Burgess v Monk
[2017] NZHC 2424
•4 October 2017
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-Ā-KAHU ROHE
CIV 2013-463-187 [2017] NZHC 2424
BETWEEN WARWICK JAMES BURGESS
First Plaintiff
CTE BURGESS LTD Second Plaintiff
AND
PHILLIP CHARLES MONK First Defendant
NEW ZEALAND GUARDIAN TRUST COMPANY LTD
Second Defendant
Other defendants continued overleaf
Hearing: 20, 25, 26, 27, 28, 29 September, 2, 3, 4 October 2017
(at Hamilton)
Counsel:
D G Chesterman, S Carey and E McGill for Plaintiffs
R J Latton, H Ford and G Schumacher for First and SSecond
Defendants
No appearance by, or on behalf of Third DefendantA S Ross QC and G Beresford for Fourth and Sixth Defendants C T Walker QC and A Lenard for Fifth, Seventh and Eighth Defendants
Judgment:
4 October 2017
JUDGMENT (NO. 2) OF HEATH J
This judgment was delivered by me on 4 October 2017 at 9.15am pursuant to Rule
11.5 of the High Court Rules
Registrar/Deputy Registrar
BURGESS v MONK [2017] NZHC 2424 [4 October 2017]
ANDDAVID TROUNSON Third Defendant
ANDALISDAIR HUGH MORRISON Fourth Defendant
ANDARMER FARMS (N.I.) LTD Fifth Defendant
AND OʼSULLIVAN CLEMENS
Sixth Defendant
ANDGRAEME WILLIAM ELVIN AND SHARLENE DARRAGH
Seventh Defendants
ANDTIHOI HOLDINGS LIMITED Eighth Defendant
CONTENTS
The applications [1] The security for costs application [9] A roadmap [12] The claim in outline [13] The parties and the causes of action [35] The funding application [42] The jurisdictional point [46] The evaluation point [81] Result [88]
The applications
[1] Mr Warwick Burgess (Warwick)1 and CTE Burgess Ltd (CTE) have brought this proceeding in an endeavour to regain family ownership of a farm property (including forests) situated near Tihoi, on the western side of Lake Taupo (the Farm), along with other assets and a business associated with it (together, the Tihoi assets).2
Warwick’s object is to achieve an outcome that will (he believes) reflect his parents’ long held intent that he inherit the Farm. The proceeding requires consideration of events that have occurred over a period of about 50 years, between 1959 and 2010.
[2] Originally, the case was set down for hearing over five weeks commencing on 18 September 2017. For reasons into which it is unnecessary to go, the substantive hearing did not commence until 25 September 2017. On the second day of the trial, it became clear that the estimated duration was far too short. Arrangements have been made for the hearing to extend until late November or early December 2017, if necessary, to ensure it is completed this year.
[3] During the week of 11 September 2017, I was advised by Mr Chesterman, for Warwick, that he wished to make an urgent application (the funding application) to have funds released from the estate of his late mother, Mrs Mary (Molly) Burgess
(Molly and Molly’s Estate respectively). The funding application seeks to put
1 Without intending any disrespect to them, for convenience, I shall use the first names of the members of the Burgess family who feature in this proceeding.
2 For more detail, see para [29] below.
Warwick in funds to meet anticipated legal costs and disbursements to complete the trial. A sum of $800,000 is sought for that purpose.3
[4] Following a telephone conference on 14 September 2017, I made directions to enable the funding application to be heard urgently. During that conference, counsel for all those defendants taking an active role in the proceeding (the active defendants),4 signalled that they may file applications for security for costs, in response. Those intended applications were also timetabled, to be heard at the same time as the funding application.
[5] Applications for security for costs were duly filed by the active defendants, save for New Zealand Guardian Trust Co Ltd (Guardian Trust)5 and Mr Philip Monk (together, Molly’s Trustees).6 Although I describe them as “trustees”, they contend that they are continuing to act as executors.7 Mr Monk and Guardian Trust take the view that they are entitled to be indemnified out of trust assets in the event that they are exonerated from blame on the allegations levelled against them.8 As a result, they concluded that they did not need the protection of an order for security for costs, at least at this stage of the proceeding.
[6] All active defendants oppose the funding application. As the funds are sought from Molly’s Estate, the opposition was led by Mr Latton, for Molly’s Trustees. Warwick opposed all applications for security for costs.
[7] I heard all applications on 20 September 2017. At the conclusion of the hearing, it was agreed that I would not give a decision until after Mr Chesterman had
3 For the terms of the order sought, see para [42] below.
4 Mr Anthony Western, who was formerly an executor of the late Mrs Burgess, has since died.
His executor and administrator, Mr Trounson, has elected not to take steps in the proceeding. I identify the particular defendants and the basis on which they have been sued at paras [36]–[40] below.
5 This company has been known by various names since it first became involved in the events in issue. For convenience, I use its current name.
6 Initially, Molly’s Trustees were Mr Monk and Mr Western. Guardian Trust replaced Mr Western
when he resigned, on 29 December 2009.
7 For a discussion of this issue see paras [38], [48] and [65]–[70] below.
8 The nature of a trustee’s right of indemnity is explained in Levin v Ikiua [2010] 1 NZLR 400 (HC) at paras [119]–[124], in the context of insolvent trading trusts. The High Court’s judgment was affirmed on appeal with no adverse comment on the relevant analysis: Levin v Ikiua [2010] NZCA 509, [2011] 1 NZLR 678 at paras [51]–[54]. The right of indemnity is confirmed by s 38(2) of the Trustee Act 1956, set out at para [75] below.
opened on 25 September 2017 and Warwick (as the first witness) had completed giving his evidence. Further submissions were to be made at that time.
[8] As counsel for those defendants who sought security for costs put much emphasis on what they considered were weaknesses on the merits in Warwick’s and CTE’s case, I considered I would be better placed to rule on the applications for security for costs at that time. Counsel agreed that judgment on the funding application could be given at the same time, albeit that that application raises different (and, conceptually, more difficult) issues.
The security for costs applications
[9] On the fourth day of the trial, 28 September 2017, I raised with counsel the possibility that I deal with the applications for security for costs by issuing an interim injunction to restrain Warwick from dealing with his property near Paeroa, against which security had been sought. The idea was that the injunction would replace an undertaking that Warwick filed on 20 September 2017, to the effect that he would not deal with that property until 5.00pm the day following delivery of judgment. After considering that possibility, the defendants who brought the security applications consented to that course. Warwick did not oppose.
[10] I made an order on 29 September 2017:9
[6] … restraining Mr Burgess from encumbering or otherwise dealing with the property situated on the Paeroa-Kopu Road, being more particularly comprised and described in Identifier SA 1D/853 (South Auckland District). That order shall enure pending further order of the Court. As a result, the undertaking given by Mr Burgess on 20 September 2017 is discharged.
