Dawson v Paul

[2014] NZHC 15

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-4970 [2014] NZHC 15

BETWEEN  SUZETTE MAREE DAWSON, SHANE PAUL AND WILSON McKAY TRUSTEE COMPANY LIMITED AS TRUSTEE OF THE PAUL FAMILY TRUST

Plaintiffs

ANDSHANE PAUL Defendant

Hearing:                   22 January 2014

Appearances:           L Kearns for the Plaintiffs

No appearance by or on behalf of the Defendant

Judgment:                24 January 2014

RESERVED JUDGMENT OF BROWN J

This judgment was delivered by me on 24 January 2014 at 3 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:           Wilson McKay, Remuera, Auckland

Counsel:            L Kearns, Auckland

DAWSON v PAUL [2014] NZHC 15 [24 January 2014]

Introduction

[1]      The defendant is a trustee of The Paul Family Trust (“the Trust”), a trust which was settled on 23 June 2010 and which is the registered proprietor of a property situated at 5 Beeche Place, Birkdale, Auckland.

[2]      The other trustees  are Ms Dawson and Wilson McKay Trustee Company (P176098) Limited.  The Preferred Beneficiaries are the defendant, Ms Dawson and their children and future grandchildren. There are also Discretionary Beneficiaries.

[3]      The defendant was adjudicated bankrupt on 15 March 2013.   Save for one abusive email which he sent, the defendant has had no communication with his former  partner,  Ms Dawson,  or  with  their  two  children  since  approximately December 2012.

[4]      The   proceeding   and   in   particular   the   interlocutory   application   dated

12 December  2013  seek  orders  pursuant  to  s  51(2)(d)  of  the Trustee Act  1956 removing the defendant as a trustee of the Trust and appointing Maureen Margaret Dawson of Auckland, Marketing Executive, as a substituted trustee.

Relevant history

[5]      The defendant and Ms Dawson commenced a de facto relationship in early

2005.   Their relationship produced two children, a daughter born on 3 December

2005 and a son born on 29 August 2010.

[6]      For a number of  years the couple lived in  rental accommodation saving money towards their acquisition of a home.  In June 2010 they purchased as a family home the property at 5 Beeche Place, Birkdale for the sum of $465,000.   A loan advance was obtained from Kiwibank Limited in the sum of $372,000.

[7]      The acquisition of the property by the Trust is explained by Ms Dawson in paragraph 6 of her affidavit of 21 November 2013:

... Because at that stage I was not earning, a decision was made that the property would be purchased in the defendant’s sole name and a mortgage was also raised in his sole name. Almost immediately thereafter the property

was transferred into The Paul Family Trust of which the defendant and I and the Wilson McKay Trustee Company Ltd are the trustees ... The loan was initially approved one month prior to settlement of the purchase.   By the time of the settlement, the trust had been established and the trust acquired the property.  The loan however remained in the defendant’s sole name but guaranteed by the trustees. ...

[8]      The affidavit of Ms Dawson explains that the couple separated abruptly on

1 September 2012 and after that time the defendant maintained sporadic contact with Ms Dawson only until December 2012 at which point the defendant cut off all contact with Ms Dawson and their two children.   In the following four months Ms Dawson attempted to contact the defendant by email and cellphone.  Attempts to contact the defendant were also made by his daughter (following the death of her great grandmother), by Ms Dawson’s mother and by mutual friends but without success.  The only communication was an abusive email sent by the defendant to an old email address of Ms Dawson on 28 July 2013.  Ms Dawson responded briefly to that message but there was no subsequent response from the defendant.

[9]      By letter dated 11 April 2013, the Official Assignee advised the firm of solicitors  Wilson  McKay  that  the  defendant  had  been  adjudicated  bankrupt  on

15 March 2013.  Ms Dawson obtained from the bankruptcy notice an address for the defendant at 1788 State Highway 1, RD2 Hikurangi.  On 21 May 2013 Mr McKay sent a letter to the defendant at that address in the following terms:

We advise that we have received a letter from the Official Assignee advising of your recent bankruptcy.  Pursuant to the provisions of the Trustee Act you are not eligible to continue as a Trustee as an undischarged bankrupt. Accordingly, we would be obliged if you could sign and return to us in the stamped self-addressed envelope the enclosed Resignation as a Trustee.

This matter is urgent and, in view of the urgency, we will have no choice but to file High Court proceedings to effect your removal if we do not receive the signed Resignation within the next seven days.   That will inevitably involve you in those Court proceedings and will have the effect of reducing the Trust assets.  Proceedings of course will have a substantial cost impact.

We therefore look forward to receiving the signed Resignation by return. Please do not hesitate to contact us if you have any questions.

[10]     Ms Dawson’s affidavit annexed details of a “track and trace” number which appears to suggest that the Wilson McKay letter was in fact delivered to the defendant.

