Imms v Gunson HC Auckland CIV 2003-404-545 [2005] NZHC 1246; [2005] NZFLR 596 cite: (2005) 24 FRNZ 290 (11 March 2005)

Last Updated: 4 June 2020

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2003-404-545

UNDER The Family Protection Act 1955


BETWEEN JOCELYN MARY IMMS
Plaintiff

AND CRAIG WESLEY GUNSON AND JOCELYN MARY IMMS AS TRUSTEES OF THE ESTATE OF VJERKOSLAV IVAN BANICEVICH
Defendant

CIV 2003-404-913

AND IN THE MATTER OF an Application under the Trustee Act
1956, ss 64 and 66

AND IN THE MATTER OF the estate of Vjerkoslav Ivan
Banicevich

	BETWEEN	CRAIG WESLEY GUNSON AND JOCELYN MARY IMMS AS TRUSTEES IN THE ABOVE ESTATE OF VJERKOSLAV IVAN BANICEVICH
		Applicant
	AND	JOCELYN MARY IMMS, YVETTE BANICEVICH AND DONNA DOE First Respondent
	AND	CAMERON BANICEVICH AND DENE BANICEVICH Second Respondent
Hearing:	14-15 February 2005

Appearances: A G Stuart for Jocelyn Imms in her personal capacity H T D Knight for Trustees
P J Shamy for Yvette Banicevich and Donna Doe
M C Black for Susan, Cameron and Dene Banicevich Judgment: 11 March 2005

JUDGMENT OF SIMON FRANCE J

IMMS V GUNSON & IMMS IN THE ESTATE OF BANICEVICH HC AK CIV 2003-404-545 [11 March 2005]

This judgment was delivered by Justice Simon France on 11 March 2005 at

10.00 am pursuant to r540(4) of the High Court Rules 1985.

Contents

Paragraph

Introduction [1]

Fuller facts [7]

The will [11]

The subdivision [12]

Family Protection Act 1955 claim

(a) The application [22]
(b) The will and estate [32]

• (c) Extrinsic evidence [37]

(d) Discussion [40]

Trustee Act application [51]

(a) Mr Pegg’s evidence [55]

(b) Is the proviso to s 64(1) available? [57]

(c) The position of the ‘B’ shareholders [67]

(d) The merits of the application [71] Conclusion [86]

Introduction

[1] Vjerkoslav Ivan Banicevich died on 16 January 1999. He and his wife, Mary, had four children – Lloyd, Jocelyn, Yvette and Donna.

[2] Mr Banicevich was a farmer. During his lifetime, he had transferred his farm to a company – Sail Point Farms Limited (SPF). Although originally all shares in the company carried equal rights, a few years after its establishment the company resolved to create two classes of shares – 100 ‘A’ shares which carried all the voting rights, and 11,900 ‘B’ shares. A recent valuation noted there were now 211,900 ‘B’ shares, and still the 100 ‘A’ shares.

[3] At the time of his death, Mr Banicevich owned all the ‘A’ shares, and one- third of the ‘B’ shares. His son’s widow, Susan Banicevich, owned one-third of the ‘B’ shares, and his son’s estate owned the other third. The fact that two-thirds of the ‘B’ shares were owned by his deceased son’s family reflected Mr Banicevich’s wish to pass the farm down his male line.

[4] The general scheme of his will was:

1. To leave his estate equally to his three daughters;

2. To give his son’s sons the first option to purchase his shares in the farm company at a fair market value. The proceeds of the sale would, as noted, go to his daughters. If his grandsons did not exercise the option, their siblings were given the option, and thereafter Mr Banicevich’s own three daughters were given the option;

100. To give his three daughters a life interest in, and access to, two existing baches on the farm property. The farm has a sea frontage and it was there that the baches were situated;

4. To give his son’s widow the right to occupy the main homestead on the farm rent free for her lifetime, and to have reasonable free access to farm produce.

[5] The proceedings involve two applications concerning the estate:

1. a Family Protection Act 1955 application by Jocelyn Imms. Initially this application sought to challenge the ranking under which the option to purchase Mr Banicevich’s shares in the farm was to be offered. Mrs Imms claimed that the failure to give her first option was a breach of her father’s moral obligation to her. By the time of the hearing this part of the application was not pursued. There accordingly remained a limited application concerning the lifetime interest in the baches. Mrs Imms claimed that her father ought to have given her, and her sisters, the right to seek a subdivision of the relevant area rather than just a life interest;

2. a Trustee Act application, made under ss 64 and 66 of the Trustee Act 1956, for directions concerning the validity of various parts of the will, and for directions allowing the trustees to seek a subdivision of the area where the baches were situated.

[6] Concerning the request for directions as to the validity of the will, by the end of the hearing all parties recorded their acceptance of the validity of the will in its entirety. Accordingly, I do not need to further consider these parts of the trustees’ application. I record, however, that I consider the position reached by the parties to have been the correct one. Read as a whole there is in my view no doubt at all as to the meaning and intent of the will; any claims to technical flaws in the structure of the will were properly abandoned at the hearing.

Fuller facts

[7] Mr Banicevich and his wife, Mary, had four children: Lloyd, Jocelyn, Yvette and Donna. The four children all grew up on the farm and participated in farm life in a manner no doubt familiar to all those who have similarly grown up on a farm. Donna was married on the farm. The farm was acquired by Mr Banicevich’s father in 1941. It has a coastal frontage, and there are situated on it two baches. The baches were originally owned by close friends of the family. Donna describes herself and her sister being taken fishing by these family friends when the friends were staying in the baches. She describes herself and her sister, Yvette, as feeling a connection to the sea through these experiences. She indicates that eventually the family friends gave the baches to her father. More generally, she speaks of the close attachment all the family feel to the land.

