Chambers v S R Hamilton Corporate Trustee Ltd
[2017] NZCA 131
•26 April 2017 at 10.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA358/2016 [2017] NZCA 131 |
| BETWEEN | JOCELYN ZELPHA CHAMBERS |
| AND | S R HAMILTON CORPORATE TRUSTEE LIMITED AND LAMB TRUST SERVICES LIMITEDFirst Respondents STEPHEN WHITE MAUREEN EDITH PARSONS |
| Hearing: | 23 February 2017 |
Court: | Asher, Simon France and Peters JJ |
Counsel: | C T Gudsell QC and R F Karalus for Appellant |
Judgment: | 26 April 2017 at 10.30 am |
JUDGMENT OF THE COURT
AThe application for leave to introduce further evidence is granted.
BWe allow the appeal in part.
CWe quash the High Court order directing a sale at a purchase price of $1,725,000 plus GST if any, and in substitution we make the order set out at [55].
D In all other respects we dismiss the appeal.
EAny orders required to implement the order at [55] are to be dealt with in the High Court.
FThe appellant must pay the second and third respondents one set of costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
GMr Hudson acted for the first respondents, and it is agreed by all parties that his fees should be paid by the estate. We so direct.
HThe issue of costs in the High Court must be determined in the High Court in light of the High Court decisions and the decision by this Court.
____________________________________________________________________
REASONS OF THE COURT
(Given by Asher J)
Introduction
This appeal concerns whether orders made in the High Court giving directions to the trustees of a family trust were properly made.[1] The appellant Dr Jocelyn Chambers, a beneficiary, contends that the Judge went too far in giving directions that he thought were appropriate, rather than limiting himself to making or refusing to make the specific orders sought by the trustees. She seeks remittance back to the High Court, or for this Court to make the directions she supported in the High Court.
Background
[1]S R Hamilton Corporate Trustee Ltd v White [2016] NZHC 1408.
The first respondents S R Hamilton Corporate Trustee Limited and Lamb Trust Services Limited (the Trustees) are trustees of a trust settled on 7 November 2003 by Mr White Senior and his wife Zelpha. It is unnecessary to trace the history since 2003 that has led to the change of name and the appointment of the current trustees. Suffice to say that the Trustees are companies linked respectively to Mr White Senior’s long term solicitor and his accountant. The final beneficiaries of the trust are the Whites’ three children, Mr Stephen White (Mr White), Ms Maureen Parsons and Dr Chambers.
Mrs Zelpha White died on 29 April 2006. In the years after her death Mr White Senior executed two memoranda of guidance intended to provide some direction to the Trustees about how they should deal with the Trust’s assets after his death and, as a third document, an addendum to the second memorandum. These three documents (the Memoranda) were dated 13 August 2006, 8 February 2010 and 10 May 2010 respectively.
The significant asset owned by the Trust was a modern home in Mt Maunganui, close to the beach. The property has been in the hands of the White family for almost 100 years and it had been lived in by Mr White Senior and Mrs White. The last of the Memoranda shows that Mr White Senior wished each of his three children to enjoy the benefit of his estate equally and that the property be sold to one of his three children. We will return to the words of the Memoranda in due course.
Mr White Senior died on 9 July 2012. The Trustees obtained a valuation of the property from Paul Higson who, in a report dated 2 October 2012, assessed the market value at $1,150,000 including GST (if any), noting the likely need for remedial work and the need for a detailed building inspection report. However, it then became clear to the Trustees that there were weathertightness problems with the property. The Trustees investigated and obtained reports. Ultimately they decided on the basis of expert advice that the best course was to sell the property “as is” rather than to try and fix the leaks and obtain funds from third parties to do so. They therefore obtained a valuation of the property from the firm Telfer Young. That valuation, dated 13 November 2013, valued the property in its present state without remedial work at $945,000 including GST (if any).
On 16 June 2014 Mr Lamb of Lamb Trust Services Limited, which had been Mr White Senior’s accounting firm, wrote to all three beneficiaries on behalf of the Trustees (the June 2014 Letter). He explained that remediation of the leaks was not wise in the Trustees’ view and, on the basis of expert advice, was not the sensible economic course. The letter advised, therefore, that the Trustees wished to sell the property without fixing the leaks. The letter gave notice to all three beneficiaries of the option to purchase the property for $945,000 and the option was to be exercised within one month and three days. Importantly, the letter concluded:
We confirm the option is conditional upon receiving from all three adult beneficiaries, the indemnity with respect to the weathertightness issues set out in this letter.
