objective consideration (not stated explicitly in the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes.
4 Gartside v Inland Revenue Commissioners [1981] AC 753 (HL) at 134.
[17] In Hunt v Muollo, the Court of Appeal took a more restrictive approach, noting:5
[11] It is generally regarded as settled law that a discretionary beneficiary’s interest in a normal discretionary trust is no more than a mere expectancy. It is simply an expectation or hope (in Latin a spes) that the trustee’s discretion may be exercised in the beneficiary’s favour... The position, as stated, is supported by high authority... An ordinary discretionary beneficiary has no interest, legal or equitable, in the assets of the trust... It is only on the making of a distribution to the discretionary beneficiary that the beneficiary obtains any interest in property, and then only to the extent of the distribution.
(Citations omitted)
[18] The Supreme Court echoed these comments in Kain v Hutton, noting that “a discretionary beneficiary has nothing more than a mere expectancy”.6
[19] It is important to draw a distinction between the interest held by a discretionary beneficiary and a contingent or vested interest. That was made clear by the Court of Appeal in Johns v Johns:7
[49] The proper interpretation of the expression “future interest” for the purposes of the proviso must recognise the vital importance of the context, as Millett LJ emphasised in Armitage v Nurse. In the present context, and for the reasons discussed, a future interest is simply an interest of which the beneficiary may enjoy possession as of right at a future time. The limitation period for suing in respect of damage caused to such an interest by a breach of trust does not start running vis-à-vis the beneficiary in question, until, and in the case of contingent interests, the contingency upon which possession depends is fulfilled. If it is not fulfilled that beneficiary’s interest will have suffered no actual harm from the breach of trust, because the beneficiary never enjoys it in possession. The crucial difference between contingent and vested interests on the one hand and discretionary interests on the other is that possession of the former interests, if enjoyed at all, is enjoyed as of right; whereas discretionary interests are never enjoyed as of right; their enjoyment is always subject to the discretion of the trustees.
[20] For the abovementioned reasons, the learned authors of Garrow and Kelly Law of Trust and Trustees express doubt as to whether a discretionary beneficiary can be said to be “beneficially interested” in trust property for the purposes of s 68:8
5 Hunt v Muollo [2003] NZCA 66; [2003] 2 NZLR 322 (CA).
6 Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589 at [25].
7 Johns v Johns [2004] NZCA 42; [2004] 3 NZLR 202 (CA).
Application under s 68 is available to anyone ‘who is beneficially interested in any trust property’. It seems that a person with contingent or vested interests (whether indefeasible or subject to divestment) would be considered ‘beneficially interested’. The wording of the actual document may be important. It is doubtful whether someone with only a discretionary interest
– which is no more than an expectancy or a hope – will be beneficially interested.
(Citations omitted)
[21] Similar doubt is expressed by CEF Rickett:9
A problem not discussed in any detail in any of the decisions is as to the status of the applicant. Section 68 requires a person to be “beneficially interested in any trust property”. In their book Discretionary Trusts (2nd ed, 1984) Hardingham and Baxt point out (at 117) that “beneficiaries” of discretionary trusts are arguably excluded since they do not have a beneficial interest “in trust property”. Their comment, whilst part of a discussion of the Western Australian provision which, as already indicated, reads somewhat differently, is applicable, it is submitted, even to the more flexibly worded New Zealand provision because of the need for an applicant to be “beneficially interested”. No object of a discretionary trust is beneficially interested unless a power of appointment is exercised in her favour.
[22] Garrow and Kelly cites as authority the obiter comments of Kós J in Jaspers v Greenwood:10
[18] Section 68 enables review of trustees’ actions (or anticipated actions) only where those actions involve the exercise of a power conferred by a provision of the Act. Where the relevant power derives from the trust deed, s 68 does not apply. Where the source of the trustee powers is concurrent as between Act and deed, s 68 will still apply.
...
[21] Section 68 is an exceptional statutory mechanism enabling challenge to trustee decisions... Section 68 is also limited: only beneficiaries interested in the trust property may apply. It therefore excludes discretionary beneficiaries, who enjoy a mere expectation only.