[8] In 1971 Mr Banicevich transferred the then farm property to a company formed for that purpose. The farm at that stage consisted of two properties with a third property being added in 1979. Lloyd worked on the farm from a young age and left school to work full-time on it. It is common ground that it was always Mr Banicevich’s intention that Lloyd would eventually have the farm. When the farm was transferred to the company, the initial arrangement was that Mr Banicevich and his wife, Mary, had one-third of the shares, and Lloyd had two-thirds. In 1984, Lloyd transferred half of his shares to his wife, Susan, pursuant to a Matrimonial Property Agreement. Lloyd was killed in a tractor accident on the farm in 1990. By that time, he was running the farm on a day to day basis and had been for some time. However, Mr Banicevich remained in control, and held all 100 of the ‘A’ voting shares.

[9] As they had become adults the three daughters had left the family property. Jocelyn and her husband were share milking in the Waikato at the time of Lloyd’s death. About a year after the death, Jocelyn and her husband returned to the farm as sharemilkers and to assist her parents. That has remained the position until the present. Susan continued to live on the farm until early 2002.

[10] There was much evidence filed, particularly by Jocelyn and Susan, concerning their respective contributions to the farm, and the benefits the other had
allegedly obtained. The late withdrawal by Mrs Imms of her Family Protection Act 1955 claim concerning the option to buy Mr Banicevich’s interest in the farm has made it unnecessary to traverse that evidence in any detail, or to attempt any resolution of the conflicts. The reality is no doubt the obvious one that both parties have contributed significantly and both have benefited.

The will

[11] Mr Banicevich’s will was made in October 1998, about three months before his death. The judgment earlier sets out the general structure of the will. Because there is no longer any challenge made to its validity, it is not necessary to set out the precise terms of the will.

The subdivision

[12] The trustees took a neutral position on the will issues, but did advocate for authority to seek a subdivision. It is necessary to traverse the history of this matter.

[13] As noted, the will leaves a life interest in the two existing baches, together with access rights, to the three daughters. The evidence is unclear as to the date when the idea first emerged, but at some stage the proposition developed that instead of the life interest, a subdivision should occur that gave each of the daughters a freehold title by the water.

[14] The trustees initially proposed quite a substantial subdivision of four lots totalling about 4 hectares. I understand from the first affidavit of Mr Gunson (the trustee) that the four lots were to be one each for the daughters and one for Lloyd’s family. The proposal was opposed by Susan Banicevich (who in her own right, and as trustee of her husband’s estate, owns two-thirds of the company’s ‘B’ shares) and by her sons, Dene and Cameron, who under the will own the first right to buy Mr Banicevich’s shares in the company.
[15] Reports were obtained by the various parties concerning the impact that the proposal would have on the farming operation. Susan Banicevich instructed a registered valuer, A C Nichols, to provide a report. This report advises that the subdivision would have a major disruption to the layout of the farm, and in particular would cause extreme inconvenience to the cowshed yard. Concern was expressed over what esplanade requirements might be imposed by the District Council, and the possibility was raised of future conflicts between the occupants of the subdivided properties and the farmers, concerning noise, odour, spraying, and other activities associated with a working farm. Mr Nichols’ report concluded the subdivision was unwise.

[16] Two of the three beneficiaries, sisters Yvette Banicevich and Donna Doe, commissioned a report from Gavin Thomas who is also a registered valuer. He had the benefit of having Mr Nichol’s report, and accordingly his report was more of a commentary on that. In Mr Thomas’s view, the disruption and inconvenience would be significantly less than that identified by Mr Nichols. He had less concerns about the future problems that would arise from what he accepted were non-compatible adjoining land uses.

[17] Subsequent to these reports, a much more modest subdivision proposal has been developed. It is this proposal which the trustees will lodge with the District Council if permission is given. The new proposal consists of three lots (one for each daughter) of a significantly reduced size. The exact figures are not available but a fair comparison with the existing land occupied by the life interest baches is that the subdivisions will take an extra 1100m², plus a 20m esplanade reserve strip, plus a sealed road behind the baches across the width of the three sections. It is obviously a vastly different proposition to the subdivision proposal which was the subject of the two reports by valuers.

[18] Concerning the new subdivision proposal, the sum total of the evidence provided by the parties concerning its impact on the farm is as follows:

1. Mr Nichols, in a brief report dated 4 August 2004, observes that:

The subdivision as per Plan B has less impact on the farming operation than the initial subdivision as per plan A.

2. Mr Thomas, in an affidavit dated 26 August 2004, observes that:

I concur with his [Mr Nichols] comments that a subdivision based on Plan B has less impact on the farming operation.

[19] Mrs Imms, in her second affidavit, states that the revised subdivision proposal was conceived to meet the objections to the original plan raised in Mr Nichol’s report. She notes that the family has allowed public access to the beach for as long as it has been adjacent to the farm, and such access has never been a problem.

