Marsh (Owhetu Block Charitable Trust) v Sade [2012] NZHC 761 (24 April 2012)

Last Updated: 8 May 2012

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV 2012-488-103 [2012] NZHC 761

BETWEEN PHILIP MARSH, ROMER MAHANGA, AREPA PATIRA AND MORRIS GILBERT AS TRUSTEES OF THE OWHETU BLOCK CHARITABLE TRUST

Plaintiffs

AND RATA SADE ALSO KNOWN AS VIOLET SADE

Defendant

Hearing: 24 April 2012

Appearances: P Revell for plaintiffs

A Hyndman for defendant

Judgment: 24 April 2012

_{ORAL JUDGMENT OF GILBERT J}

Solicitors: Corban Revell, Auckland: [e-mail]

Henderson Reeves Connell Rishworth, Whangarei: [e-mail]

OWHETU BLOCK CHARITABLE TRUST V SADE HC WHA CIV 2012-488-103 [24 April 2012]

[1] The plaintiffs and the defendant are the trustees of the Owhetu Block Charitable Trust (the Trust). A dispute has arisen between the four plaintiff trustees and the defendant, Ms Sade, arising out of the payment by the Trust to Ms Sade of

$30,000 for services. The plaintiffs claim that the payment was not appropriate or properly authorised and amounts to misconduct on her part as a trustee. Ms Sade claims that the payment was fully authorised by a sufficient number of the other trustees.

[2] As a result of his concern to protect Trust assets, Mr Marsh, the first-named plaintiff who is the chairman of the Trust, contacted Westpac and asked for the Trust’s account to be frozen. This was done. In view of the present dispute, Westpac is unwilling to allow the account to be operated and Trust creditors cannot now be paid.

[3] The present application is for an order, pending further order of the Court, suspending Ms Sade as a trustee. Orders are also sought directing that the remaining trustees be entitled to operate the Trust’s account and directing Ms Sade to deliver up all Trust documents and financial records in her possession. She is currently the assistant treasurer of the Trust. The third-named plaintiff, Mr Patira, is the treasurer.

Background

[4] The Trust was formed by deed dated 7 December 2006 as a charitable trust. One of its objects is to promote education and vocational training. The initial assets of the Trust comprised the sum of $328,000 paid by the Whangarei District Council to enable continued use of a public road across land known as the Owhetu Block and some other money to meet professional costs.

[5] The trustees used most of the money received from the Council to purchase a six acre block of land which has a building erected on it. The trustees intended to make the land and building available as an outdoor training facility for school groups

and others. I was advised that the Trust has $40,000 invested in the bank and some other funds to meet operational requirements.

[6] As noted, the present dispute arises out of the payment to Ms Sade of

$30,000 from Trust funds. Ms Sade says that this payment was for services she provided for the benefit of the Trust. She raised an invoice in this sum covering work carried out from 1997 to 2011. The invoice was addressed to Mr Marsh. Ms Sade claims that payment of this invoice was approved at a meeting of trustees on 29 January 2011. She and two other trustees were present, the second-named plaintiff, Mr Mahanga, and Mr Marsh. Ms Sade says that Mr Mahanga moved a resolution for payment of the invoice and this was seconded by Mr Marsh. The invoice was signed by all three of these trustees. Ms Sade says that this happened after the meeting. Mr Marsh also signed minutes of the meeting recording the decision to pay the invoice.

[7] Ms Sade sought payment from Westpac for the $30,000 but the bank was not prepared to issue a cheque without an additional trustee signature. Mr Marsh subsequently signed a cheque for $30,000. Ms Sade was able to obtain a bank cheque from Westpac on 15 February 2011 using this cheque.

[8] Mr Marsh considers that he was “tricked” into signing this cheque which was presented to him by Ms Sade along with a number of other cheques and Trust documents requiring his signature. Mr Marsh also disputes that any final decision was made at the trustee meeting in relation to Ms Sade’s invoice and claim.

[9] The Trust is due to hold an annual general meeting. Ms Sade says that the AGM is already overdue and she would like the meeting held in May. The plaintiffs confirm that a further AGM is required and have indicated that this will be held in June or July. The beneficiaries will therefore have an early opportunity to consider the election of trustees and this litigation.

[10] There was no dispute between the parties that interim orders are necessary to enable the Trust to access its account at Westpac. I invited counsel to consider the form of the order that would be appropriate. They have conferred on the form of order that they seek and I am satisfied that such an order is appropriate. I will set out the terms of the order at the end of this judgment. I record that this order is made by consent.

Trust records

[11] By the conclusion of the hearing, counsel were also able to agree the terms of an interim order dealing with Trust records held by Ms Sade. I am satisfied that the orders sought are appropriate. These orders, which I will also set out at the end of this judgment, can also made by consent.

Suspension

[12] The plaintiffs seek an interim order suspending Ms Sade as a trustee. They lack trust and confidence in Ms Sade arising out of the circumstances in which she obtained the payment of $30,000 from the Trust. While acknowledging that the Court is unable to judge the merits of the substantive dispute at this stage, Mr Revell for the plaintiffs submitted that an order suspending Ms Sade on an interim basis is appropriate given the serious allegations of misconduct in issue. The plaintiffs allege that suspension is necessary to protect Trust property and therefore the interests of the beneficiaries.

[13] The trustees owe fiduciary duties to act in the best interests of the Trust. They must be scrupulous in their dealings with the Trust. In circumstances such as these, where a payment to a trustee is being considered, it is essential that full disclosure is made and the terms of the trust deed are strictly complied with. The conflict of interest must be addressed appropriately.

[14] Mr Revell confirmed that the plaintiffs cannot allege that Ms Sade obtained the payment by deliberately deceiving Mr Marsh or knowing that she was not entitled to the money. That does not mean that there has been no breach of fiduciary duty or misconduct. However, counsel acknowledged that I am not able to determine at this stage whether Ms Sade has misconducted herself in relation to the payment.

[15] In my view, it is not necessary for me to make any interim order suspending Ms Sade as a trustee. As noted, the beneficiaries will be meeting within the next few months to determine whether they wish to appoint new trustees. Given the nature of the assets of the Trust and the fact that no single trustee is able to deal with Trust funds or other Trust assets without the concurrence of other trustees, I cannot see that Ms Sade’s continuation as a trustee poses any real threat to Trust assets. Mr Revell responsibly acknowledged this when I pressed him on the point.

[16] I accept Ms Hyndman’s submissions that the circumstances leading to the payment are capable of an innocent explanation. It may be that Ms Sade genuinely believed that the payment had been authorised and was appropriate. This is not a case where removal or suspension of a trustee is required to protect trust assets.

[17] In all the circumstances, I am not prepared to make an order suspending Ms Sade as a trustee. The beneficiaries can decide whether they wish her to remain when the matter is considered at the forthcoming AGM. They will no doubt wish to take into account the circumstances surrounding this litigation at that time.

Result

[18] By consent, there is to be an order, pending further order of the Court, that the Trust’s account with Westpac may be operated by three trustees acting together. One of these trustees must be the treasurer, Mr Patira. Ms Sade is not to be an account signatory.

[19] By consent, Ms Sade is to deliver forthwith all accounting records relating to the Trust, including any cheque books, to Mr Patira.

M A Gilbert J