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High Court of New Zealand Decisions |
Last Updated: 17 April 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-553 [2012] NZHC 631
UNDER the Trustee Act 1956
IN THE MATTER OF Sleeping Fox Trust
BETWEEN TARA DAVIDSON Plaintiff
AND GORDON ISRAEL Defendant
Hearing: 19 March 2012
Counsel: D J Jenkin for Plaintiff
Mr TJ Brown in person (as interested party) Judgment: 4 April 2012
JUDGMENT OF BREWER J
This judgment was delivered by me on 4 April 2012 at 2:00 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
SOLICITORS
Jane Hunter (Thames) for Plaintiff
(Copy to Defendant in person)
COUNSEL Dennis J Jenkin
(Copies to Mr TJ Brown and to Litigation Guardian)
DAVIDSON V ISRAEL HC AK CIV-2011-404-553 [4 April 2012]
[1] The plaintiff is a final beneficiary of a trust called Sleeping Fox Trust (the Trust). She seeks the removal of the defendant as a trustee of the Trust and the appointment of an independent trustee.1
[2] The proceedings were filed on 4 February 2011. At that time the sole trustee of the Trust was Mr Thomas Joseph Brown. He was in that capacity named as the defendant. However, Mr Brown was adjudicated bankrupt on 8 March 2011. In an affirmation made on 21 September 2011 and filed in the Court,2 Mr Brown deposed that he resigned as a trustee of the Trust on 17 February 2011. By affirmation also made on 21 September 2011 and filed in the Court,3 Mr Israel, the current defendant, deposed that he was appointed a trustee of the Trust on or about 21 December 2010 and that Mr Brown’s resignation left him as the sole trustee.4
[3] On 16 February 2012, the Court granted a priority fixture for the hearing of the substantive application. A one-day fixture was allocated for 19 March 2012. At a case management telephone conference heard at 4:00 pm on 16 February 2012, Associate Judge RM Bell noted that Mr Brown had emailed the Court advising that Mr Israel had resigned as a trustee and that a new corporate trustee had been appointed. Associate Judge Bell made a timetable order that would apply to the plaintiff and to the defendant, or to any other person opposing the relief sought by the plaintiff.
[4] An affidavit of service by the plaintiff’s solicitor sworn on 16 March 2012
confirms that the plaintiff’s affidavits were duly served on the defendant and on
Mr Brown.
1 (Second) amended statement of claim dated 4 October 2011.
2 Affirmation of Thomas Joseph Brown in support of application to strike out.
3 Affirmation of Gordon Israel in support of application to strike out.
4 Memoranda from Mr Brown and Mr Israel to the same effect were before Associate Judge Christiansen on 29 June 2011. On that date, Christiansen AJ directed that Mr Israel be substituted for Mr Brown as trustee of the Trust and that the intituling of the proceeding be changed accordingly. Mr Brown was to continue as a party entitled to service of documents because of his interest in the Trust as a discretionary beneficiary.
[5] At the hearing before me on 19 March 2012, Mr Brown appeared, to use his term, as “intervener”. He advised me that Mr Israel is overseas. He said that a Maori incorporation calling itself Nga Tikanga Maori Lore/Law Society Incorporated O Aotearoa O Nga Uri O Tupoto Maori Incorporation (the Incorporation) is now the trustee. By email from the Incorporation sent to various parties on 19 March 2009, including the plaintiff and the registry, various documents purporting to confirm that situation were provided. One of them, on its face, is a
notice of resignation as trustee signed by Mr Israel and dated 6 January 2012.5
[6] Another document attached to the email is headed “Minute of Board Meeting of Sleeping Fox Trust”. It is dated 6 January 2012 and under the heading “Deed of Appointment of Trustee (pursuant to Clause 9)” contains a resolution appointing the Incorporation as trustee of the Sleeping Fox Trust. It is signed, apparently, by Mr Israel as trustee, by Mr Brown as settlor, and by “Tim Meredith, Registrar, Nga Uri O Tupoto Inc”.
