Easton v New Zealand Guardian Trust Company Limited

[2021] NZHC 2084

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2019-454-35

[2021] NZHC 2084

UNDER

the Trustee Act 1956 and s 174 of the Companies Act 1993

IN THE MATTER

of the Moutoa Trust

BETWEEN

IAN CHARLES EASTON

Plaintiff/Applicant

AND

THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED

First Defendant/First Respondent

IAN EASTON LIMITED

Second Defendant/Second Respondent

PERPETUAL TRUST LIMITED

Third Defendant/Third Respondent

Hearing:	10 – 14 May 2021 and 17 – 21 May 2021
Appearances:	D J S Parker and D A Fry for the Plaintiff/Applicant L J Taylor QC and J B Orpin-Dowell for the Defendants/Respondents
Judgment:	12 August 2021

JUDGMENT (NO 3) OF COOKE J

Table of Contents

The Relevant Events[5]

The Moutoa Trust, and the parents’ wishes[7]

Events following Mr & Mrs Easton’s death[14]

Sale of shares explored[24]

High Court Proceedings 2015–2016[32]

Decision in 2017 to sell[38]

Mr Easton’s first offer — $8.8 million[44]

EASTON v THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED [2021] NZHC 2084

[12 August 2021]

Involvement of Higgins group[54]

Mr Easton’s second offer to purchase for $9.3 million[65]

Offers made by Mr McErlean and Higgins group[69] Mr Easton’s final offer, and first defendant’s acceptance of McErlean offer[77] Evidential issues[87]

First cause of action: Breach of trust[91]

The Court’s scrutiny of discretionary decisions by trustees[93]

The Settlors’ wishes[100]

Meaning and effect of the memorandum of wishes here[103]

Failure to directly consider the parents’ wishes[110]

Were the decisions reasonably open to the first defendant?[115]

Particular criticisms of the first defendant[126]

Personal profit[127]

Personal criticisms[133]

The sisters’ views[136]

Commission[139]

The position overall[143]

Dishonesty[146]

Recoverable damages[150]

Further cause of action: Shareholder oppression[155]

Conclusion[161]

[1]    The plaintiff, Ian Easton, is one of three beneficiaries of the Moutoa Trust (the Trust). The other two beneficiaries are his sisters Nancy Bason and Jeanette Gregory. The principal asset of the Trust was the family farm near the township of Shannon. When their parents died, the farm was left to the Trust on the basis that it would ultimately be sold, and the proceeds would be distributed equally between the three siblings. But the parents expressed a wish that this distribution not take place for 10 years to allow Mr Easton to remain employed on the farm and to provide him an opportunity to arrange his affairs so that he could possibly purchase it.

[2]    The parents died in April and May 2000. Mr Easton then continued farming on the farm in a manner consistent with the expression of wishes. Following disagreements the first defendant, as a professional trustee, was appointed the trustee of the Trust. There were further significant disagreements between the parties as time went by. Ultimately in 2017 the farm was sold to the next door neighbour for $9.8 million. Mr Easton made offers to purchase the farm prior to sale, but they were not accepted.

[3]    Mr Easton now brings claims that the first defendant breached its obligations as trustee when so selling the farm such that it is liable to him in damages. In addition to the cause of action for breach of trust Mr Easton also advances a claim that he was prejudiced as a shareholder under s 174 of the Companies Act 1993. This arises because the ownership of the farm by the Trust was through the vehicle of two companies and Mr Easton was a shareholder of one of them (the second defendant).

[4]    In addition to the claims in relation to the sale of the farm there are also claims in relation to the distribution of the Trust assets. A fixture was originally set down to deal with all the claims. Prior to the trial, however, the parties agreed that a fixture of shorter length should proceed to deal solely with the question of the liability of the defendants under the two causes of action relating to the sale of the farm, and that any issue in relation to distribution, and to deal with quantum should the causes of action succeed would be determined at a later fixture. The Court was also advised that the parties are likely to be able to resolve the distribution issues irrespective of the outcome of the liability hearing. I agreed with the fixture proceeding on that basis. This judgment accordingly deals with the question of the liability of the defendants for the two causes of action referred to above.

The Relevant Events

[5]    I begin by addressing the various legal structures and entities associated with the farm, the terms of the Trust and the associated memorandum of wishes, as well as the factual events that gave rise to the sale of the farm to the next door neighbour in 2017.

[6]    It will be necessary to make factual finding regarding the events, particularly the events surrounding the sale. But the key factual events are not really in dispute, and are recorded in contemporaneous documents. Although those events were the subject of cross-examination over a trial that lasted a little over two weeks, much of the cross-examination involved the parties putting propositions to the witnesses associated with the arguments that each advanced rather than disputes as to what the events were. The cross-examination did provide some additional detail, but the events themselves are largely not in dispute.

The Moutoa Trust, and the parents’ wishes

[7]    The family farm was owned through two companies — the second defendant, Ian Easton Ltd (IEL) and I G & B M Easton Ltd (IGBML). Each of those companies owned different blocks of the land making up the full farm. The plaintiff’s parents, Ian Graeme Easton and Bettina Mary Easton, established the Trust in 1997 and the Trust owned shares in the companies.

[8]    The terms of the Trust contemplated equal division of the assets between the three siblings on distribution. There was a complication with this distribution as some of the shares in IEL were already owned by the siblings, and the plaintiff held more of those shares than his sisters. Clause 12 of the Trust Deed deals with distribution. It provides:

(b)In effecting distribution of the Trust Fund the Trustees shall take into account the fact that the said IAN CHARLES EASTON being one of the Final Beneficiaries has received from the Easton Family Trust 25800 ordinary B shares formerly held by the Easton Family Trust in Ian Easton Limited whereas the two daughters of the Settlors namely

NANCY JANICE  LOUISE  BASON  and  JEANETTE GREGORY

being also Final Beneficiaries have received or will receive 6450 ordinary B shares each in the said Ian Easton Limited AND THE

TRUSTEES SHALL in effecting distribution of the Trust Fund equalise the value of such shares to the intent that each of the Final Beneficiaries shall on distribution receive an equal amount of the total of the value of the Trust Fund plus the value of the ordinary B shares held by Ian Charles Easton in excess of those held by the daughters of the Settlors such values being determined at the Vesting Day or in the event such shares have been sold prior to the Vesting Day then at the value of such shares at the date of sale PROVIDED the value of such shares in either case shall be determined by my Trustees in their sole discretion taking into account all factors that my trustees in their sole discretion consider relevant.

[9]    This clause reflected an apparent intention that there be equal treatment on distribution.

[10]   Notwithstanding the intention for equal division of the assets of the Trust there were two exceptions. First, one of the blocks making up the overall farm known as the “Banks block” comprising  approximately  14.2  hectares  was  transferred  to  Ms Bason when their parents died, and a block known as the “Home block” comprising approximately 25 hectares was transferred to Mr Easton.

[11]   On 18 December 1998 the parents also signed a memorandum of wishes. One of the key issues in this case turns on the meaning and effect of these wishes. Clause 2 states:

…

(b)It is our wish that the trustees not distribute the Trust Fund in terms of the Trust Deed prior to ten years after the date of death of the last of us.