[7] For completeness, I have made this order on the basis of Mr Burgess’ evidence that this property is unencumbered. He deposed, in an affidavit sworn on 12 September 2017, that although a mortgage is registered in favour of the Bank of New Zealand, no discharge has yet been registered. For the avoidance of doubt, my order restrains Mr Burgess from borrowing further funds from Bank of New Zealand that may be secured under that mortgage.
[11] I gave brief reasons for making that order:
[4] The purpose of my order is to protect the position of all defendants who are actively engaged in the proceeding, pending determination of Mr Burgess’ application to compel the executors and trustees to advance
$800,000 to him. If that application were unsuccessful, the executors and trustees would look to their right to indemnity, if the substantive claim failed
and they were exonerated of blame.
[5] The funding application raises both jurisdictional and discretionary considerations. Having reserved judgment on 20 September 2017, I will proceed to give judgment, no later than Wednesday next week. The form of injunction I will issue enables any party to apply to vary or discharge it, depending upon the outcome of the funding application. The applications for security for costs remain extant. However, the injunction obviates the need for me to give a separate judgment on those applications, at this stage.
A roadmap
[12] In dealing with the funding application, I shall:
(a) Provide an outline of the claims made by Warwick and CTE. The purpose of this outline is to explain the ambit of the proceeding and the various factual aspects that require consideration.
(b) Identify the parties and explain the nature of the causes of action.
This will be far from an exhaustive summary of the causes of action involved. My purpose is to provide a broad outline of the causes of action on which Warwick and CTE rely, which have emerged over the last 40 odd years.
(c) Explain what Warwick seeks under the funding application, and provide some context in relation to the order sought.
(d) Discuss jurisdictional issues relating to the funding application. (e) Evaluate whether an order is justified.
The claim in outline
[13] Although not all relevant for the purpose of determining the funding application, a reasonably fulsome summary of the events that give rise to the claims is necessary, in order to explain the context in which the application is brought.
Necessarily, my summary is both incomplete and selective. My final judgment on the substantive proceeding is the proper place for an exhaustive analysis of relevant facts.
[14] From 1962, when he was aged 17 years, Warwick worked on the Farm. The Farm had been in the ownership of the Burgess family for many years. The Farm was developed initially by Warwick’s grandfather, William. A general store (the Trading Post), from which petrol was also sold, was established around 1946. The Farm and the Trading Post were transferred to Warwick’s father, Mr Christian Burgess (Christian) in about 1959. That was done by a loan from his parents, secured by mortgage. The debt evidenced by the mortgage was to be gifted back over a number of years.
[15] In 1965, the Farm and the Trading Post were transferred to Christian and his wife, Molly. The Farm was leased in 1971 to a family company, CTE. That company had been incorporated in December 1970. Christian retained legal ownership of the Farm. The business of the Trading Post was sold around 1981, but Christian also retained ownership of the land from which it operated. Warwick managed the Farm from about 1967 until 2009, when it was sold.
[16] Warwick believed that he would inherit the Farm, in return for the considerable work he had undertaken, without much financial reward. Within the term “Farm”, I include to the Douglas Fir and native trees for which, later, forestry rights would be granted. Warwick did not expect the Trading Post business to pass to him in the same way.
[17] Warwick alleges that his brother, Hilton Burgess (Hilton), made little or no contribution to the Farm or the Trading Post. Hilton died before this claim was brought and his executor and trustee has not been joined as a party to this proceeding. The evidence indicates that she was given the opportunity to do so, but the invitation was declined. While not affecting the substantive claim, that absence
has proved problematic on the funding application.10
[18] Mr Monk has been the Burgess family accountant for many years. In about
1965, he proposed an estate plan, under which it was intended that Christian and
Molly would sell the Farm to CTE.
[19] From 1971, CTE leased the Farm and operated the Trading Post business. Christian, Molly and Warwick were the directors of CTE. The shares were divided into two classes: A and B shares. The A shares carried voting rights. On incorporation, the 100 A shares were divided equally between Christian and Molly. The B shares were held as follows:
(a) Christian – 3000; (b) Molly – 3000;
(c) Warwick – 2900; and
(d) Hilton – 1000.
[20] Warwick contends that his parents intended to proceed with the estate plan created by Mr Monk and gave effect to it when Christian signed an agreement for sale and purchase on 9 September 1980 (the 1980 Agreement). Christian signed that document on his own behalf, as vendor, and on behalf of CTE, as purchaser. The status of the 1980 Agreement is in issue in this proceeding; in particular, was it an enforceable contract that created an equitable interest in favour of CTE?
[21] Around the same time, Christian swore an affidavit in proceedings brought, for estate planning purposes, under the Matrimonial Property Act 1976. In that affidavit, sworn on 29 September 1980, Christian deposed:
14.That in 1972 new shop premises were built on the farm property but on a different site. This coincided with the formation of a family company CTE Burgess Limited and annexed hereto and marked with the letter “D” is a search of that company. That the voting shares in the company are now held by my wife and myself equally and the non-voting shares have all been transferred to our two sons in unequal shares.
15.That the partnership between my wife and I has been in existence since approximately 1948 and in 1960 when the farm first appears in the balance sheet it was brought into the partnership as my contribution to the partnership. No change in title was ever made.
16.That all surplus profits from the store have throughout both before and after the transfer of the farm to me been used to develop the farm property. There has never been any external borrowing to develop the farm.
17.That the company now leases the farmland and the shop premises and owns the business but pays a rental to the partnership which now owns the buildings and the land.
18.That there has never been a formal partnership agreement but the Inland Revenue Department has throughout accepted that there is a partnership.
…
21.That I have entered into an Agreement for Sale and Purchase with St Paul’s Collegiate School for the sale of 14.4 hectares and annexed hereto and marked with the letter “G” is a copy of that Agreement.
22.That I have similarly entered into an Agreement for Sale of Purchase with CTE Burgess Limited for the sale of the farm and annexed hereto and marked with the letter “H” is a copy of that Agreement for Sale and Purchase.
23. That I anticipate that on a revaluation at the request of the Inland
Revenue Department the value of the farm property will be between
$450,000.00 and $500,000.00. That our other assets consist of a life policy each with the Norwich Union Insurance Office for $3,500.00. I have approximately $5,500.00 in the National Bank and National Savings and my wife has approximately $3,700.00 in the National Bank and National Savings account.
(Emphasis added)
[22] Sadly, on 2 October 1980, only a few days after swearing his affidavit, Christian passed away. Mr Monk and Guardian Trust were named as executors and trustees (Christian’s Trustees) of his estate (Christian’s Estate) in Christian’s last will, dated 2 September 1978. Although I refer to them as “trustees”, they too
contend that they continue to hold the position of executors only at this time.11 The
will was drafted by Mr Alisdair Morrison. At that time he was with a firm of solicitors in Rotorua, known as Hannah, Rushton, McKechnie and Morrison. Mr Morrison was the Burgess family’s solicitor.
