Broadbent v Broadbent
[2014] NZHC 254
•24 February 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-2678 [2014] NZHC 254
UNDER section 51 of the Trustee Act 1956 IN THE MATTER
of the Broadbent Family Trust
BETWEEN
VICTORIA ROSANNE BROADBENT Plaintiff
AND
JOHN STEPHEN BROADBENT AND VICTORIA ROSANNE BROADBENT, as Trustees of the Broadbent Family Trust Defendants
Hearing: 4 and 5 February 2014 Appearances:
CM Webster for Plaintiff
JS Broadbent, first named Defendant, in personJudgment:
24 February 2014
JUDGMENT OF BREWER J
This judgment was delivered by me on 24 February 2014 at 11:30 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors: Rennie Cox (Auckland) for Plaintiff
(Copy to first named Defendant in person)
BROADBENT v TRUSTEES OF THE BROADBENT FAMILY TRUST [2014] NZHC 254 [24 February 2014]
Introduction
[1] Mr and Mrs Broadbent are the trustees of the Broadbent Family Trust (“the Trust”) of which they are the settlors and under which they hold jointly the power of appointment.
[2] Mrs Broadbent applies to the Court for orders removing herself and
Mr Broadbent as trustees and appointing in their place an independent corporate
trustee.1
Mr Broadbent opposes.
Background
[3] The Trust was established by deed on 10 March 2003. Mr and Mrs Broadbent are discretionary beneficiaries, as are their two (adult) daughters. The key assets of the Trust are two pieces of real property:
(a) 19D Balfour Road, Parnell, Auckland. This is a residence occupied currently by Mr Broadbent. Its value seems to be in the region of
$1.7m; and
(b) 151F Te Punga Road, Whangapoua, Coromandel. This is a residence/luxury lodge occupied currently by Mrs Broadbent. Its value might be around $3.2m.
[4] Mr and Mrs Broadbent have, as trustees, guaranteed various loans and credit card accommodations made by BNZ to them personally or at their request. The guarantees are secured by a mortgage registered against the Balfour Road property. In total, the mortgage secures around $1.1m.
[5] The Trust has no significant source of income.
[6] Mr and Mrs Broadbent separated in January 2012. There is litigation between them in the Family Court over the division of relationship property and
1 A memorandum of counsel dated 4 February 2014 elucidated the orders sought in the first amended statement of claim.
spousal maintenance. I am advised also that Mrs Broadbent has made application for a protection order under the Domestic Violence Act 1995.
[7] Mrs Broadbent’s position is that in these circumstances it would be prudent for the trustees to sell the two real properties and make distributions so that BNZ can be repaid and so that the Trust’s remaining assets can be applied in accordance with the provisions of the Trust deed. However, she cannot attract co-operation from Mr Broadbent.
[8] Mr Broadbent’s position, as set out in his first amended statement of defence dated 21 August 2013, is that the assets of the Trust have been managed prudently since the separation and that the Trust continues to be administered in accordance with the Trust deed. Therefore, there is no reason for him to be removed as a trustee. He is prepared to exercise his power of appointment with Mrs Broadbent to replace her as trustee with a corporate trustee administered by the Trust’s accountants.
The course of the proceeding
[9] This proceeding was initiated by notice of proceeding and statement of claim on 17 May 2013. Mr Broadbent was represented initially by a firm of solicitors who instructed senior counsel. The trial fixture was allocated by Associate Judge Sargisson in a Minute of 9 August 2013. The usual pre-trial management occurred. There was, however, a falling out between Mr Broadbent and his solicitors and on
20 December 2013 the solicitors filed an application seeking an order that they be removed as solicitors on the record. This application was granted by Courtney J on
29 January 2014.2
[10] Mr Broadbent did not appear personally but via email sought an adjournment of the substantive application. Courtney J refused the adjournment.
[11] Mr Broadbent appeared in person shortly after the case was called before me on 4 February 2014. He renewed his application for an adjournment, primarily on
the basis that he wanted to arrange to be legally represented. Mr Broadbent is an
2 Broadbent v Broadbent [2014] NZHC 23.
airline pilot who is out of the country frequently. This, he submitted, has made it difficult for him to instruct other counsel. I declined to grant a further adjournment because it seemed to me that the issues were not complex and that the background circumstances required the Court to give the application reasonably urgent attention.
[12] Mr Broadbent then argued that he and Mrs Broadbent should be able to agree as trustees on the disposition of the real property if given an opportunity for dialogue. Mr Broadbent submitted that there had been no opportunity for dialogue prior to that point. Accordingly, I adjourned to enable the parties to have a discussion to see whether they could resolve matters. Some two hours later I returned to Court to be told that no agreement had been reached.
[13] Mr Broadbent had not seen the 4 February 2014 memorandum of counsel for Mrs Broadbent as to the orders now sought. Having heard the parties on the underlying issues, I adjourned the hearing until 5 February 2014 to enable Mr Broadbent to consider the memorandum.
[14] I resumed the hearing on 5 February 2014 and heard from both parties. Mr Broadbent renewed his application for an adjournment, saying he wanted to counterclaim for the removal of Mrs Broadbent as a trustee on the ground of misappropriation of funds from the Trust. I refused the adjournment.
[15] Mr Broadbent was given an opportunity to make further submissions. He acknowledged that the Trust has an immediate need to act and he set out three options which he submitted are preferable to the orders sought by Mrs Broadbent. The first option is for the parties to borrow more money, on the security of the Trust’s properties, to cover outstanding debts and to finance future costs while the properties are sold through a prudent and thorough marketing campaign. That is Mr Broadbent’s preferred option.