[23] This case is to be contrasted with the approach taken by van Bohemen J in Clement v Lucas.11 The plaintiff in that case, a discretionary beneficiary, filed a statement of claim seeking orders pursuant to s 68. Justice van Bohemen considered that the Court had jurisdiction to make orders under this section.12
10 Jaspers v Greenwood [2012] NZHC 2422, (2012) 3 NZTR 22-028.
11 Clement v Lucas [2017] NZHC 3278.
12 At [68].
[24] However, van Bohemen J did not directly address the question as to whether the discretionary beneficiary had a sufficient beneficial interest in the Trust property for the purposes of s 68. I consider there are other factors in Clement v Lucas that could be operative:
(a) The discretionary beneficiary was also a final beneficiary under the trust deed;
(b) The discretionary beneficiary was one of three named beneficiaries; and
(c) Although cl 11 of the trust deed provided the trustees with absolute and unfettered discretion, cl 7 required that earlier distributions to beneficiaries be taken into account when deciding a beneficiary’s share on the vesting day.
[25] I do not take it that Clement v Lucas is authority for the proposition that discretionary beneficiaries are entitled to make s 68 applications. In any event, it does not appear as if the point was considered in any depth, or at all, in that case.
[26] The application of s 68 was considered by the Law Commission in a recent report on trust law in New Zealand.13 The Commission broadly agreed with Kelly and Garrow, noting that it has been suggested that s 68 is not open to discretionary beneficiaries:
At present the court has jurisdiction to review a decision of a trustee under section 68 only where an applicant has a beneficial interest in the trust fund. The specific wording in the section is “any person who is beneficially interested in any trust property”. Some commentators and judges have suggested that it is arguable that discretionary beneficiaries cannot apply under the section, while others have considered that it is likely that a person with contingent or vested interests, whether indefeasible or subject to divestment, would be considered “beneficially interested”.
13 Law Commission Review of the Law of Trusts (NZLC R130, 2013) at 11.17.
[27] The Law Commission went on to recommend that the section be clarified and widened so as to include discretionary beneficiaries.14 In this regard, I note the following proposed section of the Trusts Bill currently before Parliament:
118 Court may review trustee’s act, omission, or decision
(1) The court may review the act, omission, or decision (including a proposed act, omission, or decision) of a trustee on the ground that the act, omission, or decision was not or is not reasonably open to the trustee in the circumstances.
(2) The court may undertake a review on the application only of a beneficiary.
[28] Beneficiary is defined as including a discretionary beneficiary.15
[29] It appears that provision, if it comes into law, will remove any ambiguity. However, for the purposes of the law today, I consider that discretionary beneficiaries are excluded from making applications. A mere expectancy cannot be said to amount to a beneficial interest. As has been made clear, the interest held by a discretionary beneficiary does not crystallise into a right to trust property until and unless the trustee’s discretion is exercised in the beneficiary’s favour. This may never happen. In circumstances where the fruition of a beneficiary’s interest in trust property depends entirely on the unfettered discretion of the trustee, I do not think the beneficiary can be said to be beneficially interested in the said property for the purposes of s 68.
[30] This conclusion does not deprive discretionary beneficiaries of redress in the face of an unreasonable exercise of trustee discretion. It is material to note that, in certain circumstances, discretionary beneficiaries may compel proper administration of a trust by engaging the Court’s supervisory jurisdiction.16 Established grounds for intervention are when the trustee exercises their discretion in bad faith or ultra vires.17
[31] This existing avenue of redress is a factor which I consider goes towards the barring of discretionary beneficiaries from s 68. In the face of truly egregious trustee
14 At 11.18.
15 Section 9.
16 Jaspers v Greenwood at [17].
decision-making, a deserving beneficiary will not be left without a remedy, regardless of the nature of their interest in the trust. This is an appropriately high threshold given the slight nature of a discretionary beneficiary’s interest in trust property. It is nothing more than a spes. To allow discretionary beneficiaries access to the Court’s protection in the form of a s 68 review would be essentially to upgrade the nature of their interest in the trust property. If the Trusts Bill is passed in its current form, this may in fact be how Parliament intends future cases to be addressed. However, I do not consider that s 68, as it stands, can support such an interpretation. Expanding the natural definition of a “beneficial interest” to include a mere expectancy would do violence to the statutory language. For the abovementioned reasons, I do not consider that s 68 is open to discretionary beneficiaries.