Mr White and Ms Parsons did not wish to accept the option and were not prepared to give the indemnity. Mr White had, following the Telfer Young valuation the year before, obtained his own valuation dated 25 February 2014 from a different firm, Hills Haden, which valued the property at $1.2 million. Dr Chambers responded in writing purporting to accept the offer and confirming her willingness to provide the indemnity.
The position in late-2014 was, therefore, that Dr Chambers wished to buy the property, but neither Mr White nor Ms Parsons had accepted the Trustees’ offer nor were they willing to provide the indemnity.
In response to the June 2014 Letter the lawyers for Mr White and Ms Parsons wrote to Mr Lamb’s firm expressing concern that the administration of the estate was drifting and enclosing a draft set of proceedings for the removal of the Trustees and their replacement by the Public Trust. Ultimately in November 2014 they issued such proceedings (the Removal Proceedings). We understand that at around the same time the Trustees issued the proceedings that relate to this appeal, seeking directions (the Directions Proceedings). In the original statement of claim in the Directions Proceedings the relief sought was a declaration that the home could be sold to Dr Chambers for $945,000, and directions that the parties did not need to pursue a claim to the Tribunal under the Weathertight Homes Resolution Services Act 2006 (WHRS Act), and did not need to seek compensation under the government financial assistance package. The pleaded facts reflected the Trustee’s view that the home had, by the exercise of the option process in the June 2014 Letter, been sold to Dr Chambers for a consideration of $945,000. This was followed by a first amended statement of claim. None of the changes in that statement of claim are material to the present issue.
Prior to the hearing a second amended statement of claim was filed by the Trustees. This replicated the request for a direction that the home be sold to Dr Chambers for a consideration of $945,000. Alternatively, orders were sought as before that the home be offered to all beneficiaries for $975,000 or alternatively for $1.2 million. As a further alternative an order was sought that the property be offered to all beneficiaries for a consideration equal to its market value as at June 2014 as determined by a registered valuer carrying on business in Tauranga. Yet another alternative order was sought that the home be offered to all beneficiaries for a consideration equal to the present market value of the property as determined by a registered valuer. As a further option, a declaration was sought that the home be retained by the Trustees, and that the Trustees not pursue a claim to the Tribunal under the WHRS Act for compensation. The filing of this second amended statement of claim was approved by Heath J, who stated that it was “preferable for all forms of relief that may be sought on the Trustees’ application for directions to be specified fully”.[2]
[2]S R Hamilton Corporate Trustee Ltd v White HC Tauranga CIV 2014-470-189, 23 March 2016 (Minute of Heath J).
In their statement of defence Mr White and Ms Parsons denied that the property had been sold to Dr Chambers. They pleaded that the valuation of $945,000 was not current and was not accepted. As an alternative defence it was pleaded that the Trustees had a conflict of interest between their duty to the three beneficiaries of the Trust, and their long association with Dr Chambers and their family interests. Various errors on the part of the Trustees were pleaded.
The two proceedings were set down to be heard together. There was an unsuccessful settlement conference. As the proceedings then came to hearing it was apparent that there were three broad issues to be determined. The first was whether the Trustees were acting in conflict of interest, which was the pleading in the Removal Proceedings. The second was whether the exercise of the option by Dr Chambers had resulted in a binding contract to sell the property to her. The third was the application for various directions, the one in particular being sought by the Trustees being a direction that the home be sold to Dr Chambers for consideration of $945,000. The latter two claims relate to the Directions Proceedings.
The hearing was set down before Heath J to be heard over four days starting 4 April 2016. We will refer to the history of the hearing later in this judgment. Heath J held there was no contract of sale arising out of the June 2014 Letter and Dr Chambers’ reply and that finding is not challenged on appeal. The part of his judgment that is the subject of this appeal rejected the preferred direction of the Trustees and the position strongly advanced by Dr Chambers, namely that the property should be sold to her for $945,000. Instead, the Judge directed that the property be offered back to the three beneficiaries at its then current market value, $1,725,000, and if not accepted placed on the open market and sold at market value.
