Clarkson v Clarkson

[2020] NZHC 3382

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2020-441-35

[2020] NZHC 3382

UNDER

the Trustee Act 1956

IN THE MATTER

of an Originating Application for Directions and Orders under the Trustee Act 1956

BETWEEN

PETER RICHARD CLARKSON

Applicant

AND

HUGH OSWALD CLARKSON AND IAN NEIL CLARKSON

Respondents

Counsel:

M B Lawson for Applicant

S J McCarthy for Hugh Clarkson Ian (Sam) Clarkson in person

H L Quinlan for Mr Meltzer (Independent Trustee)

Judgment

17 December 2020

JUDGMENT OF ELLIS J

[On the papers]

[1]This judgment deals with two issues:

(a)Mr Meltzer’s application to be removed as the Trustee of the Glenlyon Trust and to be reappointed as the receiver of that Trust;

(b)the validity of the appointment of Hugh and Sam Clarkson as Trustees of the Glenlyon Trust in 1992.

[2]        It had been agreed by the parties that both matters may be dealt with on the papers.

CLARKSON v CLARKSON [2020] NZHC 3382 [17 December 2020]

Mr Meltzer’s application

Background

[3]        The Glenlyon Trust (the Trust) is a family trust. The settlor was Richard Neil Clarkson—the father of the three beneficiaries: Peter, Hugh and Ian (known as Sam) Clarkson. Since Richard’s death in 2003, there has been a falling out between the brothers (Peter on the one hand, and Hugh and Sam on the other).

[4]        From late 1992, all three brothers have acted as the trustees of the trust, although there is an issue about the validity of the appointment of Hugh and Sam as trustees (as to which see the second part of this judgment, below).

[5]        The Trust’s major asset is a farm in Hastings known as Glenlyon Station. The farm has been destocked, the homestead is vacant and there is no manager or overseer. There is a desire to have the farm sold as soon as possible. There is a concern that it presents a fire risk. It is uninsured.

[6]        In 2019 the brothers agreed to place the farm on the market. But there have been ongoing disputes about the terms of any sale and the subsequent distribution of Trust proceeds.

[7]        In June 2020 Peter filed an originating application in this Court by which he sought the appointment of an independent trustee in substitution for the existing trustees, in order to facilitate the orderly sale of Trust assets and the distribution of capital.

[8]        In a minute dated 29 October 2020, Mallon J made an order by consent, appointing Mr Meltzer as the independent trustee in substitution for the brothers.1 But it now seems that while Mr Meltzer had indicated his general willingness to assist, he knew little of the background of what would be required of him at that point.

1      Mallon J also made directions aimed at facilitating the sale of Trust assets and distribution of Trust capital and amending the Trust Deed permitting a sole trustee.

[9]        On 5 November 2020, Mr Meltzer filed an application seeking to be removed as independent trustee and appointed as receiver of the Trust assets instead.2

Grounds

[10]In brief, the grounds for the application are that:

(a)Mr Meltzer can obtain Professional Indemnity insurance cover for his role as a receiver, but not as an independent trustee.

(b)If Mr Meltzer is to sell the Trust assets as independent trustee, there would need to be a transfer of title to record Mr Meltzer as the registered proprietor as a trustee. This is time-consuming and unnecessary.

(c)As a receiver, Mr Meltzer would have the defined duties under the Receiverships Act 1993 and would not owe fiduciary duties as a trustee to the beneficiaries. This would minimise the chance of claims being made by the beneficiaries against Mr Meltzer during the sale process, thereby facilitating the orderly sale of the Trust assets and distribution of Trust capital.

(d)Appointing Mr Meltzer as a receiver rather than as an independent trustee, and reappointing the brothers as trustees, would have no detrimental effect on the brothers, or on the Trust assets, because the brothers would be trustees in name only. The brothers would not have any trustee liability. Even if they did, that liability would be to themselves as the only beneficiaries.

(e)The current orders do not provide adequate protection for Mr Meltzer in terms of recovery of his remuneration. It is desirable that specific rates and costs be confirmed via Court orders, with confirmation that

2      A related proposal that Mr Meltzer be appointed to arbitrate the remaining disputes between the parties once the farm property is sold is no longer pursued.

these costs can be paid out in priority from proceeds of sale of the Trust assets.

