Melville v Wen [2014] NZHC 630 (2 April 2014)

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BETWEEN	REECE HAROLD MELVILLE, ANNE JUDGE FARRINGTON, SONIA FISHER and ANGELA CORNELIUS Applicants
AND	LIQIONG WEN First Respondent
AND	LIQIONG WEN as executor of the Trust ALWYN REECE MELVILLE Second Respondent
AND	FASTCO TRUSTEES LIMITED Third respondent

Hearing:	31 March 2014
Appearances:	CFL Codinet for the Applicants M Allan for the First and Second Respondents
_Judgment:	_{2 April 2014}

R H MELVILLE, A J FARRINGTON, S FISHER and A CORNELIUS v LI WEN and FASTCO TRUSTEES LIMITED [2014] NZHC 630 [2 April 2014]

[1] The applicants are the children of the deceased Alwyn Reece Melville (Mr Melville). Mr Melville died on 8 January 2014. There is evidence he suffered ill health for the last two years of his life with Parkinson’s disease, a stroke, and dementia. His widow Ms Liqiong Wen (Mrs Melville) is joined in her personal capacity as the sole beneficiary of Mr Melville’s deceased estate, and also as the executor for that estate. The third respondent Fastco Trustees Ltd (FTL) was Mr Melville’s co-trustee of the Melville Trust (the Trust) which owned the property in which Mr Melville and Mrs Melville resided for nearly two years until shortly before Mr Melville’s death when the property was transferred from the Trust to Mr Melville personally who then settled the property under the Joint Family Homes Act 1964 upon himself and Mrs Melville.

[2] This all occurred about six weeks prior to Mr Melville’s death. Earlier on 23

October 2013 Mr Melville executed a Will by which Mrs Melville was appointed sole executor and beneficiary of his estate. Mr Melville was 75 when he died.

[4] Mrs Melville, for herself and as executor opposes the application on grounds, inter alia:

(a) The second, third and fourth applicants are not named as caveators in the registered caveat; and

(b) Mr Melville no longer has a registered interest in the property and therefore there is no estate or interest able to be claimed in that regard.

(d) The caveat does not sufficiently state the estate or interest claimed and how it is derived from Mrs Melville’s registered interest.

[5] Mr Melville’s Trust provided that the final beneficiaries were to be his children and that the discretionary beneficiaries included himself, his children and any spouse or widow of his, among others.

[6] Clause 7 of the Trust permitted the trustees at any time to transfer the capital of the Trust to a discretionary beneficiary, to the exclusion of any other, for the benefit of that beneficiary.

[7] Clause 14 of the Trust noted that Mr Melville retained the power of appointment of new trustees and (by clause 15) to remove any existing trustee.

[8] The applicants children say the Trust was prepared to protect Mr Melville against a background of two failed marriages and because his third marriage, to Mrs Melville, was approaching its third anniversary and because of perceptions of the need to protect the Trust property from relationship property claims and to ensure its preservation for Mr Melville’s children in the long term. Evidence for Mrs Melville provided by Mr Sutcliffe of FTL is that the Trust was set up for “the usual asset protection reasons due to concerns regarding rest home subsidies. It was also to allow for better flexibility in dealing with Mr Melville’s assets between any wife or partner and for all or any of his children”.

[9] On 11 April 2013 Mr Melville executed a Memorandum of Wishes. At that time he was still represented by lawyers Frost & Sutcliffe. The memorandum provided:

I, ALWYN REECE MELVILLE being the Settlor of the Trust hereby express the wish and desire without however creating a binding trust or imposing a binding direction on the Trustees of the Trust (“the Trustees”) as follows:-

1. That the Trustees take into account this Memorandum in the administration and management of the Trust.

2. That the Trustees use the Capital and Income of the Trust to benefit myself and my wife LIQIONG WEN MELVILLE (known as Wendy) during our joint lifetimes and to provide for us a comfortable lifestyle during our lifetimes or the survivor of us and upon my death to use the Capital and Income of the Trust to benefit my wife LIQIONG WEN MELVILLE and that she may direct her share hereunder be distributed to a trust of which she is a beneficiary.

3. This Memorandum of Wishes is confidential to my Trustees only and is not to be revealed to any other person whatsoever including any potential beneficiaries of this Trust”.

[10] In August 2013 Mr Melville instructed Wilson McKay to be his lawyers. According to Mrs Melville the files were uplifted because Mr Melville “was frustrated with his lawyers at Frost & Sutcliffe. He told me that they wouldn’t do what he asked them to do. He also thought they were charging him too much”.

2013 Wilson McKay obtained a report from a consultant psychiatrist and geriatrician

[12] On 23 October 2013 Mr Melville executed a new Will by which he left all his estate to Mrs Melville and who he appointed as his executor.

[13] On 19 November 2013 Mr Melville and FTL as trustees executed a resolution to wind up the Trust and to transfer the property, its sole asset, to Mr Melville.

(a) The property mortgaged to ASB Bank was discharged. (b) The property was transferred to Mr Melville.

[15] On 2 January 2014 Mr Melville became very ill and was admitted to hospital. He died six days later.