[7] Another document accompanying the email is a further “Minute of Board Meeting of Sleeping Fox Trust” also dated 6 January 2012 accepting the resignation of Mr Israel as trustee. It appears to be signed by Mr Israel, Mr Brown and Mr Meredith.6
[8] Ms Hunter, solicitor for the plaintiff, in an affidavit dated 24 February 2012,7 deposes that she has been unable to find any incorporated society of the Incorporation’s name registered in New Zealand. Further, the Registrar of the Maori Land Court has advised in writing that no Incorporation of that name is constituted under Part 13 of Te Ture Whenua Maori Act 1993 or any other relevant statute or
provision. In any event, the land owned by the Trust is not Maori freehold land.8
5 The text reads: “To the Trust, I hereby resign as Trustee of the Sleeping Fox Trust effective three (3) days following the acceptance of appointment by a new trustee, who is Nga Tikanga Maori Lore/Law Society Incorporated O Aotearoa O Nga Uri O Tupoto Maori Incorporation.”
6 There are other documents attached to the email which purport to be of legal significance issued by Nga Uri O Tupoto Maori Incorporation in relation to the land owned by the Trust. I need not deal with them here.
8 The letter is dated 20 February 2012 and is Exhibit DJH9 to her affidavit.
[9] The basis of the plaintiff’s application is that she is one of two final beneficiaries of the Trust. She alleges that Mr Brown, as trustee, dissipated the assets of the Trust and that the final asset, a piece of land, is in danger of being taken by creditors with the result that no assets will be left in the Trust.
[10] In support of her application, the plaintiff in her affidavits points to Mr Brown having been made bankrupt at the behest of the Commissioner of Inland Revenue for failure to file successive tax returns on behalf of the Trust. The Commissioner obtained a default judgment against Mr Brown as trustee of the Trust for assessed tax and related sums of approximately $673,000. By August 2010 this amount, with penalties, totalled approximately $836,000. The land in question is mortgaged to ASB Bank. ASB Bank issued a default notice for a sum of approximately $7,000 in 2011. In September of that year the plaintiff personally paid $7,252.70 to satisfy the notice. On 11 November 2011, ASB Bank issued a further default notice for $5,695.57. Apparently Mr Israel is paying $200 per week to ASB Bank pursuant to an arrangement which has so far caused ASB Bank not to take action on the notice. However, the plaintiff deposes that $200 per week is not enough to meet the payments due under the mortgage.
Mr Brown’s position
[11] Mr Brown submitted to me that he has appointed the Incorporation as an independent trustee, so there is no basis for the Court to entertain the plaintiff’s application. Mr Brown also disputed the plaintiff’s right to bring the application. His submission is that the plaintiff herself has fraudulently misappropriated all the moveable property belonging to the Trust and so cannot claim access to the equitable jurisdiction of this Court because she does not have clean hands.
Task
[12] My task is to decide whether, on the balance of probabilities, the affairs of the
Trust are in such disarray that an independent trustee should be appointed so as to
give proper effect to the trusts contained in the Trust Deed. The obligations of the trustee would include reviewing the history of the use of the Trust’s assets to see whether claims lie against any person for dissipation or conversion thereof, and negotiating with the Official Assignee, the Commissioner of Inland Revenue, ASB Bank and other creditors of the Trust so as to best preserve the assets of the Trust for the future.
The Trust Deed
[13] The relevant provisions of the Trust Deed can be summarised as: (a) The settlors were Alison Davidson and Mr Brown.9
(b) The final beneficiaries (who are also discretionary beneficiaries) are
the plaintiff and Miss SD Brown.10
(c) Mr Brown is an additional discretionary beneficiary.
(d) Mr Brown, while a trustee, had the power to appoint new trustees.