[32] Then there is the proviso to s 68. Mrs Little’s complaints against Mr Hussey go to the decisions he made to sell trust property and to make distributions. Mr Hussey has sold the Trust’s three main assets, including the PPL business. Section 68 cannot operate to enable Mrs Little to challenge Mr Hussey’s decisions regarding the sale of the assets now.18 An order made under s 68 must not disturb the distribution of trust property where that distribution was made “without breach of trust before the trustee became aware of the making of the application to the court” and further must not “affect any right acquired by any person in good faith and for valuable consideration”. The assets were sold in the exercise of Mr Hussey’s discretion before this proceeding was brought by Mrs Little. They were sold for valuable consideration and acquired in good faith. It follows, therefore, that Mr Hussey’s decisions to sell the assets are beyond the ambit of a potential s 68 application.
[33] I turn now to consider the effect of the settlement agreement on Mrs Little’s claims. First, it was intended by the parties to be binding. It binds Mrs Little and Mr Hussey was entitled to act upon it so long as in doing so he did not breach the terms of his trust.
[34] As to the sale of PPL to Mr Little, I accept the evidence of Mr Hussey that Mrs Little’s reservation “of all rights she may have in relation to the sale of the
18 See for example O’Regan v Public Trust [2016] NZHC 2084 at [51].
business of [PPL] to [Mr Little]” was intended to mean that Mrs Little could seek preferential distribution of trust assets from Mr Hussey to compensate for any demonstrated advantage Mr Little might have obtained from his purchase of PPL. The alternative construction – that Mrs Little was simply agreeing to discontinue the breach of trust proceeding she had commenced but was free to recommence it at any time – does not make sense.
[35] Mrs Little did discontinue the proceeding. That meant she accepted there was “full and final settlement of all issues relating to [Mrs Little’s] allegation of breach of trust against the Trustee in relation to the sale of the business of [PPL]”.
[36] Mrs Little had the right to attempt to persuade Mr Hussey that the inequalities of which she complains mean that she, and/or Oscar, should receive further distribution. But, she is estopped from pursuing Mr Hussey for alleged breaches of trust in relation to the sale of PPL occurring before 3 November 2015.
[37] The elements of modern estoppel were set out by the Court of Appeal in Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd:19
In brief, it must be shown that:
(a) a belief or expectation by [party A] has been created or encouraged by words or conduct by [party B];
(b) to the extent an express representation is relied upon, it is clearly and unequivocally expressed;
(c) [Party A] reasonably relied to its detriment on the representation; and
(d) it would be unconscionable for [party B] to depart from the belief or expectation.
[38] I consider that all of these elements are satisfied. Mr Hussey reasonably relied on Mrs Little’s express representation as set out in the settlement agreement. And he did so to his detriment; Mr Hussey now faces the demands of answering the current proceeding which is concerned in part with his decision to sell PPL. It follows that it would now be unconscionable for Mrs Little to attempt to recommence proceedings
against Mr Hussey. As to the sale of 7 Woodside Crescent, Mrs Little cannot pursue Mr Hussey for completing its sale and distributing the proceeds in accordance with the agreement.
[39] I conclude that Mrs Little cannot use s 68 to found her claim, and that in any event the settlement agreement is binding on her.
Should Mr Hussey be removed as Trustee?
[40] Mrs Little applies to replace Mr Hussey as a trustee under s 51 of the Act. However, s 67(1) provides:
67 Persons entitled to apply to court
(1) An order under this Act for the appointment of a new trustee or concerning any property subject to a trust may be made on the application of any person beneficially interested in the property... or on the application of any person duly appointed trustee thereof or intended to be so appointed.
[41] A person bringing an application under s 51 therefore needs to have a beneficial interest in the relevant trust property.20 I have already found that Mrs Little, as a discretionary beneficiary, has no such interest. This bars her from s 51.
[42] However, the Court has inherent jurisdiction to remove a trustee if the welfare of the beneficiaries and the trust property requires it.21 This jurisdiction is ancillary to the Court’s principal duty to see that a trust is properly executed:22
The principle to be applied in a proceeding is laid down by their Lordships of the Privy Council in Letterstedt v Broers. It is said that the jurisdiction is merely ancillary to the principal duty of the Court to see that the trusts are properly executed, and that, therefore... if satisfied that the continuance of the trustees would prevent the trusts being properly executed, the trustees may be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.
20 See Paleae v Paleae [2017] NZHC 2007 at [21].
21 Wallace v Naknok [2012] NZHC 382, (2012) 3 NZTR 22-005 at [7].
[43] The main guide is the welfare of the beneficiaries.23 Breaches of the trust or incompatibility with beneficiaries are not grounds for removal in and of themselves.