The appeal against his decision has been brought by Dr Chambers, represented by Mr Gudsell QC and Ms Karalus. The Trustees, although not appellants, were represented in the hearing before us by Mr Hudson. They filed a short submission before the hearing. At the hearing Mr Hudson did not seek to actively present us with oral submissions but attended to answer queries. The written submission supported the appeal and the position taken by Dr Chambers.
The appellant says that Heath J went further than he should have in making the orders he did. It is necessary to trace the steps taken at the hearing.
The hearing before Heath J
The hearing commenced on 4 April 2016. It emerged early on in the morning that while Mr White and Ms Parsons were seeking the removal of the Trustees, the conditions of the proposed substitute Trustee, the Public Trustee, had not been met and the Public Trustee was not immediately available. This was an impediment to the Court being able to make any orders in the Removal Proceedings appointing a new trustee. This being the case the Judge, after a discussion with counsel, issued a minute stating his view that the narrowing of the issues enabled the parties to consider settlement.[3] The attempts at settlement were unsuccessful. The hearing resumed the next morning on 5 April 2016. After discussions with counsel Heath J issued a further minute (Minute Three) in which he identified two remaining substantive issues.[4] First whether an enforceable contract had been entered into between the Trustees and Dr Chambers that compelled the Trustees to settle on the terms of the option in the June 2014 Letter, and second, in the event that no enforceable contract had been entered into, what steps should the Trustees take to deal with the property? The Judge noted that if the directions issue could be resolved, the question of removal became moot.[5]
[3]S R Hamilton Corporate Trustee Ltd v White HC Tauranga CIV 2014-470-189, 4 April 2016 (Minute No 2).
[4]S R Hamilton Corporate Trustee Ltd v White HC Tauranga CIV 2014-470-189, 5 April 2016 (Minute No 3).
[5]At [3].
In Minute Three the Judge gave directions for the continuation of the hearing, including granting leave to the Trustees to amend their second amended statement of claim. He stated that the Trustees could seek as relief, amongst other things:[6]
In the event that I hold there was no enforceable agreement and was not prepared to make any of the other directions set out in paragraphs 1.1−1.8 of the application, an alternative direction from the Court as to the process that should be followed from this point. The extreme options (while not ruling out any middle ground) are to restart the process envisaged by the settlor in the Memoranda of Guidance, or to regard circumstances as sufficiently changed to justify directing a sale at auction.
[6]At [6] (emphasis added).
Therefore, if the parties chose to take this course, should none of the proposed alternative directions set out in the second amended statement of claim be adopted, the Court could make such directions as it considered to be appropriate for selling the property.
Also at this early stage in the hearing, it was accepted by the parties that, in the unusual circumstances, the proceeding to remove the Trustees could be dismissed because after discussion with the Judge it was understood that all critical issues could be resolved in the application for directions brought by the Trustees. Heath J therefore dismissed the Removal Proceedings with reasons to be given later.
In accordance with the procedure set out by Heath J in Minute Three, the Trustees filed a third amended statement of claim before the hearing resumed. The new pleading contained a number of changes. Significantly, for the first time it contained as a prayer for relief that, in the event that the directions specifically sought by the Trustees in prayer [1] were not made, a direction as to what process the Trustees should follow was sought from the Court in a new prayer [2].
The case proceeded, was completed, and judgment was reserved. In his decision in the Directions Proceedings Heath J found that no contract had been entered into between the Trustees and Dr Chambers by her exercising the option for $945,000. No sale could occur until the indemnities sought by the Trustees as a condition of their offer were obtained. It was not open to either the Trustees or Dr Chambers to waive that requirement because that was a term of the offer that had to be accepted before there was a contract.[7] This left the second issue of directions, concerning the proper course the Trustees could take to sell the property, to be determined.
[7]S R Hamilton Corporate Trustee Ltd v White, above n 1, at [54].
