Calver v Fogarty

[2024] NZHC 961

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2023-441-7

[2024] NZHC 961

IN THE MATTER OF

the Fogarty Family Trust

AND

The Trusts Act 2019

BETWEEN

GREGORY WILLIAM CALVER AND E4 TRUSTEE COMPANY LIMITED

Applicants

AND

YVONNE GRACE FOGARTY

First Respondent

AND

DANIEL MARK FOGARTY

Second Respondent

AND

TRACEY MARIE FOGARTY

Third Respondent

AND

KAREN YVONNE O’HALLORAN

Fourth Respondent

AND

PATRICK MAURICE FOGARTY

Fifth Respondent

Hearing:

14 February 2024

Appearances:

A S Butler KC and D T Haradasa for the Applicants

Y G Fogarty in person and for the Second and Third Respondents G F Kelly for the Fourth Respondent

R J B Fowler KC for the Fifth Respondent

Judgment:

29 April 2024

JUDGMENT OF PALMER J

Solicitors/Counsel

A S Butler KC, Wellington

R J B Fowler KC, Wellington

Greg Kelly Law Limited, Wellington

CALVER v FOGARTY [2024] NZHC 961 [29 April 2024]

What happened?

The family

[1]    Karen O’Halloran (the fourth respondent), Daniel Fogarty (the second respondent), and Tracey Fogarty (the third respondent),  are  the  children  of  Yvonne Fogarty (the first respondent) and Patrick Fogarty (the fifth respondent).1

[2]    Karen was adopted out at birth to Jennifer Warren. The evidence of Karen and Jennifer is that this was an open adoption, that she had an increasing relationship with the Fogarty family from the age of 13, and she had a relationship with her grandparents. Karen provided evidence of that relationship including cards that her grandfather wrote her, a photograph of her grandfather at her wedding, and his death notice describing her as a “loved granddaughter”. Yvonne’s evidence is that the adoption was not open, that she had contact with Jennifer and Karen once Karen was 13, but that Yvonne’s parents never saw Karen as a granddaughter.

[3]Karen has three adult children. Daniel has two children who are minors.

The Trust

[4]    On 1 July 1998, Yvonne settled the Fogarty Family Trust (the Trust). Yvonne and Patrick are the appointors of the Trust. Yvonne, Patrick, and Mr Gordon Stoddart were the initial trustees. According to the Trust Deed, there are two classes of beneficiary of the Trust:

(a)the final beneficiaries, who are recorded as Karen, Daniel, and Tracey; and

(b)the discretionary beneficiaries, who are recorded as Karen, Daniel, Tracey and any child of Karen, Daniel, and Tracey born before the date of distribution (1 July 2078).

1      Because many of the parties have the same last name, I refer to all of the parties by their first name.

[5]    Clause 18 of the Trust Deed permits the settlor, Yvonne, to remove any person from the class of discretionary beneficiaries but does not allow her to remove any of the final beneficiaries. In May 2002, Yvonne exercised her power to remove Karen and her three children as discretionary beneficiaries. I am satisfied that she has not removed Karen as a final beneficiary. She does not have the power to do so under the Deed.

[6]The trustees have wide powers under the Trust Deed including, relevantly:

(a)to let the trust property “either from year to year or for any term of years or otherwise at such rent and subject to such covenants and conditions as the Trustees in their absolute discretion think fit”, under cl 8(b);

(b)to sell any part of the Trust property “by public auction or private contract to whom and in such a manner and subject to such terms and conditions as the Trustees shall in their absolute uncontrolled discretion think fit”, under cl 8(a);

(c)to bring forward the date of distribution “in their absolute discretion” under cl 2(iii); and

(d)upon the date of distribution, to distribute income and capital as they think fit and in accordance with the provisions contained in cl 4.

[7]    The principal asset of the Trust is a 1,295 hectare property, Bullock Hill, at 1555 Te Uri Road, Pōrangahau. Yvonne and Patrick purchased it in 1998 for $310,000 plus GST. Yvonne says that her father put in over a third of the purchase price, but that appears to be disputed. It was initially used for hunting by the Fogarty family and as a dairy run-off unit. More recently it has been used by Patrick for honey production. Much of it is covered in kānuka and mānuka trees.

Dysfunction

[8]    Yvonne and Patrick separated in March 2000. Yvonne resigned as a trustee in March 2005.

[9]    From 2004 the property was leased. In September 2016, Patrick and Mr Gordon Stoddart, as trustees, leased the property to the Athenry Trust for the purposes of farming, hunting, and other agriculture activities. The trustees of the Athenry Trust were Patrick, his partner Erin Squire, and Jo Ann Morell.

[10]   In 2019, Yvonne, Daniel, and Tracey brought High Court proceedings against the trustees over the lease. In September 2020, there was a settlement agreement:

(a)Patrick and Yvonne agreed to appoint independent trustees: Gregory (Bill) Calver, a retired lawyer; and an accountant, to be decided, as replacement trustees. E4 Trustee Co Ltd was subsequently appointed as an independent trustee, through its director, and chartered accountant, Angela Williams.