[16] Shortly after Mr Melville’s death his daughter Jeannine telephoned Mr Sutcliffe “to find out what we need to do next with regard to any funeral arrangements Al wanted”. Mr Sutcliffe responded that Mr Melville’s affairs were confidential and that he no longer acted for Mr Melville. She said Mr Sutcliffe also told her the legal firm then acting was “Wilson something in Remuera”. She said Mr Sutcliffe also said to her at that time that his firm “had refused to act and further they had been contacted by four other law firms which had also declined to act. Finally, it was the Wilson something firm which had uplifted the file”.

[17] It is the evidence for the applicants that they knew nothing of the events which began from the execution of the Memorandum of Wishes dated 11 April 2013.

Pursuant to cestui que trust by virtue of an express trust being between Reece Harold Melville (as caveator) as beneficiary and Alwyn Reece Fenny (as one of the registered proprietors) as trustee.

[19] On 22 January 2014 the applicants’ solicitors wrote to Wilson McKay stating:

Your client will no doubt appreciate the shock our clients experienced when they found their father had disinherited them leaving his entire estate to Wendy in a Will dated 23 October 2013 – that Will having been signed only eight weeks before he died against a background of what they knew about their father, as you as the acting solicitors would have been aware of.

(a) Mr Melville was significantly affected by dementia. The applicants were aware Mrs Melville had taken Mr Melville to doctors and to various lawyers.

(b) That the Trust had been set up for asset protection for him and his children and that all of the subsequent transactions created a position so contrary to Mr Melville’s original intentions that the applicants believed there should be a demand for further enquiry.

(c) That Mrs Melville had misused Mr Melville’s money for gambling purposes which caused Mr Melville to instruct his former lawyers to give Mrs Melville a notice of eviction to leave his home; and that the Trust was set up shortly after for his asset protection.

[21] Thereupon the solicitors requested the provision of further information and copies of certain documentation. It was stated that if the information was not provided then an application would be made to the Court for orders. The solicitors also advised:

By way of professional courtesy against all this background we have received instructions to caveat the property... which we have lodged. Your client’s transmission will now be held until we have disclosure so we can advise our clients.

[24] On 19 February 2014 the applicants filed their application to sustain the caveat. It is clear that at that time the applicants were not aware of the transmission of the property to Mrs Melville on 24 January 2014.

[25] In opposition to that application Mrs Melville claims the applicants did not have an estate or interest sufficient to sustain a caveat because, inter alia:

(a) Mr Melville acted as he was able, to complete a Memorandum of Wishes in the terms he did and thereafter with the endorsement of his co-trustee he was able to transfer the Trust property to himself and subsequently was permitted to vest a joint interest in the property pursuant to the Joint Family Homes Act.

(b) That in the circumstances of the case the applicants did not obtain a caveatable interest in the property because there is no evidence the trustees acted otherwise than they were able to in execution of their trustee duties.

(c) That because there was no breach of Trust, claims that Mrs Melville had knowledge of such breaches because she knowingly unduly influenced Mr Melville to enter into the transaction as trustee, are misconceived.

[26] Ms Allan submits the caveat is defective because it does not comply with the requirements set out in s 137(2) of the Land Transfer Act 1952. The reason is, as expressed in the registered caveat, the claim of an interest appears to vary somewhat from how it is expressed in the application to sustain the caveat.

[27] The opposition focuses upon form and content. The claim of an interest in the caveat is one of a constructive trust by reason of an express trust. Section 137 requires a caveat to contain the name of the caveator, and with sufficient certainty, the nature of the estate or interest claimed and how it is derived.

[28] Referring to Hinde McMorland & Sim¹Ms Allan recalls that where a caveat claims a particular estate or interest, but on a challenge to the validity of the caveat,

the caveator is found to have a quite different estate or interest, the caveat will be held to be defective.

[29] But, as Ms Allan notes in Buddle v Russell²the Court has long since adopted a more relaxed approach for compliance with s 137. In this case the Court considers the more relaxed approach to be appropriate because:

(a) The day after the caveat was lodged the applicants solicitors wrote to Mrs Melville’s solicitors outlining their reasons for the lodging of the caveat.

(b) Before the applicants filed their Court application to sustain the caveat they were unaware that Mrs Melville had completed a transfer to herself of the survivorship interest in the property.

[30] When the caveat was lodged it was done in haste and because the applicants had scant information to explain why in their belief their father had disinherited them. By the time they filed their application to sustain their caveat they were firmly of the belief that Mrs Melville had influenced the process which adversely affected the children’s expectations.

[31] In these circumstances and for other reasons the Court will shortly identify, it is considered that the provisions of s 137 do not operate to disqualify the applicants caveat in the form it was registered.

[32] In practical terms it is of little consequence whether Reece Melville’s siblings can properly be considered to be caveators because their names were not upon the caveat. If his interest is recognised then effectively those claimed by his siblings will also be recognised.

[33] With respect to claims that Mrs Melville alone is now the registered proprietor of the property this will unlikely distract the Court from considering any

challenge to claims of a caveatable interest based upon allegations of ‘knowing receipt’ and ‘undue influence’.

