Cain v Martin
[2024] NZHC 715
•28 March 2024
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2023-442-16
[2024] NZHC 715
BETWEEN MARY JOSEPHINE MORTON CAIN AND PAUL JAY ATKINSON
Applicants
AND
CLAIRE BERNICE ATKINSON MARTIN, ROBIN WHALLEY AS DIRECTOR OF TOLEMAC TRUSTEES LTD AND ROBIN WHALLEY TOGETHER AS TRUSTEES OF THE TOLEMAC TRUST
Respondents
Hearing:
Further memoranda:
21 November 2023
19 November 2023 and 2 February 2024
Counsel:
G Pearson and M M Gray for Applicants G J Praat for Respondents
Judgment:
28 March 2024
JUDGMENT OF ISAC J
[Interim removal of trustees]
Introduction
[1] This proceeding concerns the administration of the Tolemac Trust, which the late Mr John Atkinson established in 2012 for the benefit of his partner and children.
[2] Unfortunately, nearly four and a half years after Mr Atkinson’s death, his family have been unable to resolve issues relating to his legacy. This has led to the current proceedings, with the applicants, two beneficiaries of the Trust, filing a second set of proceedings against the respondents as its trustees. The applicants seek a range
CAIN & ANOR v MARTIN & ORS [2024] NZHC 715 [28 March 2024]
of substantive orders, including the respondents’ removal as trustees, an account of the Trust’s assets, and judgment requiring the respondents to make good any loss caused by a breach of Trust.
[3] This judgment deals with an interlocutory application by the applicants seeking:
(a)appointment of an interim trustee “and/or suspending the current trustees”; and
(b)a freezing order under r 32.2 of the High Court Rules 2016.
[4] At the conclusion of the hearing on 21 November 2023, I indicated a preliminary view that a new interim trustee replacing Ms Claire Martin would be in the beneficiaries’ best interests. The parties requested time to explore a resolution that would avoid the need for a judgment. I therefore reserved my judgment. On 29 November 2023, counsel for the defendants requested a further 14 days to allow time for resolution. After the parties were unable to reach one, the applicants filed a memorandum on 2 February 2024 seeking judgment.
[5] I have come to the view that an interim order removing one of the trustees, Claire, is appropriate. My reasons follow.
Background
The Trust and its assets
[6] Mr Atkinson had a lifelong passion for the legend of King Arthur. As a successful businessman, he enjoyed spending his time with his partner, Mary Jo, one of the applicants, travelling around the United Kingdom in search of Camelot. His interest in the subject also inspired the name of the Trust at the centre of this case, which is an anagram of Camelot.
[7] Camelot also inspired Mr Atkinson’s choice of investments. Over many years, he collected gold and silver coins. By the time he passed away, he had amassed
significant amounts of gold and silver bullion. Mr Atkinson also nicknamed the properties he wanted to pass on to MJ and his children Camelot West, Camelot City Retreat, Camelot Island Retreat and Camelot Country Retreat.
[8] Mr Atkinson settled the Tolemac Trust on 25 May 2012. The Trust’s primary discretionary beneficiaries are his four children, Claire, Mark, Paul, and David, as well as his partner MJ. Mr Atkinson’s children are also the final beneficiaries.
[9] At the time of Mr Atkinson’s death on 17 July 2019, the Trust assets included three Nelson based properties: one at Best Island; one at Richmond Avenue; and one at Kanuka Rise; together with a substantial amount of gold and silver coins and funds in bank accounts.
[10] Six days after Mr Atkinson passed away, Claire appointed herself a trustee of the Trust using a power of appointment left to her under Mr Atkinson’s will. At the time there were two other trustees: Mr Robin Whalley, Mr Atkinson’s accountant, and his trustee company, Tolemac Trustees Limited. Mr Whalley retired as a trustee in his personal capacity on 4 August 2020, leaving Tolemac Trustees Limited and Claire as the remaining trustees.
