Clarke v Duffy

[2017] NZHC 2025

IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY

CIV-2017-476-000043 [2017] NZHC 2025

UNDER	THE TRUSTEE ACT 1956
IN THE MATTER OF	AN APPLICATION FOR CERTAIN ORDERS AND DIRECTIONS AFFECTING THE ONGOING ADMINISTRATION OF THE DUFFY FAMILY TRUST
BETWEEN	GARY JOHN CLARKE Applicant
AND	MARY HAY DUFFY Current Trustee

Hearing:	Dealt with on the papers
Counsel:	W van Vuuren
Judgment:	23 August 2017

JUDGMENT OF GENDALL J

Introduction

[1]      Applications before the Court in this proceeding seek orders that it is said are necessary to enable ongoing administration of a trust known as the Duffy Family Trust (the Trust) which has reached a “road-block”.  Presently it seems the Trust is unable to deal with or make decisions in respect of its Trust property.  This includes two properties at Timaru and a Trust bank account.  These difficulties have resulted because of the death of one of the three current Trustees and the medically certified mental incapacity of a second Trustee.

[2]      Overall, what is sought here is the approval of this Court to:

RE THE DUFFY FAMILY TRUST [2017] NZHC 2025 [23 August 2017]

(a)       Arrangements in respect of the Trusteeships, including the removal of the incapacitated Trustee;

(b)Vesting  of  the Trust  property in  a  proposed  new  Trustee  and  the continuing Trustee; and

(c)       Approval of a new independent Trustees’ indemnity clause.

Background facts

[3]      The  Trust  was  settled  by  Deed  on  1  May  2000.    The  Settlors  were Arthur Lawrence Duffy (Arthur) and Mary Hay Duffy (Mary).  The initial Trustees of the Trust were Arthur and Mary and the applicant Gary John Clarke (Mr Clarke).

[4]      Arthur has died. The current Trustees are Mary and the applicant Mr Clarke.

[5]      The  beneficiaries  of  the Trust  are  the  Settlors  Mr  and  Mrs  Duffy,  their children and grandchildren, including their spouses, together with any other person appointed as a beneficiary under the Trust Deed.  Distribution of income and capital is at the discretion of the Trustees but then at the final distribution date, which is to be 1 May 2040 (or such earlier date as the Trustees decide), the Trust fund is to be distributed  to  the final  beneficiaries.    Those  final  beneficiaries  are  the  Settlors’ grandchildren and/or any other person appointed by the Trustees.

[6]      As I have noted, Arthur has died.  Mary suffers from serious dementia.  There is medical evidence before the Court to confirm this.  The applicant, Mr Clarke, has filed an originating application seeking:

(a)       An order under r 19.5 High Court Rules to permit these proceedings to be commenced by originating application.

(b)      An order that service of the proceeding on Mary and any of the Trust’s

beneficiaries be dispensed with.

(c)       An order removing Mary as a Trustee of the Trust.

(d)An order vesting property of the Trust at 194 Rocky Hundreds Road, Timaru and at 23 Selwyn Street, Timaru and a bank account with the Co-operative Bank, being assets currently held in the names of Arthur, Mary and Mr Clarke as Trustees into the names of the applicant and Aoraki  Trustees  Co  (2013)  Limited  as  continuing Trustees  of  the Trust.

(e)      An  order  amending  the  Deed  under  which  the  Trust  was  settled through the addition of the following clause:

21       Professional/Independent Trustees Liability

The  liability  of  any  Professional/Independent  Trustee  (being  a Trustee who has no beneficial interest, whether vested or not, in Trust assets) is limited at all times to the assets of the Trust and is not personal, to the intent that apart from any loss attributable to the fraud or dishonesty or breach of trust of that Trustee, the Trustee has no personal liability in respect of any act or omission on their part or in any way as a result of their Trusteeship under this Deed.

(f)      An order that the costs of bringing the present application are met from the resources of the Trust.

[7] The vesting orders noted above are said to be necessary to ensure that the applicant Mr Clarke and the new replacement Trustee can deal with the title to the properties noted at [6](d) above in a manner which is acceptable to Land Information New Zealand and can also deal properly with the Trust’s Co-operative Bank account.

Outcome

[8]      As to preliminary matters, at the outset, I find that it is appropriate for these proceedings to be brought by way of originating application.   Leave is granted accordingly.

[9]      An order is also made dispensing with service of this application on Mary and also any of the beneficiaries to the Trust.  Given that Mary suffers from dementia service on her would serve no useful purpose.

[10]     There is also evidence before the Court that certain current beneficiaries of the Trust consent to the orders sought.  But in any event, I am satisfied those orders essentially provide for what in reality are administrative steps to enable the Trust to continue  operating  and  they will  not  change  any of  the  beneficiaries’ rights  or entitlements under the Trust.

[11]     An affidavit in support of this application from Mr Clarke has been filed together with a memorandum of counsel in support of the present application.

[12]     The power to appoint or replace Trustees is provided for in the Trust Deed in clause 12.   This vests  the statutory power of appointment in Arthur  during his lifetime and, after his death, in the administrator or executors of his estate.

[13]     On Arthur’s death, the administrator/executor of his estate is the applicant Mr Clarke.  The statutory power of appointment of new Trustees therefore vests now in Mr Clarke.