(c) WE WISH TO RECORD that we wish to ensure fair and equitable distribution of our assets (now being incorporated into the Trust Fund) between our children. Our son Ian has received a greater number of shares in Ian Easton Limited in his capacity as a beneficiary of the Easton Family Trust. It is our wish that such greater interest he received from the Easton Family Trust is addressed in the final distribution of our assets and we consider this is best able to be done through the Moutoa Trust. We also wish to ensure as far as we can that our son remain in employment and we consider that we can do this by providing assets for the Moutoa Trust which can be utilised to provide such employment although we acknowledge it is in the discretion of the Trustees of the Moutoa Trust as to how the assets of the Trust are applied. We also consider that by vesting our assets in the Moutoa Trust we are permitting our son sufficient time to organise his affairs to hopefully put him in a position where he may be able to purchase our farm properties from the said Trust. In addition the advance that has been made to our daughter JEANETTE GREGORY of

$130,000.00, and which will pass to this Trust on the death of the last of us is to be taken into account by way of hotchpot when making any distribution to our said daughter JEANETTE GREGORY.

…

[12]   The formal distribution date was 50 years from the establishment of the Trust, or such earlier date that the trustees determined. So the wish not to distribute for 10 years was relevant to the exercise of the discretion in relation to the distribution date.

[13]   The wishes were also reflected in the terms of the will of Mr Easton (Snr) executed at the same time, which expressed his wishes in the same terms. It was through that will that the farm was to be formally transferred into the Trust.

Events following Mr & Mrs Easton’s death

[14]   Mrs Easton died in April 2000, and Mr Easton (Snr) died the following month. The trustees of the Trust, and executors of their parents’ estates at that point were  Mr Easton, Ms Bason and the family accountant Mr Alan Larsen.

[15]   In order to give  effect  to the  memorandum of  wishes it was agreed that   Mr Easton would continue to operate the farm, and that he would lease the farm property from IEL and IGBML and pay those companies rent. The rent so received would then be part of the assets owned by the Trust for the ultimate benefit of the three siblings as beneficiaries. A formal lease was entered dated 22 August 2003. Its term was seven years so that it ended at the end of the 10 year period contemplated by the memorandum of wishes. A clause was included which was designed to recognise that Mr Easton was one of the three beneficiaries who would benefit from the lease payments. It provided:

27.2 IT is acknowledged by the parties that the Tenant has entered into this Lease largely to facilitate the administration of the affairs of the Landlord and in determining the rental a representation was made to the Tenant that when the rental is paid, it will forthwith be distributed to the beneficiaries of the Easton family related entities, one of whom is the Tenant, and it is essential those payments be made without delay as they will form a fundamental part of the cash flow of the Tenant.

[16]   This clause came to be the cause of disputes between the parties, in part because of the difficulty in meeting an obligation to immediately make distributions to the beneficiaries, and also because of tax liabilities that were incurred through this structure. In effect it did not prove possible for immediate distributions to occur.  As a result Mr Easton did not pay the rent contemplated by the lease. But he did make payments directly to Ms Gregory. She did not have an income and would need distributions from the Trust to meet her costs of living. Given that the lease payments were the only income coming into the Trust and he was not making those payments, Mr Easton dealt with the position by paying money directly to her.

[17]   Other disputes emerged between the parties. A Family Protection Act claim was brought by Ms Gregory on the basis that both Mr Easton and Ms Bason had benefitted  by  being  given  the  Home   block   and   Banks   block   respectively. Ms Gregory’s claim was settled, effectively by Mr Easton in 2006. He borrowed

$480,000, and he then purchased her IEL shares for that amount as part of the settlement of her claim.

[18]   Other disputes continued, however. Mr Easton made a complaint  to  the  New Zealand Institute of Chartered Accountants about the Trust accountant,

Mr Larsen, including because of complaints about the original structure. Mr Easton also brought proceedings against Mr Larsen in 2009, but they were abandoned on the first day of trial in 2013 after the Court declined an application to amend the pleadings, and then declined to adjourn the trial.1 In 2014 Mr Easton began fresh proceedings against Mr Larsen, but these were stuck out in 2016.2 The Court of Appeal dismissed an appeal from the strike out decision in 2017.3

[19]   Ms Gregory also brought further proceedings in 2008 seeking to have the trustees replaced by an independent corporate trustee. Ultimately this was agreed to. The first defendant was approached, and after considering the appointment and undertaking enquiries it agreed to be appointed, and was duly appointed by Court order in 2011. Although that order was made by consent there were arguments between the parties as to the costs of that proceeding which reflects the difficulties in the relationships by this time. When making the order Dobson J described the relationship between the parties as “dysfunctional”.4

[20]   By the time the first defendant was appointed trustee the 10 year period contemplated by the memorandum of wishes had already passed. When writing to explain the basis upon which it was accepting instructions, and the approach it was going to adopt, the first defendant said by letter dated 7 February 2011 that it would:

Act in an impartial manner but with a view to reaching agreement with the beneficiaries for Ian Easton to acquire the farmlands subject to his sisters being paid out for their respective shares.

[21]   The first defendant also sought an undertaking from Mr Easton that he would pay an amount for its fees for investigating the position prior to appointment, and that he would “meet his obligations for the payment of rent in full and on time to enable the various entities to meet their obligations and provide funds to meet taxation, administrative costs etc.” By letter dated 14 February 2011 Mr Easton’s  solicitor,  Mr Richard Howie of Cooper Rapley, gave that undertaking on his behalf whilst noting that “… it must be understood that where rental is being paid, then it should be

1      Easton v Larsen [2013] NZHC 2859.

2      Easton v Larsen [2016] NZHC 2234.

3      Easton v Larsen [2017] NZCA 258.

4      Gregory v Bason and Ors HC Palmerston North CIV-2008-454-545, 8 March 2011 at [3].

distributed as soon as practicable, rather than being allowed to build up in some account, with consequent adverse cashflow effects”. By that stage the term of the lease had expired, and Mr Easton was operating under a less formal tenancy.

[22]   But the rent was not then paid by Mr Easton. In evidence he said that it was never properly demanded by the first defendant, and the reality was that the first defendant did not press the issue because it knew it was not able to attend to the consequential distribution in the way that Mr Easton wanted. Indeed the view was formed that the overall structure was inherently flawed. The structure meant that taxation liabilities were accruing, and there were other complications arising from the transfers between the entities.

[23]   The fact that Mr Easton did not pay the rent meant that the first defendant did not have funds to undertake its activities, and it became reliant on Mr Easton advancing money to the Trust in order that the day to day activities could take place. Substantial amounts were so advanced by him totalling some $220,000.

Sale of shares explored

[24]   Discussions continued between the  parties in  furtherance of the idea  that  Mr Easton would acquire the farm. The mechanism that was investigated involved him acquiring the IEL and IGBML shares.

[25]   These discussions became complex, and fraught. At the trial I heard expert evidence from an experienced professional trustee, Mr John Strahl, who was called by Mr Easton. His view was the proposal to sell the land to Mr Easton by way of a sale of shares as opposed to the land was unusual and unreasonable, and he was initially critical of the first defendant for proposing this mechanism. I do not agree with this criticism, however. Attending to the transaction through the sale of shares was one option available to a reasonable trustee. It certainly created complications, but they were complications that were part of the distribution issues that needed to be addressed in any event. Achieving the sale through a sale of shares which addressed the distribution issues at the same time was a reasonable way forward.   I note that in   Mr Strahl’s evidence in reply he accepted that the first defendant did not breach its obligations as trustee by proposing a sale through a sale of the shares in this way.

[26]   In February 2014 the first defendant received valuation advice that the combined valuation of the properties was $8.466 million. Discussions then occurred between the parties about Mr Easton acquiring the shares. There were disagreements, including in relation to accounting issues. Ultimately on 19 September 2014 the first defendant told Mr Easton that it was working towards the sale of the land with a view to having it put on the market in October 2014, indicating that it would consider any proposals from him to purchase the shares in the entities in the meantime.