[20] At the time Mrs Susan Banicevich swore her affidavit, the revised plan was in circulation. This is apparent from the timing of the affidavit of Mr Nichols, which is sworn on the same day as that of Mrs Banicevich’s affidavit and which refers to the revised plan. Despite the fact that the subdivision in issue has radically altered, Mrs Banicevich’s evidence is still directed to the original plan. Cameron and Dene Banicevich also swore affidavits on the same day. It is not possible to work out which plan Cameron is referring to since he does not comment in any detail on the subdivision proposal. Dene’s evidence endorses Mr Nichol’s report, from which it must be inferred that he is also referring to the original plan. Both grandsons refer to the concern they have about Jocelyn Imms owning a freehold residential property within the farm given the strained relations that have arisen. Concerning that point, neither comment on the fact that under the undisputed will Mrs Imms already has a life interest in essentially the same area.

[21] Against this background I turn to each of the applications.

Family Protection Act 1955 claim

(a) The application

[22] On 5 August 2002, Mrs Imms applied for leave to bring the proceedings out of time. The application noted that the estate had not been finally distributed, that the
delay was excusable and would not prejudice any person, and that in all the circumstances it was just to extend the time.

[23] The accompanying statement of claim included the following:

8. THE deceased failed to make adequate provision in his will for the plaintiff from his estate for her proper maintenance and support having regard to the size of the estate, other calls on the deceased’s bounty, the station in life of the plaintiff, and assistance given to the deceased.

9. PARTICULARS of the deceased’s default on which the plaintiff relies include (but are not confined to):

1. the grant by the deceased of an option to purchase the shares in SAIL POINT FARMS LIMITED (“the company”) to the sons of LLOYD EDWARD BANICEVICH rather than to the plaintiff, constitutes a breach by the deceased of his moral duty to the plaintiff.

2. the failure to include as a condition of the exercise of the option that the company carries out a subdivision of the farm property so as to be able to transfer a bach to each of the deceased’s surviving children.

WHEREFORE THE PLAINTIFF CLAIMS:

(a) That such further provision as the Court thinks fit be made out of the estate of the deceased for the proper maintenance and support of the plaintiff.

(b) Such further or other relief as the Court consider just.

(c) Costs.

[24] Probate of Mr Banicevich’s will was issued on 5 February 1999. That meant that, by virtue of s 9(1) of the Family Protection Act 1955, Mrs Imms’ application was required to be filed by 5 February 2000. It was accordingly two years six months out of time.

[25] When looking to the reasons for the delay, it is important to bear in mind the scope of the application at the time it was made. The two particulars which were referred to were:

1. a challenge to granting the first option to buying the testator’s shares in the farm to the grandsons;
2. a challenge to the sufficiency of a life interest in the baches.

[26] It is apparent from the supporting material filed by Mrs Imms, and from the material filed in opposition, that the challenge to the option was the primary focus. Indeed, in her evidence, Mrs Imms did not include any comment at all in support of the second particular, yet at the hearing this was her only claim. Mrs Imms instead relied upon an affidavit filed by her sister, Donna Doe.

[27] It is appropriate to also note at this point that para 9(b) of the statement of claim includes the proposition that each of the sisters should have been the beneficiary of a subdivision proposal so that a bach each could be transferred to them. (There are, however, only two baches and three sisters.) Counsel for the other sisters did not reply expressly upon s 4(2) of the Act which allows a Court to treat a Family Protection Act claim as being made ‘on behalf of all persons who might apply’. The formal position of the two non-claimant sisters was to not oppose the application. The sisters were, of course, aware that the trustees were at the same time seeking authority to subdivide land for the benefit of all three beneficiaries.

[28] In support of an extension of time in which to apply, Mrs Imms pointed to the fact that the grandsons could not exercise the option until 20 July 2003, some eleven months after the filing of her application. She testified to a lack of clarity over what was happening to the farm and some uncertainty as to the validity of the will. There had been settlement negotiations in June which had not produced an outcome, and she was until recently unclear if the grandsons would exercise the option. I note that Susan, Cameron and Dene Banicevich all consider that it was always known that the boys were to have, and would have, the farm.

[29] In Re Magson [1983] NZLR 592, 598, the Court of Appeal identified several factors as relevant to the exercise of discretion – the length of delay, the reasons for delay and whether it was excusable; the strength of the claim and the prejudicial effect on beneficiaries who may have ordered their lives in expectation that the terms and effect of the will would remain unchanged. The authorities also suggest that most critical factors are whether the delay is excusable and the impact on beneficiaries.
[30] A feature of this case is the changed nature of the application. The application had much more significance when it included the challenge to the option. As it currently stands my assessment of the factors is that:

- the delay is of sufficient duration to make it necessary to carefully assess the impact of giving leave;

- there is no prejudice;

- as will be seen, the claim lacks strength;

- the excuse for delay primarily relates to perceived uncertainty over the likely actions of the grandsons as option holders. I can see little reason why the claim concerning the baches could not have been made earlier. However, it is artificial to separate this aspect of the disagreement between the parties from the broader context of negotiations over the farm. I would describe the length of delay unnecessary rather than inexcusable.

[31] On balance, but placing most weight on the lack of prejudice to anyone, leave to apply out of time is granted. Accordingly, the merits require to be addressed.

(b) The will and estate

[32] The will provided that Jocelyn Imms was to receive all furniture and articles of domestic household use, and all the testator’s clothing, jewellery and other articles of personal use or ornament. Without creating a trust, the will requested Jocelyn to distribute the articles in accordance with any list or wishes the testator may have expressed.

[33] The will further provided that Jocelyn was to receive the proceeds of any insurance policies which the testator owned. There was one policy worth $10,253 which was distributed to Jocelyn Imms. Mrs Imms also deposed that the personal effects had been distributed by her according to the will, but no information was
provided as to what this involved, or the relative breakdown between beneficiaries and family members.

