Clemett v Clemett
[2021] NZHC 317
•26 February 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1871
[2021] NZHC 317
UNDER Part 18 of the High Court Rules IN THE MATTER
of an application for orders under sections 51 and 52 of the Trustee Act and under the
inherent jurisdiction of the High Court
BETWEEN
PATRICIA ANN CLEMETT
Applicant
AND
MALCOLM JAMES CLEMETT
Respondent
Hearing: 24 February 2021 Appearances:
M Phillipps for the Applicant
C F L Godinet for the Respondent
Judgment:
26 February 2021
JUDGMENT OF HINTON J
This judgment was delivered by me on 26 February 2021 at 4:30 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Solicitors/Counsel:
Vicki Ammundsen Trust Law Limited, Auckland Henley-Smith Law, Auckland
C F L Godinet, Barrister, Auckland
CLEMETT v CLEMETT [2021] NZHC 317 [26 February 2021]
[1] Mrs Patricia Clemett seeks an order under s 51 of the Trustee Act 1956 removing herself and her husband as trustees of the Howmac Trust; appointing Comac Trustees Limited as a sole trustee; and related orders as set out in her application dated 6 October 2020.
Background
[2] Mr and Mrs Clemett are married but estranged. They live on separate floors in what was their family home.
[3] They settled the Howmac Trust by deed dated 16 February 2000. The trustees were initially the parties, their accountant and their solicitor. The accountant and solicitor have since resigned such that the parties are the sole trustees.
[4] The current beneficiaries of the trust, following the death of Mr Clemett’s parents, are the parties and their three adult children.
[5]Initially the trust functioned well.
[6] In 2004 Mr Clemett was diagnosed with multiple sclerosis, a chronic and debilitating illness which has confined him to a wheelchair but has not affected his mental capacity. It seems that the parties’ relationship has since broken down completely to the point where they do not communicate with each other at all. Mr Clemett refuses to engage on almost any matter to do with the trust except through lawyers.
[7] Mrs Clemett has struggled for some time to sort matters regarding the trust. Mr Clemett seems to wish to retain control but is either unable or unprepared to take any effective action.
[8] As a result, for some years, the trust has been in a complete stalemate and falling into debt. Also Mrs Clemett has faced the considerable stress of staving off demands and making payments to creditors.
[9] The trust assets, being four valuable residential properties, are now in very poor condition. There seems to be no cash in the trust and the parties themselves both receive only modest incomes, in Mr Clemett’s case from a sickness benefit.
[10]The trust assets are:
(a)103 Tanekaha Road, Titirangi CV $1,430,000
(b)105 Tanekaha Road, Titirangi CV $865,000
(c)13 Ewen Street, Ngunguru CV $1,058,000
(d)1929 Ngunguru Road, Ngunguru CV $812,000
103 Tanekaha Road
[11] This is the family home. As noted, it is still occupied by the parties but they live on separate floors. Mr Clemett has carers coming in to assist him, and the property has been damaged from wheelchair use. It is generally very run down. Mrs Clemett says she pays all of the living costs from her wages including even food for Mr Clemett, insurances and rates. As at the date of her last affidavit the rates were overdue to the order of about $1,400.
105 Tanekaha Road
[12] This property is tenanted but the rental income is less than $350 per week and it is also subject to an ANZ mortgage of approximately $300,000. The payments on the mortgage alone slightly exceed the rental income. The net effect is that the mortgage is over $4,000 in arrears and the rates are also in arrears. The house insurance was cancelled for non-payment but has been reinstated by Mrs Clemett who is having to make the payments herself using her credit card. The house is in a very poor state of repair and does not meet the new tenancy and healthy homes standards. Mr Clemett has taken no action in regard to this property, including responding to letters of demand from the Council and the ANZ Bank. The burden of this, as with 103 Tanekaha Road and household expenses, falls on Mrs Clemett.
13 Ewen Street, Ngunguru
[13] This property is empty and in dire need of repair. It was previously tenanted but its condition makes that impossible. Again the rates are in arrears and the insurance was cancelled due to non-payment but Mrs Clemett has reinsured the property and is again meeting the insurance payments on her credit card.