[27]   On 29 October 2014 Mr Easton proposed paying $3.96 million for the net assets of IEL and IGBML. The first defendant responded that this proposal lacked detail, but it made a counterproposal to sell the Trust’s shares in the two companies for $4.436 million. There were then discussions between the parties to try and resolve issues about the accounts for the companies. Mr Easton proposed that an auditor be appointed. There was then a breakdown between the parties concerning the terms of an appointment by an auditor. So the first defendant decided not to proceed down this path but to place the properties on the market.

[28]   A decision sheet dated 19 December 2014 was prepared by Mr Aaron Hing, the manager who now had primary responsibility for the file for the first defendant, for the first defendant’s directors recommending this decision. It summarised the position noting the following amongst the risks :

The trustee is now immersed in the middle of a long standing family feud between highly litigious siblings. The views held by the beneficiaries as to a fair and equitable outcome between themselves, are almost diametrically opposed, creating a situation whereby the ultimate decision of the trustee is likely to be contentious to at least one beneficiary. All beneficiaries have stated that should the trustee’s interpretation not reconcile with their own, they will seek damages against the trustee and the other beneficiaries.

[29]   The decision was not approved by the directors until 24 December. The first defendant communicated its decision by sending an email to Mr Easton’s counsel, Mr John Upton QC, copied to his solicitor, Mr Howie at 12.50 pm that day. It advised that the first defendant was approaching a real estate agent — Property Brokers — that day seeking a proposal from them by 5 January 2015, with an intention of placing the property on the market during the week of 12 January.

[30]   The first defendant’s conduct in this respect was unreasonable. Whatever might be said about the stance Mr Easton had taken in the discussions leading up to that point they had nevertheless been in good faith. The sale would bring to an end Mr Easton’s livelihood on a farm on which he had spent his working life. To communicate this decision on the afternoon of Christmas Eve, with an indication that the property would be placed on the market early January was plainly unreasonable.

[31]   It is also appropriate to record that Mr Easton suffered from mental health issues. This was known to the first defendant. I have not been provided with any medical evidence in this respect, but from the first defendant’s perspective it was apparent that he suffered from bouts of depression, including suicidal ideation. For this reason a professional trustee such as the first defendant would appreciate that it needed to deal with providing advice, such as the advice referred to above, with care.

High Court Proceedings 2015–2016

[32]   Notwithstanding the difficulties arising from the notice effectively being given during the holiday period, Mr Easton was able to find representation and to make application without notice to the High Court for an injunction. On 13 January 2015 Williams J duly granted an interim injunction on the basis that Mr Easton had established that he had a serious issue to be tried on his allegations of breach of trust, and that it was necessary to grant interim relief to protect his position in the meantime.5

[33]   Those proceedings were then further pursued by Mr Easton. A five day trial was ultimately scheduled for 13 June 2016 to address the plaintiff’s allegations that the first defendant had acted in breach of trust, and seeking its removal as trustee.

[34]   The proceedings were ultimately discontinued. When Mr Easton’s accounting expert served his brief of evidence there was an attempted change to Mr Easton’s case, and he made an application to amend his pleadings. By judgment dated 27 April 2016 that application was declined.6 Ellis J concluded that the proposed new pleading involved new and discrete allegations of breach of trust, and that the matters sought to

5      Easton v New Zealand Guardian Trust Company Ltd [2015] NZHC 11.

6      Easton v New Zealand Guardian Trust Company Ltd [2016] NZHC 798.

be added had been within Mr Easton’s knowledge and could have been advanced earlier.

[35]   On 2 June 2016 the Court of Appeal dismissed Mr Easton’s appeal against this decision.7 On 3 June 2016 Ellis J declined Mr Easton’s request to adjourn the trial scheduled for 13 June. Mr Easton was subsequently granted leave to discontinue the proceeding. This also had the effect of discontinuing the injunction previously entered by Williams J.

[36]   On 29 June Mr Easton made an offer to purchase the land owned by IGBML at $30,000 per hectare plus GST but this was turned down. Some discussions then took place centred on Mr Easton buying  the part of the farm owned  by  IGBML.  Mr Howie advised that Mr Easton was not in a position to purchase the other part at that stage. Updated valuation advice was obtained by the first defendant in October valuing the overall farm at $8.85 million (IGBML $3.5m, IEL $5.35m).

[37]   In December Mr Easton commenced fresh High Court proceedings. But by judgment dated 13 December 2016 Ellis J stayed these proceedings until Mr Easton paid the costs that she had awarded arising from the first discontinued proceedings.8 Mr Easton  then  made  an  unsuccessful  recall  application.   On  6  March  2017  Mr Easton’s proceedings were struck out for his failure to meet the costs award, and a related appeal that Mr Easton had filed to the Court of Appeal was also struck out.9

Decision in 2017 to sell

[38]   In March and April 2017 the first defendant then made the further decision to sell the farm on the open market by tender. This decision was implemented by a recommendation by the first defendant to the independent director the first defendant had appointed to the two companies, Mr Ben Nettleton. A market sale was suggested to give a clearer idea of the value of the property “… while enabling other shareholders, namely Ian Easton, to have an opportunity to present an offer and have it considered next to other offers at market”.

7      Easton v New Zealand Guardian Trust Company Ltd [2016] NZCA 243.

8      Easton v New Zealand Guardian Trust Company Ltd [2016] NZHC 3011.

9      Easton v New Zealand Guardian Trust Company [2017] NZHC 345.

[39]   Mr Easton responded to this decision with concern given that he would need to vacate the farm and leave the area, and he advised that he would now revive the proceedings he had earlier brought by paying the outstanding costs liability, and he sought an undertaking that the first defendant would not sell the property. The first defendant declined to provide that undertaking.

[40]   The discussions then reverted to the accounting issues, and it was agreed that further negotiations would take place. In early June the first defendant agreed to defer marketing the properties until 1 October 2017. The 1 October date was regarded as important as any new owner would want to be able to plant new crops at this time for the following season.

[41]   At a subsequent meeting Mr Howie advised the first defendant that it was proposed that Mr Easton would purchase the IEL land at market value, and that the neighbouring farmer would purchase the IGBML land. This was the beginning of the proposals that involve a neighbour, Mr John McErlean purchasing part of the farm. Mr McErlean ultimately ended up being the sole purchaser of the whole farm later in the year. But at that stage he was to be involved as a part-purchaser in conjunction with Mr Easton. On 15 June Mr Nettleton responded to the suggestion by inviting an offer on the standard ADLS form by 23 June.

[42]   Mr Easton then had discussions with his bank, BNZ and the first defendant provided an estimate of Mr Easton’s likely distribution as part of that process.

[43]   Mr Howie then advised that the proposal was that Mr Easton would purchase the whole farm at valuation. The time for making an offer was extended by the first defendant. No offer was forthcoming from Mr Easton, however, and on 8 August the first defendant’s solicitor, Mr David Chan wrote to Mr Howie indicating that the first defendant intended to sell the farm on the open market, that Mr Easton’s tenancy would end on 30 September, but that Mr Easton remained free to make an offer for the farm. Formal notice was given ending what had become a monthly tenancy following the end of the period of the lease. Mr Howie objected to this proposal, raising the potential for injunction proceedings associated with a water supply easement.

Mr Easton’s first offer — $8.8 million

[44]   By letter from Mr Howie dated 25 August Mr Easton made an offer to purchase the farm for $8.8 million. The offer was subject to finance, and also advised that “a third party was prepared to be part of a joint venture to acquire part of the property”. This was a further reference to Mr McErlean. An alternative of Mr Easton taking over the IEL land was also raised.