[23] The will did not refer specifically to the Farm or the Trading Post. It is clear that Christian had contemplated that CTE would have acquired the Farm by the time of his death. The only asset of substance identified in the will was “any mortgage or mortgages now or hereafter given by CTE”. Christian’s interest in that anticipated mortgage was to be held on trust for Molly and, after Molly’s death, for Warwick and Hilton in shares of 60 per cent and 40 per cent respectively. Those interests reflected the way in which the shareholding in CTE had been structured. Warwick accepts that his parents had settled on a division between their sons in those proportions from, at the latest, 1976.
[24] Christian’s Trustees appear to have formed the view, based on legal advice from Mr Morrison, that the 1980 Agreement was not binding. Because of difficulties encountered with the need to pay estate duty out of Christian’s Estate, the 1980
Agreement appears to have been treated as of no effect. An application was made to the High Court for orders to recognise the partnership to which Christian had referred in his affidavit of 29 September 1980.12
[25] Initially, that application was made under the Matrimonial Property Act 1963, which remained applicable in any case in which personal representatives of a deceased spouse wished to seek orders.13 Subsequently, as a result of the judgment of the Court of Appeal in Thompson & Preest v Commissioner of Inland Revenue, Christian’s Trustees decided to make a separate application, under the Declaratory Judgments Act 1908.14 That application was granted by Prichard J on 28 September
1982. As a result, 50 per cent of the Farm was declared to be owned by Christian’s Trustees, with the other half being owned by Molly. From that point on, Christian’s Trustees took the view that it was for Warwick and Hilton to determine how best to realise estate assets in order to achieve the 60 per cent/40 per cent distribution contemplated by Christian’s will.
[26] Molly died on 16 July 2007, at the age of 95 years. It is clear that, throughout her lifetime, Molly was keen for her sons to reach agreement.
Unfortunately, because of conflicting personalities, that proved impossible. As a
12 See paras 15 and 18 of Christian’s affidavit, set out at para [22] above.
13 See Poppe v Grose [1982] 1 NZLR 491 (CA).
14 Thompson & Preest v Commissioner of Inland Revenue (1982) 1 NZFLR 302 (CA).
result, until Molly’s death, the Farm remained in the legal ownership declared by the
High Court order.15
[27] Molly’s last will is dated 8 September 1998. There is also a codicil, dated 10
April 2000. There are a number of disputes about whether the will accurately reflected her instructions to Mr Morrison, who was responsible for its drafting. The majority of the will is expressed in the language of “wishes”, conferring discretions on her trustees to do things by taking those wishes into account. There is some suggestion that it should be characterised as a precatory trust. Warwick contends that his mother intended her trustees to deal with the property as she instructed.
[28] The will required payment of relevant testamentary debts and taxes, with the residue being bequeathed, 60 per cent to Warwick and 40 per cent to Hilton. Those are the same proportions in which Christian had intended them to hold shares in CTE.16 Probate of the will was granted in favour of Molly’s Trustees on 4
September 2007. Probate of the codicil was granted on 12 December 2007.
[29] After her death, the Farm was held as to one half by Christian’s Trustees, and as to the other half by Molly’s Trustees. The Farm included 1,100 hectares of bush (none of which had been developed into pasture), 23 hectares of primary Douglas Fir (planted around 1945), over 10 hectares of secondary Douglas Fir (planted around
1972), Pinus Radiata, Redwood, other standing and fallen native timber, an un-mined quarry and the Trading Post, (together, the Tihoi assets). During the period from Christian’s death in 1980 to Molly’s death in 2007, Warwick ran the farm. He pleads that during this period he “was unpaid, other than food and board”.
[30] Initially, Mr Monk and Mr Anthony Western were granted probate of Molly’s will. There are disputes about whether Molly had changed her mind about Mr Western’s involvement before she died. Mr Western held office from 4 September
2007 until 29 December 2009, when he resigned. He died on 6 October 2011.
15 See para [25] above.
Although joined as a defendant to this proceeding, Mr Western’s personal
representative has taken no steps to defend the claim.17
[31] Between Molly’s death in July 2007 and October 2009, a number of efforts were made to achieve agreement between Warwick and Hilton so as to enable Warwick to purchase the Tihoi assets, while paying out his brother’s interest. Those attempts came to nought. Warwick accuses Molly’s Trustees (particularly Mr Western) of bias towards him, acting against his interests by pursuing a desire to sell
the Farm to interests associated with Mr Colin Armer.18 Warwick asserts that
Molly’s Trustees and Mr Morrison took deliberate steps to defeat his right to acquire
the Farm and, as a result, he has suffered both financial and emotional harm.
[32] Warwick alleges that Christian’s Trustees (in the first instance) and Molly’s Trustees (in the latter period) failed to develop the Farm or to harvest timber during the period that they were registered proprietors of the property. At all relevant times, for this purpose, Molly’s Trustees were Mr Monk and Mr Western.
[33] Warwick takes issue with the sale of the Tihoi assets in 2009. They were sold to Armer Farms (NI) Ltd (Armer Farms) on 5 October 2009, for a total sum of $4 million. The Farm, quarrying rights and forestry rights were sold for $3.7 million, and Trading Post for $300,000. The Trading Post was transferred into the names of trustees of the FTB Trust. On 21 December 2012, Armer Farms transferred the Farm and forestry rights to an associated company, Tihoi Holdings Ltd. Where appropriate, I refer to Armer Farms, FTB Trust and Tihoi Holdings collectively as “the Armer interests”. Warwick alleges that the Armer interests dishonestly assisted the sale of the Tihoi assets and/or received them knowing that Mr Western had acted in breach of fiduciary duties owed to Warwick and CTE.
[34] Warwick and CTE also allege that the Armer interests took steps, after acquisition of the Tihoi assets, to remove livestock, plant and machinery from the Farm, to his detriment. A separate claim is made in that regard.
The parties and the causes of action
[35] To say that the claim is complex is an understatement. Early in the trial, I signalled my view that the claim was over-complicated, and lacked the clarity required in respect of a claim based on constructive trusts and other forms of equitable interests. I also indicated it may lack a sufficient foundation for allegations of fraudulent concealment of information made against the active defendants. As a result of my intervention, Mr Chesterman prepared a summary of issues that might possibly be used to amend the live Fourth Amended Statement of Claim. That document identified the nature of the interests claimed, the factual basis on which each was alleged, provided a more explicit factual foundation for the allegations of dishonest conduct and explained the relief sought in respect of each claim. In due course, I anticipate Mr Chesterman will seek leave to amend the existing statement of claim to reflect the terms of the summary of issues. Until such time as an order granting leave is made, the claim proceeds on the basis of the Fourth Amended Statement of Claim.