On this issue, Heath J concluded that the right approach was for the Trustees to offer the property for sale on usual terms for properties of that type to each of the three beneficiaries at a purchase price equal to the latest valuation before the Court of $1,725,000 plus GST, if any. The Judge also issued a separate judgment dealing with the Removal Proceedings.[8] In that judgment the Judge recorded the position that had been reached in the discussions on 4 April 2016 that there was no substitute Trustee available and that there was an alternative means by which the real issues between the parties could be resolved without the need for an inquiry into the conduct of the Trustees, and without their removal.[9] Judgment was therefore entered in favour of the Trustees in that proceeding, with costs reserved to await a determination of the cost issues on the Directions Proceeding.
[8]White v S R Hamilton Corporate Trustee Ltd [2016] NZHC 1409.
[9]At [4].
There is no appeal against the part of the judgment that determines that there was no contract. There is no appeal against the judgment in the Removal Proceedings. This appeal concerns the Judge’s rejection of the request for directions for a sale to Dr Chambers at $945,000 and the other options put forward, and his decision that the property should be offered again to all three beneficiaries at the $1,725,000 current valuation figure.
The approach taken by the Judge
In his submissions Mr Gudsell for the Trustees put forward two broad criticisms of the judgment. First, the Court should not have treated the application as one where the Trustees wished to surrender their discretion to the Court so that the Court could make orders as it saw fit. Mr Gudsell submitted that Heath J was never put in that position by the Trustees, and, when he made his direction, was outside the fourfold analysis of the trustee directions jurisdiction set out by Robert Walker J in a well-known and accepted, but unnamed and unreported English judgment. The analysis of Robert Walker J was set out in large part in the English High Court decision of Public Trustee v Cooper.[10] Robert Walker J in his decision described four types of applications for directions, which we summarise as follows:
(a)First, an application by trustees for guidance as to whether a proposed action was within their powers. This will ultimately be a question of interpretation of the trust instrument or a statute or both.
(b)Second, an application for directions on whether a specific proposed action is a proper exercise of a power. In these situations the trustees are essentially seeking the blessing of the court for an action that they have resolved is within their powers, but is particularly momentous. In a case like that, there is no general surrender of discretion.
(c)Third an application by trustees where they surrender their discretion to the court, and there is good reason for the court to intervene such as the trustees being deadlocked or the trustees being disabled by a conflict of interest.
(d)Fourth an application where the trustees have taken action that is being challenged as outside their powers or an improper exercise of their powers.
[10]Public Trustee v Cooper [2001] WTLR 901 (Ch) at 923–924. Robert Walker J’s four categories are referred to in many leading texts. See for example David Hayton (ed) Underhill and Hayton Law of Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [85.4]–[85.10]; Lynton Tucker and others (eds) Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at 1135; and Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington 2013) at [24.34].
It was Mr Gudsell’s ultimate argument that the directions made by Heath J did not fall into any of these four categories. In particular he submitted that at no stage was there any unambiguous surrender of discretion by the Trustees to the Court, and the third category did not arise.
In any event, he argued that the Court erred in not addressing at all, or insufficiently, the directions sought by the Trustees. Heath J should have fully considered the Trustees’ preferred option and dealt with that, giving clear reasons if it was not to be pursued, and then dealt with the other suggested alternatives, before proceeding on the basis that any exercise of the discretion was surrendered to him.
He submitted that if the appeal was successful there were two ways forward: first for the proceeding to be referred back to the High Court for determination in accordance with the correct approach; or second, that this Court determine the application itself, and make the primary direction sought for a sale to Dr Chambers for $945,000 or the other figures that had arisen in 2014 of $975,000 or $1.2 million.
Before we proceed to consider these submissions, we record that we accept that it was clear from the proceedings and the way in which the case was conducted that the Trustees wished to offer the property to Dr Chambers at $945,000, and this was the direction they wanted the Judge to make. This was specifically stated at [14] of the third amended statement of claim which read “[t]he Trustees are desirous of affecting a sale of the home to Jocelyn Chambers, at a consideration of $945,000.00”. This was the option that was favoured in submissions. The Judge undoubtedly recognised that this was what the Trustees wanted. He stated, in setting out the competing contentions, that the Trustees preferred the Court to make directions to reflect “the relief sought in paras 1.2 and 1.3 of the third statement of claim”.[11] Those were the paragraphs that sought directions to sell to Dr Chambers at valuations of $945,000 or $975,000 respectively. The issue is whether the Judge was able to disregard their wish and proceed the way he did.
[11]S R Hamilton Corporate Trustee Ltd v White, above n 1, at [66].