[34] The principal asset of the estate is the shareholding in ‘SPF Limited’. The value of these shares was independently valued at no less than $1.176 million. The estate also had cash and outstanding loans to the value of between $110,000 and
$140,000. The uncertainty lies in a dispute as to whether a sum of money was a loan or a gift by the testator. By the end of the hearing, I was advised this was no longer in issue so I do not comment further on it.

[35] It is important to emphasise the overall symmetry of the will. Mr Banicevich had three daughters and a son. It was always his intention that the son would take over the farm. However, Lloyd was killed in a farming accident on the property. Against this background, the will provided that:

1. Lloyd’s sons were given the option to buy his interest in the farm at a fair market value. In relation to the requirement that the grandsons buy the shares at market value, it is important to note that Lloyd had during his lifetime been the beneficiary of estate planning;

2. Lloyd’s widow was provided for in terms of lifetime occupation of the homestead and free access to farm produce;

100. Mr Banicevich’s daughters were provided for in that the estate was split equally between them. Further, the daughters were given a lifetime access to the baches on the farm, thereby maintaining their connection with it.

[36] In summary, as regards Mrs Imms, the claimant, she has received the personal effects, the insurance policy, a life interest in the baches, and an equal share of the residue with her sisters. She is accordingly already the most favoured beneficiary. It should be noted in fairness that her claim was intended to further benefit herself and her sisters equally. It was not intended to benefit her at their expense.

(c) Extrinsic evidence

[37] It is also important at this point to discuss the evidence of Mr Pegg, who was Mr Banicevich’s solicitor and who took the instructions for the will. It is Mr Pegg’s evidence which really explains what underlies the remaining Family Protection Act claim.

[38] Mr Pegg deposes that Mr Banicevich came to see him in September 1998. He was upset by a suggestion emanating from a family accountant, who was at that point a trustee under the existing will, that Mr Banicevich should be transferring his shares in the company to his grandsons. Rightly or wrongly, Mr Banicevich seemingly saw it as an attempt to take control of the farm from him. He therefore wished to amend his will to remove the trustee. Drafts were prepared and further discussions occurred between Mr Pegg and Mr Banicevich. These led to further minor amendments in the way the residue was to be distributed, and in the life interest in the homestead for Mrs Susan Banicevich. The detail of these changes is not relevant.

[39] Mr Pegg says that there was then a further meeting in October. He does not have a note of it but recalls that Mr Banicevich wanted there to be provision for each of his daughters to have a beach section. Mr Pegg explains that he told Mr Banicevich that that would mean a subdivision, that it would be necessary to get Council consent and that there was no certainty that such consent would be forthcoming. He accordingly recommended a different means of implementing Mr Banicevich’s wishes, namely the life interest in the existing baches as appears in the will. In a subsequent affidavit filed in response to some of the other evidence filed in this proceeding by the interested parties, Mr Pegg deposes that it would be incorrect to say that Mr Banicevich rejected the idea of a subdivision. Rather, the will reflected Mr Pegg’s advice that the life interest would be the best way to implement his wishes. The evidence of Mr Pegg concludes:

It was his [Mr Banicevich] definite desire that each of his daughters should receive a bach or section on Clark’s Bay.

(d) Discussion

[40] Mr Pegg’s evidence makes plain the context in which Mrs Imms brings her remaining Family Protection Act 1955 claim. It was submitted on her behalf there was a breach of moral duty by the testator because:

1. A life interest inadequately reflects the connection of the daughters to the land and their desire to be able to pass that connection on to their own family;

2. The testator himself recognised the existence of this duty when he instructed his solicitor that he wanted his daughters each to have a bach.

[41] Section 4(1) of the Act provides:

4 Claims against estate of deceased person for maintenance

(1) If any person (referred to in this Act as the deceased) dies, whether testate or intestate, and in terms of his or her will or as a result of his or her intestacy adequate provision is not available from his or her estate for the proper maintenance and support of the persons by whom or on whose behalf application may be made under this Act, the Court may, at its discretion on application so made, order that any provision the Court thinks fit be made out of the deceased’s estate for all or any of those persons.

[42] I raised with Mr Stuart the concern that I felt from a precedent viewpoint. Most farmers’ children would undoubtedly feel a connection with the land on which they grew up. It seemed a wide ranging proposition to say it gave rise to a moral duty to provide for ongoing contact not only for the farmer’s own children, but also to ensure the ability of those children to pass that on to future generations. Mr Stuart fairly responded by indicating that whatever generally might be the case, this particular testator recognised that his daughters should have that interest.

[43] I am satisfied that this claim fails by a considerable margin. On a broad overview, it cannot possibly be said that Mr Banicevich failed in any duty to anyone. Mr Knight, for the trustees, took an appropriately neutral role on this application, but in the course of general discussion of the will (its validity at one point seeming to be in dispute), he described Mr Banicevich as a ‘sensitive testator’. I agree with, and adopt, that apt description.
[44] The fair balance of the will is apparent. The interests of all the testator’s family are carefully considered. The daughters receive both the entire value of the estate (less whatever impact the occupancy of the homestead might have), plus access to the baches that formed part of their upbringing. His deceased son’s family are provided for in a manner which also reflects the estate planning that occurred before his death.

[45] The effect of the present claim is to say that a life interest is insufficient and that there was a moral duty on Mr Banicevich to put his adult child in a position whereby she could pass on her attachment to the family land to future generations. I do not consider that there is an evidential basis to support this claimed obligation.