[36] The two plaintiffs are Warwick and CTE. Each alleges an entitlement to certain assets that were previously owned by Christian and Molly, and asserts that they have suffered loss as a result of conduct on the part of the defendants. The claims encompass a failure to give effect to the 1980 Agreement and misconduct in relation to actions alleged to have thwarted Christian’s and Molly’s intention that either Warwick or CTE acquire the Tihoi assets.
[37] The statement of issues seems to suggest that the claims are based on alternative premises:
(a) The first is that, from around 1976, Christian and Molly held the Farm (including forestry) on a constructive trust for Warwick, subject to an obligation on his part to satisfy Hilton’s 40 per cent share of those assets. This claim is based on the Court of Appeal’s decision in
Lankow v Rose.19
19 Lankow v Rose [1995] 1 NZLR 277 (CA).
(b)The second is that, as a result of the execution of the 1980 Agreement, the Farm was held by Christian’s Trustees and Molly (and after her death by Molly’s Trustees) on a constructive trust for CTE, on the basis that Hilton would receive his inheritance by way of a payment to reflect his 40 per cent interest in the company. This part of the claim is
based on the type of trust discussed in Lake v Baylis.20
[38] Although, at all material times, Mr Morrison acted for Christian’s Trustees or Molly’s Trustees, he is sued for breaches of fiduciary duties said to have been owed to both Warwick and CTE. Primarily, it is said that he breached those duties by providing advice to Christian and Molly that was detrimental to both Warwick Burgess and CTE, having regard “to the discretion and power” Mr Morrison exercised over their estates. The complaints extend from the failure to give effect to the 1980 Agreement through to alleged dishonest assistance with Molly’s Trustees’ decision to sell the Tihoi assets to the Armer interests. Mr Morrison advised Warwick to seek independent advice on 17 March 1983.
[39] O’Sullivan Clemens is a firm of solicitors in Rotorua. Mr Morrison joined that firm in 1993.21 The firm has been sued in respect of his acts, while a partner of it. Unless the context otherwise requires, I refer only to Mr Morrison when considering the responsibilities of these parties.
[40] The Armer interests are sued on the basis of either knowingly assisting the breach of fiduciary duty by Molly’s Trustees (in relation to the sale of the farm assets in 2009) or for the receipt of such assets in circumstances where they knew the sale was undertaken in breach of those fiduciary duties. Warwick asserts that the various agreements to sell the assets to the Armer interests should be rescinded, and the Tihoi
assets transferred to himself and/or CTE.
20 Lake v Baylis [1974] 1 WLR 1073 (Ch).
21 During the periods relevant to this case, Mr Morrison has been a member of law firms of several names. Initially he was with Urquhart Roe & Partners and its successor partnerships. After the dissolution of Trotter McKechnie Quirke & Morrison, he joined O’Sullivan Clemens, where he remains a partner.
[41] Although I have identified the causes of action in very broad terms,22 for the purposes of this judgment, I do not need to go into more detail. All claims are denied.
The funding application
[42] Warwick deposes that he made an application for further funding to Molly’s Trustees in “August 2017” but that they declined to make a payment. The funding application was filed on 12 September 2017, less than two weeks before the (revised) scheduled start of the trial. He seeks an order that Molly’s Trustees distribute to him the sum of $800,000 from his 60 per cent share as a residuary beneficiary in Molly’s Estate.23 The total amount held by Molly’s Trustees, in cash,
is approximately $2.126 million.24 Of that (if immediate distribution were both
possible and appropriate) Warwick’s 60 per cent share is about $1.275 million. Hilton’s estate has a 40 per cent interest in the residue. The executor and trustee of his estate would be entitled to receive $850,542.
[43] In an affidavit sworn in opposition to the application, Mr Monk identified earlier payments made to Warwick out of Molly’s Estate that Molly’s Trustees had been told were “for [Warwick’s] legal fees in this proceeding”. They were:
(a) $350,000, paid in July 2015;
(b) $200,000, paid in April 2016; and
(c) $992,319, paid in April 2017.
[44] The total of those advances is $1,542.319. If a further $800,000 were advanced, the total payable amount required for legal fees and disbursements (including fees of experts) would be $2,342.319. If those amounts truly reflect those
costs, the amount spent for legal fees and expenses this year alone would total almost
22 With regard to the fact the Fourth Amended Statement of Claim runs to 77 pages and contains
346 paragraphs.
23 See para [27] above.
24 For the purposes of this judgment, I have assumed all funds have now been transferred to
Molly’s Estate, although that issue may need to be considered fully in my substantive judgment.
$1.8 million. Having said that, to be fair, some of the money advanced in April 2017 was paid to meet unbilled work from some time during 2016.
[45] On the funding application, there are two issues for determination:
(a) Does this Court have jurisdiction to make the order sought? (the jurisdiction point)
(b)If so, ought the Court to exercise its power to make an order and, if so, in what amount? (the evaluation point)
The jurisdictional point
[46] Mr Chesterman contends that the Court may exercise its inherent jurisdiction to make an order of the type sought. He submits that the supervisory jurisdiction of the Court in the administration of estates is broad and that the Court is entitled to make such an order “whenever the justice of the case so demands”; in short, the
“need to do justice is paramount”.25 Mr Chesterman referred also to observations
made by Elias CJ, in Takamore v Clarke, to the effect that competing claims involving the administration of estates could be resolved by the High Court “in its inherent jurisdiction”.26 The supervisory jurisdiction in relation to trusts draws on the inherent jurisdiction of Court, and is complementary to the statutory powers conferred by the Trustee Act 1956.27
[47] Mr Chesterman referred to authorities that plainly establish that the Court, in using its inherent jurisdiction, may exercise powers that are not expressly, or by necessary implication, in conflict with statutory or regulatory provisions that it is obliged to apply.28 I consider later whether the inherent jurisdiction can be invoked
in circumstances governed by established principles of common law or equity.
25 Albeit in a different context, see R v Moke [1996] 1 NZLR 263 (CA) at 267.
26 Takamore v Clarke [2012] NZSC 116, [2013] 2 NZLR 733 at para [7]. The remaining Judges
(Tipping, McGrath, William Young and Blanchard JJ) did not take such an expansive view of the inherent jurisdiction, with the majority (Tipping, McGrath and Blanchard JJ) preferring to rest their conclusion that the manner of burial was a decision to be made by an executor, in the exercise of his or her discretion, while in practice consulting with members of the immediate family to achieve a consensus.
27 See Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320 at [19].
28 See, generally Taylor v Attorney-General [1975] 2 NZLR 675 (CA), Donselaar v Mosen [1976]
[48] Mr Latton submitted that the decision whether to advance funds to Warwick was one for Molly’s Trustees to make, and not one in which the Court had any right to intervene.