After he resigned as a trustee he retained, as settlor, that power because there were then no original trustees “able and willing to exercise the power”.11
Discussion
[14] On the evidence before me it is clear that someone must take the Trust in hand. Mr Brown cannot. He has been made bankrupt by the Commissioner of Inland Revenue over unpaid tax assessments relating to the Trust. In any event, he resigned as a trustee shortly before the bankruptcy. Mr Israel, the other trustee at the time of Mr Brown’s resignation, has (I accept) also resigned as a trustee. Mr Brown
has purported to exercise his power of appointment to appoint the Incorporation as
9 Ms Davidson died on 19 April 2007.
10 Miss SD Brown was 17 years old when the proceedings were commenced. A litigation guardian was appointed for her. The litigation guardian has advised the Court that Miss Brown does not wish to take part in the litigation.
11 Clause 9 of the Trust Deed.
sole trustee.12 On the evidence the Incorporation is not an entity recognised by law. It would also seem from its email to be an organisation dedicated to tikanga Maori. The land owned by the Trust is not Maori freehold land.
[15] I find that the risk of the Trust losing its remaining asset (the land) is high. ASB Bank has issued another default notice13 (which might be in abeyance if Mr Brown’s submission is correct) and there is the debt to the Commissioner. Unless something is done urgently to negotiate settlements with these parties it is likely, in my view, that the land will be lost.
[16] I have, pursuant to s 51(1) of the Trustee Act, the discretion to appoint a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, when:
(a) It is expedient to do so; and
(b) It inexpedient, difficult, or impracticable so to do without the assistance of the Court.
[17] In Attorney-General v Ngati Karewa and Ngati Tahinga Trust, Randerson J
stated at [68]:14
The Court must be satisfied not only that there are grounds for the exercise of the discretion but also that “it is inexpedient, difficult or impracticable so to do without the assistance of the Court ...”. That condition may be fulfilled where, for example, there is no or inadequate provision in the trust instrument for the appointment of trustees but may also apply even where such provision does exist. If, for example, the Court were satisfied that the power to appoint new trustees was unlikely to be exercised fairly and objectively having regard to the interests of all beneficiaries (including those who seek to be on the preferential roll of beneficiaries), then that could afford a basis for the Court to conclude that the statutory conditions were fulfilled.
13 Affidavit of plaintiff dated 27 February 2012.
14 Attorney-General v Ngati Karewa and Ngati Tahinga Trust HC Auckland, M2073/99,
5 November 2001.
[18] There is authority to suggest that the statutory discretion should not be exercised in the face of opposition from a trustee who is willing and able to continue. Turner VC stated in Re Hodgson’s Settlement:15
... I think that the statute was not intended to give the Court jurisdiction to remove a trustee, where he states that he is desirous of continuing to act in trusts... I think [the power] is confined to the appointment of new trustees, and that it does not extend to the dismissal of a willing trustee.
[19] The Court can also remove and appoint trustees under its inherent jurisdiction. This is derived from the Court’s general supervisory powers in equity, and is exercised principally for the welfare of beneficiaries.16 The exercise is a
highly discretionary one, as demonstrated by Dixon J in Miller v Cameron:17
The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the Trust property and to an efficient and satisfactory execution of the trust and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised. But in a case where enough appears to authorise the court to act, the delicate question of whether it should act and proceed to remove the trustee is one upon which the decision of a primary judge is entitled to especial weight.
Decision
[20] I am in no doubt that the affairs of the Trust are in disarray. The settlor and trustee, Mr Brown, has been made bankrupt because of a failure to advance properly the taxation affairs of the Trust. It seems that currently there is no trustee and Mr Brown’s ability to appoint a new trustee is compromised by his clearly partisan position with regard to the history of the Trust. There are allegations and counter- allegations of fraud and conversion of Trust property and it seems there is only one real asset left to the Trust and that is mortgaged. The plaintiff has had to personally
meet one demand of the mortgagee.
15 In re Hodgson’s Settlement (1851) 20 LJ Ch 551 at 552.
16 Morris v Sumpter HC Auckland, CIV-2004-404-3060, 6 April 2005, at [52] per Allan J.
17 Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 at 580.
[21] In deciding whether to exercise my discretion to remove whoever may be trustee and appoint an independent trustee, I must give due consideration to the beneficiaries of the Trust. An independent trustee seems to be the only way to avoid the dissipation of the remainder of the Trust’s assets. Accordingly, I am prepared to exercise my discretion to appoint a new trustee and remove any existing trustees. Whether that is pursuant to s 51(1) of the Trustee Act or pursuant to my inherent jurisdiction is immaterial.