[45]   The first defendant reacted positively to this proposal. In an internal email dated 29 August Mr Hing stated:

This is potentially the best approach by Easton thus far.

…

Which brings us to the opening offer. It is worth considering in more detail. Whilst being $200,000 shy of the market value, around half of that represents a saving in sale costs and the rest could be accepted as a reasonable 'certainty' discount in not having to go to market. The sisters would need to be onside with it to avoid a post-sale damages claim from them. …

If these chaps act as they have in the past, I expect some unacceptable terms to start emerging, but at this stage, I am happy to respond positively to Howie and see where this goes.

[46]   The first defendant asked that a formal agreement be submitted. This was responded to by Mr Howie exploring the possibility of Mr Easton buying only the IEL land. By letter dated 5 September Mr Chan did not respond positively to that alternative given the potential issues arising from dividing the land. He advised that they would consider an offer if Mr Easton presented it but that the problems would weigh heavily in their consideration.

[47]   Discussions then took place on the form of the offer. Mr Howie advised that one of the proposals was that Mr McErlean would obtain a subdivision of the area that would then be joined with his farm and that he would pay $44,000 per hectare (which would have applied to the whole farm would equate to a value of approximately $9.284 million). But the first defendant remained unenthusiastic about this because of the delay in obtaining a boundary adjustment and other complications.

[48]   On 12 September Mr Howie asked whether the first defendant would accept an offer of $8.8 million on the condition that there would be a three week period for due diligence. He also asked for a further indication of Mr Easton’s likely distribution. On 14 September Mr Chan replied saying the first defendant would not commit to accept that offer without first seeking the views of the other beneficiaries, that an offer with full terms would need to be presented, that the accountants were being asked to prepare a revised distribution calculation, and in the meantime the open sale process would continue.

[49]   On 19 September Mr Howie sent a conditional offer for $8.8 million on the ADLS standard form. It was subject to finance, and indicated it involved an on-sale of part of the farm.

[50]   On 21 September Mr Hing consulted Mr Easton’s sisters on the offer.  As  Mr Hing confirmed in evidence both the sisters had adverse views of Mr Easton. In a follow up communication Mr Hing expressed the view to the sisters that the other issues they had with Mr Easton, including any claims they had, were not material to deciding whether his offer reflected the market value of the property. This approach is reflected in an email Mr Hing sent to Mr Nettleton and Mr Chan that there was “the potential for a confused and unreasonable response from the sisters to what is very close to being a reasonable offer from Ian”.

[51]   Both Ms Gregory and Ms Bason (through her solicitor) indicated they did not want Mr Easton’s offer accepted. Mr Hing was also contacted by Mr Larsen, who was now providing accounting advice to the sisters, raising doubts about the offer.

[52]   The  first  defendant  decided  not   to  accept  the  offer.  By  letter  dated    27 September Mr Chan advised Mr Howie that the offer was declined and that the first defendant considered that the most appropriate course was to market the farm on the open market. The letter advised that Mr Easton would be able to submit a tender in that process.

[53]   I note that in a subsequent email of 3 October Mr Hing reported to Mr Nettleton and Mr Chan that the real estate agent (Mr Blair Cottrill of Property Brokers)

suspected that Mr Easton’s $8.8 m offer was presented in a way that allowed him to extract a premium from Mr McErlean for the land that was to be on-sold. Mr Hing’s email also noted that given this information the market value of the property might be “closer to $9.5m” and that this was “[o]ne reason to go to tender”.

Involvement of Higgins group

[54]   It was at around this time that the Higgins group became interested in acquiring the land. The Higgins group, known for its success in roading contracting, was seen as a significant commercial player, and its arrival on the scene had an influence on how the parties proceeded from this time.

[55]   Mr Easton knew Mr Ian Higgins, but gave evidence that the group approached him out of the blue when an employee of the group, Mr Jamieson, came and saw him at his farm. The potential purchase price the group then raised was higher than the possible price Mr Easton had discussed with Mr McErlean. But it involved a proposal not only to purchase the farm, but also Mr Easton’s Home block. On 26 September Mr Easton phoned the BNZ and advised them that the Higgins group were talking about a figure of $12.050 million for the farm together with his additional 25 acre Home block.

[56]   From that point Mr Easton’s discussions with Mr McErlean were discontinued. Mr McErlean then heard that the Higgins group wanted to buy the farm. He approached Mr Easton, but Mr Easton told him that there wasn’t anybody else involved. Mr Easton said in evidence that Mr McErlean approached him and he told him the matter was confidential and that it had nothing to do with him. Mr McErlean gave evidence that there was not much he could do about this and that in his view “when it comes to land [its] dog eat dog really”.

[57]   Mr Easton focused on his negotiations with the Higgins group representatives from this time. A significant aspect of their proposals was that Mr Easton would not remain on the farms at all. He was to sell his Home block with this proposed transaction. Mr Easton said in evidence that he saw this as his last resort — his offers to purchase the farm together with Mr McErlean had not been accepted, and if he was to leave the farm it made sense for him to sell his Home block as well as it was

associated with the farm, and contained much of the infrastructure utilised in the overall farming enterprise. Leaving him with just the Home block to farm was not ideal. So he negotiated with the Higgins group and discontinued his negotiations with Mr McErlean because of these factors.

[58]   Although the negotiations did not involve a division of the elements of the property to be so acquired, Mr Easton worked on the basis that $9 million of the then overall proposed price would be attributable to the farm owned by the Trust, with $3 million for his own land and the balance for plant and equipment. That would involve a much higher price per hectare for his own land than that of the Trust property. He viewed this arrangement as appropriate as the Home block has infrastructure which supported the broader farm, and the figure of $9 million was at or higher than the advice received on the value of the Trust farm.

[59]   Discussions also continued between Messrs Howie and Chan during this time. On 2 October Mr Howie advised that Mr Easton’s $8.8 million offer remained open. On 5 October he advised that Mr Easton’s offer of $8.8 million was made on an unconditional basis given an on-sale arrangement he had made. The intended on-sale was to the Higgins group, but it is apparent at this stage that the first defendant continued to think that the on-sale arrangement was still with Mr McErlean.

[60]   At that point the first defendant decided to try and get the view of the sisters on what offer they would accept.   When asking the sisters for their views on this   Mr Hing said:

The unconditional element and settlement date is attractive. Have a think about the minimum amount you would accept for the land. Remember this is for “the land”, and not for what you believe that Ian owes you both. That aspect will be addressed from the sale proceeds.

[61]   When Mr Hing communicated with Mr Easton’s sisters Ms Bason advised she would be willing to look at an offer of around $9.3 million and Ms Gregory advised she would accept an offer of $9.3–$9.5 million. Mr Hing advised both that there was a risk that a price in excess of $9 million might not be reached through the tender process.

[62]   By letter dated 5 October Mr Chan wrote to Mr Howie advising that the first defendant did not accept Mr Easton’s revised offer, but stating:

However, if your client made an unconditional offer of $9.3 million, our clients would be willing to consider the matter further, and Nancy and Jeanette might also possibly agree.

[63]   On 6 October Higgins group’s solicitor sent Mr Howie an offer responding to an earlier proposal that Mr Easton had made. This was an offer of $12,050 million for all the land. It was conditional on Mr Easton having an unconditional agreement to acquire the Trust land, and also required that certain land that was not within the title

— called the accretion lands — be amalgamated into the title. The timing around that amalgamation presented difficulties, however, and a new proposal for a total price of

$11,806 million was raised which removed the accretion lands from the agreement on the basis that the price would be increased if the lands were later introduced into the title.