[49] In making that submission, Mr Latton contended that Molly’s Trustees remained in their role as executors, so that the full scope of the supervisory jurisdiction of the Court over trusts was not necessarily available. I do not accept that submission in the form it is advanced. For the purposes of the Trustee Act 1956, the terms “trust” and “trustee” are defined as including “an administrator within the meaning of the Administration Act 1969”.29 The term “administration” is defined by s 2(1) of the Administration Act 1969 as meaning “probate of the will of a deceased person”. An “administrator”, as defined by the same section, “means any person to
whom administration is granted”. In those circumstances, I consider that the Court may exercise its supervisory jurisdiction over trusts, whether or not the role of the personal representative has shifted from executor to trustee.30
[50] Mr Latton’s point is that, in substance if not in form, Warwick is asking the Court to override personal powers entrusted to the executors by Molly to administer her estate, in circumstances where no allegation of any breach of duty owed to Warwick by Molly’s Trustees has been advanced, in relation to the decision not to make the payment.
[51] A preliminary question is whether the point is res judicata, or one in which an issue estoppel arises. That arises because the same type of application was resolved in a manner adverse to Warwick earlier this year. On that occasion, Warwick sought an order requiring Molly’s Trustees to make an interim distribution to him in a sum of $1,092,319. In a judgment delivered on 30 March 2017, Peters J took the view that, on the basis of the authorities to which she had been referred, the Court could not exercise its inherent jurisdiction to order an executor to make an
interim distribution of the type sought.31 The Judge concluded that it “may be that
2 NZLR 191 (CA) at 192 and Champtaloup v Northern Districts Aero Club Inc [1980] 1 NZLR
673 (CA) at 679.
29 Trustee Act 1956, s 2(1), definitions of “trust” and “trustee”.
30 See also, paras [66]–[70] below.
31 Burgess v Monk [2017] NZHC 612.
such jurisdiction exists but if so it is not apparent on the information and authorities
provided to me”.32
[52] After I queried Mr Latton’s suggestion that Peters J had determined the jurisdictional point in a manner adverse to Warwick, Mr Latton retreated. In my view, it is clear that Peters J was deciding the issue based on the authorities cited to her.33 I have heard more wide-ranging argument on the jurisdictional point. In my view, no issue estoppel arises. I determine the point on the basis of the argument presented to me.
[53] Counsel were able to locate only one authority in which a similar order for interim distribution of estate funds had been made. It does not appear to have been cited to Peters J. In O’Leary v O’Leary, French J was asked to direct an interim distribution to enable a beneficiary to meet the cost of suing the executor and trustee of the estate.34 The Judge was satisfied that, if an order were not made, Mr O’Leary
would remain “impecunious”.35
[54] It appears that counsel, in O’Leary, assumed that the Court had jurisdiction to make such an order. Counsel for the executor and trustee put his opposition on the ground that the Judge “would need to be satisfied that there had been some wrongdoing or breach of the trustee’s duty”.36 On the other hand, counsel for Mr O’Leary “favoured a more expansive approach”, arguing that the Court’s function was to undertake “a balancing exercise … to determine where the equities lie”.37 It is clear that counsel argued the application on the basis that the only question involved the test to be applied.
[55] French J indicated that her “preference would be to favour the approach advocated by” counsel for the executor and trustee because “a more expansive
approach is likely to be highly problematic”.38 Notwithstanding those observations,
32 Ibid, at para [15].
33 Ibid.
34 O’Leary v O’Leary HC Christchurch CIV-2008-442-147, 2 June 2009.
35 Ibid, at para [12].
36 Ibid, at para [26].
37 Ibid, at para [27].
38 Ibid, at para [29].
she took the view that it was unnecessary to decide which approach was correct, as on any view, the outcome would have been the same.39
[56] As the jurisdictional point was not resolved by French J, I consider whether I
have power to make an order on the basis of a first principles analysis.
[57] For New Zealand purposes, the inherent jurisdiction of the High Court springs from s 12(a) of the Senior Courts Act 2016. That provides that this Court has “the jurisdiction that it had on the commencement of this Act”. Previously, s 16 of the Judicature Act 1908 stated that the Court continued “to have all the jurisdiction which it had on the coming into operation of this Act and all judicial jurisdiction which may be necessary to administer the laws of New Zealand”.
[58] Master Jacob, in a seminal article on the scope of the inherent jurisdiction, defined it as a “residual source of powers, which the Court may draw upon as necessary whenever it is just and equitable to do so …”.40 That approach has been adopted in New Zealand; most notably by the Supreme Court in Mafart v Television New Zealand41 and Siemer v Solicitor-General.42
[59] The circumstances in which the inherent jurisdiction might be invoked as part of the High Court’s supervisory role over trusts was considered by the Supreme Court in Erceg v Erceg.43 In that case, the question involved the right (if any) of a discretionary beneficiary of a trust to request disclosure of trust documents from the trustees. The question arose in the context of a beneficiary who had been adjudged bankrupt.
[60] In delivering the judgment of the Supreme Court in Erceg, O’Regan J surveyed the authorities touching on the supervisory jurisdiction of the High Court over trusts. The Supreme Court eschewed the suggestion that the supervisory jurisdiction was discretionary in nature, preferring an approach whereby it should
“be exercised in accordance with principle, after careful assessment of the factors
39 Ibid, at para [30].
40 IH Jacob “The Inherent Jurisdiction of the Court” (1970) CLP 23, in particular at 48–49.
41 Mafart v Television New Zealand Ltd [2006] NZSC 33, [2006] 3 NZLR 18 at para [16].
42 Siemer v Solicitor-General [2010] NZSC 54, [2010] 3 NZLR 767 at para [29].
43 Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320.
relevant [in the particular case before it] to the disclosure sought by the particular
beneficiary”.44
[61] Viewed in the context of the approach articulated in Erceg, the question whether the inherent jurisdiction can (or should) be exercised on the funding application must be considered by reference to established principles of trust law. While most of those principles reflect the incremental development of Judge-made law over many centuries, many are so well established that (even though not based on statutory or regulatory provisions) it would be inappropriate to invoke the inherent jurisdiction to displace them.
[62] Delivering the judgment of Blanchard and McGrath JJ and herself, in Mafart,
Elias CJ said, by reference to an extract from Master Jacob’s article:
[16] The adjectival jurisdiction and powers of the High Court, which enable it to give effect to its substantive jurisdiction, are part of the general jurisdiction recognised by s 16 of the Judicature Act. They were derived from the practice of the superior Courts in England as at 1860, based on their inherent jurisdiction. Except to the extent modified by statute and rules, the Court continues to have inherent jurisdiction and powers to determine its own procedure. The inherent jurisdiction is not ousted by the adoption of rules, but is regulated by the rules, so far as they extend. To the extent that the rules do not cover a situation, the inherent jurisdiction supplies the deficiency. The inherent jurisdiction is:45
“. . . the authority of the judiciary to uphold, to protect, and to fulfil the judicial function of administering justice according to law in a regular, orderly and effective manner.”