[22] The plaintiff has nominated Francis William Bedford as a replacement trustee. Mr Bedford lives in Thames and is described as a counsellor. He has signed a consent to be appointed as trustee and its terms show that he has read the Trust Deed and knows all beneficiaries. The plaintiff deposes that Mr Bedford is 60 years
of age with a good reputation and that he is willing to assist.18 Mr Brown is opposed
to the appointment because Mr Bedford has previously acted as a relationship
counsellor for him. But he does not attack Mr Bedford’s reputation.
[23] I am advised by Mr Jenkin that the Public Trust has been approached to consent to appointment as trustee and it has declined.
[24] I am mindful that the Trust needs a volunteer as trustee. A professional trustee, or a professional such as an accountant or a lawyer, would likely be unable to recoup their fees from the Trust’s assets.
[25] In the circumstances I am prepared to appoint Mr Bedford as sole trustee.
[26] It will be necessary for me to vest title in the Trust’s land in Mr Bedford.19 It will also be necessary for me to vary Mr Brown’s power of appointment of new trustees.20 Normally I would seek to separate the power of appointment and a sole trustee appointed by the Court. But there is no-one suitable identified and my
assessment is that the Trust is not likely to last long given its debts. I will therefore
18 Affidavit of plaintiff sworn 27 February 2012, at para 30.
19 I take the view that this would not affect any right the Official Assignee might have to any equitable lien of Mr Brown over the Trust’s property: Official Assignee v Menzies HC Auckland CIV-2010-404-5457, 14 February 2011, Bell AJ.
20 Clifton v Clifton HC Auckland CIV-2004-404-4185, 5 November 2004, Paterson J at [43] and
Mudgway v Slack HC Auckland CIV-2010-404-2058, 26 July 2010, Ellis J at [39].
give Mr Bedford the power of appointment. I will reserve leave to either of the final beneficiaries to seek further orders of the Court on this matter.
[27] The draft order provided by the plaintiff sets out a number of orders which are not pleaded for and which I find to be either unnecessary or outside the ambit of my reasonable response to this situation (in the latter category is a suggested order evicting Mr Israel from occupation of the Trust’s land – a matter which will be for Mr Bedford to consider).
[28] There is one exception. Paragraphs 11.4 and 11.5 headed “Confidentiality” and “Penalty for Breach of Confidentiality” are likely to hamper Mr Bedford in carrying out his duties transparently. I will vary the Deed by deleting them.
[29] Accordingly, I make the following orders:
(1) Mr Francis William Bedford of Thames, counsellor, is appointed as the sole trustee of the Sleeping Fox Trust in substitution for any person or corporation currently appointed as trustee thereof.
(2) The Deed dated 22 March 2001 by which the Sleeping Fox Trust was established is hereby varied by deleting the first paragraph of Part 9, namely:
The power of appointing a new Trustee or Trustees shall be vested in the Trustees named in this Deed and if at any time there shall be no such administrators executors or trustees able and willing to exercise the power then in the Settlor(s) of this Trust
And inserting in its place the following:
The power of appointing a new Trustee or Trustees shall be vested in Mr Francis William Bedford.
(3) Leave is reserved to either of the final beneficiaries to make further application to the Court regarding the appointment of trustees of the Trust.
(4) The said Trust Deed is hereby also varied by deleting from it paragraphs 11.4 and 11.5.
(5) The land at 680 Thames Coast Road, Ruamahunga Bay, Thames is hereby vested in Mr Francis William Bedford in his capacity as trustee of the said Trust and I direct that he be registered as sole proprietor of the said land subject to any instruments and encumbrances registered against the title to the land as at the date of registration.
[30] When sealing these orders the plaintiff has leave to insert into the order (4)
the legal description of the land.
Costs
[31] Costs are awarded to the plaintiff on a 2B basis. They are to be paid out of the assets of the Trust.
Brewer J
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