It is also clear that the Judge did take the view that the Trustees had surrendered their discretion. He stated that the Trustees had effectively surrendered their discretion to him, and that he would explain why he was making particular directions.[12]
[12]At [69].
This appeal, therefore, raises the question of the nature and extent of the jurisdiction under s 66 of the Trustee Act 1956, and whether the Judge, as is alleged, erred in not properly considering the directions sought by the Trustees, and in making an allegedly different direction not sought by the Trustees.
Section 66
Section 66 of the Trustee Act provides:
66 Right of trustee to apply to court for directions
(1) Any trustee may apply to the court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee.
(2) Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the court thinks expedient.
There has been some difference between High Court decisions as to the type of issue that is suited to a s 66 application. It has been stated in some decisions that the jurisdiction should not be used to determine substantive issues, but rather is reserved for points of minor importance.[13] If that was so, this application should not have been entertained as the issue is undoubtedly of substantial importance. However, we agree with the observation of Kós J in New Zealand Māori Council v Foulkes that there is nothing to indicate that this was the intention behind the section.[14] Section 66 was an enactment of the broad Equitable jurisdiction that had long resided in the Chancery Courts.[15] The nature of that English jurisdiction was summarised by Lord Oliver in Marley & Ors v Mutual Security Merchant Bank and Trust Co Ltd where he said:[16]
A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper and professional advice and, if so advised, to protect his position by seeking the guidance of the court.
[13]Neagle v Rimmington [2002] 3 NZLR 826 (HC) at [23]; and Melville v NRMA Insurance (NZ) Ltd (2002) 1 NZTR 12-002 (HC) at [58].
[14]New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [44].
[15]New Zealand Māori Council v Foulkes, above n 14, at [44]; and HAJ Ford and WA Lee Principles of the Law of Trusts (looseleaf ed, Thomson Lawbook Co) at [17.160].
[16]Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] All ER 198 (PC) at 201.
The key issue in this case is whether the Trustees’ application for directions involved a surrender of their discretion to the Court. Mr Gudsell argued that an explicit surrender of discretion was required. It has been suggested that Marley stands for the proposition that upon applying for directions trustees necessarily surrender their discretion to the court. If that were so, this appeal could not succeed. We question whether Marley stands for that proposition, and we would not go that far.[17] Trustees do not necessarily surrender their discretion to the court simply by seeking directions for orders that they act in a certain specified way. They are entitled to come to court on the limited basis of seeking particular directions. Nevertheless it is clear that trustees may come into a court and say that they are in doubt as to how they ought to exercise their discretion, and surrender that discretion.[18]
[17]Similar views were expressed in Public Trustee v Cooper, above n 10, at 922; and Gailey v Gordon [2003] 2 NZLR 192 (HC) at [33].
[18]Re Allen-Meyrick’s Will Trusts [1966] 1 All ER 740 (Ch) at 744; and Public Trustee v Cooper, above n 10, at 923.
Applications under s 66 will not usually be appropriate where important facts are contested. This application was for directions on a substantive issue that was in dispute (what the Trustees should do in relation to the property), but which in the end did not involve any significant disputes of fact.[19] We do not regard any differences about the correct value of the property as being significant, because in the end, as we will set out, the property has to be sold at a fair market value and the proceeds divided equally. The issues in the Directions Proceedings did not therefore involve contentious facts, and the separate ordinary proceeding for removal of the Trustees was effectively neutralised by the sensible and practical steps taken by the Judge.
[19]The directions procedure falls under Part 18 of the High Court Rules and r 18.15 provides that evidence in such cases should generally be by way of an agreed statement of facts or affidavit. See also Dowse v Gorton [1891] AC 190 (HL) at 282; re Thorpe [1891] 2 Ch 360 (Ch); Underhill and Hayton, above n 10, at [85.1(1)]; Melville v NRMA Insurance, above n 13, at [58]; and New Zealand Māori Council v Foulkes, above n 14, at [49].
It is therefore necessary for us to now consider the procedural history of this application to determine whether, as Mr Gudsell submits, there has been no surrender to the jurisdiction of the Court and the Judge should not have proceeded to make the orders that he did. However, before we do so we need to consider the role of the Memoranda provided by the settlor Mr White Senior.
