Anderson v Ed Johnston & Co Trustees Limited

[2018] NZHC 1122

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-2860

[2018] NZHC 1122

UNDER

the Trustee Act 1956

IN THE MATTER

Of an application under s 51 of the Act for the appointment of a new trustee

AND UNDER

the Property Law Act 2007

IN THE MATTER

Of an application under s 339 of the Act for the sale of the property and the division of

the proceeds among the co-owners

BETWEEN

RAEWYN HELEN ANDERSON

Plaintiff

AND

ED JOHNSTON & CO TRUSTEES LIMITED

First Defendant

PETER ARTHUR ANDERSON aka PETER TAIPOTO

Second Defendant

Hearing:

26 April 2018

Appearances:

MHA Ho for the Plaintiff

No appearance by or for the Defendants

Judgment:

18 May 2018

JUDGMENT OF WOODHOUSE J

This judgment was delivered by me on 18 May 2018 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar

……………………………………

ANDERSON v ED JOHNSTON & CO TRUSTEES LTD [2018] NZHC 1122 [18 May 2018]

[1]    The plaintiff, Ms Raewyn Anderson, seeks orders for sale of a property owned in equal shares by the trustees of two trusts, for removal of the second defendant, her former husband, Mr Peter Anderson, as a trustee of each of the trusts, and further orders for appointment of new trustees and vesting of title.

Formal proof

[2]    For reasons I come to, the claim against the first defendant, Ed Johnston & Co Trustees Ltd, has been discontinued.

[3]    There is proof of service on Mr Anderson. He has taken no steps. The claim against him has proceeded by way of formal proof.

Background

[4]Ms and Mr Anderson were married in 1990.

[5]    In 2000 they bought, in their own names, a property at 3/248 Sturges Road, Henderson (the property). They rented out the property for around five years and then moved into it as their home.

[6]    In 2007 they created mirror trusts – the Raewyn Anderson Family Trust (the Raewyn Trust) and the Peter Anderson Family Trust (the Peter Trust). The trustees of each trust were Ms Anderson, Mr Anderson, and the first defendant Ed Johnston & Co Trustees Ltd.

[7]    Title to the property was transferred to the two trusts in equal shares. This resulted in debts owed to Ms and Mr Anderson of $235,000 each. Gifting over the years has reduced each debt to $154,000.

[8]    Difficulties arose in the relationship between Ms and Mr Anderson. It is unnecessary to record any details except that it is established that, amongst other things, Mr Anderson acted improperly in relation to assets held jointly with Ms Anderson, as well as in respect of the liabilities of the trusts, which he increased without authority.

[9]    In 2010 Ms and Mr Anderson moved out of the property and it has been tenanted since then.

[10]In June 2010 Mr Anderson was adjudicated bankrupt. He is still in bankruptcy.

[11]   The couple separated in November 2011. Their marriage was dissolved in 2013.

[12]   Since 2012 Ms Anderson has been trying to get Mr Anderson’s consent to sell the property. His consent is required as a trustee, not that of the Official Assignee. Ms Anderson’s uncontradicted evidence is that Mr Anderson has either failed to respond, or failed to respond in a sensible way, to any proposal. As Ms Anderson put it:

Whenever I try to bring up the trusts and the property with him, he would either pretend to agree (and then take no steps to action what I had suggested) or send me incomprehensible correspondence referring to the Treaty of Waitangi and Māori land jurisdiction.

[13]   The first defendant retired as a trustee of the Raewyn Trust in 2016. It has since executed a deed of retirement as trustee of the Peter Trust. In these circumstances, Ms Anderson sought leave to discontinue against the first defendant. Mr Ho, counsel for Ms Anderson, advised there is no issue as to costs. Leave is granted accordingly.

Application for order for sale

[14]It is appropriate to deal first with the application for an order for sale.

[15]   The application for sale of the property is made under s 339 of the Property Law Act 2007, which applies in this case.

[16]   An order can only be made on an application made and served in the manner required by s 341. Section 341 has been complied with.

[17]   Section 342 sets out relevant considerations the Court must have regard to, as follows:

(a)the extent of the share in the property of any co-owner by whom, or in respect of whose estate or interest, the application for the order is made:

(b)the nature and location of the property:

(c)the number of other co-owners and the extent of their shares:

(d)the hardship that would be caused to the applicant by the refusal of the order, in comparison with the hardship that would be caused to any other person by the making of the order:

(e)the value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property:

(f)any other matters the court considers relevant.

[18]   The facts of this case bearing on paragraphs (a) and (c) provide grounds for, and support the making of, an order for sale. With the retirement of the first defendant as a trustee, Ms Anderson is a 50 per cent owner of the property as one of the two remaining trustees of each of the trusts.