[64]   At this stage Mr McErlean also made contact directly with Mr Nettleton explaining that his negotiations with Mr Easton had not progressed, and that he had heard that the Higgins group had purchased the farm. Mr Nettleton responded that no agreement had been entered for sale. The defendants accordingly became aware of the interest of the Higgins group and this influenced its view that a higher price might now be achieved.   Property Brokers also  became aware of the negotiations that    Mr Easton was having with the Higgins group (involving another real estate agent — Harcourts). Property Brokers advised the first defendant of its views on this, including the view that Mr Easton was seeking to profit from an on-sale arrangement with the Higgins group.

Mr Easton’s second offer to purchase for $9.3 million

[65]   Mr Easton’s solicitor at Cooper Rapley had  by  that  stage  changed  from  Mr Howie to Ms Kirsten Harper. On 9 October Ms Harper wrote to Mr Chan with an offer from Mr Easton at $9.3 million. The letter disclosed that the transaction would involve an on-sale of the property, and responded directly to the advice that the first defendant might accept an offer at this level.

[66]   By this stage the first defendant knew that the Higgins group was the likely on- sale party. Mr Hing reported on Mr Easton’s offer to the sisters. Mr Hing said that his view was that the interests of the Higgins group would extend beyond dealing solely with Mr Easton and that it was worth continuing with the tender process. Ms Bason and Ms Gregory responded with the view the  first defendant should not accept     Mr Easton’s offer. Their views were expressed in terms that were personally critical of Mr Easton. The negative view was influenced by a perception that Mr Easton was seeking to profit from the on-sale transaction to the Higgins group.

[67]   On 10 October Mr Chan advised Ms Harper that the first defendant declined the offer, and that it intended to go to tender. Mr Hing’s evidence was that accepting the offer “would appear to have involved a transfer of value between beneficiaries over objection of the prejudiced beneficiaries, and without allowing Mr Easton to remain farming”. Mr Hing formally reported on the decision in the following terms:

Ian Easton’s offer to buy the land was rejected. It would appear his emotional plea to be on the land to preserve his family legacy was not true. He has been attempting to on-sell the land at a profit to what he was offering the Director. This was discovered in part through confusion from his realtor (Harcourts) who had to be informed that at this point in time Ian did not own the land. Clearly with knowledge of this, the Director could not agree to circumvent the tender process to sell at a discount to what was looking to be a far higher market price. The party Ian was looking to on-sell to is now dealing directly with our realtor (Property Brokers). Ian is reportedly not pleased with this outcome.

[68]   At this point Mr Easton’s negotiations with the Higgins group also broke down. Mr Sutherland of Property Brokers spoke to Mr Gunning of the Higgins group and Mr Gunning explained the price the Higgins group had offered on Mr Easton’s Home block was only $1.6 million, in part because the buildings on that land were larger than their needs. Mr Easton had been planning on receiving $3 million during the earlier dealings. When Mr Sutherland reported this to Mr Easton he was said to be “disgusted”.

Offers made by Mr McErlean and Higgins group

[69]   The Higgins group nevertheless proceeded to make an offer directly to the first defendant to purchase the farms. Indeed on 16 October the first defendant received

two offers for the property directly from the parties who Mr Easton had previously be dealing with:

(a)an offer from an entity in the Higgins group for $10.128 million with a sunset clause until 19 October, on condition that the group would also purchase Mr Easton’s land; and

(b)an unconditional offer from Mr McErlean for $9.8 million, with a right that he occupy the land on 20 October to begin planting crops.

[70]   At the same time the Higgins group offered Mr Easton $1.6 million for his property.

[71]   Mr McErlean explained in evidence why he re-entered the contest. The prospect that the Higgins group would acquire the farm had caused him concern. The group was a large player, and a potentially significant competitor who would be immediately next door. For this reason he decided he needed to put his best foot forward in making an offer to purchase the farm. Or as he put it in evidence in relation to Higgins “I had to make them grunt”.

[72]   It is relevant that both offers required prompt decision in the following few days. The first defendant sent the offer documents to Ms Harper and the two sisters. Both sisters were supportive of accepting the Higgins offer although there was some concern with the offer  being  associated  with  Mr Easton  selling  his  own  land.  Mr Easton provided a response on 17 October raising an issue with the offer by the Higgins group. He said it required an assignment of a water consent for supply of water to the Trust farm which he said was on his own farm. Whilst this argument was not completely without merit, it was primarily raised by Mr Easton in an attempt to prevent the Higgins group reaching agreement with the first defendant. At the same time Mr Easton was continuing his own negotiations with the Higgins group, and he made a counter-offer of $2.3 million for his Home block. The group responded to this with only a small increase in its own offer to $1.678 million. This was well short of what Mr Easton needed.

[73]   In a further email Ms Harper then stated that the first defendant should proceed with the tender process as it had previously advised. Mr Easton explained in cross- examination that doing so better suited him as it gave him the opportunity to consider other options leading up to the tender date, such as rekindling his negotiations with Mr McErlean. It is  noteworthy  that  there was  no  suggestion  at  this point  that  Mr Easton wanted to make his own offer. At that stage he had no basis to do so without an on-sale partner.

[74]   The first defendant investigated the issues arising from the offers further. The Horizons Regional Council provided some clarification on the issue of the water consent. Advice was also received from a local valuer on the prices being offered to the effect that anything over $9.5 million should be given serious consideration. The first defendant then decided to progress the Higgins group offer.

[75]   But the Higgins group then withdrew its offer.    Either on the evening of     18 October, or the morning of 19 October Mr Bernie Higgins and Mr Gunning of the Higgins group called Mr Easton. It would appear that this phone call ended in an argument. On the morning of the 19th Mr Gunning of Higgins group emailed Property Brokers advising that the Higgins group was withdrawing its offers for the Trust farm and Mr Easton’s farm. In a contemporaneous email from Mr Hing to Mr Nettleton and Mr Chan, Mr Hing reported that Property Brokers had advised that “Higgins want nothing to do with Ian or the post-sale trouble he would cause with the Moutoa land. So they are out.”

[76]   Later that morning Property Brokers confirmed that Mr McErlean’s offer remained  alive,  however  and  terms  and  conditions  had  been  forwarded  to     Mr McErlean’s solicitor. At this stage, therefore, the first defendant understandably switched its attention to his offer.

Mr Easton’s final offer, and first defendant’s acceptance of McErlean offer

[77]   Draft resolutions were prepared pursuant to which the first defendant would formally decide to accept the offer made by Mr McErlean. Whilst the decisions of the first defendant were made in a day to day sense by Mr Hing as the manager responsible for the file, as part of its internal making processes final decision to accept an offer to

sell trust property at this level needed to be made by directors of the first defendant. Hence the need for a resolution. The directors then asked that a confirmation be obtained from Mr McErlean that the offer he was making was his best offer. A clause was inserted in the proposed agreement to that effect, and an updated trustee resolution was circulated and ultimately signed.

[78]   Just before acceptance of Mr McErlean’s offer was communicated, and late in the afternoon of the 19th — the day before Mr McErlean needed to be given possession if his offer was accepted — Mr Easton made a final proposal.  Ms Harper phoned  Mr Chan saying that the water issues could be simplified if Mr Easton purchased the farm, and asking what the attitude would be if Mr Easton offered $9.7 million. She advised that the offer price was set so that the real estate commission would be avoided relative to Mr McErlean’s offer. Mr Chan responded that he had no instructions to give any indication but that Mr Easton should make an offer in writing.

