Crick v Wallace
[2015] NZHC 2260
•18 September 2015
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV-2011-476-690 [2015] NZHC 2260
BETWEEN ROSEMARY LEE CRICK AND
JOHN HOWARD MCILRAITH AND IAN DAVID MCILRAITH
Plaintiffs
AND
JAMES LEYBOURNE WALLACE Defendant
Hearing: 13 and 14 July 2015 Appearances:
L Andersen for Plaintiffs
J Lovely for DefendantJudgment:
18 September 2015
JUDGMENT OF MANDER J
[1] The plaintiffs, Rosemary Crick (Rosemary), John McIlraith (John) and Ian
McIlraith (Ian) (together the beneficiaries) are beneficiaries of their mother’s estate.1
They seek an order under the Administration Act 1969 (the Act) removing the defendant, James Wallace, as an administrator of the estate. Further ancillary orders relating to costs are also sought.
Background
[2] Alice and Bruce McIlraith (Mr and Mrs McIlraith) were a farming couple who had five children. These were the three plaintiffs, Rosemary, John, Ian, and two other sons, Robert and Donald. In the period between 1978 to 1980, well prior to Bruce McIlraith’s death in January 2001, various arrangements were made regarding
properties farmed by the family. A trust established in 1960, the Mount Parker Trust,
1 There are five beneficiaries under Mrs McIlraith’s will, including Robert and Donald, but, for
convenience, the plaintiffs, Rosemary, John and Ian are referred to as the beneficiaries. See [4].
CRICK & ORS v WALLACE [2015] NZHC 2260 [18 September 2015]
was dissolved. Robert was to farm Mount Parker in partnership with his father, and
Ian acquired another family farm, Grassy Hills.
[3] These arrangements gave rise to some division between family members, resulting in litigation. Subsequent steps taken during the parents’ lifetimes would result in further difficulties after the death of Mr McIlraith, and eventually flow through to the administration of Mrs McIlraith’s estate. I will refer to these events as necessary in the course of the judgment.
[4] Mrs McIlraith died in February 2011, leaving a will. Mr Wallace, a solicitor, and one of her sons, Robert, were appointed under the terms of the will as the administrators of her estate. Mrs McIlraith’s mental capacity declined in the years prior to her death, however, no issue arises as to the validity of her last will of June
2001. Mrs McIlraith divided her estate equally between her five children, and probate was granted in April 2011.
[5] The present proceeding sought removal of both administrators. As a result of a summary judgment application, Associate Judge Osborne ordered the removal of Robert in June 2012.2 In his stead, an Oamaru accountant, Ms Adair Craik, accepted appointment as a second trustee. After his removal as a trustee, Robert chose not to continue as a party, however, he gave evidence in his capacity as a person with an interest in the proceeding being a beneficiary of the estate. Robert does not agree
with his fellow beneficiaries’ application and favours leaving the completion of the administration of the estate to Mr Wallace and Ms Craik. Donald, who was originally a defendant in these proceedings, has received his entitlement from Mrs McIlraith’s estate and has been removed as a party.
The beneficiaries’ claim
[6] Rosemary, John and Ian seek to invoke the Court’s jurisdiction under s 21 of the Act on the grounds it would be expedient to discharge Mr Wallace as the administrator of their mother’s estate. The Court has a power to do so and may
appoint another person to replace the administrator.
2 Crick v McIlraith [2012] NZHC 1290.
[7] The grounds relied upon are largely based on allegations that Mr Wallace has an actual or perceived conflict of interest as administrator, and that the lack of substantial progress in the administration of the estate can be sourced to him. The beneficiaries have no confidence that he will administer the estate fairly for their benefit. These allegations arise out of the accumulation of a number of events relating to Mr Wallace’s previous professional involvement with Robert, his engagement with Mrs McIlraith in his capacity as her solicitor when she was alive, and the content of correspondence with representatives of the beneficiaries regarding the state of Mrs McIlraith’s estate.
Mr Wallace’s position
[8] Mr Wallace, as a person appointed as a trustee in his professional capacity as a solicitor has taken the formal position that he will abide the decision of the Court. He has not agreed to resign because, in his view, he was appointed by Mrs McIlraith as her executor and he does not consider the grounds put forward justify such a step on his part.
[9] Mr Wallace rejects the allegations made and, because of their nature, is not prepared to allow them to go unchallenged. He has advised that he is willing to complete the administration of the estate with Ms Craik as co-executor of Mrs McIlraith’s estate.
The jurisdiction to remove a trustee
[10] Section 21(1) of the Act provides as follows:
(1) Where an administrator is absent from New Zealand for 12 months without leaving a lawful attorney, or desires to be discharged from the office of administrator, or becomes incapable of acting as administrator or unfit to so act, or where it becomes expedient to discharge or remove an administrator, the court may discharge or remove that administrator, and may if it thinks fit appoint any person to be administrator in his or her place, on such terms and conditions in all respects as the court thinks fit.
(Emphasis added.)
[11] The jurisdiction provided to the Court by s 21 has been described as “intensely discretionary” and one that is dependent upon the particular facts and circumstances of the individual case.3 However, before that discretion can be exercised, circumstances must exist which trigger the Court’s statutory jurisdiction.4
[12] Expedience is the test the Court is required to apply. It is a lower threshold than necessity, and imports considerations of suitability, practicality and efficiency.5
Misconduct, breach of trust, dishonesty, or unfitness is not required to be established.6
[13] The Court’s parallel inherent equitable jurisdiction to remove and substitute trustees has long been regarded as informing the circumstances in which removal may be considered expedient both under s 21 of the Administration Act 1969 and under s 51 of the Trustee Act 1956. The guiding principles to be distilled from the authorities were summarised by Ellis J in Harsant v Menzies, as follows:7
(a) the starting point is the Court's duty to see estates properly administered and trusts properly executed;
(b) the wishes of the testator/settlor (evidenced by the appointment of a particular executor or trustee) are to be given considerable weight;
(c) the welfare of the beneficiaries is the “litmus” test; and
(d) hostility as between administrators/trustees and beneficiaries is not by and of itself a reason for removal. Such hostility assumes relevance if and when it risks prejudicing the interests of the beneficiaries.