[34] Mr Godinet submits that the duties of trustees are well known and include a duty:

(a) to maintain impartially between beneficiaries; (b) to act in the beneficiaries best interests;

[35] It is clear however that those duties do not, where a deed of trust permits, prevent trustees from favouring one beneficiary over others; nor indeed to prevent a transfer of the total trust property to a single discretionary beneficiary as indeed happened in this case.

[36] A breach of trust will occur where a trustee exceeds the terms of his or her authority under the trust or general law or where he/she acquiesces in the commission of a breach of trust by another.

[37] In this case the evidence indicates the transfer of Trust property by a planned and deliberate process whereby, throughout, the services of lawyers have been utilised. It is this Court’s view that some questions remain regarding the process. They include:

(a) Why did Mr Melville seek the services of other lawyers after the trustees had issued a memorandum of wishes? Mrs Melville explained it was because Frost & Sutcliffe would not do what Mr Melville wanted them to. Jeanette Melville recalls Mr Sutcliffe telling her that his firm had refused to act and that they had been contacted

(b) Notwithstanding that Frost & Sutcliffe ceased to act for Mr Melville its trustee company, FTL continued to be engaged as a trustee of the Trust. Concerning FTL’s endorsement of Mr Melville’s decision to transfer the Trust property to himself Mr Sutcliffe stated:

On the basis of FTL being advised by Wilson McKay as the Trust’s lawyer, on 19 November 2013 FTL exercised its discretion under clause 7 of the trust deed and resolved (inter alia) unanimously [to permit] Mr Melville [to wind up the trust and to transfer the property to [himself].

[38] It is not the purpose of the Court in these applications to resolve disputes of fact. Rather to enquire whether it is patently clear that the caveat cannot be maintained. Beyond that, the Court’s focus is upon determining whether if there is a valid ground for lodging the caveat balance of convenience lies nonetheless in favour of it being removed.

[39] The Court will be reluctant to remove a caveat when there is an arguable case for its retention.

[40] That brings the Court to consider claims of Mrs Melville’s connection to the

[41] The applicants have sworn lengthy affidavits which, with Mr Godinet’s urging, invite the Court to conclude that Mrs Melville exercised considerable influence upon Mr Melville’s actions over the relevant period. Mrs Melville rejects claims of influence. She is Chinese and says she has limited English and has required the services of a translator to familiarise her with some of the material filed upon this application.

[42] The applicants claim Mrs Melville had actual knowledge of the breach by Mr Melville of his Trust because she knowingly unduly influenced Mr Melville to enter into the transaction as trustee.

[43] Ms Allan submits there is no evidence of any such undue influence. She comments that the claim appears to be based on the fact that the applicants can imagine no other explanation for Mr Melville acting in what they perceive to have been contrary to the intentions of the Trust.

[44] On behalf of Mrs Melville considerable reliance is placed upon the evidence

I took steps to ascertain that Mr Melville was not under any duress from his wife or any third party to sign the documents.

[45] What is clear is that over a short period of time and within weeks of Mr Melville’s death there were a significant number of transactions which resulted in the Trust divesting itself of its only asset and effectively transferring that to Mrs Melville.

[46] However and once again the Court resists any inclination to reach any conclusions upon claims of “knowing receipt” or “undue influence”. Those issues are best left for trial.

[47] There is much about the caveat application which should encourage a Court to refer the matter for a trial. However the issue before this Court is a discreet one. It concerns whether there exists an arguable case for the foundation of a caveatable interest in the property. In the Court’s view there is none such. Whilst there may be proper cause to review the actions of Mrs Melville the Court does not consider the applicants have a caveatable interest or indeed ever had a caveatable interest in the Trust property.

[48] Even if the Trust was established for the reasons the applicants say it was they never acquired any proprietary interest in the property. The reason is that there

were means available to the trustees to act in those ways in which they did, even though there may be challenge to the process by which they have acted.

[49] The Trust was a discretionary Trust. Whilst the trustees were subject to Trustee Act 1956 obligations there was reserved to them the ability to take those actions they have in what appears to have been a calculated way to deprive the applicants from any interest in the Trust property. Whilst there is some curiosity about the fact that FTL remained trustee even though Mrs Melville reported a change of solicitors was necessary, there is no evidence available of impropriety involved.

[50] It may have been, as the applicants said, that the Trust was established to avoid property relationship claims. That still does not give the applicants a proprietary interest in the property. The evidence suggests there may be reason to challenge the actions of the trustees and/or to question the actions of Mrs Melville but those rights of action need to be pursued independently.

[51] It may be that if this matter had been called before a High Court Justice and not before an Associate Judge that the Court could have acted as if the matter had been brought by way of an interim injunction application.

[52] As matters stand this Court’s jurisdiction is confined to determining whether

[55] Costs will be awarded to Mrs Melville calculated on a 2B basis together with disbursements approved by the Registrar. The Court has given consideration to Ms Allan’s submission that increased costs ought to be payable. The Court does not

High Court of New Zealand Decisions

Melville v Wen [2014] NZHC 630 (2 April 2014)