[46] Concerning the applicant’s connection to the land, it has to be noted that Mrs Imms did not address this at all in her evidence. The focus of her evidence was on her commitment and contribution to the farm property. As noted, this was to support the abandoned claim to the option to buy the farm shares. Whilst there was a somewhat belated attempt to rely on her sister’s evidence, that evidence was expressly submitted on behalf of Yvette and Donna. I do not consider that Mrs Imms has put before the Court anything that could allow me to find the test under s 4 of the Act made out.

[47] Concerning Mr Banicevich’s stated intention to give each of his daughters a section, there is a considerable distinction between, on the one hand, a testator’s assessment of how he or she would like to distribute the estate, and, on the other, the existence in law of a moral duty to distribute it in that way. The latter is a much more demanding test.

[48] In his text, Law of Family Protection and Testamentary Promises (3^rd ed, 2004), Patterson devotes a chapter to what he sees as the fluctuating fortunes of adult child applicants. There is considerable discussion as to whether Williams v Aucutt [2000] NZCA 289; [2000] 2 NZLR 479 recognised the concept of ‘support’ in s 4(1) of the Act as a separate basis for a claim. The learned author perceives a trend towards that, and cautions in favour of retaining a composite approach to the expression ‘proper maintenance and support’. However, he notes that a support claim can be considered
in isolation when the claim is not based on financial need, present or contingent. That is the situation here, with the claim being based solely on an emotional, or spiritual, familial connection with the land.

[49] In his submissions, Mr Stuart referred me to the following passage from Williams v Aucutt [2000] NZCA 289; [2000] 2 NZLR 479, 492, with particular emphasis on the highlighted passage:

... for reasons which will be apparent from the earlier discussion we reject the argument that the Court must expressly find a need for proper maintenance and support. The test is whether adequate provision has been made for the proper maintenance and support of the claimant. Support is an additional and wider term than maintenance. In using the composite expression, and requiring “proper” maintenance and support, the legislation recognises that a broader approach is required and the authorities referred to establish that moral and ethical considerations are to be taken into account in determining the scope of the duty. Support is used in its wider dictionary sense of “sustaining, providing comfort”. A child’s path through life is supported not simply by financial provision to meet economic needs and contingencies but also by recognition of belonging to the family and of having been an important part of the overall life of the deceased. Just what provision will constitute proper support in this latter respect is a matter of judgment in all the circumstances of the particular case. It may take the form of lifetime gifts or a bequest of family possession precious to its members and often part of the family history. And where there is no economic need it may also be met by a legacy of a moderate amount.

[50] As indicated earlier, I am satisfied that this claim is sufficiently lacking in merit to make it inappropriate to embark upon any consideration of the extent to which it could fall within the Williams v Aucutt approach. Reference could also be made to Auckland City Mission v Brown [2002] NZCA 33; [2002] 2 NZLR 650 and the commentary on these two cases by Sutton and Peart in Testamentary Claims by Adult Children – the Agony of the Wise and Just Testator [2003] OtaLawRw 6; (2003) 10(3) Otago LR 385. I recognise that each Family Protection Act claim is to be considered on its own facts, but the present claim seems to me to be a quantum leap for which I can see little support in the authorities. Much more evidence and authority is needed to establish that it is appropriate to regard a life interest in the land for his three daughters as being inadequate under the ‘support’ limb of s 4(1). The simple fact is that Mrs Imms’ connection with the family property and the coastline has been recognised in a substantial way by Mr Banicevich, and this recognition is in addition to both an
equal share in the residue and an extra grant by way of the insurance policy. The claim fails.

Trustee Act application

[51] So far as is now in issue, the trustees make the following application:

An Order pursuant to Sections 64 and 66 of the Trustee Act 1956 for directions in respect of the following:

1. As to whether or not to subdivide the three beach front sections from the farm property situated at Clark’s Bay, Te Kopuru.

[52] Mr Knight, on behalf of the trustees, supported the application. The application was also supported by Mr Shamy, who appeared for two of the sisters, Yvette and Donna. On behalf of Mrs Imms, Mr Stuart supported the application but was content to rest with the submissions advanced by the other counsel. However, he did proffer an alternative route to the same outcome (via the Companies Act) to which I will return later.

[53] Mr Black appeared for the second respondents, namely Mr Banicevich’s grandsons, who are the option holders under the will. They have indicated an intention to exercise the option when it is offered to them by the trustees. There was some uncertainty as to whether Mr Black was also appearing for Mrs Susan Banicevich. However, at the end of the hearing, Mr Black accepted that he was. Certainly he had been up until that time and no contrary position had been advised to the Court or the other parties; nor did Mr Black indicate he had contrary instructions. Mrs Banicevich had been involved in the prior events in these proceedings.

[54] The subdivision proposal has been previously described. A number of issues were raised during the proceedings, which I note as follows:

1. By Mr Black as to whether regard could be had to the evidence of Mr Pegg, the solicitor who drafted the will;
2. By Mr Black as to whether the proviso to s 64(1) Trustees Act could be relied upon. In order to be available, the proviso requires that all persons who are or may be interested in the proceedings are either parties to the proceedings, or are represented, or consent. Mr Black pointed to the absence of the company, SPF Limited, in its own right.