The memoranda of guidance
Settlors are entitled to express their wishes for the benefit of trustees, and trustees are entitled to take them into account. They can be important guidance to them in the exercise of discretionary powers. However trustees, whatever a settlor’s wishes, must conscientiously apply their independent discretion in exercising their powers. Wishes can only be taken into account if they are not inconsistent with the purposes of the trust as appear from its written terms.[20] Trustees should not blindly obey all settlor instructions.[21] It is necessary for trustees to read and understand a memorandum of guidance to discern the settlor’s wishes, and then with those wishes in mind make an independent assessment of the appropriate course of action, taking into account not just the memoranda, but all relevant factors.
[20]Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 (CA) at 431 and 445 per Mahoney and Sheller JA; and Futter v Futter [2013] UKSC 26, [2013] 2 AC 108 at [66].
[21]Underhill and Hayton, above n 10, at [4.11].
The first memorandum of Mr White Senior dated 13 August 2006 was anticipating his death and the winding up of the Trust. It proposed that, upon his death, a current market valuation of the property would be obtained and an offer would be made to all three beneficiaries or any one of them to purchase on the proposed basis. Alternatively, it contemplated a sale on the open market. It was stated that the children of his wife and him were to be “treated equally”. If one died, their children were to benefit. There was a second memorandum of 8 February 2010 which at cl 6(b) limited the option to purchase to Dr Chambers, only giving her the exclusive right to acquire the property on the basis of an up to date registered valuation. Only if she did not wish to exercise it would it be then offered to the other two children. Again it was stated that the three children were to be treated equally. The addendum dated 10 May 2010 related only to cl 6(b), and reverted in general terms to the original memorandum wish that all three children be given an option to purchase, and it removed the preferential option for Dr Chambers only. Mr White Senior’s express wish that all three children be treated equally in the 8 February 2010 memorandum was not changed.
These Memoranda give no indication of any wish of the settlor for Dr Chambers to have a windfall over and above her siblings. In the second memorandum, superseded in part by the addendum, there was a wish expressed for Dr Chambers to purchase, but this must be read with the wish that all three children be treated equally. The preference for Dr Chambers was withdrawn in the addendum. Therefore the two themes that can be extracted from the last memorandum are a wish that all the children be treated equally and fairly, and a wish also that the property stay if possible in the hands of the beneficiaries, or one of them, with no preference for Dr Chambers. We see this as being the relevant expression of wishes of assistance to the Trustees in exercising their discretion as to the sale of the property.
The nature of the directions made
We have earlier in this judgment traced through the history of the hearing and the filing of the amended statements of claim. The third amended statement of claim specifically contained the following alternative prayer for relief at [2]:
In the event that no direction is made pursuant to paras 1.1 to 1.7 above, then a direction pursuant to s 66 of the Trustee Act 1956 as to what process the trustees should henceforth follow in respect of the retention of or disposal of the home situated at 4 Grace Avenue, Mount Maunganui.
(Emphasis added.)
We record also that there was opposition to the filing of the second amended statement of claim by Dr Chambers. The amendments in the second amended statement of claim carried through to the third amended statement of claim. However, there was no opposition expressed by any parties to the filing of the third amended statement of claim and in particular no opposition to the addition of prayer [2] for relief, seeking the Court’s discretionary relief. The Judge in Minute Three properly gave leave to amend. The Minute was delivered by him in open Court, and it is not suggested that there was any protest. The Judge clearly considered that the newly inserted plea for discretionary relief would only be turned to “in the event” that the Judge was “not prepared” to make any of the specific directions sought.[22]
[22]Minute No 3, above n 4, at [6].
On its plain meaning the request at prayer [2] in the third amended statement of claim is for such directions as to “what process the trustees should henceforth follow” in respect of the sale of the property, in the event that none of the specific directions set out in the prayer for relief were adopted by the Court. The request at [2] is untrammelled by any conditions. It is however quite properly limited to a precise issue, namely the steps to be followed in relation to the retention or disposal of the property. All the relevant factual material was before the Court. As we have indicated Mr Gudsell argued that the Judge failed to properly consider the other options set out at prayer [1] of the statement of claim.