Previous proceedings and consent orders issue
[11] When settling the Trust, Mr Atkinson provided a Memorandum of Wishes setting out his desires in relation to distribution of the Trust’s assets on his death. He recorded that he wanted the three Nelson based properties to be left to each of MJ, Claire and Paul, and that the remaining Trust assets should be split evenly between Paul, Claire, David and MJ. According to the memorandum, Mr Atkinson’s son Mark had already received a property in California, and that David had been left a flat in Brighton, England. The effect of Mr Atkinson’s wishes, if followed, is that each of his children and MJ would receive a property, but only three of the children would take a share in the remaining Trust assets. Mark would not receive a share of the residuary.
[12] Ten days after Mr Atkinson’s death Claire travelled to New Zealand with her partner and attended to various trust matters. She removed all the gold and half of the silver from a safe at the Best Island property. Her evidence is that she has deposited
the bullion—which is clearly Trust property—in an undisclosed vault in Auckland. The remaining silver was left at Best Island.
[13] Then in January 2020, the property in Richmond Avenue was sold. From the proceeds of the sale, $50,000 was deposited in the Trust’s lawyers’ trust account, and the remainder was divided equally between Claire and David.
[14] In 2021 there were disagreements between the trustees and the applicants about whether the properties Mr Atkinson wanted the Trustees to leave to MJ and Paul—at Kanuka Rise and Best Island—ought to be transferred to them. The concern arose because the trustees proposed to divide all of the Trust assets equally between the four beneficiaries, contrary to the memorandum of wishes. MJ and Paul filed proceedings on 23 September 2021 seeking a review of the trustees’ decisions. They also applied for freezing orders and an account of Trust assets.
[15] During January and February 2022, the parties reached an agreement resolving the proceedings. Consent orders were sought from the Court which provided for the Kanuka Rise and Best Island properties to be distributed to MJ and Paul respectively. The orders did not resolve what was to happen with the remaining bullion, but provided that the Trustees were to promptly use the remaining assets to pay any tax “and other costs”, and to put forward a proposal for a final distribution to the beneficiaries. In the event the parties could not reach agreement, the consent orders provided for the question of final distribution to be referred to the Court for determination.
[16] On 29 March 2022, Mr Whalley attended on the property at Best Island and opened the safe. He wrote an email the same day to the beneficiaries providing an itemised inventory of what was left in it at that time, which included the remaining 750 ounces of silver.
Post consent order difficulties
[17] By early August 2022, the Trustees had transferred the Kanuka Rise property to MJ personally, and Best Island was transferred to Paul.
[18] Problems then arose again at the end of August 2022, when MJ and Paul asked the Trustees about the final distribution of the Trust's assets.
[19] The applicants were unable to obtain what they considered to be satisfactory answers to queries about the whereabouts, value and custody arrangements for the gold and silver bullion. Of greater concern to the applicants was the disclosure, on 13 October 2022, that the remaining silver bullion had been removed from the safe on Best Island in June, sold, and the proceeds used to pay the Trust’s legal fees and make what the applicants contend is an unauthorised $24,000 distribution to Claire.
[20] Further correspondence between the parties’ solicitors followed. On 19 December 2022, a trustee resolution pre-dating the consent orders was disclosed to the applicants and said by the respondents to authorise the payments to Claire and the Trust’s lawyers.1 The Trustees also made a proposal in relation to the final distribution of the Trust property, which would involve distribution of the bullion to David, Paul, and MJ in unequal amounts, reflecting what was said to be the unequal distributions (by value) of properties and other Trust assets between the five beneficiaries.
Jurisdiction
[21] Sections 112 and 114 of the Trusts Act 2019 deal with the removal and appointment of trustees. Section 112 provides that whenever it is “necessary and desirable” to remove a trustee, and it is difficult and impracticable to do so, the court may make an order removing a trustee. Similarly, under s 114, whenever it is “necessary or desirable” to appoint a new trustee, the court may make an order appointing a new trustee.
[22] This statutory power of removal or replacement exists alongside the court’s inherent power to remove and appoint trustees and to supervise and intervene in the administration of trusts.2 The power is a broad one exercisable in a variety of
1 The applicants submit that the terms of the resolution are inconsistent with the requirements of the Trust Deed that there should be no self-dealing by trustees with the Trust property.