[14] The beneficiaries emphasised the broad principle that the Court must be guided by the welfare of the beneficiaries, which they submitted, in the circumstances of the present case, was not consistent with Mr Wallace’s continued occupation of his office.8 By contrast, Mr Wallace stressed that mere incompatibility
or hostility on the part of beneficiaries towards the trustee was not sufficient unless
3 Harsant v Menzies [2012] NZHC 3390 at [57].
4 Carmine v Ritchie [2012] NZHC 1514 at [62].
5 R v Leitch [1998] 1 NZLR 420 (CA) at 428-429.
6 Bupa Care Services NZ Ltd v Gillibrand [2013] NZHC 2086, [2013] 3 NZLR 701; Harsant v
Menzies, above n 3; R v Leitch, above n 5, at 428-429.
7 Harsant v Menzies, above n 3, at [57], citing Letterstedt v Broers (1884) 9App Cas 371 (PC);
Hunter v Hunter (1938) NZLR 520 (CA).
8 Teariki v O’Reilly [1992] NZFLR 534 (HC); Carmine v Ritchie, above n 4.
the incompatibility was of such a level that the proper administration of the trust was seriously adversely affected and it had become difficult for a trustee to act in the interests of the beneficiary.9
The sources of grievance
[15] A major unresolved issue for Mrs McIlraith’s estate is the collection of a debt owed to the estate by the farming partnership between Robert and the estate of Mr McIlraith. After arrangements were put in place regarding distribution of the family farming assets, John commenced proceedings challenging those decisions. The settlement of those proceedings in 1991 resulted in Mr McIlraith and Robert borrowing funds secured by a mortgage over the Mount Parker land in which Mrs McIlraith had a 25 per cent interest. In order to protect Mrs McIlraith’s interest in the land, Robert and Mr McIlraith, as members of the partnership farming Mount Parker, entered into a deed of indemnity in favour of Mrs McIlraith. This was to avoid either her or her estate incurring any personal liability as a result of the loan arrangement entered into for the benefit of the farming partnership. Mr Wallace acted for the partnership in relation to this borrowing, and another solicitor acted for Mrs McIlraith in respect to the deed of indemnity.
[16] In September 1992, the partnership purchased Mrs McIlraith’s 25 per cent interest in the Mount Parker land. Mr Wallace acted for the partnership in respect of this transaction. Neither Mrs McIlraith, nor, subsequently, her estate has received principal payments of the purchase price of $248,000, or interest in respect of the sale. Mrs McIlraith made no arrangements during her husband’s lifetime to forgive the debt owed by the partnership. However, instructions were given by Mrs McIlraith to forgive this debt when she drew up her last will in June 2001, some five months after Mr McIlraith’s death. Mr Wallace prepared the will which named both himself and Robert as executors. Mr Wallace arranged for Mr George, a
solicitor in Waimate, to provide Mrs McIlraith with independent legal advice.
9 Kane v Hutton [2007] NZCA 199, [2007] 3 NZLR 349, at [267]; Khyentse v Hope [2007] 1
NZLR 645 (CA); Letterstedt v Broers, above n 7, at 389; Forster v Davies (1861) 4/De GF & J (1861)133, 45ER 1134 at 1136; Plumley v Plumley (1979) 3 MPC 139 (SC).
[17] At that time Mrs McIlraith signed a deed reducing the debt now owed by Mr McIlraith’s estate and Robert, as the farming partnership, to Mrs McIlraith. The amount forgiven was in the sum of $27,000. A second deed further reducing the debt by $27,000 was signed by Mrs McIlraith in July 2002. The circumstances of the execution of these deeds and Mr Wallace’s professional involvement in these transactions is the source of deep-seated suspicion and resentment on the part of the beneficiaries.
[18] The beneficiaries’ concern centres on Mrs McIlraith’s vulnerability at the time she entered into these transactions. In July 1998, Mrs McIlraith underwent a quadruple coronary bypass which resulted in post-operative cognitive impairment. Rosemary’s evidence was that her mother had become frail and vulnerable because of the moderately severe dementia that had resulted from the surgery and which she continued to suffer until her death. She was assessed as requiring domestic help and a personal carer.
[19] In February 2002, Mrs McIlraith was able to live in her own home in Waimate, however, she was supervised during the week by home care services and attended day care. She needed assistance to attend to her personal needs, and the family provided extensive care for their mother. Various strategies were put in place to assist Mrs McIlraith. This included the maintaining of a communications or care book in her home to provide a record of her activities and to assist her to remember things. It also enabled carers to record their observations and Mrs McIlraith’s daily routine, as she had difficulty recalling such things as whether she had eaten. In December 2003, Mrs McIlraith was admitted into residential care, where she remained until her death in February 2011.
[20] In September 2002, Mrs McIlraith signed a further deed, described as a “deed of bargain”. This document, like the previous deeds, referenced the borrowing by the farm partnership against the security of Mount Parker to settle John’s claim in
1991. It referred to Mr McIlraith’s death in January 2001, and his leaving under the will a life interest to Mrs McIlraith in Mount Parker, which was to be passed to Robert on her death. The deed stated that, as a consequence, Robert would be left with responsibility to repay the debt raised against security over Mount Parker
“notwithstanding he had no liability for such debt”. Further, the deed stated that Mrs McIlraith had agreed to compensate Robert for the costs that he had incurred, and would in the future incur, in respect of the debt as a consequence of the actions of the trustees responsible for the arrangements put in place in 1980, which resulted in John commencing his proceeding.