[19]   The nature and location of the property – paragraph (b) – is not a consideration weighing against an order. Its location supports Ms Anderson’s application because she wishes to move to Taupo to live with her new partner, and continued ownership of a house in Auckland would cause some difficulties, particularly having regard to the fact that in practice she has sole responsibility for management.

[20]   The question of hardship, referred to in paragraph (d), is central. It provides strong grounds in support of an order for sale. The unchallenged evidence was accurately summarised in Mr Ho’s submissions as follows:

The current situation is stressful. The ownership structure requires [Raewyn] to deal with (or try to deal with) her ex-husband on an ongoing basis. There is stress associated with managing the property and the tenants. Raewyn has had to take care of the property by herself for a number of years, with no assistance from Peter. She simply wants to sell the house and put this chapter of her life behind her.

The house is a financial burden. Raewyn’s savings are tied up in the house and she has been solely responsible for raising her two children since the divorce. The rental income has historically returned a small surplus, but in recent years the house has required fairly substantial repair work which Raewyn has struggled to afford. There has been no financial contribution from Peter.

Peter would suffer relatively little hardship if the property was sold. He does not live in the house and shows no interest in living there in the future. He has not had any active involvement in managing the rental property. The Peter Trust will receive its share of any surplus.

[21]   In relation to paragraph (e), maintenance and some improvements over the years have been funded from rent payments, but, as just noted, in recent years there has been fairly substantial repair work which Ms Anderson has struggled to afford.

[22]   There are other relevant matters under paragraph (f). Ms Anderson’s relationship with Mr Anderson, both before and after dissolution of their marriage, has been fraught. Ms Anderson has given evidence of instances where Mr Anderson transferred money from joint accounts without authorisation, or incurred debts in her name. She has also described situations where she was threatened by Mr Anderson and filed a police complaint. It would not be appropriate for the present state of affairs to continue.

[23]   Also arising under paragraph (f) is the fact that Mr Anderson remains bankrupt. He has an asset arising from the balance of the debt owed by the two trusts. The Official Assignee sought payment of Mr Anderson’s share of $154,000. In May 2016 the Official Assignee lodged a caveat over the property in that regard. The Official Assignee has now agreed to accept a sum of $154,000 on sale of the property in full and final settlement of Mr Anderson’s interest as a creditor of the two trusts.

[24]For these various reasons I am satisfied that an order for sale should be made.

[25]   Section 343 of the Property Law Act makes provision for the Court to make further orders relating, amongst other things, to the sale process and disposition of the proceeds of sale. Ms Anderson sought fairly detailed orders in that regard directed, in part, to the  possibility  that  difficulties  would  be  encountered  in  dealing  with  Mr Anderson in getting the property marketed and then in completion of a sale.

[26]   If Mr Anderson remained as a trustee of the two trusts, particular orders would be required to seek to avoid the difficulties Ms Anderson was concerned about. However, that particular difficulty will not arise if Mr Anderson is removed as a trustee of the two trusts. For reasons I will come to, I am satisfied that he should be removed

and that new trustees be appointed. It is to be anticipated that the new trustees, including the Public Trust as the new trustee of the Peter Trust, will co-operate in doing the things that, as a matter of law, are required to be done by the trustees of the two trusts to effect sale and get the proceeds of sale distributed, including the sum to be paid to the Official Assignee.

[27]   Having discussed this approach with Mr Ho, the detailed orders sought in the statement of claim were modified to an extent, as recorded in the formal orders that follow.

Formal orders on the application for sale

[28]There are the following orders:

(a)An order that the property at 3/248 Sturges Road, Henderson, Auckland, being Lot 1, Deposited Plan 147292 in Certificate of Title NA101A/100 (the property) be sold by public sale.

(b)Subject to the following orders, the sale is to be organised by the plaintiff Raewyn Helen Anderson or her agent.

(c)The plaintiff is authorised to fund from the existing mortgage marketing costs in relation to the sale and costs required to prepare the property for sale.

(d)The registered proprietors of the property, being the new trustees appointed in accordance with orders that follow in this judgment, and the continuing trustee Raewyn Helen Anderson, are to co-operate in doing all things necessary, as expeditiously as reasonably possible, to put the property on the market for sale by auction and do all other things necessary to effect a sale at auction or, if necessary, following auction, including execution of all necessary documents.

(e)Leave is granted to the plaintiff and to the new trustees of both trusts to seek further orders or directions if required. Such application should

be referred to me in the first instance, but to another Judge if the need arises.

[29]   The proceeds of sale of the property are to be disbursed in the following priority and manner:

(a)The payment of the amount due and owing under the mortgage as at the date of payment.

(b)Payment of the $2,411.07 debt owed to the trusts’ mortgage broker.

(c)Payment of any real estate agent’s commission and legal fees incurred by the vendors in connection with the sale of the property.