As the Court of Appeal commented in Kain v Hutton:24
[267] Merely showing breaches of trust would not necessarily be sufficient to justify removal of the trustees. This would depend on the gravity and nature of the breaches and the particular circumstances of the trust and the trustees, including the level of culpability of the trustees... To allow trustees to be removed for relatively inconsequential mistakes would be to usurp the settlor’s wishes in entrusting the assets to the trustees. In the same way, mere incompatibility between trustees and beneficiaries is not enough... Any incompatibility must be at such a level that the proper administration of the trust is seriously adversely affected and it has become difficult for a trustee to act in the interests of the beneficiary...
[44] I accept Mr Hussey’s submissions:
30. The trustee’s removal would not be expedient; only Mrs Little seeks his removal (sic) the administration of the trust is almost complete, all of the assets have been realised, the complex matters raised by Mrs Little have been considered by the trustee who has reached a view as to how the trust assets should (sic) distributed and Mrs Little and Mr Little have each had appropriate opportunity to express their views on the issues. The trustee’s removal and replacement with a new trustee would only result in Mrs Little seeking to persuade the new trustee of her views, requiring all matters to be considered again and increasing the cost burden to the trust and its beneficiaries.
[45] There is no reason to remove Mr Hussey as trustee and I decline to do so.
Are the references to the Companies Act provisions relevant to Mrs Little’s claims?
[46] Mrs Little, in her statement of claim, relies on ss 126, 141 and 149 of the Companies Act 1993. The first defines the meaning of “director”, the second provides some ability to avoid transactions in which a director is interested, and the third prescribes restrictions on share dealings by directors. None has any relevance to this proceeding.
23 Wallace v Naknok at [8].
24 Kain v Hutton [2007] NZCA 199, [2007] 3 NZLR 349.
[47] As Ms Matheson points out, PPL is not a party to this proceeding, nor is the company that acquired the business of PPL. Further, it was the business assets of PPL which were sold, not its shares.
What about the inherent jurisdiction of the Court?
[48] The inherent jurisdiction of the Court to supervise the administration of a trust is a wide one. But, it does not mean that a beneficiary can use the Court to review decisions of a trustee because the beneficiary does not like them. As I have said, there is a high threshold and the Court will intervene to compel proper administration where it is necessary. If it can be shown that a trustee has exercised his or her discretion in bad faith or ultra vires their discretion, then it will be appropriate for the Court to intervene.
[49] The bases upon which a Court may intervene in the exercise of trustee discretion were summarised in Wrightson Ltd v Fletcher Challenge Nominees Ltd:25
(a) Bad faith or improper motive;
(b) Misinterpretation of the trust deed;
(c) Taking into account irrelevant considerations or failing to consider relevant considerations; or
(d) Reaching a decision that is perverse or capricious.
[50] Justice Fisher went on to say the fourth ground was analogous to unreasonableness in the administrative law context, and that a trustee’s decision “which can fairly be said to be beyond the bounds of reason” or a decision that “no reasonable trustee could rationally have made in all the circumstances” could be impugned.26
25 Wrightson Ltd v Fletcher Challenge Nominees Ltd at 41-42.
26 At 42-43.
[51] However, in Gailey v Gordon, O’Regan J cast doubt on whether a trustee’s decision can be reviewed for its reasonableness:
[89] That approach involves some relaxation of the normal reluctance of the Courts to intervene, except where a decision has been exercised in bad faith or is ultra vires. Bad faith in this context has been recognised as including a decision for an ulterior motive, taking into account of irrelevant considerations and acting capriciously. However, the potential for the Court to intervene in the exercise of discretion by Trustees where the discretion has been exercised unreasonably involves some extension of the Court’s supervisory role. In the absence of any Court of Appeal authority mandating that approach, I prefer the limited approach which recognises the traditional reluctance of the Courts to intervene in the exercise of a discretion by Trustees unless it is in bad faith (as broadly defined above), or ultra vires.
[52] In Masters v Stewart, Mander J noted that the differing approaches to reasonableness may be immaterial:27
[32] Insofar as New Zealand authority is concerned, the trustees acknowledge that unreasonableness in the sense that no reasonable trustee could rationally have made the decision in all the circumstances was little, if any, different from the requirement that a trustee act rationally and in good faith; an observation which, in my view, has some merit.