2 Trusts Act 2019, s 8; Re Setter (as trustees of Central Hawkes Bay Consumers Power Trust) [2021] NZHC 1603, (2021) 33 FRNZ 80 at [36]; Holland (as trustees of the Tauranga Energy Consumer Trust) v Jonkers [2021] NZHC 3469 at [100]–[102]; Ruby v Ruby (as trustees of the A Ruby Trust) [2022] NZHC 282 at [35]–[36]; and Whale v Silich [2022] NZHC 3339 at [19].
circumstances including where there has been no misconduct or neglect of duty.3 The paramount concern is whether the trust is being properly executed for the benefit of the beneficiaries for whom the trust estate has been created. The main guide is therefore the welfare of the beneficiaries.4 If the continuation of a trustee is detrimental to the execution of a trust, the trustee is expected to stand aside.5
[23] The expression “necessary or desirable” involves a broad fact-specific assessment and is directed to ensuring the efficient and proper administration of trusts.6 The interests of the beneficiaries are central to the exercise of the discretion:7
… if [the Court is] satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.
[24] There are a number of situations where removal has been found to be “necessary”. Relevantly, where there is a conflict between personal interest and duty as a trustee, that is usually enough in itself for the trustee to be removed.8 Additionally, hostility between trustee and beneficiaries has been found to make removal necessary, when “continuation of the trustee in office would be likely to be detrimental to the trust because the trustee is out of sympathy with the beneficiaries”.9
3 Vlaar v Van Der Lubbe [2016] NZHC 2398, at [22].
4 Letterstedt v Broers [1884] 9 App Cas 371 (PC) at 387; and Frickleton v Frickleton [2016] NZCA 408, [2017] 2 NZLR 154 at [29] at [33].
5 Vlaar v Van Der Lubbe, above n 3, at [22].
6 See for example Aksinya Enterprises Ltd v Bhagirath [2022] NZHC 3526 (the trustees failed to discharge their obligations, one due to incapacity, the others through wilful neglect); Whale v Silich, above n 2 (complete breakdown in the trustees’ relationship resulting in the proper execution of the trust being frustrated); and K v K [2020] NZHC 3123 (trustee failed to fulfil his obligations and engage with the other trustee which caused detriment to beneficiaries).
7 Whale v Silich, above n 2, at [21], citing Letterstedt v Broers (1884) 9 App Cas 371 (PC) at 386, and Frickleton v Frickleton above n 4, at [33]. See also Miller v Cameron (1936) 54 CLR 572 at 580–581, applied in K v K, above n 6, at [100], where Dixon J said: “The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee.”
8 Greg Kelly and Chris Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at [17.60], citing Preston v Preston [1960] NZLR 385 at 402; and Vincent v Stewart HC Auckland M671/IM02, M1248/SD02, 17 April 2003.
9 Kain v Hutton [2004] 1 NZLR 14-022 (HC) at [249].
[25] Finally, the Court is able to remove or replace a trustee on an interim basis under interlocutory application.10
First issue: should the respondents be removed as trustees?
[26] I have reached the clear view that it is necessary and desirable to remove Claire as a trustee for the time being for the following reasons.
[27] First, the Trust Deed for Tolemac Trust contains, in cl 14.1, a prohibition on self-dealing by trustees who are also beneficiaries. While cl 14.2 provides that a trustee who is not a beneficiary may exercise the power to make a distribution to a beneficiary-trustee, the resolution of 2 December 2020 under which Claire receives a distribution of $15,000 is signed not only by Tolemac Trustees Ltd but also by Claire. Claire should have had no part in the decision to make a distribution to herself. At the very least the evidence indicates a lack of understanding of the requirements not only of the Trust Deed but also the general requirements of the Trusts Act 2019, and in particular s 31, which provides that a trustee must not exercise a power for their own benefit.