(Footnote retained)
[63] The adjectival jurisdiction of the Court in relation to the administration of estates is an acknowledged aspect of the inherent jurisdiction.46 For example, in Re Jones (deceased), Quilliam J considered whether he could exercise the inherent jurisdiction to grant letters of administration in an intestacy in circumstances where
s 6 of the Administration Act 1969 did not apply.47 His Honour said:48
44 Ibid, at para [50].
45 Jacob, “The Inherent Jurisdiction of the Court” (1970) CLP 23, pp 27 – 28, cited in Taylor v
Attorney-General [1975] 2 NZLR 675 at p 682 per Richmond J and at p 689 per Woodhouse J.
46 Takamore v Clarke [2012] NZSC 116, [2013] 2 NZLR 733 at para [91].
47 Re Jones (deceased) [1973] 2 NZLR 402 (SC).
48 Ibid, at 405. Cited with approval in Re JSB (a child) [2010] 2 NZLR 236 (HC) at para [51].
It is [in the inherent jurisdiction of the Court that] the power of the Court to make a grant of administration in the present case is to be found. The Court is to have power to do whatever may be necessary to administer the laws of New Zealand. It is apparent that the power to make a decision upon an application such as the present one is to be regarded as a necessary judicial function. The estate of the deceased must be administered. If it should be the case that the refusal of the Court to exercise jurisdiction in a case such as this resulted in one of the sons changing his mind and seeking a grant to himself then the position could no doubt be overcome. But this need not necessarily happen, and there can be no power of the Court to thrust the task of administration upon a person who declines to apply for a grant, however interested that person may be in the estate. Plainly the Court must be prepared to consider the grant to an applicant where the justice of the case demands it. Until the Legislature sees fit to prescribe by statute the considerations which are to apply to an application such as the present one, the Court will deal with it by the exercise of judicial discretion. This does not, in my view, mean that the Court must, by some analogy, regard itself as bound to look for special circumstances, but merely to consider the matter upon the basis of all the relevant facts in order to be able to arrive at a considered and sensible result. If, for instance, the applicant is clearly unsuitable for some reason then the Court would be obliged to refuse a grant.
[64] While Re Jones is an illustration of the exercise of the inherent jurisdiction, it does not suggest that the jurisdiction is limited to circumstances in which, otherwise, an estate cannot be properly administered. The funding application raises the question whether the adjectival jurisdiction in administration can be used to justify the Court making an order of the type sought in this case.
[65] In the present case, the first question is whether Molly’s Trustees are currently acting in the capacity of executors or trustees. The role of an executor is to realise all assets, and to pay all debts, funeral expenses and legacies. Once that has been done, the residuary estate is created. At that time, the persons named as executors and trustees step into the role of a trustee and hold the residuary estate on
the terms set out in the will.49 It is clear that a beneficiary of an un-administered
estate does not have a proprietary interest in the assets of that estate until such time as the amount of the residue has been established.50 Until that time, it is not possible
to identify assets to which the beneficiary has an entitlement.51
49 Re Maguire (deceased) [2010] 2 NZLR 845 (HC).
50 See John McGee (ed) Snell’s Equity (33rd ed, Sweet & Maxwell, London, 2015) at [33-002].
51 Lord Sudeley v Attorney-General [1897] AC 11 (HL), applied by Asher J in Re McGuire
(deceased) [2010] 2 NZLR 845 (HC) at para [18].
[66] For present purposes, I am prepared to assume (without deciding the point) that the role of Molly’s Trustees has not shifted from executors to trustees. GST issues remain outstanding. The will requires payment of Molly’s “just debts, funeral and testamentary expenses and all taxes and duties payable in respect of [her] taxable or dutiable estate” before division of the residue between Warwick and Hilton in their respective shares.
[67] Nevertheless, although Molly’s Trustees have not yet assumed a role as trustees, there is no doubt they may be treated as trustees, for the purpose of the supervisory jurisdiction, in appropriate cases. Primarily, I rely on the definitions of “trust” and “trustee” in s 2(1) of the Trustee Act 1956. There is also a wealth of case law to support that approach.
[68] In Re Marsden, Kay J said that “an executor is personally liable in equity for all breaches of the ordinary trusts in which the Courts of Equity are considered to arise from his office”.52 The Judge regarded an executor as a trustee “in this sense”. That approach was adopted in Commissioner of Stamp Duties (Queensland) v Livingston.53 In giving the advice of the Privy Council, Viscount Radcliffe said:54
It may not be possible to state exhaustively what those trusts are at any one moment. Essentially, they are trusts to preserve the assets, to deal properly with them, and to apply them in a due course of administration for the benefit of those interested according to that course, creditors, the death duty authorities, legatees of various sorts, and the residuary beneficiaries. They might just as well have been termed “duties in respect of the assets” as trusts. What equity did not do was to recognise or create for residuary legatees a beneficial interest in the assets in the executor’s hands during the course of administration. Conceivably, this could have been done, in the sense that the assets, whatever they might be from time to time, could have been treated as a present, though fluctuating, trust fund held for the benefit of all those interested in the estate according to the measure of their respective interests. But it never was done. It would have been a clumsy and unsatisfactory device from a practical point of view; and, indeed, it would have been in plain conflict with the basic conception of equity that to impose the fetters of a trust upon property, with the resulting creation of equitable interests in that property, there had to be specific subjects identifiable as the trust fund. An unadministered estate was incapable of satisfying this requirement. The assets as a whole were in the hands of the executor, his property; and until administration was complete no one was in a position to say what items of
52 Re Marsden (1884) 26 ChD 783 at 789.
53 Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 (PC) at 707.
54 Ibid, at 707–708. This passage was applied in Re Maguire (deceased) [2010] 2 NZLR 845 (HC)
at para [19].
property would need to be realised for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be. Even in modern economies, when the ready marketability of many forms of property can almost be assumed, valuation and realisation are very far from being interchangeable terms.
At the date of Mrs Coulson’s death, therefore, there was no trust fund consisting of Mr Livingston’s residuary estate in which she could be said to have any beneficial interest, because no trust had as yet come into existence to affect the assets of his estate.
(Emphasis added)
[69] It has long been recognised in New Zealand that executors owe a duty to beneficiaries to be even-handed in their approach to the administration of the estate.55 Most recently, in delivering the judgment of the Court of Appeal in
Frickelton v Frickelton,56 Wild J referred both to my judgment in Farquhar v
Munns57 and (what he described as) “the excellent distillation of principles” set out by Associate Judge Osborne in Crick v McIlraith.58 In taking the view that similar approach should be taken when the Court is supervising the actions of an executor. Wild J said:59
[29] Late last year, in Tod v Tod, this Court endorsed the following statement, from the judgment of Heath J in Farquhar v Nunns, of the principles that should guide a court in dealing with an application under s 21 to remove an administrator:
(a) The starting point is the Court’s duty to see estates properly
administered and trusts properly executed.