[53] I respectfully agree with Mander J’s analysis. In any case, I do not find that Mr Hussey’s decision-making could be said to be unreasonable in any sense of the word. Nor can it be impugned for being done in bad faith or ultra vires.
[54] I have listened to Mrs Little’s criticisms of the decisions Mr Hussey has made in the administration of the Trust. My conclusion is that Mr Hussey has been aware of his duties and his powers as a trustee, both generally and under the Deed of Trust, and has done his best to exercise them thoroughly. If anything, Mr Hussey has acted too thoroughly given the total of his fees when compared to the value of the assets of the Trust. I add, a large amount of the work done by Mr Hussey was compelled by the many complaints Mrs Little brought in respect of the conduct of Mr Little, which Mr Hussey had to resolve. In making this comment, I do not intend to cast Mrs Little in a bad light while impliedly casting Mr Little in a good light. Mr Hussey found some of Mrs Little’s criticisms to be well founded and made adjustments accordingly.
27 Masters v Stewart [2014] NZHC 2419, (2014) 3 NZTR 24-017.
[55] Mr Hussey has provided six comprehensive reports on his administration of the Trust. The first three were written in the first three months of his trusteeship. They are relatively brief and summarised his role and his understanding of the issues to be resolved between the parties. He then requested further information.
[56] The fourth report was issued on 4 September 2015. It contains more than 70 pages and sets out all the issues raised by Mrs Little and gives his provisional position in relation to each. Mr Hussey invited Mrs Little and Mr Little to respond to each other’s views. It was after this that the mediation occurred and the settlement agreement was signed in November 2015.
[57] When it became clear that Mrs Little had not accepted the resolutions set out in the settlement agreement, Mr Hussey provided, on 24 March 2017, his fifth report. This runs to some 500 pages and addresses at length the numerous issues which had been raised. Mr Hussey’s sixth report, dated 27 February 2018, is an accounting update.
[58] These reports make clear the thorough and conscientious way Mr Hussey has approached his role as trustee. It has been very expensive for the Trust (although I acknowledge that Mr Hussey has discounted some of his fees), but that is the result of the behaviour of Mr and Mrs Little.
Decision
[59] On Mrs Little’s claims, I have decided:
(a) Mr Hussey should not be replaced as Trustee. There is no ground for doing so and it would clearly be against the interests of the Trust.
(b) Section 68 of the Trustee Act does not give Mrs Little standing to cause the Court to review the decisions taken by Mr Hussey in the administration of the Trust. In any event, Mrs Little is estopped by the terms of the settlement agreement from re-opening the matters settled by the agreement.
(c) The provisions of the Companies Act 1993 cited by Mrs Little have no application to the current case.
(d) Mrs Little has not established a dereliction on the part of Mr Hussey which would invoke the inherent supervisory jurisdiction of the Court. In my view, Mr Hussey has acted appropriately and with great thoroughness in carrying out his duties as trustee of the Trust.
[60] It follows that I dismiss Mrs Little’s claims. I have not found it necessary to address any of the particular complaints made by Mrs Little. There is no point given the wider jurisdictional decisions I have reached. I became familiar with the detail of Mrs Little’s complaints through the days of the hearing, and I have subsequently gone through the evidential materials. I was not seeking to ascertain whether Mrs Little’s arguments might have been adopted by Mr Hussey, but instead to ascertain whether Mr Hussey’s responses to or dealings with Mrs Little’s arguments were within the bounds of his discretions as a trustee. In each case, I found they were.
[61] Mr Hussey’s powers as the Trustee start with the Deed of Trust. They include:
6.1 The Trustees may in their absolute and uncontrolled discretion at any time or times before the Date of Distribution pay or apply for the maintenance, education, advancement, well being or benefit in any way of any one or more of the Beneficiaries (to the exclusion of the other or others):
...
9.1 The Trustees may, at any time:
Beneficiary without being liable to see to its application.
9.2 A Beneficiary to whom an appropriation of income under clause 7, or capital under clause 9, has been made takes an absolute and indefeasible interest in that capital or income at the date of such appropriation.
[62] The discretions given to Mr Hussey as the Trustee are very broad.