(f)Mr Meltzer should be protected by an indemnity out of the Trust assets, as is the usual position for receivers.

[11]      Initially, Mr Meltzer’s application was formally opposed by both Peter and Hugh. But by the time of a telephone conference before me on 16 November, Hugh and Sam supported Mr Meltzer’s application and only Peter did not. I timetabled the filing of submissions and, by consent, directed that the application would be determined on the papers.3 I indicated that I would also determine the issue about the validity of the appointment of Hugh and Sam Clarkson as Trustees in 1992, in accordance with Mallon J’s earlier direction (submissions having already been filed).

Discussion

[12]      There can be little doubt that the application made by Mr Meltzer is a relatively unusual one. Although there are several cases where receivers over trust assets have been appointed they tend to involve circumstances dissimilar to the present.4 But very recently, in Lockhart Trustee Services No 56 Ltd v Ryan Edwards J observed that the relevant principles are of more general application and could be adopted in a case where an ongoing dispute between trustees has put the major asset of the relevant Trust at risk.5 Other authorities have described these as “jeopardy of assets” cases.6

[13]In Lockhart, Edwards J:

(a)removed the existing trustees of the relevant Trust;

(b)declined to substitute other (independent) Trustees;

3      I directed that Mr Meltzer was to continue acting as independent Trustee in the meantime. He has already arranged for the farm to be listed for sale, through Mr Duncan McKinnon, a local real estate agent.

4      See for example Bank of New Zealand v Rowley [2012] NZHC 3540 and Official Assignee in Bankruptcy of the Property of Perkins v Smith [2013] NZHC 3217.

5      Lockhart Trustee Services No 56 Ltd v Ryan [2020] NZHC 1823.

6      Re Tisco Holdings (NZ) Ltd (1995) 8 PRNZ 698 (HC) at 702.

(c)appointed a receiver over the Trust assets.

[14]      Although, in the present case, Peter submits that matters have not yet reached the “last resort” threshold referred to in Lockhart, I do not agree. As in that case, if Mr Meltzer is not appointed as receiver but removed as trustee, it is clear that the Clarkson brothers will not agree on the identity of a replacement trustee and so the Court will (again) be required to intervene. And in the meantime, the ongoing dispute between the beneficiaries is putting the major asset of the Trust al risk.

[15]      As well, the reality is that the directions already made by Mallon J are aimed at, and will ultimately have the effect of, winding up the Trust. Moreover, the need for directions of this kind was an issue first raised by Peter. By and of itself these things are indicators of “last resort”. In my view, the appointment of a receiver is consistent with, and will facilitate, giving effect to this Court’s earlier directions.

[16]      Although a number of arguments were nonetheless advanced on behalf of Peter against the appointment of a receiver instead of another independent Trustee, I remain unpersuaded. More particularly, I note:

(a)There are no decisions that need to be made about the Trust assets or subsequent distribution that only a trustee can make. The orders already made by Mallon J (which were by consent) comprise a detailed roadmap for either a trustee or a receiver to follow and it makes no difference that a receiver carries out those steps.

(b)Mr Meltzer is not—contrary to Peter’s position—seeking to be appointed as a receiver simply to limit his own liability. The limitation of liability for a trustee is the same as a receiver; both are entitled to be indemnified out of the Trust assets. Rather, Mr Meltzer is seeking to be appointed as a receiver to ensure that he is properly insured. This is as much for the protection of third parties as it is for Mr Meltzer.

(c)It is largely speculative to suggest that sale by a receiver will send the wrong signal to potential buyers or result in a sale at a reduced price. Rather:

(i)The property will be sold by a receiver, not by a Trust “in receivership”.

(ii)A receiver has a duty under s 19 of the Receiverships Act 1993 (the Act) to obtain the best price reasonably obtainable at the time of sale.

(iii)Any interested purchaser is likely to find out about the reasons for the sale, in any event (the real estate agent, Mr McKinnon, is well aware of the relevant background and the dispute between the brothers that has led to the sale).