[14]     Section 43 Trustee Act 1956 relevantly provides:

43       Power of appointing new trustees

(1)      Where  a  trustee  (whether  original  or  substituted,  and  whether appointed by the court or otherwise)—

(a)       is dead; or

…

(f)       is incapable of so acting; or

…

the person nominated for the purpose of appointing new trustees by the instrument (if any) creating the trust, or if there is no such person or no such person able and willing to act, then the surviving or continuing trustees for the time being, or the personal representatives of the last surviving or continuing trustee, may by deed appoint a person or persons (whether or not being the person or persons exercising the power) to be a trustee or trustees in the place of the first-mentioned trustee.

[15]     In this case, one of the Trustees, Arthur, is dead.   The second of the three Trustees, Mary, is sadly afflicted with dementia and thus is incapable of continuing to act.

[16]     By Deed of Appointment of New Trustee dated 2 May 2017 the applicant Mr Clarke as appointor has purported to appoint Aoraki Trustees Co (2013) Limited to act as Trustee of the Trust jointly with himself.

[17]     Section 43 of the Trustee Act envisages that in the circumstances described a replacement Trustee can be appointed.   It seems therefore that there is scope for Mr Clarke here to replace one Trustee (Arthur, who has died), and possibly also under this provision to remove and replace the other Trustee (Mary).  Further, this Court at least in its inherent jurisdiction if not otherwise, has the power with respect to trusts in general to facilitate necessary steps for a trust such as removal and replacement of a Trustee incapable of acting to ensure the Trust can continue to properly function.  In a situation such as the one which is facing the Court where an aging trustee with dementia has clearly lost capacity, the interests of the beneficiaries and the Trust generally are overwhelmingly met by the swift replacement of that Trustee in a proper manner.  There can be no doubt in my view that this Court has power to remove and, if necessary, replace Mary as a Trustee in this case on the grounds that through incapacity she is no longer able to act as a Trustee.   The remaining Trustee,  Mr Clarke,  recognises  this  and  I have no  doubt  it is  in the interests of all parties that an order for her removal be made.

[18]     In terms of the appointment of the replacement Trustee, Aoraki Trustees Co (2013)  Limited,  as  I  understand  it,  is  a  professional  trustee  company  who  the applicant Mr Clarke has chosen to appoint as the replacement trustee to act jointly with him. That company has consented to act.

[19]     Aoraki Trustees Co (2013) Limited, according to the evidence of Mr Clarke, is a trustee company operated by the directors of Mitchell McCleary Limited, a Timaru firm of chartered accountants.   Under all the circumstances here it seems appropriate for that independent trustee company to be appointed as the replacement Trustee to act alongside Mr Clarke as the continuing Trustee.  An order to this effect is to follow.

[20]     Next, a vesting order is sought to repose the Trust assets into the names of the applicant Mr Clarke and Aoraki Trustees Co (2013) Limited as Trustees.  This is an

appropriate order to make here in terms of s 52(1)(b)(i) Trustee Act. An order to this effect will follow.

[21]     Lastly, an order is sought adding an indemnity clause to the Trust Deed along the lines noted at para [6](e) above. This form of trustee indemnity clause adopts a relatively modern framework and is designed to protect the independent trustees provided they act honestly and are not in breach of trust. Aoraki Trustees Co (2013) Limited has agreed to accept appointment as Trustee provided this indemnity from Trust assets is available to them. This is not an unusual request to be made under the circumstances.

[22]     In my view the proposed addition of this indemnity clause to the Trust Deed by way of amendment is in order. As there is no power in the Trust Deed to amend the Deed at the behest of the Settlors’ or Trustees it is appropriate, as I see it, for this Court to use its powers to permit the required amendment to the Trust Deed. An order to this effect will follow.

Result

[23]     The present application succeeds.   Accordingly I now make the following orders:

(a)       An order is made removing Mary Hay Duffy as a Trustee of the Duffy

Family Trust.

(b)Given this, and the death of the second Trustee, Arthur Lawrence Duffy, leaving Gary John Clarke as sole remaining Trustee, an order is made appointing Aoraki Trustees Co (2013) Limited as a replacement Trustee of the Trust.

(c)      Under s 52(1)(b)(i) Trustee Act 1956 an order is made vesting the property at  194  Rocky  Hundreds  Road,  Timaru  (Lot  1  Deposited Plan 17212 being Certificate of Title CB602/21 (Canterbury)), and the property at 23 Selwyn Street, Timaru (Lot 1 Deposited Plan 14287, being   Certificate   of   Title   CB519/33   (Canterbury))   held   by

Arthur Lawrence Duffy, Mary Hay Duffy and Gary John Clarke as Trustees  of the  Duffy Family Trust  into  the names  of  Gary John Clarke  and Aoraki  Trustees  Co  (2013)  Limited  as  the  continuing Trustees of the Duffy Family Trust.

(d)An order is made amending the Deed of Trust for the Duffy Family Trust dated 1 May 2000 through the addition of the following clause as clause 21 of the Deed:

21       Professional/Independent Trustees Liability

The  liability  of  any  Professional/Independent  Trustee  (being  a Trustee who has no beneficial interest, whether vested or not, in Trust assets) is limited at all times to the assets of the Trust and is not personal, to the intent that apart from any loss attributable to the fraud or dishonesty or breach of trust of that Trustee, the Trustee has no personal liability in respect of any act or omission on their part or in any way as a result of their Trusteeship under this Deed.

(e)      An order is made that the reasonable costs of bringing this application on an indemnity solicitor/client basis together with reasonable disbursements, in each case as approved by the Registrar, are to be met and paid from the resources of the Duffy Family Trust.

...................................................

Gendall J

Solicitors:

Heartland Law Limited, Timaru