[79]When Mr Hing learned of this he emailed at 4.44 pm saying:

Oh good grief!

1.I suspect too late to match McErlean's terms, finance approved, unconditional, deposit tomorrow, 1 Dec settlement

2.Commission cannot be avoided so must be $9.8m

3.Ben has probably signed by now

4.Good call re written offer ... lets see what comes of it

5.Hmmm. Is this a tactic for a challenge from Ian to have the McErlean sale set aside?

[80]   At 4.54 pm Ms Harper also confirmed her instructions that Mr Chan seek “instructions from the trustee as to whether an offer from Ian to purchase … at a price of $9.7 million would be accepted”. She raised not only the issue of the water consent, but Mr Easton’s status as beneficiary and majority shareholder, and also made the point that such a sale was consistent with the wishes of his parents.

[81]   Mr Hing sent an email at 5.02 pm in which he questioned whether Mr Easton was attempting to repeat an earlier attempt of buying the land and then on-selling it at

a profit. Mr Chan then provided his advice on the offer at 5.10 pm in the following terms:

It’s not really good enough — what are the terms? Any conditions?

All of the previous offers by Ian were conditional on his confirming an on- sale. It is clear that he couldn’t pay $8.8m or $9.3m unless he had the on-sale in place.

But where is he going to make the on-sale now? To Higgins? Or McErleans? Seems unlikely on current information.

I don’t think it is enough to persuade you to reject or delay McErleans. If you reject or delay McErleans on the basis of a hypothetical (not actual) offer by Ian (which may never be made or be conditional), McErleans are likely not to come back — and not at $9.8m.

Have McErleans provided the signed amended agreement?

[82]   At 5.26 pm the director of the companies, Mr Nettleton agreed with this saying that the “conduct of Ian throughout especially today re the Higgins offer gives me no confidence in the reliability of anything Ian puts forward”. But he questioned whether they should stop communicating acceptance to Mr McErlean until further details were obtained from Mr Easton. Mr Chan replied at 5.35 pm that that could be a way forward but that he did not think that any delay should be later than 9 am the following day given that Mr McErlean’s offer required possession that day.

[83]   Mr Hing then provided his view at 6.05 pm. He reported that Proper Brokers had advised that Mr Easton was trying to rekindle his deal with the Higgins group. He then said:

I would favour providing the signed contract to PB now.

Reasons:

-     Us acting in good faith

-     Significant risk if Ian and Higgins don't agree to terms between them

-     It was only this morning that Higgins withdrew their offer for Moutoa land, without even consulting PB (or us) and looking for a solution

-     Due to timing they are highly unlikely to match payment of deposit tomorrow and settlement by 1 Dec

-     We have no detail of terms from Ian as it is

-     We probably would lose McErlean, taint the tender and be facing a $9.0m outcome

It is also galling to consider that Ian turned an almost certain $10.128m into

$9.8m this morning and now wants us to take $9.7m.

[84]   Mr Nettleton agreed. Mr Hing then consulted with the sisters at 6.13 pm, both of whom responded immediately that they  wanted  the  first  defendant  to  accept Mr McErlean’s offer. Mr Hing then indicated to Messrs Chan and Nettleton that unless he heard to the contrary he intended that the first defendant communicate acceptance of Mr McErlean’s offer. Mr Chan advised at 6.47 pm that he had no contrary comment. Mr Hing gave evidence that he spoke to senior colleagues and then gave instructions to Property Brokers for Mr McErlean’s offer to be accepted and that duly occurred not long thereafter.

[85]   So the deal was done around 7 pm that evening. At 11.38 pm Mr Hing sent an email to Mr Nettleton and Mr Chan making light of the events of the day, and the earlier events. The email made fun of Mr Easton. I accept, however, that it had been a very stressful situation, and that Mr Hing was simply seeking to introduce some humour as a form of stress relief.

[86]   Mr Easton was advised of the decision by an email sent to Ms Harper the following day, although he appeared to have become aware of this that morning in any event.

Evidential issues

[87]   Before addressing the plaintiff’s claims there are two further points concerning the evidence that are appropriate to address.

[88]   First, as I have indicated most of the important events relevant to the claims are recorded in contemporaneous documents. These included documents that were originally subject to a claim of legal professional privilege because they involved the views of Mr Chan, the first defendant’s solicitor. Prior to the trial I upheld the first defendant’s argument that legal professional privilege could be claimed by the first

defendant given that there was litigation in contemplation by Mr Easton.10 During the course of the trial, however, I subsequently upheld the plaintiff’s argument that the pre-requisites for claiming that privilege I had earlier identified did not arise on the facts.11 The various email exchanges involving Mr Chan surrounding the important events in 2017 were then made available and Messrs Hing and Nettleton were recalled and questioned about them. Subsequent to my second judgment, and the trial, the Supreme Court released its decision in Lambie Trustee Ltd v Addleman.12 The Supreme Court confirmed that the joint interest of the trustee and beneficiaries in legal advice could come to an end when litigation is commenced by a beneficiary, or prior to commencement when the position was sufficiently conflicting to justify the conclusion that the trustee was taking advice for the purposes of resisting the claim.13 When doing so the Supreme Court noted my first judgment, approving of the finding that the privilege is lost when the position between trustee and beneficiary had become one of adversaries, but disagreeing with the conclusion that this point was reached simply when litigation is in contemplation.14 On that basis, as I understand the Supreme Court decision, my first judgment was likely wrongly decided. Fortunately the impact of this error was largely avoided as a consequence of my second judgment.15

[89]   The second issue is that both the plaintiff and first defendants called expert evidence from solicitors with recognised experience in trustee decision-making. They gave evidence on what a reasonable trustee would have done in the circumstances faced by the first defendant. The plaintiff called Mr Strahl, and the defendants called Mr Richard Simpson. There was, however, an inherent difficulty with the evidence that they gave. Expert evidence on what a reasonable trustee would do in the circumstances, particularly in light of the settlors’ expressed wishes, was potentially relevant. But it was very closely connected with the ultimate issues to be decided by the Court, and ultimately both witnesses necessarily proceeded on the basis of a

10     Easton v The New Zealand Guardian Trust Company Ltd [2021] NZHC 519.

11     Easton v The New Zealand Guardian Trust Company Ltd (No 2) [2021] NZHC 1117.

12     Lambie Trustee Ltd v Addleman [2021] NZSC 54.

13 See [92].

14 See footnote 59.

15 In addition, and with hindsight, the defendants may also now be thankful that both this Court, and the Court of Appeal declined its stay application to enable my second judgment to be appealed — New Zealand Guardian Trust Company Ltd v Easton [2021] NZCA 205.

particular understanding of the facts that was less extensive than the Court had by the time they gave their evidence. They reached opposite conclusions. Much of the reason for the difference between them arose because they had different understanding of the facts. In the case of Mr Simpson, for example, when formulating his opinions he had only been provided with the defendants’ briefs of evidence.

[90]   Ultimately I found their evidence of limited assistance. By the time they came to give their evidence the Court had received much of the factual evidence, so that their opinions based on their more limited understanding of the facts resulting from their instructions was of diminished help. It was also difficult for them not to give opinion evidence on the ultimate issues. It may be that this is an inherent difficulty with expert evidence on what a reasonable trustee would do in a breach of trust case. Expert evidence on more general or abstract questions not turning so much on the facts of the case may not have been seen to be so helpful to each of the parties, at least when it was prepared. But that is probably the more legitimate scope of expert evidence in this kind of case.