[16] The second option he described as being really a liquidation. In order to forestall BNZ or other creditors initiating compulsory processes, the trustees would mount a quick sales campaign lasting perhaps a month to sell both properties.
[17] Mr Broadbent’s third option is that he and Mrs Broadbent agree values for the properties and divide them. Mrs Broadbent would “take over the Trust and the Whangapoua property and the residual debt and take the lead on marketing and selling of the property at a time and in a manner which she saw fit ... ”. Mr Broadbent would retain the Balfour Road property.
[18] Mrs Broadbent’s response, as submitted by Ms Webster, can be put simply as frustration with the delay in resolving the Trust’s position, concern at the Trust’s position and a lack of confidence that any proposals requiring co-operation between the parties can succeed.
The law
[19] Section 51 of the Trustee Act 1956 (“the Act”) gives the Court a general power to appoint trustees either in substitution for any existing trustee or in addition to any existing trustee. The threshold is that such appointment is expedient and that it is inexpedient, difficult or impracticable so to do without the assistance of the Court.
[20] The focus of the Court’s attention must be the trusts with which the trustees are invested. Are the trusts being given proper effect? Are the assets involved being managed prudently?
[21] The power given by s 51 co-exists with the Court’s general supervisory jurisdiction of trusts in equity for the welfare of beneficiaries.3 In my view, the Court’s powers in this area should be exercised robustly and not timidly. If there is a demonstrated need to replace trustees to ensure that trusts are given proper effect or that trust assets are managed prudently then that is what should be done. It is not
necessary to prove misconduct on the part of a trustee.4
3 Kain v Hutton CA23/01 25 July 2002 at [18].
4 Letterstedt v Broers (1884) 9 App Cas 371 (PC) is a classic case in this area. See, particularly, Lord Blackburn’s speech at 385-386.
[22] Section 64 of the Act gives the Court the power to direct a trustee to sell Trust assets. The purpose of the power is to ensure that Trust property is managed advantageously in the interests of the beneficiaries.
Discussion
[23] It is clear that the Trust is not being administered properly. There are two reasons for this. The first is that the end of the parties’ marriage has brought the end of their engagement together as trustees. The Trust is not being administered, the welfare of the beneficiaries is not being given consideration. The second reason is that both Mr and Mrs Broadbent, I find, regard the Trust’s assets as being effectively relationship property. In their minds the assets of the Trust are to be divided between them and their contention relates to how that should be done.
[24] Mr and Mrs Broadbent are not the only beneficiaries of the Trust. Their daughters are also beneficiaries. Neither party mentions their interests at all. There is no evidence that their welfare is a matter which, as trustees, the parties are taking into account.
[25] It is clear that the Trust’s real properties must be sold. The contingent liability to BNZ is likely to become an actual liability. Mr Broadbent has been paying interest on the sums owing to BNZ, but on what basis is not clear. There has already been one period of default. Neither of the properties is returning an income to the Trust and selling the properties would provide funds from which the Trust’s liabilities can be discharged and the balance can be applied properly to the welfare of the beneficiaries.
Decision
[26] I will grant Mrs Broadbent’s application. There remains the issue of who should be the independent trustee or trustees. Originally Mrs Broadbent wanted two of the principals of the firm of accountants acting for the Trust to take office as replacement trustees. They are no longer willing to accept appointment. It is now proposed that Mr C R Darlow, a well-known Auckland solicitor, form a company to act as a corporate trustee under his control.
[27] Mr Darlow, on 31 January 2014, swore an affidavit in which he expresses his willingness to act in this way, but subject to conditions:
7.I am prepared to take on the role as independent trustee of the Trust on the basis that there is likely to be no impediment to the selling of at least one of the two properties these being the apartment at Balfour Road, Parnell and Te Punga Lodge, Coromandel. I would need the assurance of a Court order requiring (or approving) the sale of the properties, such an order being made at the time the Court appoints me as trustee. If this is not possible then I could not accept the appointment.
8.Upon receiving the proceeds of sale I envisage that I would then exercise the discretion given to the trustee as to the management and distribution of the funds according to the terms of the trust.
[28] In my view, Mr Darlow is simply being pragmatic. The Trust has no cash and has a significant contingent liability. To act as trustee (through a corporate trustee) he needs to be able to sell the Trust’s real property in order to protect the welfare of all the beneficiaries of the Trust.
[29] I note that Mr Broadbent does not want Mr Darlow to act in this capacity. He has had dealings with Mr Darlow in the past and disagreed with his approach to business issues. However, taking Mr Broadbent’s submissions at face value they do not disqualify Mr Darlow. Further, there is a need to act swiftly.
[30] I order:
(a) Mr and Mrs Broadbent are to be replaced as trustees of the Trust by a corporate trustee (the new trustee) to be formed and controlled by Christopher Robert Darlow of Auckland, solicitor;
(b) The appointment of the new trustee, and its replacement of Mr and Mrs Broadbent, shall occur on the date of incorporation of the new trustee; and
(c) The new trustee is directed to sell both of the Trust’s real properties in such order, and in such manner, as the new trustee determines to be most beneficial to the Trust.
Costs
[31] This proceeding has been necessary because the parties are estranged. I think that trustees in their position should have recognised that their conflict was rendering the performance of their duties impossible. They should have agreed to relinquish their posts and appoint independent trustees. It was Mrs Broadbent who eventually came to recognise the necessity and it was Mr Broadbent who clung to the status quo. In these circumstances it would be wrong to order that costs be paid by the Trust.
[32] Mrs Broadbent is entitled to costs. I award these on a 2B basis against
Mr Broadbent.
Brewer J
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