100. By Mr Black as to the capacity of the trustees to apply for a subdivision when Mr Banicevich’s estate owned only one-third of the ‘B’ Shares in the company; and in reply by Mr Stuart as to whether the matters raised by the grandsons were properly to be considered under the Trustee Act application. His proposition, as I understood it, was that there were matters that should be raised under the Companies Act against Mrs Imms in her capacity as director;

4. By all parties in favour or against the merits of the proposal.

(a) Mr Pegg’s evidence

[55] It will be recalled that Mr Pegg deposes as to what his instructions were from the testator, and what transpired between them as to the life interest in the baches. Mr Black objects to the admissibility of this evidence. He argued that the same limits that apply to the construction of a will also apply to the exercise of powers under s 64(1) of the Trustee Act 1956. The authorities to which he referred me seemed more apposite to the former context.

[56] I am satisfied the evidence is admissible. First, it is relevant to the application. Second, in my view, it is oral hearsay admissible pursuant to s 7 of the Evidence Amendment Act (No. 2) 1980. (Some might argue it is state of mind evidence and admissible in its own right on that basis.) Third, the argument seems to me to involve a confusion as to the purpose of the evidence. The evidence is not directed to whether there is a contrary intention in the deed. It is directed to the statutory concepts in s 64(1) of ‘expedient’, and ‘impracticable’ and to the broadly worded powers regarding when the proviso to s 64(1) is applicable. When evidence
is submitted in relation to these latter powers and concepts, its admissibility is governed by the ordinary rules.

(b) Is the proviso to s 64(1) of the Trustee Act applicable?

[57] Section 64(1) of the Trustee Act 1956 provides:

64. Power of Court to authorise dealings with trust property and variation s of trust

(1) Subject to any contrary intention expressed in the instrument (if any) creating the trust, where in the opinion of the Court any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, retention, expenditure, or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the same without the assistance of the Court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the Court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the Court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income:

Provided that, notwithstanding anything to the contrary in the instrument (if any) creating the trust, the Court, in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent to the order, may make such an order and give such directions as it thinks fit to the trustee in respect of the exercise of any power conferred by the order. (My italics.)

[58] As is plain, the proviso allows a Court to make orders that are contrary to the express intention of the instrument in issue. If, however, the requirements as to representation are not met, the powers a Court has under s 64(1) are subject to any contrary intention expressed in the instrument.

[59] The parties to this proceeding took different approaches to this section. Mr Knight, for the trustees, was of the view that the subdivision proposal was contrary to an intention expressed in the will (namely the life interest) but that the representation conditions set out in the proviso were met. Mr Shamy agreed with the latter point, but also suggested the subdivision proposal was not a contrary intention as that term has been interpreted. Mr Black submitted that it was both a contrary
intention and that the representation conditions of the proviso were not met because the company was not represented in its own right.

[60] Concerning contrary intention, at first blush the granting of separate freehold sections to each of three sisters would seem contrary to a provision in the will which gives the same three sisters the use for their lifetime of two existing baches on part of the same land. The nature of the interest obtained by the beneficiaries is substantially different.

[61] Mr Shamy referred me to Re Murray’s Trust [1967] NZLR 341 where the term ‘contrary intention’ was interpreted by Woodhouse J to mean ‘unless expressly forbidden’. However, the expression also appears in s 2(4) of the Act and in that context was the subject of consideration by the Court of Appeal in Re Havill (deceased) [1968] NZLR 1116. In that case, North P reviewed Re Murray’s Trust, and the English authorities on which it was based. The learned President concluded that a ‘less positive’ meaning than ‘unless expressly prohibited’ was to be adopted. The correct approach was to assess whether (at p 1126):

On a fair reading of the instrument in question one can say that “such application would be inconsistent with the purport of the instrument”.

[62] The other two members of the Court agreed with North P concerning the approach to be taken to the term ‘contrary intention’, but differed on its application to the facts. Re Mavill (deceased) has been followed by Eichelbaum CJ and Panckhurst J in separate judgments in Re Nichols (High Court, Dunedin, M104/96 18 March 1999 and 23 June 2000).

[63] Adopting the test advanced by North P, I am satisfied that subdivision of three sections of land to create freehold titles is inconsistent with the intent of the will. Subdivision involves permanent alienation of the land from the farm title; it allows sale of the subdivided land to outside interests. It is a wholly different concept than a life interest in two existing dwellings.

[64] Accordingly, I agree with the trustees that it is to the proviso to s 64(1) to which one must turn in order for the Court to contemplate making the orders sought
by the trustees. The only issue in relation to the proviso is whether, as Mr Black alleges, it is necessary for the company to be separately represented. Mr Knight was firmly of the contrary view. He pointed out that ‘the company’ must be assessed in a realistic way. Control of the voting shares and therefore the company rests with the trustees, who also own one-third of the ‘B’ shares. The other ‘B’ shares are owned one-third by Mrs Susan Banicevich, who was represented by Mr Black, and one- third by her late husband’s estate. I was advised that there are two trustees to that estate of which Mrs Banicevich is one. The beneficiaries are Mrs Banicevich and her four children, two of whom were the second respondents to the application, the option holders under the will, and represented also by Mr Black. Mrs Imms, who was separately represented, is the sole director of the company.

[65] The trustees initial application for directions was filed on 4 April 2003, a Family Protection Act claim having been filed by Mrs Imms in August 2002. Directions for service were sought and made. There have since been protracted discussions and settlement negotiations. Nothing was placed before me to indicate that there was any view expressed during this period that separate representation was required for the company, this despite the fact that all persons interested in the company were aware of and involved in the proceedings.

[66] I am satisfied that there has been compliance with the representation requirements of the proviso to s 64(1) of the Trustee Act 1956. I note that in other cases where a representation deficiency has been identified, the approach has been to draft an agreement to place before the missing parties. Had there been any merit in the point, I would have adjourned the proceedings to allow separate representation for the company. Since the company is presently controlled by the trustees (one of whom is also the sole director), the point of that eluded me.