(b) This jurisdiction involves a large discretion which is heavily fact- dependent.
(c) The wishes of the testator/settlor (evidenced by the appointment of a particular executor or trustee) are to be given consideration, but ultimately the question is as to what is expedient in the interests of the beneficiaries.
(d) Expedience is a lower threshold than necessity, and imports considerations of suitability, practicality and efficiency. Misconduct, breach of trust, dishonesty, or unfitness need not be established.
55 Irvine v Public Trustee [1989] 1 NZLR 67 (CA) at 70.
56 Frickelton v Frickelton [2016] NZCA 408, [2017] 2 NZLR 154.
57 Farquhar v Munns [2013] NZHC 1670 at para [13].
58 Crick v McIlraith [2012] NZHC 1290 at para [16].
59 Frickelton v Frickelton [2016] NZCA 408, [2017] 2 NZLR 154 at para [29]. The other case to which Wild J referred is Tod v Tod [2015] NZCA 501, [2017] 2 NZLR 145 at para [22].
(e) Hostility as between administrators/trustees and beneficiaries is not of itself a reason for removal, but hostility will assume relevance if and when it risks prejudicing the interests of the beneficiaries.
(footnote omitted)
[70] After referring to the judgment of the Privy Council in Lettersted v Broers60
Hunter v Hunter61 and Kain v Hutton,62 Wild J continued:
[36] Both Lettersted v Broers, an appeal from South Africa, and Kain v Hutton were more concerned with trustees, although in the first of those two cases with testamentary trustees. However, as Thomas J [in the decision under appeal] pointed out, expedience is the touchstone of the Courts’ jurisdiction under both s 21 of the Administration Act and s 52 of the Trustee Act (Power of Court to appoint new trustees). Heath J made exactly that point in Farquhar v Nunns.
(footnotes omitted)
[71] The next relevant principle involves the right of a beneficiary to call for trust property to be distributed to him or her. The orthodox approach is summarised in Lewin on Trusts:63
A beneficiary absolutely entitled to land can call on the trustee to execute a conveyance or transfer of the legal estate, either to the beneficiary or as the beneficiary may direct, even if the settlor purports to remove that right. A devisee is not, however, entitled to a conveyance or transfer, as opposed to an assent. The beneficiary can insist only on the land being conveyed by the same description under which it was conveyed to the trustee. … Of course a trustee is entitled to retain trust property while trust expenses remain outstanding, for instance legal fees or inheritance or capital gains tax, or past income tax. If the trustee refuses to convey or transfer accordingly, and the beneficiary institutes proceedings to compel him, the trustee will be made to pay the costs, unless there was some reasonable ground for refusing, for instance, if he acted bona fide under the advice of counsel. Where necessary, the Court can make a vesting order of land or stock.
[72] Lewin goes on to make it clear that a trustee, before distributing property in
this way, “is entitled to be satisfied by the fullest evidence that the person calling for
a conveyance is the exclusive beneficiary”.64
60 Letterstedt v Broers (1884) 9 App Cas 371 (PC) at 386.
61 Hunter v Hunter [1938] 3 NZLR 520 (CA) at 529 and 530–531 (Myers CJ), and 552–553 (Callan J).
62 Kain v Hutton [2007] NZCA 199, [2007] 3 NZLR 349 (CA) at para [267].
63 Lynton Tucker and others Lewin on Trusts (19th ed Sweet & Maxwell, London, 2015) at para
[24–002].
64 Ibid. See also Holford v Phipps (1840) 3 Beav 434, 49 ER 422.
[73] In this case, Warwick is not the only person with a beneficial interest in the estate. As Mr Monk deposed, both Christian’s Estate and Molly’s Estate have now been converted into cash. Whether the sum of $2,127,000 held on interest bearing deposit in trust accounts of both Guardian Trust and O’Sullivan Clemens is held as part of Molly’s Estate or Christian’s, or apportioned as between the two, under the terms of Molly’s will, Warwick is entitled to a distribution of 60 per cent, and Hilton to 40 per cent.
[74] The principles to which I have referred from Lewin apply only when a beneficiary is solely entitled to trust assets. Different considerations apply when two or more beneficiaries have an undivided share of it. In such circumstances, “subject to the trustees’ lien for their expenses”, each beneficiary is entitled “to an aliquot share of each and every asset of the trust fund which presents no difficulty so far as division is concerned” and can call for an immediate distribution of that portion
accordingly. This applies to items such as cash.65
[75] Hilton’s absence as a person served with the funding application creates a particular difficulty. Not only is the trustees’ right to indemnity out of trust assets engaged, but another consideration is whether authorisation of payment of $800,000 (or such lesser sum as might be considered appropriate) might impact adversely on Hilton’s estate’s right to be paid 40 per cent of the trust fund.
[76] In the absence of a provision in the trust instrument that might modify the right of indemnity, s 38(2) of the Trustee Act 1956 provides:
38 Implied indemnity of trustees
…
(2) A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; but, except as provided in this Act or any other Act or as agreed by the persons beneficially interested under the trust, no trustee shall be allowed the costs of any professional services performed by him in the execution of the trusts or powers
65 Lynton Tucker and others Lewin on Trusts (19th ed Sweet & Maxwell, London, 2015) at para [24–003]. These principles are taken from a judgment of Walton J in Stephenson v Barclay’s Bank Trust Co Ltd [1975] 1 WLR 882 (Ch) at 889–890; adopted by Goff J in Crowe v Appleby [1975] 1 WLR 1539 (Ch) at 1543, affirmed on appeal: [1976] 1 WLR 885 (CA).
unless the contrary is expressly declared by the instrument creating the trust:
provided that the court may on the application of the trustee allow such costs as in the circumstances seem just.
[77] There is nothing in the trust instrument (Molly’s will) to vary the right conferred by s 38(2).66
[78] There are limited circumstances in which the Court will interfere with decisions made by a trustee. There is no right of appeal from such decisions. Nor is there any right to seek judicial review of what is a private, rather than statutory, power of decision. The general rule is that if a trustee has been given an absolute discretion as to the mode of executing the trust, a Court will not interfere with his or
her discretion, provided it is exercised in good faith.67 An exception to that general
rule is where a trustee applies to the Court for directions, and in doing so surrenders his or her discretion to the Court.68
[79] Based on the principles identified in Lewin on Trusts,69 I make three points:
(a) The first involves instances in which a trustee refuses to convey or transfer property on request and proceedings are issued to compel him or her to do so. In such cases, the trustee will be made to pay the costs of the application “unless there was some reasonable ground for refusing to make the distribution”.70 Put another way, a beneficiary may only succeed if he or she can satisfy a Court that the trustee has acted unreasonably in making a decision not to convey the property as
directed.