[28] Second, in July 2019 Claire uplifted a significant proportion of the Trust’s bullion. Her email to the beneficiaries of 27 July 2019 suggests she deposited bullion earmarked for her own benefit and her brother David with an undisclosed agent somewhere in Auckland. It is at least arguable that this action also constituted a form of prohibited self-dealing. Even at the date of the hearing, the precise location and arrangements for the custody of the bullion were not disclosed. Mr Praat accepted that he could not exclude the possibility that the custodial arrangements were made by Claire alone, and that she could be entitled to uplift and deal with the bullion without recourse to Tolemac Trustees Ltd as co-trustee. Given the first obligation of a trustee is to gather in and secure the trust property, the fact that four years later the remaining bullion is not vested in or under the control of both trustees is unsatisfactory.
10 Kain v Hutton, above n 9. See also where Public Trust has been appointed on an interim basis: Mendelssohn v Levinsohn HC Auckland M96/96, 10 July 1997; and Attorney-General v Ngati Karewa and Ngati Tahinga Trust [2002] BCL 75.
[29] Third, it is troubling that there appears to have been a failure by the respondents to disclose to the applicants the existence of the 2 December 2020 trustee resolution prior to the settlement of the 2021 proceedings, and the making of the consent orders. No explanation has been provided as to why the applicants were not advised of the proposal to make this distribution before it was made, or why the existence of the resolution was not disclosed earlier. It only came to light once trust account records were provided in October 2022.
[30] Fourth, there was an undisclosed sale of the remaining bullion arguably in the face of the terms of the consent orders, which was followed by a payment of almost
$24,000 to Claire.
[31] It follows from these facts that it is at least arguable at this interlocutory stage that Claire has acted inconsistently with the terms of the Trust Deed, and in particular the obligation on a trustee to avoid self-dealing. It is also appears that the remaining bullion is not under the joint custody and control of both trustees.
[32] For completeness, I am not persuaded by Mr Praat’s submission that it is enough to know that the bullion is in safe custody in Auckland, or that the distribution of $24,000 to Claire has been returned to the Trust. The pattern of conduct disclosed by the evidence is not consistent with good practice by trustees. There has been a loss of trust and confidence by the applicants and at least one other beneficiary in the trustees’ conduct, and a concern that if Claire remains trustee, she will continue with a proposal to make distributions other than in keeping with the testator’s wishes. Given the high level of distrust which now exists, there is a strong likelihood of further litigation and wasted costs that might otherwise be avoided if the Trust were under the control of an independent trustee.
[33] Finally, I have also considered removing Tolemac Trustees Ltd as trustee given an arguable failure to gather in and secure the remaining bullion. However, on balance I am satisfied that Claire’s removal is sufficient for the time being to meet the interests of justice. However, I reserve leave for the applicants to renew their application in relation to Tolemac Trustees Ltd should it prove necessary or desirable to do so.
Second issue: a freezing order?
[34] Mr Pearson responsibly accepted that if an order were made removing Claire as a trustee, the case for the freezing order was substantially diminished. I agree. With Claire’s removal the assets are effectively secured from the risk of dissipation alleged given they are not in Claire’s personal custody. In any case, the applicants’ delay in pursuing the freezing order tells against the application.
[35] It follows that the application for a freezing and ancillary order is dismissed. Nevertheless a copy of this judgment is to be served by Tolemac Trustee Ltd on the third party holding the bullion without delay. I make an order that the bullion is not to be uplifted or otherwise dealt with until further order of the Court.
Conclusion and result
[36] The application for an interim order removing Claire Martin as a trustee of the Tolemac Trust is granted. I am minded to appoint the Public Trust in her place. Before doing so, I give the parties ten working days to file memoranda on the appropriate replacement trustee, or alternatively to obtain Public Trust’s consent to the appointment. I will then deal with the issue on the papers.
[37]In all other respects the interlocutory application is dismissed.
[38] I note that since this judgment deals with only the interlocutory application, a Case Management Conference will be required once the new trustee has been appointed and reported on assets of the Trust.
[39] I reserve the question of costs. While it will be for the parties to determine, in my view they would be better focusing their energies on a satisfactory final distribution of the Trust assets rather than pursuing further litigation.
Isac J
Solicitors:
Tavendale and Partners, Christchurch for Applicants Core Legal Solutions Ltd, Nelson for Respondents
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