[21] The deed of bargain referred to the liability owed to John, which resulted in what was described as a non-deductible debt secured by mortgage against Mount Parker which Robert would remain liable for. The liability is described as being one not of Robert but of Mrs McIlraith. In consideration of that liability, the deed provided for Mrs McIlraith agreeing to compensate Robert by paying Robert the sum of $120,984. Further, the deed provided that Robert may debit this amount against the sum owed to Mrs McIlraith by the farming partnership, which would leave an amount due and owing by the farming partnership to Mrs McIlraith of $100,000.
[22] As with the other deeds, Mr Wallace arranged for the documenting of this agreement and for the deed to be signed. In respect of the deed forgiving debt of July 2002 and the deed of bargain of September 2002, Mr Wallace arranged for Mrs McIlraith to receive independent legal advice from another solicitor, Ms Rosemary Carruthers.
[23] In December of that year, Rosemary and Donald wrote to Mr Wallace expressing their concerns about their mother signing legal documents which they considered she was incapable of understanding. Rosemary expressed concern that these transactions had been entered into unknown to the rest of the family, and expressed a view that it was inappropriate for Mr Wallace to have acted for Mrs McIlraith at a time he was acting for Robert. Also in that year, a family protection claim was brought in respect of Mr McIlraith’s estate by Ian and Rosemary.
[24] On 4 February 2003, Mr Wallace personally visited Mrs McIlraith at her home in Waimate advising her of the family protection claim and obtaining written instructions from her to act on her behalf in respect of those proceedings. This visit by Mr Wallace is the source of some distress to the beneficiaries, particularly
Rosemary. In December 2002 and into January the following year, Rosemary had cared for her mother in her own home, preparing her to cope under supervision for her return to her home in Waimate at the end of January. Rosemary stayed with her mother for several days, settling Mrs McIlraith in and getting assistance in place to enable Mrs McIlraith to cope. Rosemary’s evidence referred to her December correspondence to Mr Wallace, pointing out to him that, in her view, her mother was not mentally capable of comprehending or coping with legal documents, and her mother’s incapacity. Rosemary considered, as did other members of the family, that it was inappropriate for Mr Wallace to have visited Mrs McIlraith having been informed of the family’s concerns regarding Mrs McIlraith’s mental health.
[25] There are contrasting accounts from Mr Wallace regarding how he was received by Mrs McIlraith at the time he visited, and in Rosemary’s evidence, of the effect of that visit on the wellbeing of her mother. That evidence is not necessarily irreconcilable insofar as Mr Wallace gave evidence that he spoke to Mrs McIlraith on the telephone to arrange the visit, and that when he attended on her in the company of a young solicitor, he found her well-dressed, the house tidy, and that she had prepared morning tea. Mr Wallace sat with her and held no concern about communicating with her, based upon his own experience of having dealt with a number of elderly people in relation to such matters. He recalled writing in her care book, recording that he had been at the house, so that she would remember the visit, and also that Mrs McIlraith asked him to make a telephone call on her behalf to advise she would not be attending a handicraft group as she was not feeling very well. There was nothing to Mr Wallace’s observation that caused him concern.
[26] Rosemary’s evidence was that her mother had been left extremely distressed by Mr Wallace’s visit, and that when she spoke to her around the middle of the same day she found her distressed, with little or no memory of the visit. It was reported that she had vomited and collapsed at a neighbour’s house. In Rosemary’s view, Mr Wallace’s visit had frightened and dreadfully upset her mother, emotionally traumatising her.
[27] Rosemary’s evidence was that, as a result of this event, she became very
protective of her mother, as she felt responsible for her, even after she was admitted
to residential care. Rosemary instructed lawyers to make arrangements for the appointment of an independent lawyer for her mother, the appointment of a property manager, and her own appointment as her mother’s welfare guardian.
[28] The family protection proceedings commenced by Ian and Rosemary against their father’s estate were settled by way of a consent order in March 2006. Compliance with a clause of that agreement is the source of further grievance on the part of the beneficiaries.
[29] The consent order provided that the trustees of Mr McIlraith’s estate were to resign and be replaced by a named solicitor or substitute as agreed. The consent order further provided that the parties, which included Robert but obviously not Mr Wallace, would take steps to ensure the present trustees of Mrs McIlraith’s will were also replaced by the same trustees who were to be appointed to take responsibility for Mr McIlraith’s estate. Rosemary’s evidence was that the inclusion of this clause reflected concern about Robert and Mr Wallace’s involvement in the deed of bargain signed by Mrs McIlraith in September 2002, and what Rosemary described as a complete lack of faith or trust in Mr Wallace by this time.
[30] A further term of the agreed settlement was that the September 2002 deed of bargain would be set aside, although it was agreed that the two earlier gifts made by Mrs McIlraith to Robert of $27,000 each would stand. Rosemary also gave evidence that the reason why the two trustees in her father’s estate were to be replaced was because they were not willing to also be trustees in Mrs McIlraith’s estate because of a perceived conflict of interest. It will be recalled that Mr McIlraith’s estate still owed money to Mrs McIlraith as a result of the purchase of her share in the Mount Parker land by the faming partnership of Mr McIlraith and Robert.
[31] Rosemary’s evidence was that it had been proposed that Ms Adair Craik, an Oamaru accountant, would be appointed as a substitute trustee of Mrs McIlraith’s estate. This, however, did not eventuate at that time, although Ms Craik was appointed as Mrs McIlraith’s property manager under the Personal and Property Rights Act 1988 in October 2008.
[32] In February 2011, Mrs McIlraith died. Mr Wallace was still the nominated administrator of Mrs McIlraith’s estate. He contacted Rosemary’s solicitor regarding arrangements in respect of Mrs McIlraith’s house. This unavoidable renewed contact was the source of further friction, particularly in respect of the preparation of the house for sale.
