Thomson v Riley [2018] NZHC 2963 (15 November 2018)

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IN THE MATTER AND	of the Trustee Act 1956
IN THE MATTER	of an application pursuant to s 51 of the Trustee Act 1956
BETWEEN	LINDA MARGARET THOMSON AND KERRY WAYNE THOMSON Plaintiffs
AND	KEVIN JOHN RILEY Defendant

Hearing:	10 October 2018 (further submissions received 19 and 31 October 2018)
Appearances:	S Hughes QC for Plaintiffs J Marinovich and S Ebert for Defendant
_Judgment:	_{15 November 2018}

[1] Mr and Mrs Thomson, the plaintiffs, and Mr Riley, the defendant, are the executors and trustees of the estates of their late parents, Kenneth Riley who died on

18 July 1999 and Margaret Riley who died on 26 March 2013. Their children, Mrs Thomson and Mr Riley, are the sole beneficiaries of their estate.

[2] The primary asset of the Riley estate is a farm property at Kaimata in Taranaki. The wills of Kenneth and Margaret Riley anticipate that Mr Riley could acquire ownership of this farm property by exercising an option to purchase under the wills.

[3] Kenneth and Margaret Riley had mirror wills. The farm was owned by them as tenants in common in equal shares, with the surviving partner having a life interest under each will.

[4] Mr Riley’s option under the wills was to purchase the farm as a going concern. The valuation process is set out in the wills. The trustees may provide a second mortgage at a rate of interest and other terms and conditions to be determined by the trustees.

[5] It is common ground now that the option to purchase has been properly exercised. The parties have also now agreed that they will all resign as trustees and a replacement trustee should be appointed by the court. The appointment of new trustees will bring these proceedings to an end.

[6] Counsel came to this agreement after some initial dispute concerning the scope of today’s hearing. They agreed that the:¹

[7] The only matter for this court is whether it should appoint new trustees and if so who the new trustees should be.

[8] At the outset of the hearing Ms Hughes indicated that there were a number of items of evidence contained in the briefs of evidence and affidavits that she objected to on the basis that the parties had agreed that the hearing was limited to the appointment of replacement trustees. She noted that the basis upon which the parties

_{had agreed to proceed was that the evidence would be focused on the
issue of the new}

trustees to be appointed. This was to avoid criticisms being made of the other by either party.

Ms Van Wyngaarden strayed considerably from the agreed point of the hearing and engaged on a wholesale attack on the Thomsons. She sought that

Ms Van Wyngaarden’s brief of evidence from [4] to [23] and Mr Riley’s brief of evidence from [8] to [56], [64] to [135] and [139] to [152] be redacted. At the hearing it was noted that she did not seek that any of the documents which had been produced in the common bundle be excluded from the hearing.

(a) Mr Riley has responded to the issues raised by Ms Thomson and purports to explain his reasons for acting in the way Ms Thomson has criticised in her evidence. Mr Riley and his partner

Ms Van Wyngaarden have set out the background as they see it. It may be that Ms Thomson’s background affidavit was more restrained and succinct than Mr Riley’s. Nevertheless, Mr Riley is entitled to reply.

(b) Much of the evidence is by way of background and not directly relevant to the matters I need to decide. Nevertheless, it is a useful background. I will receive the evidence and put such weight as I consider appropriate on it; and

[11] Under s 51(1) of the Trustee Act 1956, the court may appoint a new trustee or trustees, if:

(b) It is “inexpedient, difficult, or impractical, to do this without the assistance of the court”.

[12] The principles that govern appointment under s 51 of the Act were summarised by Randerson J in Attorney General v Ngati Karewa and Ngati Tahinga Trust when he said:²

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 to do so 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] The word “expedient” imports concepts such as practicality and efficiency.³In this case I consider it is expedient to appoint new trustees for the following reasons:

(b) The evidence discloses there have been a number of disputes between the parties. In particular, concerning the deductions that Mr Riley has indicated he will be claiming on the transfer value he will pay Mrs Thomson for her share in the farm. This is the most significant asset in the estate. The disputes go back some years and strike at the heart of their relationship.

(c) For periods of time Ms Thomson and Mr Riley and their respective families have not spoken to each other because of the disputes.

(d) While the parties agree they should resign have been unable to agree upon who should be the new substitute trustee.

(e) The evidence indicates that parties remain suspicious of the other’s motives.