(c) The position of the ‘B’ shareholders

[67] Mr Black submitted that because two-thirds of the ‘B’ shareholders were opposed to the subdivision, it was not permissible for the trustees as holders of one- third of the shares to seek the subdivision. Mr Knight submitted in response that this argument ignored the ‘A’ shares which were the shares giving total control of the
company. Mr Stuart submitted that Mr Black’s proposition was contrary to the structure of the Companies Act. The director’s duties were to the company, not the shareholders. The company, through the director, could resolve to subdivide the property and any remedies for Mrs Susan Banicevich and her family must be sought under the Companies Act.

[68] The reality of the structure of the company is that the owner of the ‘A’ shares has total control of the company. The ‘B’ shareholders are in substance minority shareholders because those shares carry no voting rights at all. Mr Knight’s analysis is accepted, namely, that the trustees received the ‘A’ shares under the will on trust to exercise the powers given by the ‘A’ shares so as to give effect to Mr Banicevich’s last wishes. Because the steps proposed to be taken are not in accordance with the will but are, the trustees consider, in accordance with Mr Banicevich’s true intentions, directions from the Court as to how to exercise the ‘A’ shares voting powers are sought.

[69] Mr Black, at the end of the hearing, handed up various formal documents attaching to the company, but did not direct my attention to any particular aspect of them as being of relevance to his argument. I note that the ‘B’ shares do not confer any right to be present at a general meeting or even to be informed of the existence of the meeting, and they do not qualify any person to be a director.

[70] For the purposes of the application before the Court, I consider that the approach I should take is to note that the trustees own the ‘A’ shares, and to note that the way in which they seek to use those shares is not supported and indeed is actively opposed by two-thirds of the ‘B’ shareholders in the company. I do not see this opposition as formally preventing me from authorising the trustee to depart from the terms of their trust as established under the will in the manner they seek. Such approval, if given, will not prevent the ‘B’ shareholders from pursuing any Company Act remedies they might have. I do not go so far as I understood Mr Stuart to be suggesting and ignore the opposition of the shareholders as being irrelevant to my broad discretion. That opposition, or more important the reasons for the opposition, is a factor to consider.

(d) The merits of the application

[71] Mr Knight, for the trustees, emphasised that their application was very much influenced by the evidence of Mr Pegg as to the testator’s wishes. He considers it is clear that Mr Banicevich wanted the daughters to have a permanent foothold in the estate and the subdivision proposal was the best way to achieve it.

[72] In support of the subdivision, Mr Knight emphasised the following:

1. That the option holders were not really disadvantaged. What they had was an option to purchase the shares at a fair market value. To the extent that the subdivision affected the value of the shares, the price which the option holders had to pay would be correspondingly reduced;

2. There was no evidence before the Court in relation to the current proposal that indicated the proposal would be particularly adverse to the farm. In this context, he was emphasising that the valuer’s assessments related to the much larger initial subdivision and no such detailed opposition to the present proposal had been filed;

100. The subdivision proposal preserved the scheme of the will. The beneficiaries of the will are the three daughters. They were not to get the farm but they were to get the value of the testator’s share of the farm; they were also to keep a foothold on the farm through the baches. Any diminution of the value of the farm, and therefore what they received, was offset by the acquisition of the freehold sections;

4. The three daughters as beneficiaries were all consenting. In this context, although the option holders were rightly to be heard in opposition, the trustee obligation was solely to the three daughters as the beneficiaries interested in the trust.

[73] Mr Knight referred me to Marley v Mutual Security Merchant Bank and Trust Co. Ltd [1990] UKPC 44; [1991] 3 All ER 198 and to the observations of Lord Oliver of Aylmerton concerning the role of the Court on such applications. His Lordship noted (at p 201):

Secondly, it should be borne in mind that in exercising its jurisdiction to give directions on a trustee’s application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties. That is not always easy, particularly where, as in this case, the application has been conducted as if it were hostile litigation; but it is essential that the primary purpose of the application – indeed, its only legitimate purpose – be not lost sight of in academic discussion regarding the discharge of burdens of proof. Where beneficiaries oppose a proposal of a trustee with a host of objections of more or less weight, the court is, of course, inevitably concerned to see whether these objections are or are not well founded, but that must not be permitted to obscure the real questions at issue which are what directions ought to be given in the interests of the beneficiaries and whether the court has before it all the material appropriate to enable it to give those directions.

[74] If that approach is taken, it is difficult to contest the trustees’ application. Mr Black represents interested parties but the opposition he advances is not premised on any suggestion that the subdivision proposal is not in the best interests of the beneficiaries under the trust. Rather, it is based on the proposition that the subdivision is not in the best interests of the option holders and the company.

[75] Consistent with the statements of Lord Oliver, Mr Shamy submitted that careful regard had to be taken of the nature of the grandsons’ interest. They were not owners of the testator’s shares such that they were affected by a reduction in value. Rather, they were to be given an opportunity, which they could decline, to buy shares at whatever was the fair market value of the shares when they were offered. The scheme of the option ensured fairness because any reduction in value caused by the subdivision would be reflected in a reduction of the cost of exercising the option.