[63] I acknowledge Mrs Little feels deeply aggrieved. Her position was expressed to me candidly as follows:
I think it has been a very long road, a difficult and, how do I express this, there has been a lot of friction between Mr Little and myself in terms of the separation, so it’s been a very difficult separation and that we have gone down a path and I guess what‘ve been looking for is a fair and equitable outcome for our family from the start and that has been very difficult and then I have, and I have been, Mr Little appears to have been allowed to continue, well he seems to have continued to – his world has not changed, he’s flying around the world, I’m sitting where I’m finding it difficult to afford basic needs and from the pool of assets we had I’ve said that the whole way along, it’s criminal where we have ended up from the pool of assets we had if we could have worked through things amicably which was my intention at the start but it was clearly not Mr Little’s.
[64] I am aware that this Judgment will do nothing to address Mrs Little’s grievances. However, Mrs Little brought this proceeding without understanding her position as a discretionary beneficiary, that she was bound by the settlement agreement, and the role of the Court in supervising the exercise of unfettered trustee discretions.
The documents filed after the proceeding
[65] After evidence emerged in a related and subsequent proceeding, Mrs Little sought leave to file several bank statements in this proceeding pursuant to s 98 of the Evidence Act 2006. The bank statements were said to show:
(a) That Mr Little had misappropriated funds from trust assets; and
(b) That Mr Hussey had not complied with the judgment of Peters J, failing to resolve wrongfully removed funds and accounting for them to the Trust.
[66] Given my findings so far, I do not think the justice of the case warrants the admission of this evidence. I have found that Mr Hussey has acted within the bounds of his discretion throughout his tenure as Trustee. The evidence Mrs Little has sought to have admitted does nothing to alter that finding. I, therefore, refuse to admit the evidence in this proceeding.
The counterclaim for directions
[67] Mr Hussey seeks directions pursuant to s 66(1) of the Trustee Act as to how costs should be apportioned between Mr and Mrs Little and how the remaining capital of the Trust should be distributed to its beneficiaries.
[68] The directions sought are:
(a) Whether to apportion specific costs between the first and second plaintiffs as proposed and set out in Report 5 (which will be updated prior to the hearing to account for the transactions that have occurred since that report was delivered).
(b) How to distribute the remaining Trust capital and, in particular, whether the proposed distribution makes adequate provision for the needs and interests of the final beneficiary, Oscar Little.
[69] The scope of s 66 was more recently considered by the Court of Appeal in
Chambers v SR Hamilton Corporate Trustee Ltd:28
[32] There has been some difference between High Court decisions as to the type of issue that is suited to a s 66 application. It has been stated in some decisions that the jurisdiction should not be used to determine substantive issues, but rather is reserved for points of minor importance. If that was so, this application should not have been entertained as the issue is undoubtedly of substantial importance. However, we agree with the observation of Kós J in New Zealand Māori Council v Foulkes that there is nothing to indicate that this was the intention behind the section. Section 66 was an enactment of the broad Equitable jurisdiction that had long resided in the Chancery Courts. 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.
28 Chambers v SR Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882.
[33] The key issue in this case is whether the Trustees’ application for directions involved a surrender of their discretion to the Court. Mr Gudsell argued that an explicit surrender of discretion was required. It has been suggested that Marley stands for the proposition that upon applying for directions trustees necessarily surrender their discretion to the court. If that were so, this appeal could not succeed. We question whether Marley stands for that proposition, and we would not go that far. Trustees do not necessarily surrender their discretion to the court simply by seeking directions for orders that they act in a certain way. They are entitled to come to court on the limited basis of seeking particular directions. Nevertheless it is clear that trustees may come into a court and say that they are in doubt as to how they ought to exercise their discretion, and surrender their discretion.
[34] Applications under s 66 will not usually be appropriate where important facts are contested. This application was for directions on a substantive issue that was in dispute (what the Trustees should do in relation to the property), but which in the end did not involve any significant disputes of fact...
[70] Chambers, therefore, stands for the proposition that s 66 is not confined to matters of minor importance. It could, however, be argued that the Court of Appeal’s citation of Marley endorsed a requirement that the trustee making the application be “in genuine doubt” about the propriety of any proposed course of action.
[71] That argument was rejected by Fitzgerald J in Re PV Trust Services Ltd.29 Her reasoning is thorough and well-considered. I am content to adopt it as my own.