First cause of action: Breach of trust

[91]   The plaintiff alleges that the first defendant is liable to it in damages for acting in breach of trust. To establish such liability the plaintiff needs to demonstrate:

(a)that the trustee acted in breach of trust.

(b)that it did so dishonestly.

(c)that the damages the plaintiff seeks to recover are available as a matter of principle for that breach.

[92]   I will address each of these elements below, but for present purposes a key requirement is to establish that the first defendant acted in breach of trust, including through the alleged failure to act consistently with requirements arising as a consequence of the settlors’ memorandum of wishes. That requires consideration of two matters: — identifying the approach the Court should adopt to reviewing the discretionary power of trustees in order to determine whether their conduct is in

breach; and identifying the requirements arising from a memorandum of wishes given that approach.

The Court’s scrutiny of discretionary decisions by trustees

[93]   There is a surprising uncertainty on the approach that is to be adopted by the Court when reviewing the exercise of discretionary powers by a trustee. Indeed, it has been said that “[i]n no other areas of the law relating to trusts and trustees are judicial statements apparently so inconsistent”.16 That is reflected in the New Zealand cases. In Gailey v Gordon O’Regan J limited the grounds for reviewing the decisions of trustees to considering whether the trustee was acting in good faith, and intra vires. He did not accept a decision could be reviewed on the ground of unreasonableness.17 In Wrightson Ltd v Fletcher Challenge Nominees Ltd however, Fisher J expressed the position more broadly contemplating review based on bad faith, improper motive, wrong question/misinterpretation, failure to consider relevant considerations or considering irrelevant considerations, and reaching a decision that was perverse or capricious.18 Other cases have included unreasonableness as a ground of review, albeit apparently only as “Wednesbury” unreasonableness.19 In Clement v Lucas, however van Bohemen J said that the Court would be slow to recognise unreasonableness as a separate ground if the decision was otherwise consistent with the trustees duties or powers.20 I also note that in Pitt v Holt Mummery LJ said that any analogy with judicial review at all was “unhelpful and unnecessary”.21

[94]   These differences may be more apparent than real, however. The Court has the role of reviewing whether the exercise of a trustee’s power is lawful. When doing so it follows a conventional approach of interpreting the proper scope of the power in the empowering instrument and assessing whether the trustee’s decision is consistent with that power.  A trustee’s discretionary powers will vary — some may be very  broadly

16  M Cullity Judicial Control of Trustees’ Discretions (1975) 25 UTLJ 99 at p 99. See Andrew Butler

Equity and Trusts in New Zealand (2nd ed, Thompson Reuters 2009) at [6.3].

17 Gailey v Gordon [2003] 2 NZLR 192 at [89].

18 Wrightson Ltd v Fletcher Challenge Nominees Ltd HC Auckland CP 129/96, 21 August 1998 at 41–42; (1998) 1 NZSC 40,388 at 40,413.

19 Craddock v Crowhen HC Christchurch M 425/92, 10 February 1995 at 12 per Tipping J; Blair v Vallely HC Whanganui CP 8/98, 23 April 1999 at 22 per Wild J; Jaspers v Greenwood [2012] NZHC 2433 at [22] per Kόs J; Masters v Stewart [2018] NZAR 233 at [32] per Mander J.

20 Clement v Lucas [2017] NZHC 3278 at [75].

21 Pitt v Holt [2011] EWCA Civ 197, [2012] Ch 132 at [235].

expressed, and some may be narrower. Often the trustee is given broadly expressed power precisely because it is anticipated that there will be a range of alternatives reasonably open, and the settlor entrusted the trustee to exercise judgment in deciding what to do when individual circumstances arose. Provided that the trustee acts within the legitimate scope of the discretion given by the empowering instrument they are free to exercise that judgment. Notwithstanding the more exacting descriptions of the power of review by the Court in the cases, assessing whether the trustee has acted with the proper scope of the power seems to me to be the essence of the Court’s task.

[95]   This issue was reviewed by the Law Commission in its report leading to the new Trusts Act 2019. Section 126 of that Act followed the Commission’s recommendation, and now describes the Court’s power of review of trustees decisions in the following way:

126     Court may review trustee’s act, omission, or decision

(1) The court may review the act, omission, or decision (including a proposed act, omission, or decision) of a trustee on the ground that the act, omission, or decision was not or is not reasonably open to the trustee in the circumstances.

…

(emphasis added)

[96]   That formulation — deciding whether the decision was reasonably open — is consistent with the essential task as I have just described it, and also has the additional benefit of simplicity as well as clarity.

[97]   When recommending the formulation of the Court’s scrutiny of the legitimacy of trustee powers in this way, it is apparent that the Law Commission was attempting to capture the essence of the existing case law. It noted that there was little support for “unreasonableness” as a formulation of the power of review. It then said:22

11.10In the Preferred Approach Paper we proposed making the standard one of whether the action or decision of the trustee “was one that was not reasonably open to the trustee in the circumstances”. This formulation was intended to capture existing grounds of review as developed by the High Court under its supervisory jurisdiction,

22     Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLCR 130, 2013) (footnotes omitted).

including the ground of “irrationality” in the sense of being a decision that no reasonable trustee could have made. Although the majority of submissions raised no concerns over the “not reasonably open” formulation, a few submitters thought it was too broad and there was a risk that it would be applied by the courts as a test of whether the trustee had acted reasonably. Conversely a few submitters also questioned whether that test captured all the current grounds for intervention, including unlawfulness, developed by the courts.

11.11We have not considered it necessary to modify the wording to expressly include a reference to whether the act or decision was “unlawful”. We consider that this is not necessary and that an unlawful decision (because it is unlawful) would not be a decision that is reasonably open to the trustee. The test of “not reasonably open” we have recommended is one of whether or not the trustee’s action or decision was one of a range of options that was properly open to the trustee in the circumstances. It is our intention to capture, with this formulation, the established grounds for intervention developed by the court under its supervisory equitable jurisdiction, while also leaving open the possibility that the courts may need to further develop those grounds in the future.

[98]   I respectfully agree with the Commission that this formulation captures the essence of the principles referred to in the previous cases. Indeed in my view it is preferable to apply this formulation rather than seeking to grapple with what may be illusory differences between the other verbal formulations of the test used in the case law.

[99]   The present case does not involve the Court applying its statutory function of reviewing decisions of a trustee, and the present events arose when s 66 of the Trust Act 1956 was in effect rather than s 126 of the Trusts Act 2019. But the statutory role of the Court in reviewing decisions of trustees, and the Court’s scrutiny of trustee decisions when addressing the claim of breach of trust against the trustee, should be approached in the same way. A claim based on breach of trust against the trustee requires an unlawful/unauthorised exercise of power. It has the additional feature that the plaintiff will be seeking to recover damages from the trustee. That additional feature is addressed through the second element that a plaintiff must establish before recovering damages — that the trustee acted dishonestly. The approach that the Court adopts to deciding whether the trustee has acted inconsistently with their powers or duties should remain consistent whichever jurisdictional pathway is being applied.

The Settlors’ wishes

[100]   There is less uncertainty concerning the relevance of any wishes the settlor has expressed outside the trust instrument itself. Both Mr Strahl and Mr Simpson referred to the creation of such a memoranda of wishes as being a feature of New Zealand trusts. In Chambers v S R Hamilton Corporate Trustee Ltd the Court of Appeal held:23

[36] Settlors are entitled to express their wishes for the benefit of trustees, and trustees are entitled to take them into account. They can be important guidance to them in the exercise of discretionary powers. However trustees, whatever a settlor’s wishes, must conscientiously apply their independent discretion in exercising their powers. Wishes can only be taken into account if they are not inconsistent with the purposes of the trust as appear from its written terms. Trustees should not blindly obey all settlor instructions. It is necessary for trustees to read and understand a memorandum of guidance to discern the settlor’s wishes, and then with those wishes in mind make an independent assessment of the appropriate course of action, taking into account not just the memoranda, but all relevant factors.