[11]     Ms Dawson deposed that when the couple separated the defendant assured her that he would continue to make payment of the mortgage instalments and utilities accounts on the basis that by then he was earning a significant salary.  However it was not until four months after the separation that she discovered that in the intervening period the defendant had not made any payment of the mortgage interest instalments or the utilities accounts.   Indeed both the supply of power and water were cut off to the property as a consequence of the non-payment of those accounts.

[12]     At about the same time that Ms Dawson learned that the defendant had been adjudicated bankrupt Kiwibank began to make demand for payment of the outstanding   mortgage   arrears.     After   approaches   to   Kiwibank   by   each   of Ms Dawson, her accountant and her solicitor seeking to address the question of the mortgage arrears and the future payments under the mortgage, Ms Dawson’s mother entered into an arrangement with Kiwibank to pay the arrears and to bring the mortgage payments up-to-date.  Ms Dawson’s parents have also financed the cost of renovations  to  the  Birkdale  property  to  address  the  problem  of  a  leaking  roof. Ms Dawson and the two children moved into  rented accommodation  during the renovation period but are now residing again at the property.

[13]     Kiwibank has requested that Ms Dawson provide the bank with a timeline for the resolution of questions of ownership of the property.   However it appears that that cannot occur while the defendant remains a trustee.  Ms Dawson deposes that Kiwibank is becoming increasingly impatient to have matters resolved in relation to the ownership of the property.

[14]     It would appear that the defendant has a number of significant financial liabilities.  Ms Dawson deposes that the Inland Revenue Department has contacted her advising that the defendant owes $100,000 in arrears of income tax.  In addition the defendant has paid no child support or financial support for the children and Ms Dawson since the separation.  Ms Dawson has been advised by the Child Support Agency that they have no record of the defendant presently earning income but that his debt in relation to child support will continue to accrue until he does.

[15]     It  is  this  combination  of  circumstances  that  has  prompted  the  current application  for  removal  of  the  defendant  as  a  trustee  and  the  substitution  of Mrs Maureen  Dawson  as  the  trustee.    Exhibited  to  Ms  Dawson’s  affidavit  is  a consent by Mrs Maureen Dawson to her appointment as a trustee of the Trust.  Also exhibited is the consent of Wilson McKay Trustee Company (P176098) Limited to the removal of the defendant and the appointment of Mrs Dawson.

Steps in the proceeding

[16]     When the proceeding was originally filed a request was made for an order dispensing with service of the application on the defendant.   In a Minute dated

28 November 2013 Associate Judge Christiansen directed that the proceeding should be served on the ground that it was not appropriate for it to be dealt with on a without notice basis. A request for reconsideration of that direction was declined in a further Minute dated 4 December 2013.

[17]     Since that time unsuccessful attempts have been made to effect service of the proceedings on the defendant.  A memorandum of counsel dated 21 January 2014 annexed a report from MFI Documents Limited detailing the service efforts and inquiries which had been made in the course of attempts to serve the proceedings on the defendant.  The report concludes by advising that the service company has no further leads to follow in this case.

[18]     I am satisfied that the point has now been reached where it is necessary to progress urgently the issue of the removal of the defendant as a trustee of the Trust in the interests of the beneficiaries.

The jurisdiction to remove trustees

[19]     The dual source of the jurisdiction of the High Court in the field of trusts is usefully summarised in Clarke v Karaitiana:1

The jurisdiction of the High Court in the field of trusts is both statutory and inherent.   The inherent jurisdiction is derived from the Court’s general supervisory powers in equity relating to the supervision of trusts for the

1      Clarke v Karaitiana [2011] NZCA 154, [2011] NZAR 370 at [38].

welfare of beneficiaries.2   The inherent jurisdiction of the Court includes the power to enable it to act effectively within its jurisdiction.3   The Court may exercise  its  inherent  jurisdiction  even  in  respect  of  matters  which  are regulated  by  statute,  so  long  as  it  can  do  so  without  contravening  any statutory provision.4

[20]      The importance of the objective of the welfare of beneficiaries is recognised in well-known cases such as Letterstedt v Broers.5   In that case Lord Blackburn said:

In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle ... that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependant on the details of great nicety.

[21]     It is clear that the Court can act promptly where circumstances so demand.  In

Kain v Hutton the Court of Appeal observed:6

[20]     Where circumstances show that the Court should act more or less summarily, on an interlocutory rather than a substantive application, or even ex parte, the Court has jurisdiction to do so.  In Clarke v Heathfield [1985] ICR 203, the English Court of Appeal upheld an ex parte order for the removal of trustees and the appointment of a receiver in order to protect trust monies which were being salted away by the trustees of a striking union. That such power exists is not really in dispute in the present case, it being rather a question whether the circumstances warrant its exercise.