[72] Justice Fitzgerald began by outlining four categories of cases in which the Chancery Division of the English High Court will give directions to trustees. She paid particular attention to the so-called “second category” which I consider is of relevance to Mr Hussey’s application. That category was described by Robert Walker J as follows:30
The second category is where the issue is whether the proposed course of action is a proper exercise of the trustees’ powers where there is no real doubt as to the nature of the trustees’ powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers... In such circumstances there is no doubt at all as to the extent of the trustees’ powers nor is there any doubt as to what the trustees want to do but they think it prudent, and the court will give them their costs of doing so, to obtain the court’s blessing on a
29 Re PV Trust Services Ltd [2017] NZHC 2957.
momentous decision. In a case like that, there is no question of surrender of discretion...
[73] Justice Fitzgerald noted that the four categories have not been expressly adopted in New Zealand. She did, however, observe that the Court of Appeal in Chambers set out the four categories when summarising counsels’ submissions and further that given the key issue in that case was whether the trustees’ application involved a surrender of discretion, it was unnecessary for the Court to consider or adopt them.31 Justice Fitzgerald concluded the point as follows:
[47] If s 66 of the Trustee Act is an enactment of the Chancery Court’s “broad equitable jurisdiction”, and if category-two applications are regularly decided by English High Court’s Chancery division, I see no reason why there should be a threshold requiring trustees to be in “genuine doubt” before applying to the High Court under s 66. For the reasons set out above, I do not read the Court of Appeal’s decision in Chambers as standing for such a proposition, despite its reference to Marley.
[54] ... I am of the view that the jurisdiction conferred by s 66 can extend to the category-two type directions described by Robert Walker J and Hart J in Public Trustee v Cooper. Moreover, having given specific consideration to New Zealand’s unique trusts landscape, I am of the view that, so long as appropriate procedural safeguards are put in place to minimise potential prejudice to beneficiaries, such a jurisdiction could indeed be useful in the New Zealand context.
(Citations omitted)
[74] I consider the directions sought by Mr Hussey fall squarely within category two. Under the Deed of Trust, he has unfettered discretion to apportion costs and distribute capital. All he is seeking is confirmation of an exercise of this discretion. Being the only trustee, he is clearly resolved in what he has proposed. It is apparent that what he is asking this Court to do is “bless” an action that is within his powers as trustee. I consider this Court may hear applications for directions of this type under s 66. It is no bar that Mr Hussey is not in genuine doubt as to whether he can take the course of action he proposes.
[75] The next matter is the directions themselves. Obviously, the Court will not bless any proposed exercise of trustee power simply because it appears to be within
31 At [45].
the trustee’s discretion. Justice Fitzgerald summarised the relevant principles to the granting of a s 66 direction in these circumstances:
[55] The proper approach to applications such as the present one has been well-canvassed in English and other overseas decisions. Given the potential for disadvantages to beneficiaries resulting from “blessing” orders if improperly made, it is paramount that applicant trustees provide the court with all relevant facts, documents and information when making an application. Further, it is imperative that when considering such an application, a judge only make the orders sought after “scrupulous consideration” of the evidence. The court will not rubber stamp such applications, and if the court is left in doubt, then it may withhold its approval.
[56] Hart J in Public Trustee v Cooper stated that, when considering an application for blessing orders, the court should consider the following matters:
(a) First, has the trustee in fact formed the opinion which the court is asked to bless?
(b) Second, is the opinion formed one at which a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the trust deed, could properly have arrived?
(c) Third, is the opinion vitiated by any conflict of interest under which any of the trustees might have been labouring?
[76] I will adopt these principles in assessing whether to grant Mr Hussey’s application.
[77] Mr Hussey has incorporated into his proposed distribution of trust capital the allocation of all costs incurred from the operation of and dispute over the trust up to 31 March 2018. However, additional costs were expected to, and did, arise after that date in relation to this proceeding. As at 12 April 2018 these were:
(a) Pre-trial trustee costs of $20,000 owed to Hussey & Co;
(b) Pre-trial legal costs of $17,876.18 owed to Ms Matheson; and
(c) Any additional costs of the hearing.32
[78] In terms of how these costs should be allocated, Mr Hussey proposes the following:
As I explained at paragraph 17 of my letter of 14 February 2018, given that [Mr Little] is not bringing any claims, I consider it would be inappropriate for him to bear the costs of the trustee needing to defend [Mrs Little’s] action. That can only be achieved if the costs being incurred, which are very significant, are treated as being for [Mrs Little’s] account. I therefore put [Mrs Little] on notice that this is my intention, albeit that the final decision will need to wait for the outcome of the hearing.