(d)The following adjustments to be made before the balance of the proceeds of sale are divided between the Peter Anderson Family Trust and the Raewyn Anderson Family Trust:

(i)From the Peter Anderson Family Trust’s share, $5,346.88 being the costs incurred to date in relation to the sale of the property, is to be deducted and paid to the Raewyn Anderson Family Trust.

(ii)From the Peter Anderson Family Trust’s share, a sum of

$20,862.50 for the costs of and incidental to this application plus the fee for sealing the orders made in this judgment, is to be deducted and paid to the Raewyn Anderson Family Trust.

(iii)From the Peter Anderson Family Trust’s share, $77,000 is to be deducted and paid to the Official Assignee in satisfaction of that trust’s share of the debt to Peter Anderson.

(iv)From the Peter Anderson Family Trust’s share, $77,000 is to be deducted and paid to Raewyn Anderson in satisfaction of that trust’s share of the debt to Raewyn Anderson.

(v)From the Raewyn Anderson Family Trust’s share, $77,000 is to be deducted and paid to the Official Assignee in satisfaction of that trust’s share of the debt to Peter Anderson.

(vi)From the Raewyn Anderson Family Trust’s share, $77,000 is to be deducted and paid to Raewyn Anderson in satisfaction of that trust’s share of the debt to Raewyn Anderson.

(e)The balance remaining is to be divided equally between the Raewyn Anderson Family Trust and the Peter Anderson Family Trust.

(f)The balance owing to the Peter Anderson Family Trust is to be held by the conveyancing solicitor on trust in an interest bearing account in the names of Raewyn Anderson and the Public Trust as trustees of the Peter Anderson Family Trust. The Public Trust is to provide the conveyancing solicitor instructions as to payment.

Application for orders for removal of Peter Anderson as a trustee and appointment of new trustees

[30]   I am satisfied that an order should be made removing Mr Anderson as a trustee of the Peter Trust and of the Raewyn Trust. There are alternative grounds clearly established. These can be succinctly stated.

[31]   Clause 24.1 of the Deed of Trust for each trust provides that a “Trustee shall cease to be a Trustee and … shall not be capable of exercising any power or discretion whatever” under the trust deed, if that trustee –

by any appointment or order made by a competent authority or by the operation of law has property beneficially owned by that Trustee … removed from the personal effective control of that Trustee.

[32]This provision applies as a consequence of Mr Anderson’s bankruptcy.

[33]   That provision, in each deed, is sufficient to require an order for removal of Mr Anderson. Section 51 of the Trustee Act 1956, which enables appointment of new trustees, also contains provisions pursuant to which orders can be made removing

Mr Anderson as a trustee of both trusts. The Court may make an order under s 51(1) when, amongst other things, it is expedient to appoint a new trustee in substitution for any existing trustee. This provision applies (and new trustees will be appointed) because of Mr Anderson’s failure for over four years to discharge his duties as a trustee of the two trusts. Further, under s 51(2), “in particular and without prejudice to the generality” of s 51(1), the Court may also make an order appointing a new trustee in substitution for a trustee who is a bankrupt.

[34]   Mr Alexander Baker has agreed to appointment as a new trustee of the Raewyn Trust, to act as a trustee together with Ms Anderson.

[35]   The Public Trust has agreed to be appointed as a new trustee of the Peter Trust. Ms Anderson proposed that she would resign as a trustee of that trust, leaving the Public Trust as sole trustee. The reason was to ensure independence of the Peter Trust given Mr Anderson’s bankruptcy. I did not discuss this point with Mr Ho, but I do not consider that it is necessary for Ms Anderson to retire immediately as a trustee of the Peter Trust, and it will be better for her to remain to provide assistance to the Public Trust over the period of sale. The obligation to ensure that the necessary payment is made to the Official Assignee will remain whether or not Ms Anderson is a trustee of the Peter Trust. Once completed, Ms Anderson may wish to retire and may do so.

Formal orders relating to trustees

[36]There are the following orders:

(a)Peter Arthur Anderson is removed as a trustee of the Raewyn Anderson Family Trust and as a trustee of the Peter Anderson Family Trust.

(b)Alexander Baker is appointed as a new trustee of the Raewyn Anderson Family Trust.

(c)The Public Trust is appointed as a new trustee of the Peter Anderson Family Trust.

(d)Leave is reserved to Raewyn Helen Anderson, as the continuing trustee of both trusts, and to the new trustees, to apply for further directions if required.

Vesting of title to the property

[37]   There is an order pursuant to s 52 of the Trustee Act 1956 vesting title to the property in the continuing trustee, Raewyn Helen Anderson, and in the new trustees Alexander Baker and the Public Trust, in the appropriate shares derived from the respective interests of the Raewyn Anderson Family Trust and the Peter Anderson Family Trust.

Woodhouse J

Solicitors:

Mr MHA Ho, Gilbert Walker, Solicitors, Auckland