[33] In March 2011, Rosemary’s solicitors wrote to Mr Wallace querying his continued professional involvement in Mrs McIlraith’s estate. Rosemary’s solicitors observed that Mr Wallace appeared to be intending to seek probate for himself. The solicitors referred to the March 2006 consent order settling the family protection proceedings in respect of Mr McIlraith’s estate, which provided for the parties to take steps to ensure the present trustees of Mrs McIlraith’s will were replaced. This agreed course was viewed as part of the overall resolution of the dispute involving Mr McIlraith’s estate. Rosemary’s lawyers sought an undertaking from Mr Wallace not to seek probate in his favour. In the absence of receiving such an undertaking, they advised steps would be taken to prevent a grant being made.
[34] Mr Wallace replied on 6 April 2011. The letter made reference to Robert’s acknowledgment of agreeing to stand aside as an executor in favour of Ms Craik, if she was agreeable. He advised that this proposal had been put to her but he had not yet heard from her. Mr Wallace’s reply did not engage with Rosemary’s solicitor’s request for an undertaking not to seek probate.
[35] Rosemary’s solicitors wrote again on 13 April, directly asking Mr Wallace whether he intended to seek a grant of probate for himself, either with or without Ms Craik. Mr Wallace was advised that such a step would be entirely unacceptable to their client. In a short reply, Mr Wallace on 18 April stated as follows:
It is not the case that the writer would in any circumstances seek to be sole Executor and Trustee of the Estate. We have not heard back from Adair Craik and will contact her shortly to discuss the situation, because we think it is important that there is some progress in administration of the Estate.
[36] Notwithstanding that correspondence, an application for probate had in fact been made by Mr Wallace’s firm on 22 March 2011. On 29 April, probate was granted and an order made appointing Mr Wallace and Robert as administrators.
Subsequently, on 6 May, Mr Wallace advised Rosemary’s solicitors that a grant of probate had been obtained. Mr Wallace further advised that the trustees appointed under the will had decided to carry out their duties to administer the estate, notwithstanding members of the family “apparently having differing views as to who should attend to this task”. It was noted that discussions with the former property manager (Ms Craik) had not “resolved matters” and, as it was now approaching three months since the date of death, the executors considered it important to get formal administration underway. The beneficiaries would be informed of developments.
The beneficiaries’ grounds
[37] The beneficiaries rely on the following grounds in support of their application that it would be expedient to remove and discharge Mr Wallace as the administrator of Mrs McIlraith’s estate:
(a) Mr Wallace’s continued appointment as administrator is contrary to the wording and spirit of the consent order settling the family protection claim in respect of Mr McIlraith’s estate. The parties were to take steps to ensure that the present trustees of Mrs McIlraith’s will were changed and replaced by the same trustees as Mr McIlraith’s estate. This, however, had still not been acted upon prior to Mrs McIlraith’s death some five years later.
(b)The beneficiaries submitted that Mr Wallace was less than frank in his reply to inquiries regarding whether he was applying for probate for Mrs McIlraith’s will. The beneficiaries contend that Mr Wallace saw the situation by this time as one akin to litigation, and that his inappropriate replies should disqualify him, as he failed to be clear and transparent with them regarding what had occurred in relation to their mother’s estate and his intentions. He failed, it is alleged, to tell the “fulsome truth”. The beneficiaries submitted that Mr Wallace had not communicated in the manner that is to be expected of a trustee effecting the administration of an estate.
(c) It is submitted the hostility between the beneficiaries and Mr Wallace is palpable, that this has deeply affected the relationship between them to such an extent that the situation is unworkable. In that regard, the beneficiaries maintain the following:
(i)Mr Wallace’s past professional relationship with Robert, including acting for him in respect of the two deeds of gift and the deed of bargain (which was subsequently set aside) has created a conflict of interest, at least as it is perceived by the beneficiaries. They contend that these transactions which Mr Wallace facilitated to the benefit of Robert, prejudiced Mrs McIlraith and ultimately her estate.
(ii)The major unresolved issue in relation to the estate, to which I have just referred, namely the debt owed to Mrs McIlraith’s estate by the farming partnership (Robert and the estate of Mr McIlraith), is viewed as being sourced from Mr Wallace’s alignment with Robert as a result of his having acted for Robert to secure the reduction of that debt in the past.
(iii)Related to these views are the beneficiaries’ suspicions of why Mr Wallace would have continued to act for Mrs McIlraith despite the family’s concern regarding her mental wellbeing and capacity, which was being expressed to him by members of the family. This is closely connected with the beneficiaries’ disquiet about Mr Wallace’s involvement in the preparation and execution of the two deeds reducing the debt owed by the farming partnership, which directly benefitted Robert, during Mrs McIlraith’s lifetime, when she was suffering from dementia. Similarly, in respect of the deed of bargain.
[38] The cumulative effect of these grievances, at least from the beneficiaries’ perspective, is that it has affected the resolution of the estate of Mrs McIlraith. The lack of any real progress with the administration of the estate since probate, the
beneficiaries argue, has been to their disadvantage. They do not consider that Mr Wallace has shown any motivation to advance matters, particularly in respect of the debt owed by Mr McIlraith’s estate, all of which is said to be to the advantage of Robert, and consistent with their thesis that Mr Wallace is partial. Mr Wallace has an obligation to have regard to all the beneficiaries’ interests, which must include the enforcement of the undisputed debt.
Mr Wallace’s reply
[39] Mr Wallace has formally advised that he is prepared to carry on as a co- executor with Ms Adair Craik to complete the administration of the estate. He rejects the allegations that have been made against him, and considers that the obstacles for the completion of the estate lie in the hands of the beneficiaries themselves. In his view, the lack of progress has been wrongly attributed to him in his capacity as a trustee of their mother’s estate. In that regard, Mr Wallace is supported by Robert who is of the view that until Rosemary reaches agreement with the trustees of Mr McIlraith’s estate over monies owed to her, the completion of his mother’s estate must await finalisation of that issue.