1929 Ngunguru Road, Ngunguru
[14] This property was owned by Mr Clemett’s parents and sold by them to the trust. His parents previously met the maintenance costs and outgoings but since his father died three years ago Mr Clement has paid the rates and insurance. This seems to be the only payment he makes or responsibility he takes towards the trust properties or the parties’ joint expenses. The property is empty and in need of repair work. Mr Clemett would like to find a way to hold onto this property which is understandable. It would have real sentimental value to him and he sees it as a good investment for the children.
Other matters including attempts at resolution
[15] Charging orders were placed on all four of the trust properties by a company who had provided care for Mr Clemett senior. It transpired that the company had obtained judgment by default against Mr Clemett for about $23,000 and proceeded to lodge the charging orders. Mr Clemett took no action to prevent that and it was left to Mrs Clemett’s lawyers to see to their eventual removal on 7 September 2020, which still leaves Mr Clemett with the outstanding debt.
[16] Mr Clemett is also the sole beneficiary and executor of his father’s estate which owns a property at 93 Tanekaha Road. It seems that Mr Clemett uses his sickness benefit to pay the rates and insurance on this property but even in this regard Mrs Clemett believes the rates are in arrears. This property is irrelevant to the present action except that Mr Clemett has said a number of times that he will sell 93 Tanekaha Road (approximate value $850,000) and lend the money to the trust. However, his father died in 2018 and Mr Clemett only recently instructed his solicitor (irrevocably)
to apply for probate and to sell the property. I acknowledge he has at least taken these proactive steps since the matter was canvassed before me in the chambers list in November 2020. However, Mr Clemett’s proposal still falls well short of what would be required. Any loan by him would have to be interest-free and for the life of the trust for the proposal to be even viable, but more than that the same problems remain. The parties would still have to agree on expenditure and the trust assets require ongoing active management.
[17] The three children have been served with the proceedings. None has taken any steps, presumably not wishing to take sides.
Analysis
[18] This is a clear-out case where it is expedient in terms of the Act that Court orders be made.
[19] No objection has been raised to Comac Trustees Limited as a suitable professional and independent trustee. Mr Phillipps advised from the bar their charges are reasonable and he has found them effective on previous occasions.
[20] As I advised counsel, I was reluctant, given Mr Clemett’s condition and the acute disadvantage he must have from that, to remove him (and Mrs Clemett) as a trustee. I considered just joining Comac Trustees Limited as a third trustee, but have rejected that option. It would be unworkable for a professional trustee to function in the face of inability to communicate with one trustee. I consider the only option is to make orders as sought.
[21] Section 51 of the Act provides the Court with power to appoint a new trustee or trustees if it is inexpedient, difficult or impractical to do so without assistance of the Court. The Court may appoint new trustees either in substitution for or in addition to any existing trustee. It is therefore a power both to remove and to appoint.
[22] One of the situations in which this power may be exercised is where a trustee refuses to act in a reasonable and cooperative manner with other trustees.1 Similarly, where a trustee has refused to carry out the trust.2
[23] In this case Mr Clemett’s complete failure to cooperate in the conduct of the trust, meaning that expenses in relation to trust property have had to be funded personally by Mrs Clemett and repairs have not been able to be effected, is ample justification for the making of the orders sought. The circumstances of this case are not uncommon but the facts here bear, as Mr Phillipps submits, remarkable similarities to Foote v Foote where Kós J made orders in similar terms to those sought here.3
[24] At the same time Mrs Clemett seeks that she also be removed, and that the new trustee appointed be Comac Trustees Limited. Comac Trustees Limited has signed a consent to appointment and I am satisfied that it is appropriate that both parties be removed and Comac Trustees Limited be appointed.
[25] Section 52 of the Act provides that the Court has power to vest land in certain circumstances, in particular under s 52(1)(a), where the Court has appointed a trustee of land.
[26] Given my decision to remove the existing trustees in whom the trust property is vested and appoint two new trustees, it follows that in order to give effect to the trust, I must vest the trust properties in the new trustee.