(b)Mr Calver as lessor and owner, and Patrick, as lessee and occupier, were to control hunting access for the beneficiaries of the Fogarty Family Trust in accordance with terms and priorities in the agreement.

(c)There was to be a rent review on 1 October 2020 with retrospective effect and the Athenry Trustees were to pay a reasonable sum for the rent from 1 July 2016 to 1 October 2020.

(d)If Patrick were to die, the Athenry Trust would vacate the property on two years’ notice from Daniel and Tracey, who would be obliged to buy the Athenry Trust’s beehives on the property.

[11]   Since then, there have been further disputes. The Athenry Trust has been unhappy with the rent review being too high and with their claims for reimbursement and compensation not being met. Yvonne, Daniel, and Tracey have been unhappy that it is too low. Relationships within the Fogarty family have become strained, including in relation to the management of the Trust.

[12]   Yvonne, Daniel, and Tracey have raised a variety of concerns pre-dating the 2020 settlement agreement and about the implementation of the settlement agreement,

particularly about the lease. They have alleged financial irregularities, and complained about the regulation of access to the property for hunting purposes. These issues are not directly relevant to the issues I have to decide in considering the current application. In particular these issues, which were also raised prior to the settlement agreement, were disposed of by cl 17 of the settlement agreement. The applicants’ responses to the post-settlement concerns are reasonable on the basis of the evidence before me. If Yvonne, Daniel, and Tracey wish to pursue those matters, they should do so in separate proceedings.

Proposed sale of the property

[13]   In October 2021, Patrick offered to purchase the property for $2.2 million. On 21 October 2021, after taking legal and valuation advice, the trustees suggested Patrick raise his offer to $2.4 million. Patrick agreed the same day. As a condition of sale, he would agree to waive any claims by him or the Athenry Trust against the Trust. A full valuation of the Property was received in September 2022, valuing it at $2.37 million. On 6 February 2023, the Trust received an update from the valuers commenting on the market trends that may impact the value of the property.

[14]   Not long after this advice, in early 2023, the property was damaged by the disastrous weather events associated with Cyclone Gabrielle. Nevertheless, on 6 March 2023, and again at the hearing of these proceedings, Patrick confirmed his offer to purchase the property for $2.4 million still stands.

Application

[15]   The trustees believe it is impossible the Trust will ever be run to the satisfaction of all interested parties. The trustees consider the dysfunctional relationships within the Fogarty family will only be exacerbated by the continued existence of the Trust. The trustees therefore propose to sell the Bullock Hill property, bring forward the date of distribution, and wind up the Trust, making final distributions of the capital and income of the Trust to Karen, Daniel, and Tracey equally.

[16]   Patrick and Karen support the proposal. Yvonne, Daniel, and Tracey oppose it. In particular, Yvonne believes the property of the Trust should not be divided

equally  between  Karen,  Daniel, and Tracey.    Discussion has failed to resolve the differences.

[17]   Accordingly, in April 2023, the trustees applied for orders under s 133 of the Trusts Act 2019 (the Act):

(a)to sell the principal asset of the Trust, the Property, to Mr Patrick Fogarty, the fifth respondent, for $2.4 million on specific conditions;

(b)approving the decision of the Trustees to “wind-up” the Trust upon receiving the proceeds of sale of the Property and make final distributions of the trust capital and income to the final beneficiaries of the Trust in equal shares; or

(c)alternatively, if the Court is not willing to make the orders in (a) and (b), an order under s 114 of the Act permitting the Trustees to retire and for them to be replaced by the Public Trust.

[18]   Upon request of the parties, the Court has allowed some time for further discussions to occur but they have also failed to resolve the differences between the parties. A decision is necessary.

Should the application be granted?

[19]   There is no real doubt as to the nature of the trustees’ powers. The trustees have decided how to exercise them. But because the proposed decisions are particularly momentous for the Trust and the Fogartys, and not all the final beneficiaries agree on the proposed course of action, the trustees wish to obtain the approval of the Court. Orders made in these sort of circumstances have been termed “blessing” orders by the High Court of England and Wales. The Court considers: whether the trustee has formed the relevant opinion; whether the opinion is one at which a reasonable body of trustees could properly have arrived; and whether the opinion is vitiated by any conflict of interest.2

2      Public Trustee v Cooper [2001] WTLR 901 (Ch) at 925, where Hart J based his observations on an earlier unnamed and unreported chambers judgment by Robert Walker J.

[20]   In the more secular context of New Zealand law, courts have been more hesitant to use the term “blessing” when considering these types of orders. In Re PV Trust Services Ltd, Fitzgerald J simply, and appropriately, ruled that the orders sought were “proper and lawful”.3 They could be termed “approval orders”.