66 Different views have been expressed as to the ability of a settlor or will-maker to exclude the right of indemnity; generally, compare Kemtron Industries Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 15 ATR 627 (QSC) at 634 and RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 (SC) at 395, discussed in Heath “Bringing Trading Trusts into the Company Line” [2010] NZ Law Rev 519 at 526–531.
67 John McGee (ed) Snell’s Equity (33rd ed, Sweet & Maxwell, London, 2015) at para [29–035].
68 Chambers v SR Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at paras
[32]–[35].
69 See paras [71] and [72] above.
70 Lynton Tucker and others Lewin on Trusts (19th ed Sweet & Maxwell, London, 2015) at para
[24–002], set out at para [71] above.
(b)The second is the right of the trustee to retain funds to meet expenses in respect of which they are entitled to exercise their right to indemnity, conferred by s 38(2) of the Trustee Act.71 That right of indemnity is limited to expenses “reasonably” incurred.72
(c) The third has two aspects to it:
(i)One arises solely because Molly’s Trustees remain acting in their role as executors. In that regard, they would be entitled to decline a distribution if making it may call into question their ability to pay just debts owed to a third party which are payable out of estate assets. In this case, Molly’s Trustees assert a continuing issue involving GST; though there must be some doubt about the ability of the Commissioner of Inland Revenue to pursue such a claim after 10 years have elapsed
since probate was granted.73 No proceedings appear to have
been issued against Molly’s Trustees or, indeed, Christian’s
Trustees.
(ii)The second concerns potential prejudice to a beneficiary who has not been served or heard on the funding application. The trustee and executor of Hilton’s estate falls into that category. The beneficiaries of that estate (Hilton’s children) may be prejudiced if moneys were advanced to Warwick and Molly’s Trustees were left to seek indemnity out of remaining assets which would otherwise be available for distribution (in whole or in part) to Hilton’s estate.
[80] I conclude that the only circumstance in which a beneficiary may seek an order compelling distribution of an asset (whether in specie or through cash) is if the
71 Ibid, at para 24–003, discussed at para [72] above. Section 38(2) of the Trustee Act is set out at para [75] above.
72 Trustee Act 1956, s 38(2), set out at para [76] above.
73 Generally, in the absence of deliberate non-disclosure, there can be no reassessment of GST after four years have passed from the date of the relevant return period: see Tax Administration Act
1994, s 108A.
beneficiary can demonstrate that no reasonable trustee could have refused to make the distribution on the particular facts of the case. The jurisdiction must be narrowly circumscribed.74 Otherwise the Court will be interfering in the administration of a trust in circumstances where the settlor (or will-maker) has entrusted that responsibility to someone of his or her own choice. In the absence of a surrender of the trustee’s decision-making powers to the Court, it is inappropriate for the Court to interfere, unless an unreasonable (in the sense of irrational) decision had been made.
The evaluation point
[81] The question whether I should interfere with the decision made by Molly’s Trustees not to advance funds to Warwick is to be determined as an evaluative exercise, as opposed to one that is discretionary in nature.75 I am satisfied that Molly’s Trustees made a good faith decision not to advance the sum of $800,000 to Warwick. I make that finding even though they are sued in their capacity as both Christian’s Trustees and Molly’s Trustees. In that sense, their interests might
potentially be seen in conflict with Warwick’s.
[82] In his affidavit in opposition to the funding application, Mr Monk identified the following reasons why a decision was made to decline to make the payment:
(a) Although the total cash held by Molly’s estate is about $2.127 million, Molly’s Trustees cannot know what sum is available for distribution until this proceeding and its associated costs are determined. An important feature is that, on current estimates (at that time, for a trial scheduled to take between five and seven weeks) Warwick’s total fees would be about $2.342 million. In that context, a sum of $992,319
was paid to meet Warwick’s costs as recently as April 2017.76
(b)Warwick has indicated that, regardless of the outcome of the proceeding, he will seek indemnification for legal fees out of the
moneys held in trust.
74 This accords with the view expressed by French J in O’Leary v O’Leary HC Christchurch CIV-
2008-442-147, 2 June 2009. See para [55] above.
75 Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320 at para [50]. See para [60] above.
76 See para [44] above.
(c) Molly’s Trustees wish to retain their ability to exercise their right to indemnity out of trust assets for their costs in the event that they are successful in resisting Warwick’s and CTE’s claims, and no findings of fact are made that would otherwise disentitle them from that right of indemnity. Section 38(2) of the Trustee Act limits the indemnity to expenses “reasonably incurred in or about the execution of the trusts powers”.
[83] In my view, those are all valid reasons from which Molly’s Trustees were
entitled to conclude that no further funds should be advanced to Warwick.
[84] The amount of money that has been invested in the proceeding on behalf of Warwick and CTE suggests that they are confident that they will succeed at trial. If so, they will be entitled to recover costs from those parties against whom they succeed, and preserve the available assets for the benefit of both Warwick and Hilton’s estate. The fact that a request for funding was not made until some time in August 2017, with the formal funding application being made during the week of 11
September 2017, suggests that, during the final preparation phase, there were no immediate concerns about the need for additional funding. The August 2017 request was made only four months after a sum of $992,319 was paid to meet legal costs and disbursements relating to the proceeding in April 2017.
[85] By contrast, unless protected by their right of indemnity Molly’s Trustees will be required to take an unacceptable risk that there will be sufficient funds in Molly’s Estate to exercise the right of indemnity. Also, if only the share that would otherwise be payable to Hilton’s estate remained available, there is an unacceptable risk that the beneficiaries of his estate may not receive their due inheritance.
[86] As in any case, parties to litigation must take into account the risks and costs of litigation in deciding whether to proceed with or to settle any pending proceeding.
[87] Finally, I comment on a procedural question that arose on the application. The funding application was brought by way of interlocutory application in the present proceeding. I allowed it to proceed in that way due to the exigencies of the
case. On the basis of my analysis of relevant principles, I consider that the application should have been made by an originating proceeding akin to one brought by a beneficiary to enforce the trust. In some cases, leave might be granted for such an application to be brought by originating application, for example where no cross- examination of witnesses is required. By proceeding in that way, an applicant will be obliged to serve all beneficiaries who might have an interest in the proposed distribution, all trustees, and any potentially affected persons.
Result
[88] For those reasons, the funding application is dismissed.
[89] Costs are reserved.
P R Heath J
Delivered on 4 October 2017 at 9.15am
Solicitors:
Bell Graham, Matamata
Perpetual Guardian, Auckland Kennedys Law, Auckland Gilbert Walker, Auckland Counsel:
D G Chesterman, Auckland
S Carey, Auckland
E McGill, Auckland
R J Latton, Auckland
H Ford, Auckland
G Schumacher, Auckland
A S Ross QC, Auckland
C T Walker QC, Auckland
A Lenard, Auckland
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