[14] It is clear that the parties are unable to reach agreement on who should be appointed in their places. Without the assistance of this Court, it is likely that that progress in the distribution of the trusts and the sale of the farm would face substantial disputes and delays.

[15] I am of the view that it is appropriate for the court to assist in the appointment of trustees to replace the present trustees. Having resolved that matter, the major issue now before me is who those trustees should be.

[16] Often where there are trustees whose relationship has become fraught, particularly where they are also beneficiaries, they become entrenched, and this results in a contested application for the removal and replacement of the trustees. In this case the parties must be given credit for the fact they agree that they should all step down and be replaced with an independent trustee or trustees.

[17] Two potential groups of trustees are proffered as options before the Court:

[18] The Thomsons press for the appointment of Mr Larmer and Ms James on the basis that:

(a) Mr Larmer has the required expertise and experience in areas of valuation, dispute resolution (both mediation and arbitration) and farm advisory work. He has an impressive list of appointments and

positions. He was previously a principal in a firm of registered valuers in New Plymouth. He is no longer with that firm and no longer undertakes valuation work in the Taranaki area, due to an agreement with his former firm. He now concentrates on appointments as trusteeships, advisory work and dispute resolution.

(b) Ms James is a chartered accountant and a partner with Staples Rodway based in New Plymouth. She has an impressive governance background, including as a founding director of Fonterra Co-operative Group Ltd up to 2003.

[19] Mr Riley says that he likes Mr Larmer’s experience in regard to resolving the dispute. However, he considers the job of mediating “or deciding the dispute” is quite separate to the job of trustee of the estates. He sees advantages in keeping the two roles separate which is why he says he prefers Perpetual Guardian to be the trustee and to have Mr Larmer deal with the dispute.

[20] The criticism made of Mr Larmer by Mr Riley is not that he does not have the skills, but rather that his particular skills lie in dispute resolution and farm advisory work. Mr Riley says he is willing for Mr Larmer to be retained to undertake that work in relation to resolving the disputes between the parties. However, Mr Riley says:

(a) Mr Larmer was willing to undertake a dual role as dispute resolution practitioner and trustee. These roles are incompatible.

(b) Mr Riley’s partner, Ms Van Wyngaarden, had a telephone conversation with Mr Larmer where she discussed the possibility of him assisting in resolving the disputes. Therefore, this gives rise to a conflict of interest as Mr Larmer had expressed some views. Mr Larmer does not deny there was a conversation, and in fact agrees that some of the notes made by Ms Van Wyngaarden would likely be things he said. For instance, “cost value” and references to values of land would have been

references to his comments. However, he cannot specifically recall the conversation. He said he often had inquiries about his availability as a dispute resolution practitioner and, given he cannot recall this conversation, it must have been a very general inquiry.

(c) No objection is taken to Ms James’ credentials. However, Mr Riley says that his partner was on a netball committee with Ms James some years ago and so this is a conflict. He also notes she was founding director of Fonterra which may mean she might favour Fonterra to take the farm milk. In response, Ms James says she has not been involved with netball although she has been involved with other sporting organisations and cannot recall any dealings at all with Mr Riley’s partner. I also note that her Fonterra role ended some 15 years ago.

[21] In my view, neither of the argued conflicts put forward would be impediments per se to the appointment of either Ms James or Mr Larmer in the ordinary course.

(a) His willingness to also act as a dispute resolution facilitator in the past as well as a trustee does not disqualify him from being appointed. I would have reservations about a trustee acting as an arbitrator (in the formal sense) as that role imports other responsibilities which may be at odds with the fiduciary obligations of a trustee. However, that is not the issue here.

(b) In relation to the telephone conversation that Ms Van Wyngaarden recalls. Copies of her notes made at the time were attached to her affidavit. The notes contain information not only about the telephone conversation she said she had with Mr Larmer, but also outline a strategy for Mr Riley to take in relation to the farm. It refers to the names of accountants and lawyers who might assist. This material appears to be unrelated to any conversation with Mr Larmer. I accept

it was of a general nature. It would not be sufficient to give rise to any conflict of interest in the ordinary course.

[23] I also consider both Mr Larmer and Ms James are well qualified to undertake the role of trustees.

[24] That being said, I have reservations about whether it is appropriate to appoint them in the present circumstances. I refer to those later.

[25] Mr Riley nominates the Perpetual Guardian as an independent trustee to replace himself and the Thomsons.