We accept that when trustees request a court to exercise its discretion if it rejects the specific relief sought, there is an obligation on a court to consider the specific relief sought first. We see no difficulty in trustees putting forward alternatives including a preferred alternative, and then asking for the court to direct the course to follow if all the specific requests are found to be unsatisfactory. The Judge by then should have read and understood all the material and submissions, and be in a good position if, as here, asked to do so, to make a fair and informed assessment of the best way forward.
We do not accept that the Judge failed to first consider the various courses of action proposed at prayer [1] before he exercised his discretion under prayer [2]. As we have covered, Heath J in Minute Three referred to the exercise of his discretion arising “in the event” of him not accepting any of the proposed directions at prayer [1]. While Heath J did make the bald statement that the Trustees had surrendered their discretion to the Court, the Judge had set out the competing contentions, and specifically recorded that the Trustees preferred the Court to make directions to reflect the relief sought by them, namely the sale to Dr Chambers for $945,000.[23] He stated that he did not propose setting out the submissions in detail. He considered Mr White Senior’s Memoranda and the fact that there was an unexpected event, namely the two-year delay before the Trustees could act while they worked through the problems arising from weathertightness defects. He then noted:
[80] The controlling principle, which accords with the late Mr Royce White’s wishes, is the need to treat each of the three children equally. They would not be treated equally if only Dr Chambers were given the option to buy at the $945,000 valuation, in circumstances where her original “acceptance” did not give rise to a contractual entitlement to purchase.
[23]S R Hamilton Corporate Trustee Ltd v White, above n 1, at [66].
Plainly this is why Heath J rejected all the specific directions that involved a sale at less than the market value; they would not result in equal treatment. In our assessment Heath J did consider the direction favoured by the Trustees and the other specific alternatives. For good reason he chose not to adopt them. The reason was, as he observed, that to do so would be to patently advantage one of the three children by giving her a windfall. Dr Chambers would acquire an asset which at the time Heath J was giving his decision was valued at $1,725,000, for $945,000. She would enjoy an immediate gain above her one third share of almost $800,000. He did not say so specifically, but there was an implicit recognition that the other options of a sale at $975,000 or $1.2 million would also have provided a windfall for Dr Chambers, and disadvantaged her siblings.
We also observe that the Judge was in essence in his decision doing no more than making the directions specifically sought as an alternative at [1.6] of the Trustees’ prayer for relief. That prayer for relief read:
Alternatively that the home situated at 4 Grace Ave, Mount Maunganui be offered to all beneficiaries for a consideration that is equal to the present market value of the property as determined by a registered valuer, carrying on business at Tauranga.
Given that at the time the evidence before him was that the market value was $1,725,000 plus GST he was in his order directing an offer and sale at that price. He was doing what the Trustees were specifically asking for in prayer [1.6], albeit that this was asked for in the alternative.
On the facts, were the directions appropriate?
It was argued by the Trustees before the High Court that Dr Chambers was disadvantaged, because if the Trustees had been able to do what they wanted, she would have been able to buy the property — at the time it was worth about $945,000 — and legitimately enjoy the increase of value that had occurred since June 2014.
The Telfer Young report valuing the property at $945,000 was, as we have stated, dated 13 November 2013. Following Mr White obtaining a valuation from Hills Haden which was sent to Telfer Young to be considered, Telfer Young reconsidered its earlier report and provided a further report on 2 April 2014. That report indicated a revised assessment of between $1,075,000 and $1,125,000. The offer to sell for $945,000 sent out by the Trustees was dated 16 June 2014. As the valuation chronology that we have set out indicates, that offer at $945,000 was plainly at a value that was considerably less than the market value of the property at the time it was made. Such an offer favoured Dr Chambers as the only beneficiary who was interested in purchasing the property, and was contrary to the settlor’s wishes, expressed in the Memoranda, that the children be treated equally.
It is our assessment therefore that Heath J’s approach, which regarded the proposals to sell to Dr Chambers as being at an undervalue and which was aimed at ensuring that all three beneficiaries would be treated equally, was correct.[24]
[24]At [81].
We cannot accept the submission on behalf of the Trustees that the beneficiaries, Mr White and Ms Parsons, by their conduct had delayed matters making it unfair that Dr Chambers could not enjoy the windfall of rising prices. They were given the opportunity when the option letter was sent on 16 June 2014 to exercise the option, or not exercise it, and provide indemnities. As Heath J found, they did not accept the offer and provided no indemnities, and without there being indemnities from all three beneficiaries there could be no acceptance of the offer and therefore no contract.[25] The Trustees had not bound themselves in any way to accept an offer and indemnity from one party only.