[40] Mr Wallace emphasised that the question of Mrs McIlraith’s mental impairment has to be viewed against the fact that it has not been challenged that she was mentally capable when she made her will, which was at the same time as she executed the first deed reducing the debt owed to her in June 2001. Under that will all the beneficiaries share equally in Mrs McIlraith’s estate, which was not the position previously under an earlier will.
[41] Furthermore, Mr Wallace points to the fact that the independent solicitor to whom he referred Mrs McIlraith at the time did not consider Mrs McIlraith to be mentally incapable. Nor did the Family Court consider that to be the case in January
2004, when Rosemary and Ian’s application for an order that Mrs McIlraith be represented by independent counsel rather than by her solicitor of choice, Mr Wallace, was, at least at that stage, considered to be unnecessary.
[42] Mr Wallace acknowledged that he was engaged by Robert as his solicitor in relation to some of his personal affairs after Mr McIlraith died. He also accepted
that he had in the 1990s carried out two transactions for the farming partnership, but insisted that he had ceased to act for Robert personally in the family protection claim in respect of Mr McIlraith’s will, which commenced in 2003. From that point, Robert has been represented by different legal advisors.
[43] In relation to the allegations regarding his conduct in respect of the reduction of debt owed to Mrs McIlraith, Mr Wallace referred to the fact that he properly referred Mrs McIlraith to another lawyer for independent advice. Mr Wallace rejects there is any “close relationship” between himself and Robert as alleged by the beneficiaries. In particular, he rejects that any such relationship has lead him, as a trustee of Mrs McIlraith’s estate, to being insufficiently active against the farming partnership to secure repayment of the debt owed to Mrs McIlraith’s estate. He submitted, and, indeed, gave evidence, that there is no collusion as between himself and Robert. He maintained that the lack of progress has been the result of disagreements between the beneficiaries themselves.
[44] Mr Wallace maintained in evidence that he has acted even-handedly as between the beneficiaries, and that he has no reason to be hostile towards any one of them. He observed that there had been a history of conflict between the beneficiaries and that, at one point, he had the support of two of the original beneficiaries, Donald and Robert.
[45] Mr Wallace observed that from 2004, when another lawyer was appointed for Mrs McIlraith in relation to the Family Protection Act proceedings, until Mrs McIlraith died in 2011, he had no further involvement with the affairs of the family. He submitted the alleged misconduct on his part predates his taking office as an executor. His performance in that regard is to be tested against the proper administration of the estate and whether there has been any mismanagement of it, or whether the actions he has taken have affected the interests of the beneficiaries. Despite some disagreement regarding steps taken in relation to the preparation of Mrs McIlraith’s house for sale, in respect of which no issue has arisen regarding the sale price obtained, the beneficiaries (apart from the complaint of delay) cannot identify any mismanagement or improper conduct.
Decision
[46] There is little point in passing further observation regarding the regrettable position that has developed between the parties, and the inevitable depletion of Mrs McIlraith’s estate, which continues to be eroded by the ongoing disagreement, of which this application is a further instalment. I must deal with the discrete issue that has been placed before me, namely whether, in the circumstances as they have come to pass, it is expedient to discharge or remove Mr Wallace as an administrator of Mrs McIlraith’s estate?
[47] I have come to the conclusion that it is an expedient step. Whether it will result in any greater progress being achieved to complete the administration of the estate is questionable. Indeed, I have reservations as to whether it is likely to result in any progress. However, I consider the continuation of Mr Wallace as a trustee currently presents itself as a significant impediment to that objective being achieved. It is fundamentally for that reason that I consider the test set out in s 21(1) of the Act to be met.
[48] Hostility between administrators or trustees and beneficiaries will not by itself be a sufficient reason for removal. However, where the hostility, and as is apparent in this case, the almost ineradicable suspicion of Mr Wallace by the beneficiaries is of such an order, the continuation of the status quo can only be detrimental to the effective administration of the estate. The beneficiaries’ hostility towards Mr Wallace is without question personal to him and, rightly or wrongly, is deep-seated. It is based upon his perceived conflict of interest with Robert which is related to the longstanding grievance about Mr Wallace having ignored the family’s concerns, Rosemary’s in particular, of their mother’s mental incapacity when acting for Robert and facilitating financial arrangements that benefitted him. These were to the fiscal detriment of Mrs McIlraith, and were, at least to other family members in the absence of any satisfactory explanation to them, without a discernible rationale.
[49] It needs to be stated clearly and from the outset that my granting of the beneficiaries’ application does not amount to any finding of misconduct, breach of trust, dishonesty, or unfitness on the part of Mr Wallace. For any such conclusions to
be reached a far more thorough forensic examination would be required of the circumstances of particular events. The evidence does not establish grounds for such conclusions. However, equally, such findings are not necessary for the statutory test to be met. I should note at this point that the complaints made by John against Mr Wallace in relation to his professional conduct towards Mrs McIlraith (which were largely an earlier reiteration of the allegations regarding the propriety of Mr Wallace acting for Mrs McIlraith with her mental frailties, and associated conflict of interest) were not upheld by a New Zealand Law Society Professional Standards Committee, it being satisfied with the overall conduct of Mr Wallace. That decision was subsequently confirmed by a Legal Complaints Review Officer under the Lawyers and Conveyancers Act 2006.
[50] It was submitted on behalf of Mr Wallace that he has done nothing to warrant his removal from the administration of the estate. In general terms, that may be an accurate submission. However, it does not address the reality of the history of this matter, the deep-seated views of the beneficiaries regarding Mr Wallace’s conduct, and an apparent unwillingness on the part of Mr Wallace to objectively assess the present situation and what is likely to be in the best interests of the estate in terms of completing its administration, and consequently the best interests of all the beneficiaries.