[26] Mr Fifield gave evidence. He is the branch manager of Perpetual Guardian covering the areas of Manawatu and Taranaki. The company has an office in New Plymouth.

(c) Has offices nationwide with over 140,000 will relationships, administering or supervising assets valued over $100 billion;

(d) The company has 135 years of experience in estate planning and trustee services in New Zealand;

(e) Has been appointed countless times as an independent trustee to administer dairy farms such as the present;

(f) Has established systems and processes over many years to ensure compliance with legislation and best practices; and

(g) Holds insurance to cover trustee activities, excluding only health and safety matters and certain tax matters. Mr Fifield’s evidence was that in the areas that it does not insure for (Health and Safety and specific

[28] Mr Fifield had reviewed Kenneth and Margaret’s wills and had some knowledge of the estate assets, but not in detail. In fact, the Perpetual Guardian’s consent to act as trustee was conditional on further due diligence. His evidence was that it was unlikely that Perpetual Guardian would not accept an appointment. However, he said from a sensible commercial point of view he needed to take various steps to satisfy himself as to the position of the estate. He indicated that some of the due diligence was required to check the level of compliance. This was in areas such as health and safety. If the check showed any noncompliance steps could be taken by the company upon appointment to put in place a programme to achieve compliance.

[29] Mr Fifield said he also needed to be satisfied that there were adequate financial resources in the trusts, whether that was by way of funds held, or in assets. This may lead to deferral of the payment of trustee fees and professional fees to fund what was required in terms of resolution of the disputes, transfer of the farm and distribution of the trusts. Again, he did not consider this would prevent Perpetual Guardian from taking up the role.

[30] Mr Fifield appeared to be straightforward and responsible in answering questions put to him. He accepted that Mr Larmer had substantial qualifications as a valuer, business adviser, farming adviser and dispute resolution specialist. Mr Fifield admitted he did not have the level of skills held by Mr Larmer, but came from a banking background. He had been an officer at a substantial bank in Taranaki which had the largest market share of rural lending in New Zealand at the time. He is now based in Palmerston North.

[31] Mr Fifield also mentioned that Perpetual Guardian would consider appointing

Mr Larmer as either the second appointed valuer or umpire in the valuation process of the farm, nevertheless considering what had happened in these proceedings he might canvass the parties first to seek their consent on that issue.

[32] Mr Fifield indicated that in his view the role of the trustees was to make decisions according to their professional responsibilities. It was the role of advisors and other practitioners to advise the trustees. That advice may well be accepted but not necessarily.

Mr Larmer and Mr Ansley (an experienced solicitor) to be the replacement trustees and to resolve the disputes between the parties including the valuation price of the farm for the option to purchase. He noted the appointment at some stage contemplated a dual role of trustees and “arbiters”. He was of the view that this dual role might give rise to a conflict of interest. Mr Fifield said that Perpetual Guardian would never assume both roles although he said in cross-examination that he was aware that other trustees may well do so. He noted that the dual role was becoming less common these days. Presumably as the risks to those undertaking those roles have increased.

[34] Mr Fifield has not been drawn into the beneficiaries’ dispute. He did not appear partisan and was clear Perpetual Guardians’ obligation as a trustee. He also had an appreciation of the need to use appropriate professionals where necessary, but had no hesitation in noting that where decisions were required, Perpetual Guardian would make them on a suitably informed basis.

[35] The Thomson’s concerns about the appointment of Perpetual Guardian are largely centred around the fact that Mr Fifield is based in Palmerston North, and that there will more costs in involving both trustees as well as separate dispute resolution specialists and farm advisors. They say that there was no objection to Mr Larmer when he was to be appointed together with Mr Ainsley, and cannot see why there should be now.

[36] The court is guided by three considerations in considering who to appoint as trustees:⁴

(a) Settlors’ intentions: the court will give considerable weight to the expression of the settlors’ intentions as to the identity of their trustees, if such can be discerned. But the court is not bound by those intentions and may depart from them “if good cause is shown”.⁵In this case there are no apparent settlors intentions beyond the appointment of the present trustees who are family members. There is no mechanism for the appointment of new trustees under the will.

(b) Neutrality between beneficiaries: the trustees must be neutral and even handed as between beneficiaries with different interests. The Courts typically will refuse to appoint beneficiaries (or their spouses or relatives or advisors) or others interested in the trust property, even though their appointment would not be objectionable on that ground alone;

(c) Promotion of the purposes of the trust: this is inherent in any trusteeship.⁶In this case both parties have put up independent trustees. Therefore, the issue of neutrality between beneficiaries and any suggestion of conflict of interest in that regard does not arise.