[22]     The present case concerns the scenario of a bankrupt trustee, a ground for removal specifically recognised in s 51(2)(d) of the Trustee Act 1956.   That the retention  of  a  bankrupt  trustee  will  rarely  be  in  the  beneficiaries’  interests  is explained in a passage in the judgment of Baragwanath J in CIR v Chester Trustee Services Ltd:7

[64]      Heath  and Whale  cite  an  address  delivered  in  1979  to  the  20th Australian Legal Convention by R P Meagher QC (now Meagher J of the Court of Appeal of New South Wales) Insolvency of Trustees (1979) 53 ALJ

648 at p 648:

2      Kain v Hutton CA23/01, 25 July 2002.

3      R v Connelly [1964] AC 1254 at 1301 (HL).

4      Taylor v Attorney-General [1975] 2 NZLR 675 (CA) at 680; Donselaar v Mosen [1976] 2 NZLR

191 (CA) at 192; Schier v Removal Review Authority [1999] 1 NZLR 703 (CA).

5      Letterstedt v Broers (1884) 9 App Cas 371, 387 (PC).

6      Kain v Hutton, above n 2 at [20].

7      CIR v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [64].

“The first, and most obvious, result of the insolvency of a trustee is that it renders him liable to be removed from office. . . . the cases seem to lay down the rule that a bankrupt trustee will be removed almost as of course. . . .

[Bainbrigge v Blair (1899) 1 Beav 495; 48 ER 1032, In re Barker's Trusts [1875] 1 Ch D 43, Re Adams' Trusts (1879) 12 Ch D 634, In re Hopkins (1881) 19 Ch D 61, Re Foster's Trust (1886) 55 LT 479, Chambers v Jones (1902) 2 SR (NSW) Eq 177, Miller v Cameron (1936) 54 CLR 572]

. . .

As the High Court of Australia pointed out in the last-mentioned case, the result is almost dictated by the Court's duty, in a removal application, to have as its dominant consideration the welfare of the beneficiaries. The reason why the retention of such a trustee is not usually in the beneficiaries' interest is  twofold:  (a)  the  fact  of  bankruptcy  is  prima  facie  evidence  that  the bankrupt is a person who has been unwise or improvident in the conduct of his own affairs, and is therefore probably unfit to conduct another person's affairs; and (b) a bankrupt is ex hypothesi a person of small or no means

‘and a necessitous man is more likely to be tempted to misappropriate trust funds than one who is wealthy’. The cases show that neither of these two presumptions is conclusive, both may be rebutted, and if rebutted one has the exceptional case where the trustee is not removed. However, the cases where both presumptions are rebutted and the trustee is confirmed in office are rare indeed. In particular, the fact that the bankruptcy is not of recent origin will not, of itself, suffice to rebut either presumption. The cases also show that no distinction will be drawn between actual bankruptcy of the trustee, on the one hand, and an assignment by him for the welfare of his creditors, on the other hand. Nor is it easy to conceive of any relevant distinction between actual bankruptcy and insolvency, unless perhaps the insolvency be of a fleeting and exceptional nature.”

I agree.

Decision

[23]     In my view the circumstances of this case warrant the Court proceeding on the interlocutory application rather than requiring the matter to proceed to a substantive fixture with the delay which would inevitably be associated with that course.

[24]     Under r 7.46 the Court is permitted to proceed without notice in a number of circumstances including, relevant to this case, if the Judge is satisfied:

(a)       requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant – r 7.46(3)(a); or

(b)the  interests  of  justice  require  the  application  to  be  determined without serving notice of the application – r 7.46(3)(e).

[25]     The factors which cause me to be so satisfied in the present case include:

(a)      the point has plainly been reached where it is imperative that matters should be resolved relating to ownership of the Birkdale property, which is currently the family home at which Ms Dawson and the two children (who are all Preferred Beneficiaries) reside;

(b)the defendant has taken no steps for at least a year to discharge his duties as a trustee of the Trust;

(c)      the defendant was made bankrupt over nine months ago, appears to have significant financial liabilities and consequently prima facie is not an appropriate person to remain as a trustee of the Trust; and

(d)the defendant has been made aware previously (by the communication from  Wilson  McKay)  that  court  proceedings  to  remove  him  as  a trustee would be inevitable if he elected not to resign as a trustee of the   Trust   but   he   has   chosen   to   refrain   from   making   any communication with the other trustees.

[26]     Consequently an order is made in reliance both upon s 51(2)(d) and on the

Court’s inherent jurisdiction:

(a)       removing the defendant as a trustee of the Trust; and

(b)      appointing  Maureen  Margaret  Dawson   of  Auckland,  Marketing

Executive, as a trustee of the Trust in substitution for the defendant.

[27]     Leave is reserved to apply in the event that any consequential direction is required.

[28]     In view of the fact that the defendant is bankrupt, Ms Kearns did not pursue

any application for costs.

Brown J