[51] Mr Wallace’s perception of the efficacy of his present position and his continuing in his present role is, perhaps understandably, likely to be as a result of the nature and content of the ongoing allegations that have been made against him, and the challenging circumstances in which he has been required to discharge his professional obligations. In that regard, I make brief reference to an open letter addressed to the Minister of Justice, written by John in April 2014, which was included in the common bundle.
[52] The letter, copied to many recipients, is a wide-ranging document of complaint, setting out the history of the matter from John’s perspective, and making allegations not only against Mr Wallace but also against the Lawyers Standards Committee, the Legal Complaints Review Officer, this Court in relation to a related summary judgment decision, and counsel acting on behalf of Mr Wallace. I mention
the letter only to illustrate the depth of feeling, at least on the part of one of the beneficiaries in relation to this litigation, and the circumstances and context in which Mr Wallace has been required to discharge his obligations as a trustee of Mrs McIlraith’s estate.
[53] The issues of conflict of interest on the part of Mr Wallace raised in respect of his previous professional involvement with Robert, and his engagement with Mrs McIlraith in respect of the two deeds of forgiveness and the deed of bargain, do not necessarily give rise to any professional impropriety. A greater level of investigation would be required to substantiate such a serious allegation. It is not uncommon for a trusted solicitor to act on behalf of fellow family members in respect of family matters, and it is apparent that Mr Wallace took the precaution of having Mrs McIlraith receive independent legal advice in relation to those transactions.
[54] Mr Wallace, however, had been put on notice and must have been aware of other family members’ concerns regarding Mrs McIlraith’s mental capacity. He must also have been aware of the history of disagreement amongst this family regarding arrangements made in respect of the farming properties which had already resulted in litigation. The concerns of other family members regarding his involvement with Mrs McIlraith, particularly in light of his past professional association with Robert, cannot simply be passed off. Their concerns, particularly those of Rosemary who was in close contact with her mother during this period and had considerable insight into her mother’s functioning, are understandable.
[55] Mr Wallace, a very experienced solicitor who has previously acted for elderly clients, may consider such a situation to be not particularly unusual and may feel confident discharging his professional obligations by taking the steps that he did. The fact remains, however, that these circumstances provided very fertile ground for the strong roots of distrust and hostility that were to become manifest.
[56] Against this backdrop of distrust and suspicion, there were two further events which, in my view, while not rendering Mr Wallace’s continued involvement with the administration of the estate untenable, lead me to the conclusion that his removal
is advisable. The first is the agreement arising out of the settlement of the family protection claim in relation to Mr McIlraith’s estate. A term of that agreement was that the parties would take steps to ensure the present trustees of Mrs McIlraith’s will (Robert and Mr Wallace) would be changed and replaced by the same trustees of Mr McIlraith’s estate. The consent order was made in March 2006. As previously noted, Mrs McIlraith did not die until February 2011, yet no steps were taken to have that part of the consent order carried out.
[57] In response to that criticism, Mr Wallace notes that he was not a party to the agreement. However, the fact remains that Mrs McIlraith, by reason of the intervention of the Family Court, had the benefit of Court-appointed counsel in respect of that litigation. It is therefore reasonable to infer that she did not have any objections to that course being followed, which was agreed to by her children in resolution of the dispute arising out of her husband’s estate. Robert was a named defendant to that family protection proceeding, and, as I understand the position, his acceptance that he should be removed was based on an acknowledgment of the position reached in the consent order.
[58] As I understand the position, Mrs McIlraith was never formally a party to the family protection proceeding itself, nor, of course, as noted, was Mr Wallace. Mrs McIlraith’s life interest in her husband’s will was not the subject of challenge in that proceeding. However, as previously observed, Mr Wallace must have been aware this agreement had been reached while Mrs McIlraith had the benefit of Court-appointed counsel. I do not overlook the importance placed on the right of a person to appoint trustees in his or her will. This involves the placement of trust and confidence in the person so appointed, particularly so in respect of a professional person. However, the agreed terms of the consent order, resolving as it did deeply divisive issues pertaining to the deeds of gift (which were confirmed) and the deed of bargain (which was set aside) in March 2006, represented a significant point of progression for this family. This is particularly so having regard to the issues relating to the capacity of Mrs McIlraith and the reduction of debt owed to her which had caused such conflict.
[59] The agreement to replace the trustees of Mrs McIlraith’s will with the same trustees as those appointed in respect of Mr McIlraith’s estate was a related item of consensus which is clearly linked to the earlier terms of the agreement, which settled issues in respect of which Mr Wallace was perceived to be implicated. There was no evidence that Mr Wallace was unaware of what the parties had agreed at this time, notwithstanding Mrs McIlraith by that stage having been separately represented. As a practical aside, it was an agreed fact between the parties that the current trustees of Mr McIlraith’s estate are not prepared to be the trustees of Mrs McIlraith’s estate, so in that respect the intention of the parties that the trustees be the same is frustrated. What is important, however, is that there was consensus while Mrs McIlraith was alive that the trustees of her estate were to be replaced, and the context of that agreement against the related dispute regarding the deeds of forgiveness and deed of bargain with which Mr Wallace was associated.
[60] The second factor which has influenced me in my decision is the approach taken by Mr Wallace in his response to the plain and legitimate inquiries that were made on behalf of Rosemary after the death of her mother. I have already reviewed the content of that correspondence at [33]-[36]. Mr Wallace had clearly been put on formal notice that he should not be seeking probate because of the outstanding issue relating to the appointment of replacement trustees, as referred to in the consent order. Further, that in the absence of him providing such an undertaking, legal steps would be taken by Rosemary’s lawyers.