[21]   Here, it is clear that the trustees have formed the opinions they say they have formed. Their decision is lawful and is one at which a reasonable body of trustees could properly have arrived in accordance with their duties and is not vitiated by conflict of interest. The proposed sale and distribution is undoubtedly within the power of the trustees. It is supported by advice. The dysfunction within the family is clear on the evidence before me, as it was at the hearing. It is proper and lawful for the trustees to form the view they have as to the best interests of the beneficiaries and the best course of action to meet those interests. As Mr Fowler KC submits, for Patrick, it is the obvious solution. I note in particular that a distribution would make a significant improvement to Karen’s personal circumstances, would assist Daniel to purchase a farming property, and would assist Tracey to meet her financial challenges.

[22]   I accept Dr Butler KC’s submission, for the trustees, that they are entitled to have regard to the value to the beneficiaries of keeping the property in the family, in the ownership of Patrick, their father. That seems more likely to benefit the beneficiaries than sale to a stranger.

[23]   Yvonne says she is not against the sale or the sale being to Patrick, but the price should be higher. She raises various concerns. In particular, I do not consider the trustees are required to obtain a further valuation or to go to market. Patrick previously raised his offer, which is higher than the latest market valuation received in September 2022 and prepared by Logan Stone. In the current circumstances, of a generally flat market and cyclone damage, it is a real possibility that a further market valuation or tender process would yield a lower price and involve increased costs. That would not be in the interests of the beneficiaries.

[24]   Furthermore, the 2022 valuation considered the lease to Athenry Trust, including rights of renewal until 2036, would deter a number of purchasers and depress

3      Re PV Trust Services Ltd [2017] NZHC 2957, [2018] 3 NZLR 160 at [67].

the market price. The trustees are entitled to take that into account. The respondents suggest it is not fair that Patrick’s lease entitles him to buy the property at what they consider to be a low price. But the market value of the property being sold is affected by the lease. That is what the trustees own on behalf of the beneficiaries, that is what is being sold, and that is what must be valued.

[25]   Yvonne points to a different valuation of the property of $3.6 million by Greg Morice, which dates to 24 August 2022 — before the 2022 valuation by Logan Stone. There was a dispute about whether the Morice valuation is in evidence. But in any event, the valuation does not take account of the lease, which must be taken into account as I explain above. Yvonne also suggests another property similar to Bullock Hill has been sold for a higher value per hectare than that offered here. And she suggests that carbon credits have not been accounted for. But these are speculative points.

[26]   Finally, I agree that the distribution to the final beneficiaries should be in equal shares. There is nothing in the Trust Deed to suggest anything else. There is nothing in the personal circumstances of the three final beneficiaries that suggests anything else. The default distribution under cl 4(b) of the Deed is to distribute the capital and income to the final beneficiaries “then living in equal shares”. The trustees properly propose to allow that clause to operate, rather than cl 4(a), which may involve a further wait of up to six months. The wording of the orders sought reflects that.

Costs

[27]   Yvonne requests that her legal costs be reimbursed. So does Tracey, for legal costs addressed to her, Yvonne, and Daniel. Karen has also incurred legal expenses which she requests be reimbursed. The trustees’ position is that they cannot properly use the Trust’s funds to make payment on behalf of Yvonne, who is not a beneficiary. But if the Court is minded to authorise payment of the costs of Tracey or Yvonne, the trustees consider a similar order should be made in respect of Karen. Costs incurred by trustees in relation to these sorts of proceedings are also usually awarded on an indemnity basis.

[28]   I order that the legal costs of the trustees and final beneficiaries related to this application be met from the Trust funds on an indemnity basis. It was reasonable for the trustees to make the application. It was reasonable for the final beneficiaries, Karen, Daniel, and Tracey, to state their positions. The legal costs they incurred in doing so should be met. That includes legal costs that were genuinely shared jointly between a final beneficiary and Yvonne. But it does not include any separate legal costs of Yvonne or Patrick who did not need to be involved. And it does not include the costs of the settlement agreement which were dealt with as part of the settlement.

Result

[29]I make the orders as sought:

(a)approving the sale of the principal asset of the Trust, the Property, to Patrick Fogarty and/or his nominees for the price of $2.4 million on the terms agreed by Patrick Fogarty and/or his nominees and the trustees of the Trust (the Trustees) including that Patrick Fogarty and/or the Athenry Trust will forgo any claim that he/it might have against the Trustees in respect of improvements, repairs, maintenance, track installation, and installation/maintenance of fixtures at any time carried out by Patrick Fogarty, the Athenry Trust, or his agents; and

(b)approving the decision of the Trustees to “wind-up” the Trust upon receiving the proceeds of sale of the Property and to make final distributions in equal shares of the trust capital and income each to Karen O’Halloran, Daniel Fogarty, and Tracey Fogarty, who together comprise of the final beneficiaries of the Trust.

[30]   The legal costs of the trustees and final beneficiaries are to be met from the Trust funds on an indemnity basis, as ordered above.

Palmer J