[27] The trust deed provides for a minimum of two trustees and does not have the common exception for a corporate trustee. There is a division of opinion as to whether in those circumstances a variation is required. The Court has power to vary and so I include the order as sought in that regard, out of caution.
1 Garrow and Kelly Law of Trusts and Trustees (7th ed, Lexis Nexis, Wellington) at [17.62], citing Burrows v Rental Space Ltd HC Auckland M1405/98, 7 June 2001.
2 Idem, citing Palairet v Carew (1863) 32 Beav 564 (Ch).
3 Foote v Foote [2013] NZHC 2590.
Orders
[28]I make orders as follows:
(a)removing the applicant Patricia Ann Clemett and the respondent Malcolm James Clemett as trustees of the Howmac Trust, settled by deed dated 16 February 2000;
(b)varying clause 6(f) by adding the words “unless the trustee is a company” after the words “at least two trustees” so that clause 6(f) reads:
EACH Appointor shall have the power to remove any existing trustee appointed by that Appointer PROVIDED THAT if such removal will result in the number of continuing trustees being reduced below two persons then this power of removal shall be exercisable only in conjunction with the appointment of a new trustee or new trustees so that there shall be at all times at least two trustees, unless the trustee is a company.
(c)appointing Comac Trustees Limited as the trustee of the Howmac Trust;
(d)vesting the right, title and interest of Patricia Ann Clemett and Malcolm James Clemett in the properties at 103 Tanekaha Road, Titirangi, as described in Identifier NA420/27, North Auckland being Lot 2 Deposited Plan 18596 and Lot 5 Deposited Plan 18596, 105 Tanekaha Road, Titirangi, as described in NA25D/605, North Auckland being Lot 1 Deposited Plan 70027, 1929 Ngunguru Road, Ngunguru, as described in Identifier NA860/33, North Auckland being Lot 25 Deposited Plan 33556, and 13 Ewen Street, Ngunguru, as described in Identifier NA35A/83, North Auckland being Lot 20 Deeds Plan 1007 in Comac Trustees Limited as trustee of the Howmac Trust;
(e)authorising the Registrar General of the Land (Land Information New Zealand) to record the transfer of the properties to give effect to the above vesting order; and
(f)reserving leave should further orders be required by way of implementation.
Costs and expenses
[29] As to costs, Mrs Clemett would be entitled to an order that Mr Clemett meet her costs on a reasonable solicitor/client basis. She should not have had to bring this application and has done so for the benefit of the trust not just herself. In those circumstances solicitor/client costs are appropriate.4 However, she seeks only that her reasonable legal and related costs be paid out of the trust fund which is a very fair approach and which I hereby order although I do not expect any order will be necessary.
[30] Mr Clemett is to meet his own legal and related costs but as I note below this could be out of an equal distribution to the parties if the trustee sees fit to do that.
[31] It will be up to Comac Trustees Limited as to what steps they now take. It seems clear that at least one property needs to be sold. Mr Phillipps posited that might be 13 Ewen Street. Presumably the adult children will be consulted on any sale decision, as well as Mr and Mrs Clemett, to the extent the trustee considers fit. The other properties might then be refurbished such that 105 Tanekaha Road achieves a sufficient rental to more than cover its running costs. Mrs Clemett seems to envisage that the parties will continue to occupy the family home as they have been, though she will be requesting refurbishment of her floor.
[32] The trustee will presumably reimburse Mrs Clemett for all of the trust expenses she has paid; pay for all future joint household expenses and reimburse past joint household expenses. Consideration might also be given to making an equal distribution to each party so that Mr Clemett can pay the debts resulting from his
4 Carmine v Ritchie [2012] NZHC 2279, (2012) 3 NZTR 22-025.
father’s medical bills and his legal costs. There is no reason why the parties should not have reasonable access to the trust funds, given the trust is asset rich and they clearly are not. They are no longer young and should not be living hand-to-mouth in these circumstances.
[33] Finally, I strongly commend Mrs Clemett and her counsel for the approach they have taken to this case. In particular the documents contain almost entirely moderate language. I also thank Mr Godinet for his submissions which were focused on the best interests of his client but also fair.
Hinton J
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