[37] In my view both Mr Larmer and Mr Fifield for Perpetual Guardian in their evidence have shown appreciation of the responsibility of trustees. Ms James did not give evidence but her affidavit indicates she is also well equipped for appointment. Therefore, the decision as to who should be the trustees requires a finer analysis than is usually the case.

[38] I had considered the possibility of the appointment of a third party, not suggested by either, as a trustee. However, that would further complicate and delay the resolution and distribution of the trusts. In any event, both parties have proposed independent and professional trustees.

[39] Another option would have been the appointment of both Mr Larmer and Perpetual Guardian as trustees. However, Mr Riley made it clear that he would not contemplate the appointment of Mr Larmer as trustee in any circumstances.

[40] Mr Larmer impressed me in his evidence as a practical and robust professional. Clearly skilled in many areas including dispute resolution, farm management and valuation. He impressed me as someone who would not be shy of using his knowledge in any area for what he considers is the benefit of the trust. While that in some respects may be useful, in these circumstances it may lead to conflict with Mr Riley who is the present manager of the farm. He has now expressed a firm view that he would not voluntarily accept Mr Larmer as a trustee.

[41] Mr Riley’s views appear to have been reinforced by the advice that he is receiving about trustees acting as arbitrators. Mr Fifield also commented, while there were trustee/arbitrators, that was not the model that Perpetual Guardian used. He also noted that the concerns with conflicts and risk around the dual roles and that currently the thinking in the trust industry was the roles should be separate.

[42] It is clear from the correspondence that Mr Larmer and Mr Ainsley were considered suitable trustees for appointment at an earlier stage, by both parties.

Ms Hughes says the suggestion that they also be arbitrators or dispute resolvers was only made by Mr Riley not her client. Nevertheless, it was being actively pursued at one stage at least by Mr Riley and Mr Larmer was amenable to the suggestion. I do not consider this necessarily would result in his having a conflict of interest, however, in the circumstances Mr Larmer’s appointment may add a further complication to the effective resolution of the disputes between the beneficiaries and distribution of the trusts.

[43] In all the circumstances, it appears appropriate to appoint Perpetual Guardian as the independent trustee. The reasons for this are:

experience dealing with trusteeships of farms such as the present case, appropriate insurance and compliance systems, as well as a presence in New Plymouth.

(b) It has significant capital and is not dependent on one individual being responsible for the administration.

(c) Mr Larmer is well qualified but has been involved in discussions concerning the appointment of trustees and a possible role as a dispute resolution expert for some time. Mr Riley, at least, has an objection to

Mr Larmer acting in those roles and as trustee. Given the possibility that this may give rise to further problems in the relationship, there is a risk in appointing Mr Larmer to be trustee. It may lead to the compromising of the official distribution of the estate. While it is

Mr Riley’s perception that Mr Larmer has views on the dispute, due to his conversation with Ms Van Wyngaarden, nevertheless that perception may add to the difficulties surrounding resolution of the issues between the beneficiaries. Therefore, that is not a risk that should be taken in the circumstances.

(d) There is no suggestion that Ms James be appointed other than together with Mr Larmer as trustee. Therefore, if Mr Larmer is not appointed she should not be considered alone.

[44] In those circumstances, the balance favours the appointment of the Perpetual Guardian subject to it accepting appointment. As the indication from Mr Fifield was that further due diligence would be required before it accepted the appointment, I direct that the consent of Perpetual Guardian be provided by memorandum to this court within 10 days of the date of this judgment. The appointment will not be complete until that consent is provided.

[45] Leave is reserved to counsel to make any submissions in relation to that consent within five days of filing and service of that consent.

[46] I make an interim order appointing Perpetual Guardian as trustee of the trusts created by the wills of Kenneth and Margaret Riley.

[47] Perpetual Guardian is to file its consent (without conditions) to such appointment within ten days of the date of this decision at which stage I will issue a final order.

[48] The parties have a further five days from the filing of the consent to file any submissions in relation to that consent.

[49] Counsel indicated they would attempt to resolve the issue of costs between them. If they remain unable to resolve this issue, I will direct the filing of submissions.

High Court of New Zealand Decisions

Thomson v Riley [2018] NZHC 2963 (15 November 2018)