(d)To the extent a receiver has different obligations from a trustee in relation to the sale of Trust assets, the reality is that Mr Meltzer’s actions are defined (and limited) by the Court orders, which apply equally whether he acts as a receiver or a trustee.

(e)As well as the obligation under s 19 of the Act to obtain the best price reasonably obtainable as at the time of sale, a receiver also has an overriding duty under section 18 to exercise his powers in a manner he believes on reasonable grounds to be in the best interests of the person in whose interests he was appointed (here, the Clarkson brothers). This is similar to a trustee’s duty to the trust beneficiaries (here, the Clarkson brothers).

(f)While a receiver’s duties may not be fiduciary in nature, s 18 requires him to exercise his or her powers in good faith and for a proper purpose.

(g)Similarly, a duty similar to the duty of impartiality owed by a trustee to beneficiaries is arguably implicit in the s 18 obligations on receivers.

But in any event Mr Meltzer’s is required to act in accordance with the Court’s orders (which were made by consent). Those orders oblige him to distribute 70 per cent of the sale proceeds equally amongst the Clarkson brothers and hold the remaining 30 per cent to distribute in accordance with later orders. His appointment as receiver would not affect those orders.

[17]      Lastly, I record that a misunderstanding by Mr Meltzer of the ambit of the Court’s orders has now been clarified. Contrary to what he had initially understood, Peter’s employment dispute will form part of the distribution of the trust capital. As counsel for Mr Meltzer submitted, this misunderstanding merely serves to highlight the position he was put in upon his appointment: all he received advising him of his appointment was the Court’s minute; he was given none of the other documentation by way of context. So I disagree with Peter that this can fairly be seen as a “failure to properly identify the issues faced by the trust” or a failure “to act in an impartial manner”. As soon as the misunderstanding was clarified, Mr Meltzer amended the orders he was seeking (as pointed out by counsel for Mr Meltzer in the earlier teleconference with me).

Validity of appointment of Hugh and Sam as trustees

[18]      This issue has arisen because a copy of the 1 November 1992 Deed appointing Hugh and Sam as trustees of the Trust suggests that it was not executed by Richard who, as Settlor, had the power of appointment. The parties are nonetheless—and for once—agreed that Richard did intend to appoint them both as trustees. They are not agreed about whether there is, in fact, a problem and, if so, how it should be remedied.

[19]      I have read the submissions filed for Peter and those filed for Hugh and Sam and the evidence filed. On the balance of probabilities, I find that Richard did in fact sign (a different copy of) the Deed. I say that because:

(a)The parties are agreed that this was Richard’s intention;

(b)The copy of the Deed that has been located has been signed by all the other parties to it;

(c)The Deed was sent off for the assessment of stamp duty and the stamp duty stamp appears on the first page of the copy of the Deed that has been located; and

(d)All parties have acted (for almost thirty years) on the assumption that Hugh and Sam are trustees and so were validly appointed. Their names went onto the relevant titles and, indeed, Richard subsequently transferred further land to them (as trustees).

[20]      For the avoidance of doubt, however, and in the exercise of the Court’s inherent jurisdiction I make a declaration that Hugh Oswald Clarkson and Ian Neil Clarkson were validly appointed as trustees of the Glenlyon Trust on or about 1 November 1992.

Conclusion and orders

[21]      For the reasons given above and in the specific circumstances of this case, I consider the removal of Mr Meltzer as trustee of the Glenlyon Trust and his appointment as receiver of the assets of the Glenlyon Trust as the expedient and proper course. This judgment is not, however, to be seen as signalling an expansion of the types of circumstances in which the Court will appoint a receiver of trust assets.

[22]      I am satisfied that orders in the terms of the draft Schedule of Orders provided to the Court by counsel for Mr Meltzer are appropriate and I make those orders accordingly.

[23]      In light of my conclusions on the second issue, the second order in that schedule should read “Hugh Oswald Clarkson and Ian Neil Clarkson were validly appointed as trustees of the Glenlyon Trust in November 1992”.

Rebecca Ellis J

Solicitors:

Lawson Robinson, Napier for Applicant

Gifford Devine, Hastings for Respondent H Clarkson Anthony Harper, Auckland for Independent Trustee