[25]At [54].
Moreover the refusal of Mr White and Ms Parsons to provide the indemnities and cooperate with the process being conducted by the Trustees was reasonable. As we have said, by the time the offer was made, the $945,000 proposed price was clearly at a considerable undervalue, so that if one beneficiary had purchased for that amount, the others would not benefit equally from the estate. Mr White and Ms Parsons were entitled to decline to cooperate with the Trustees’ proposals. The delay was not their fault; it must lie with the Trustees and Dr Chambers who were acting contrary to the settlor’s wishes, in pursuing a course of unequal division.
Conclusion
Therefore we reject the submission that Heath J erred in making the orders. We find that a combination of paragraphs [1.6] and [2] of the prayer for relief in the Trustees’ third amended statement of claim specifically invited the Judge to make such an order if he was not prepared to make any of the specific directions sought. We agree that in terms of the pleading and unfairness he needed to consider the Trustees’ desired option of the sale to Dr Chambers for $945,000. He did consider it and for reasons that were explained and were correct, he did not accept it and moved on to consider what other options were available.
We also record that we do not accept the submission made to us that as an alternative the Judge should have directed an offer to all the beneficiaries for a consideration of $1.2 million. The same observation can be made in relation to another alternative prayer, for an offer of $975,000. By the time the case was heard the value of the property was said to be $1,750,000. These lower values would again result in the three children sharing unequally. Moreover, when the higher valuation of $1.2 million was put forward by Mr White and Ms Parsons, the Trustees did not adopt it and continued to pursue a sale at $945,000.
The relief now to be granted
It is clear that the valuation that Heath J relied on indicating a fair market value when he heard the case in April 2016 of $1,725,000 is now out of date. This is not in dispute. Mr White and Ms Parsons sought leave to adduce a new valuation of Mr Haden of Hills Haden, valuing the property as at January 2017 as $2,025,000. Dr Chambers opposed the application on the basis that the evidence was irrelevant, because an order for a sale at present valuation would go beyond the scope of the appeal. We grant leave as, given our decision, the current market value of the property is relevant. Dr Chambers has been given the opportunity to provide her own valuation, but has not done so. We proceed on the basis that the property is worth $2,025,000.
We think it appropriate, using our power on an appeal under r 48 of the Court of Appeal (Civil) Rules 2005 to substitute Heath J’s order with a new order, effectively the same as his earlier order, but applying the new valuation figure. We make the following order. The home at 4 Grace Avenue, Mt Maunganui is to be offered by the Trustees to each of the three beneficiaries at a price of $2,025,000 including GST (if any) on standard reasonable terms, including a reasonable date for exercising the option. If more than one beneficiary wishes to exercise the option there will be no binding contract. If none of the beneficiaries exercises the option or more than one exercises the option, the property is to be placed on the market for sale on reasonable standard terms. The net proceeds will be divided equally between the three beneficiaries.
We will allow the appeal to enable the updated order to be made. However, we emphasise that we are upholding Heath J’s judgment effectively in totality, and the amendment to his order is only necessary because the delay resulting from the appeal against his judgment has resulted in the property increasing further in value.
Result
The application for leave to introduce further evidence is granted.
We quash the order of the High Court directing a sale at a purchase price of $1,725,000 plus GST if any, and in substitution we make the order set out at [55] above. In all other respects the appeal against Heath J’s orders is dismissed.
Any further orders required to implement the order at [55] are to be dealt with in the High Court.
The appellant must pay the second and third respondents one set of costs for a standard appeal on a band A basis and usual disbursements.We certify for two counsel.
Mr Hudson acted for the Trustees, and it is agreed by all parties that his fees should be paid by the estate. We so direct.
The issue of costs in the High Court must be determined in the High Court in the light of the High Court decisions and the decision of this Court.
Solicitors:
Whitfield Braun Limited, Hamilton for Appellant
Lamb Bain Laubscher, Te Kuiti for First Respondents
Connell & Connell, Auckland for Second and Third Respondents
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