[61] Mr Wallace clarified the position in respect of Robert, in terms of what steps had been taken to replace him with Ms Craik. In a short piece of correspondence in reply, Rosemary’s lawyers made a straightforward inquiry as to whether Mr Wallace intended to seek probate, either with or without Ms Craik, advising that such a step would be “entirely unacceptable to our client”. Mr Wallace’s response was similarly short and to the point, stating that he would not “in any circumstances seek to be sole executor and trustee of the estate”. It did not, however, answer the question. He noted that he had not heard back from Ms Craik but would shortly contact her to discuss the situation, observing it was important there be some progress in the administration of the estate.
[62] No further advice was provided by Mr Wallace, notwithstanding his having been put on notice regarding the issue of probate and his continued involvement as the executor and trustee of the estate. On 29 April, probate was granted, and Messrs McIlraith and Wallace were appointed as executors of the will and administrators of Mrs McIlraith’s estate. A week later, Mr Wallace advised Rosemary’s lawyers that the trustees who had been appointed under the will had decided to carry out their duties to administer the estate, and that a grant of probate had been obtained. The reason given for this course was a three month delay since the date of Mrs McIlraith’s death and the need to get formal administration underway.
[63] Mr Wallace believed he was under an obligation to carry out his professional responsibilities under the will, and this was the view he took of the matter at the hearing of the application. Whatever the merits of that position, it is apparent from the correspondence that Mr Wallace did not disclose that he would be applying for probate, notwithstanding that issue having been raised with him by Rosemary’s lawyers. It is not clear why, at least until after the event, notwithstanding the apparently unclarified involvement of Ms Craik, he had chosen to take the step to obtain probate and have himself and Robert appointed without providing prior advice of his intentions to Rosemary’s lawyers.
[64] Mr Wallace may consider that he was under no obligation to account to Rosemary’s lawyers for his actions as an appointed executor and trustee of the estate. However, that would be to ignore what he was already aware of in terms of the agreement reached in the consent order, which, at the very least, his fellow executor and trustee at that time was a party to, and, indeed, the unfortunate history of the matter to that point. It is not necessary for me to come to any conclusion as to the merits of the way Mr Wallace chose to respond to the inquiries made on behalf of Rosemary. In my view, it is sufficient that the response was clearly as a consequence or product of the state of the relationship which existed between Mr Wallace and the beneficiaries at that time, which was deeply entrenched. The distrust and suspicion was, at least in the minds of the beneficiaries, only confirmed by the approach Mr Wallace adopted in his correspondence and, at least in respect of that discrete event, not without some justification.
[65] In my view, the situation has been reached whereby the removal of Mr Wallace would be an expedient step, if only because it removes a source of suspicion and distrust which may aid the administration of the estate. As I have acknowledged, there is a real risk that little will be achieved by removing Mr Wallace, however, presently he is perceived as having lost impartiality; put simply, he has lost the confidence of the beneficiaries who bring this application and of whose welfare the Court must be cognisant. The Court’s principal duty is to see that
the “trusts of the will” are properly executed.10
[66] In reaching this conclusion, I am mindful of Robert’s view that there has been litigation and disagreement in the family before Mr Wallace became involved, and that he does not believe Mr Wallace is the source of the difficulty. He considers Mr Wallace to be sufficiently detached, and that any replacement will not have the benefit, which Mr Wallace has, of the background and knowledge of the personalities involved to assist in the finalisation of the estate. The simple fact remains, however, that the hostility between Mr Wallace and the beneficiaries, and his perceived conflict of interest, is such that the due administration of the estate appears to be paralysed. In my view, therefore, the test of expediency is made out. The existing “condition of affairs is detrimental to the proper and efficient
management of the estate”.11
[67] Accordingly, I grant the beneficiaries’ application and make an order
removing Mr Wallace as administrator of the estate of Mrs McIlraith.
Replacement of Mr Wallace
[68] The beneficiaries in their amended statement of claim, after having pleaded for the removal of Mr Wallace as administrator of Mrs McIlraith’s estate, allege it could be administered by Ms Craik as sole administrator, or that a further administrator be appointed by the Court. At the hearing of this matter, it was submitted that the remaining administrator, Ms Craik, be the sole administrator. That contention, however, does not bear scrutiny when regard is had to the position being
taken by Ms Craik as formally communicated to the Court.
10 Teariki v O’Reilly, above n 8.
11 Hunter v Hunter, above 7.
[69] In response to directions issued by this Court, Ms Craik advised that she did not seek to be named as a defendant, but sought to be served as an interested and affected party. Understandably, she communicated her desire that these matters be settled with the greatest net return to the beneficiaries in what she described as ongoing and seemingly endless litigation which serves neither the trustees, nor the beneficiaries. After reserving her right to appear should that be deemed necessary, Ms Craik advised that she was not prepared to remain as a trustee of Mrs McIlraith’s estate in the absence of certain steps and procedures being followed.
[70] Ms Craik advised that whether Mr Wallace is retained as a trustee or not, having regard to the family acrimony and deep distrust, she considers that the trustees would need directions from the Court in order to proceed with the administration of the estate. Ms Craik outlined a proposed course of action which she intends adopting, which involves meeting with the trustees of Mr McIlraith’s estate. She required the beneficiaries to agree to stipulated conditions of her continuing to act as a trustee, from which it is apparent she anticipates, in the absence of Mr Wallace continuing as a trustee, the appointment of a replacement.
[71] The beneficiaries did not advise whether they have formally agreed to Ms Craik’s conditions for her continuing as a trustee. It is apparent, however, that their submission that Ms Craik be confirmed as the sole trustee is neither consistent with Ms Craik’s position, nor does it realistically meet the requirements of the situation. Set against the background of family conflict, it is necessary that two trustees be appointed for the proper administration of Mrs McIlraith’s estate. Nevertheless, the beneficiaries have proceeded with their application in full knowledge of these difficulties.