[76] The main thrust of the opposition to the trustees’ proposal was the impact that the subdivision would have on the working of the farm. I accept that is a matter to which I should have regard in exercising my discretion. It is clear that the testator was concerned to see the farm continue as a working entity and that wish should not be overlooked when trying to give effect to his wishes concerning his daughters. However, I accept Mr Knight’s submission that there is nothing before me which
establishes any real threat to the farm. The report of Mr Nicholls relates to the old subdivision. The one paragraph, cited earlier, that comments on the current plan is insufficient to establish an ongoing threat to the farm activities.

[77] In oral argument, Mr Black advanced the following specifics:

1. the need to relocate some buildings, but after discussion it was accepted there was no such need;

2. the need to build new workers’ accommodation as the baches were no longer available for that purpose. However, the life interest under the will produces that effect;

100. the uncertainties concerning any requirements the Council might impose. There is validity in this but at this point in time the likely requirements concerning an esplanade reserve and a sealed roadway do not suggest any significant impact to the farm;

4. the possibility of future disputes between the farm owners and the subdivision owners stemming from adjacent incompatible uses. Again, there is validity in this but it is not of sufficient likelihood or immediacy to particularly tell against the proposal.

[78] Mr Black in his submissions generally emphasised that there was a significant difference in a life interest, on the one hand, and a freehold title, on the other. Whilst in the short term the sections will all remain in the family, the reality is that they can be sold and the grandsons may be faced with third party owners. The two uses – farm and holiday homes – are not compatible and conflict may arise.

[79] This seemed to me a legitimate concern which I put to Mr Knight. His response was to suggest that a right of pre-emption could be given to the farm owner in something like these terms:

The subdivided lots are not to be sold by the daughters without first being offered back to the farm owner, so long as the farm property remains in single ownership, at an agreed price or failing agreement at a valuation to be

fixed by valuers appointed by the parties and with ability to appoint a referee.

[80] The reference to ‘single ownership’ was to cover the possibility that the farm owners may themselves subdivide. If that occurred, the concerns which underlie the granting of a right of pre-emption effectively disappear.

[81] Mr Shamy accepted this condition on behalf of Yvette and Donna. He also suggested that covenants could be attached to the titles of the subdivision to ensure a degree of protection to the farm and its ability to reasonably conduct farming activities. The details of these could be left to the trustees.

[82] Mr Stuart suggested that the condition, if imposed, should be further limited to lasting only as long as Susan Banicevich’s family owned the farm. If they chose to sell it there was no obligation at the stage to maintain family ties.

[83] My assessment is that the limitation suggested by Mr Knight, with Mr Stuart’s gloss, is appropriate and brings the subdivision proposal much closer to the testator’s intention. I see Mr Banicevich as wanting to ensure that his daughters and their family could maintain a foothold on the land. If they no longer wish this connection, it is much more consistent with the life interest concept in the will to provide for the land to return to the family farm so long as it remains a family farm.

[84] The option back to the farm meets some of the concerns raised by Mr Black. It also addresses some disquiet I have concerning the breadth of the discretion accorded by s 64. The authorities emphasise that s 64 is designed to allow the Court to authorise trustees to act so as to better manage or administer the estate; the danger is that this may shade into ‘rewriting of the substantive trusts more than of a step in the management or administration of the estate’ – Re Smith [1975] 1 NZLR 495,
497. In that particular case, unlike here, all the beneficiaries under the trust were not consenting to the variation and this was a factor which influenced Cooke J.

[85] Mr Shamy helpfully referred me to the decision of Baragwanath J Re Phillips New Zealand Ltd [1997] 1 NZLR 93. There an amendment to the trust deed was held to be a transaction for the purposes of s 64(1) of the Trustee Act 1956. By analogy, a
vote by trustees as owners of the ‘A’ shares to permit a subdivision is a transaction within the meaning of the section. This analysis is required because what the trustees own is not the land itself but the controlling shares in the company.

Conclusion

[86] Leave to Mrs Imms to apply under the Family Protection Act is given but the claim is declined.

[87] In terms of the application made by the trustees under the ss 64 and 66 of the Trustee Act 1956:

1. With the consent of all the parties the provisions of the will are declared to be valid;

2. The trustees are authorised to exercise their powers under the ‘A’ shares to seek a subdivision of three sections for the benefit of the three beneficiaries. The beneficiaries consent to this happening. I direct that the trustees should ensure that any further sale of the subdivided lots should be subject to a right of pre-emption allowing the farm owner an opportunity to buy back the section in the general terms as recorded in paragraph 76 of the judgment. However, the trustees are free to vary the wording of that condition as they think appropriate. I also direct that the trustees should have regard to the imposition of covenants on the titles to the subdivided lots to ensure reasonable protection of the farming activities.

[88] At the parties’ request, costs were reserved. Any memoranda as to costs should be filed within one month of the date of this judgment. If agreement cannot be reached between the parties I will, of course, resolve the issues once memoranda are filed. If hearing time is requested that should be indicated in the memoranda. I invite the parties to consider whether at this stage the best option is for costs to lie where they have fallen.
[89] The trustees sought leave to return for further directions concerning the costs of the subdivision if that is required. Leave is given although instinctively the subdivision seems for the sole benefit of the beneficiaries under the Trust and it is difficult to see where else the costs should lie.










Simon France J

Solicitors:

Pegg Ayton Gordon, PO Box 38, Dargaville, for Applicants and Trustees

Webster Malcolm & Kilpatrick, PO Box 6233, Wellesley Street, Auckland, for Plaintiff Raymond Donnelly & Co., PO Box 533, Christchurch, for second and third-named First Respondents

Hammonds, PO Box 16, Dargaville, for Second Respondents