[79] The hearing has now been determined, and not in Mrs Little’s favour. Mr Hussey has made no indication he will waver from his stated intention. It is clear Mr Hussey has the discretion to apportion costs to the beneficiaries of the trust under the Deed of Trust. He may do so by adjusting the income or capital distributions, which he makes in his unfettered discretion, accordingly.
[80] I consider Mr Hussey’s proposed allocation of costs is an appropriate exercise of his discretion as trustee. Costs of $37,876.18 plus whatever amount the trust incurred defending the hearing are to be allocated to Mrs Little.
[81] Mr Hussey proposes that the trust’s remaining capital should be distributed, with the totals to be updated taking into account costs which have arisen since the submission was drafted, as follows:
The Mrs Little/Oscar trust
(i) The trustee is to resettle $503,000 upon the trustees of a trust to be nominated by Mrs Little, of which she is a discretionary beneficiary, and Oscar Little is a final beneficiary, with that $503,000 comprised of all amounts owed by/to Mrs Little and the entities associated with her totalling $226,000... and by making payment of $277,000 such that the combined total is $503,000 (but to be reduced to take into account the transactions since 31 January 2018) and any orders that the Court makes in respect of costs.
The Mr Little/Oscar Trust
(ii) The trustee is to resettle $503,000 upon the trustees of a trust to be nominated by Mr Little and of which he is a discretionary beneficiary, and Oscar Little is a final beneficiary, with that $503,000 comprised of the trustee assigning to that Trust:
(i) All amounts owed by Newurbanites Limited (circa
$380,000);
(ii) That trust takes over responsibility for the post-separation interest payments owed to Mr Little of $62,000 which is owed by Woodside;
(iii) That trust takes over any responsibility to pay Mr Little the
$450,100 owed to him which is explained in Report 5, (a claim for which the trustee is considered time barred);
(iv) That trust takes over any further amounts owed by Mr Little/owed to Mr Little or entities associated with him as set out in Mr Hussey’s reports;
(v) Payment in the amount of $63,000 such that the combined total of all amounts is $503,000 (but to be reduced to take into account the transactions since 31 January 2018) and any orders that the Court makes in respect of costs.
[82] I consider this to be an appropriate exercise of Mr Hussey’s discretion. The distribution of capital or income to new trusts for the benefit of the existing beneficiaries is contemplated by the Deed of Trust:
11 RESETTLEMENT OF TRUST
11.1 The Trustees have power to declare by way of resettlement such trusts (together with any conditions, limitations and provisions to be carried out before the Date of Distribution at the discretion of the Trustees or any other person or persons) for the advance or benefit of any one or more of the Beneficiaries (to the exclusion of the other or others). This power relates to the whole or any part of the income or capital of the Trust Fund that has not then been appropriated under the provisions of this deed to any Beneficiary. The trustees of the trust fund of such new trusts may be out of the jurisdiction of the New Zealand courts.
[83] Mr Hussey also raises the matter of a request made by Mrs Little for an advance of funds from the Trust in anticipation of a forthcoming distribution. I am uncertain if any advance has been made. If it were, that would of course need to come out of Mrs Little’s portion of the distribution.
[84] I direct, pursuant to s 66 that the Trustee is to settle the following on trustees of a trust to be nominated by Mrs Little, of which she is a discretionary beneficiary, and Oscar Little is a final beneficiary: $503,000, less:
(a) Legal and trustee costs of $37,876.18 as well as the amount the Trust incurred defending the hearing;
(b) Any advance made to Mrs Little by the Trust since 31 January 2018.
(c) The further costs of any transaction incurred by the Trust since 31 January 2018, the burden of which is to be shared with the trust to be nominated by Mr Little and of which he is a discretionary beneficiary, and Oscar Little is a final beneficiary, as Mr Hussey sees fit.
[85] I direct pursuant to s 66 that the Trust is to settle the following on the trustees of a trust to be nominated by Mr Little and of which he is a discretionary beneficiary, and Oscar Little is a final beneficiary: $503,000, less:
(a) The further costs of any transaction incurred by the Trust since 31 January 2018, the burden of which is to be shared with the trust to be nominated by Mrs Little and of which he is a discretionary beneficiary, and Oscar Little is a final beneficiary, as Mr Hussey sees fit.
Costs
[86] I will need to make further orders regarding the costs of this proceeding, particularly as regards Mr Little’s position. Memoranda are to be filed no later than 31 August 2018.
Brewer J
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2018/1884.html