[72] The replacement trustee would need to be independent. It was suggested on behalf of Mr Wallace that the replacement would have to familiarise himself or herself with the long history of this matter. While I accept that will involve some additional cost, I do not consider, given the balance of the issues outstanding, that should necessarily create difficulties.
[73] I propose to adopt the course foreshadowed by Associate Judge Osborne in his decision relating to the summary judgment application, providing for the nomination of a Christchurch legal practitioner with at least 10 years experience of estate administration to be appointed as Mr Wallace’s replacement.12
Orders
[74] I order:
(a) The removal of James Leybourne Wallace as administrator of the estate of Alice May Clarke McIlraith of Waimate, widow, deceased.
(b)In the absence of agreement between Rosemary, John, Ian and Robert as to a replacement for Mr Wallace, the registrar is forthwith to liaise with the President of the Canterbury-Westland Branch of the New Zealand Law Society (or his delegate), who is hereby requested and authorised, upon discussion and acceptance by the candidate, to nominate a suitable candidate to accept appointment as an administrator of the estate in terms of this judgment, such candidate to be a practitioner and to have no less than 10 years’ professional legal experience, including, in particular, in relation to the administration of estates.
(c) The person to be appointed under (b) above as administrator should be an executor and trustee of the will of Mrs McIlraith dated 20 June
2001 in all terms of the will, including as to its charging clause, clause 5.
(d)Leave is reserved to counsel to apply for formal orders to be finalised and made when the replacement administrator is identified and accepts appointment.
Costs
[75] The beneficiaries take the view that Mr Wallace, in his capacity as a professional trustee and administrator, is not entitled to claim his costs from the estate and, indeed, is liable to the beneficiaries for costs. They submit that Mr Wallace has not acted reasonably and properly in challenging his removal because the issues underlying his application were known to him, and his conflict an obvious one. They rely on dicta of this Court that an administrator who does not act reasonably cannot expect the estate to carry the burden of his costs by way of
indemnity.13
[76] In Carmine v Ritchie, Gilbert J held that a trustee should not actively challenge the validity of his or her removal unless directed to do so by the Court.14
A trustee who unsuccessfully challenges his or her removal will be personally exposed to costs if such opposition has not been with the sanction of the Court. The case of Carmine was, however, different from the present situation. There, the trustee had been removed and he sought to challenge that removal in the High Court.
[77] There can be no question that Mr Wallace was entitled to be heard on his removal as trustee before this Court. However, the beneficiaries rely on what they submit is the underlying principle that a trustee must act reasonably, and in the absence of having done so he should be ordered to pay costs.
[78] I do not consider that Mr Wallace is liable for costs when acting in his professional capacity as a trustee and administrator of Mrs McIlraith’s estate. The present case is clearly distinguishable from Carmine, where the trustee initiated proceedings against the adult beneficiaries who were in agreement regarding the trustee’s removal. The trustee in that case was responsible for causing the costs of the litigation to the estate. The Court found that he had not acted reasonably and properly in bringing and pursuing the proceeding in the manner that he did.
[79] The formal position taken by Mr Wallace was to abide the Court’s decision. I
accept he has fully participated, fundamentally in defence of his professional actions
13 Re O’Donoghue [1998] 1 NZLR 116 (HC).
14 Carmine v Ritchie [2012] NZHC 2279 at [4].
and to some extent in protection of his personal integrity. Having regard to the nature of the allegations that have been made against Mr Wallace, he was clearly entitled to provide his account of these matters and state his position in relation to the issues raised. The Court has had the benefit not only of his evidence in relation to these topics, but also the assistance of his counsel in making submissions on both the legal and evidential issues.
[80] It is a serious step to remove a trustee and administrator appointed by a testator in her will. The person so appointed understandably considers that they have important obligations owed to the deceased, and, as I have already remarked, particularly so when a person has been appointed because of their professional position. I do not consider that Mr Wallace has been unreasonable in the presentation of his position in response to the beneficiaries’ action.
[81] I have not been able to confidently discern on the available evidence why the administration of the estate has not been completed, and I have come to no concluded view in that regard. Both parties have maintained the fault lies with the other. Mr Wallace points to the inability of the beneficiaries to agree amongst themselves on various issues relating to final distribution, in particular, referring to issues of valuation involving the Mount Parker property. For their part, the beneficiaries consider the delays on the part of Mr Wallace are deliberate because he is in league with Robert, it being in the latter’s interest that recovery of the debts owed by Mr McIlraith’s estate remain undischarged. While I can reach no concluded view as to the underlying reason why the estate remains to be finalised, I consider the beneficiaries’ theory in the circumstances to be unrealistic.
[82] In Re O’Donoghue, Hammond J affirmed the principle that trustees should be entitled to recover out-of-pocket expenses incurred in the discharge of their duties. The essential concept is that of reimbursement.15 In that case, the rare step was taken by Hammond J to order the trustee to bear his own costs. The Court concluded that the trustee had no proper reason for causing the litigation, the legal position in respect of the estate being very clear. Hammond J described the trustee as having
taken a “quite unfounded and irrational view” of the position.16 As a result, the expense of the litigation was not properly incurred and as a consequence fell on the trustee personally.
[83] The present case is far removed from the situation in Re O’Donoghue. There was a reasonably arguable case regarding the merits of the beneficiaries’ application and whether in the circumstances it would be expedient to remove Mr Wallace as a trustee. As I have already commented, the benefit of doing so is likely to be marginal. Mr Wallace took the appropriate position of abiding the decision of the Court, and I consider the nature and extent of his participation in the proceeding and on the hearing of the matter to have been reasonable. In my view it is appropriate for Mr Wallace to be entitled to recover costs which have reasonably and properly been incurred from the estate in the normal way.
Solicitors:
RSM Law, Timaru
Medlicotts Solicitors, Dunedin
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