[101]   There is authority for the proposition that such wishes are a mandatory relevant consideration.24 But they are only mandatory in the sense that the trustee must inform themselves of what the memorandum of wishes means if there is one. They are not obliged to take those wishes into account if they do not think they should be given any weight in the circumstances they are faced with, or if they are irrelevant as a matter of a proper appreciation of the power in the trust instrument. So saying that such wishes are a relevant consideration is true as a generalisation, but the real significance of the wishes will depend on the circumstances.

[102]   It follows from the above analysis that it is important to assess what the wishes are, and how they are relevant to the decision to be made by the trustee.

Meaning and effect of the memorandum of wishes here

[103]   In the present case the settlors set out their wishes in a formal memorandum of wishes which were then repeated in the will. It is important to ask how these wishes were relevant when it came to the decisions made by the first defendant to sell the

23     Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 (footnotes omitted). See also Kain v Hutton [2007] NZCA 199, (2007) 2 NZTR 17-009 at [272].

24     See, for example Kain v Hutton HC Christchurch M 198/00, 3 December 2004 at [301].

farm, being the  primary  asset of   the Trust.    I have set the relevant terms of the memorandum of wishes above.25

[104]   The first key point is that by the time the first defendant was even appointed as trustee the 10 year period referred to in the memorandum had already elapsed. In my view this is significant. Properly interpreted the memorandum of wishes was most relevant to the decision on when the Trust would be distributed, and accordingly when the Trust farm would be sold to allow distribution to take place. There were two aspects of the wishes relevant in that context. The first was the desire that Mr Easton remain “in employment” on the farm. The second was that the distribution, and accordingly a sale, should be deferred for a period of 10 years to allow him to “organise his affairs” to be in “a position” to himself buy the farm. By the time of its appointment both of those aspects had occurred. Mr Easton had remained farming on the farm under the lease, and the period of 10 years had gone by.

[105]   That does not mean the wishes were no longer relevant. Properly interpreted the two aspects of the wishes I have referred to were directed to an ultimate end — that Mr Easton have the opportunity to buy the farm if he could. But that was only an aspiration — there was clearly no certainty that he would be able to buy the farm. As they expressed it in the memorandum, he should remain on the farm so that he could “hopefully” be in a position to purchase. What the wishes were referring to was the uncertainty on whether he would be able to do so. In that sense the uncertainty — the potential problem if you will — was apparent from the outset. Mr Easton might not be able to afford the price which allowed the sisters to get their fair share of the trust fund as it might be beyond his means to do so. Indeed the real point of the memorandum of wishes was that he be given time on the farm to give him a chance.

[106]   In considering the wishes there were certain things that the first defendant could not do. First it was a clear requirement of the Trust Deed that the three siblings were to be treated equally, with requirements set out in clause 12 to neutralise the effect of previous different treatment. That meant that it was not open to the first defendant to accept an offer by Mr Easton to purchase the farm which would result in

25     At [11] above.

the sisters effectively receiving less for their own share of the trust fund. By 2017 the participants had abandoned the option of allowing Mr Easton to acquire the farm through buying shares in the companies in a manner that could take into account his one third entitlement. That proved to be too complicated. So the approach adopted was that Mr Easton would be required to pay the market price for the farm, but in doing so he could take into account the distribution he would then be entitled to as a beneficiary. On that approach it was not open to the first defendant to accept less than a fair market price for the farm as that would involve consciously preferring him over his sisters. They could not do that under the terms of the Trust.

[107]   This did not mean that the first defendant was obliged to engage in a market sale process in which Mr Easton was allowed to participate. There were other options reasonably open to a trustee in the position of the first defendant. Such a trustee could have accepted a private offer from Mr Easton to purchase the farm if the trustee was satisfied that this offer fairly reflected the market value of the farm. If there was a market sale process a trustee could also reasonably accept an offer from the beneficiary prior to completion of that process if satisfied it was at market value, or even make arrangements that the beneficiary be given the option of matching a price achieved in a market sale process.26 All these options could be reasonably open, provided that the trustee judged that a fair market price was obtained. In deciding between the alternatives the trustee would be expected to exercise judgment. It is not the role of the Court to second guess that judgment. There is what can be described as a margin for appreciation. The settlors intended that such judgment would be exercised when deciding that a trustee was to make such decisions. Such judgment would be exercised if, for example, a trustee decided to accept an offer from the beneficiary without the need to engage in a market sale process. That is the kind of decision-making the settlors can be taken to have contemplated.

[108]   The one thing the trustee could not do was accept less than what the trustee thought was fair market value, both because it would have been inconsistent with the

26     Albeit the existence of such an option might need to be properly revealed in a market sale process.

requirement to treat all beneficiaries equally, and arguably also because of the duty to maximise the value of the Trust assets.27

[109]   For these reasons I do not accept Mr Strahl’s evidence that requiring Mr Easton to participate in a market sale process was not consistent with the trustee’s duties arising in association with the memorandum of wishes. Requiring a market sale process would have been one approach reasonably open to the first defendant. But I do accept Mr Strahl’s evidence that in the context of these wishes and the circumstances the first defendant was obliged to consider offers made by Mr Easton for the farm. They needed to be open to him making such offers, and then consider them if offers were made. Again however, there is no dispute that that happened in the present case. The first defendant did give Mr Easton the opportunity to make offers, and did consider them when they were made. So to the extent the plaintiff’s case involves any suggestion that the first defendant failed to do so I do not accept it.

Failure to directly consider the parents’ wishes

[110]   The plaintiff does allege that the first defendant was in breach of trust for a failure to consider the parents’ wishes at the time it made its decision.

[111]   The resolutions prepared for the directors of the first defendant to approve the sale on 19 October 2017 described the background for the decision, but made no explicit reference to the memorandum of wishes. Moreover in the contemporaneous documents  surrounding  the  sale  there  was  no  direct  reference  by   Mr  Hing,  Mr Nettleton or Mr Chan to the memorandum, or the parents’ desire that Mr Easton be able to own the farm if he was able to buy it.

[112]   But as a matter of substance I accept that all invoiced — Messrs Hing, Chan and Nettleton and the relevant directors involved in the final approval — were well aware of the parents’ wishes, and in particular were well aware that the parents wanted to give Mr Easton the opportunity to own the farm if he could afford to buy it. That was the very matter that they were constantly addressing in what had become a long- standing and problematic situation. It is also recorded in the documentation. In its

27     See, for example, Greenwood v Simpson [2018] NZHC 845, [2018] NZAR 728 at [35]–[37]; Buttle v Sanders [1950] 2 All ER 193.

letter of appointment the first defendant referred to the intention of reaching agreement for Mr Easton to acquire the farm.28 And whilst the formal resolution of the first defendant did not make reference to the wishes, an attachment to the papers did do so. It described the position in the following way:

Moutoa Trust’s Deed of Trust dated 4 July 1997 provides for the discretionary and final beneficiaries who are Jeanette Gregory, Nancy Bason and Ian Easton, the three children of the settlors who are now deceased. The vesting date of the Trust is 50 years from the date of execution of the Deed i.e. 4 July 2047. However the settlors’ wishes were that following their deaths, the vesting day should be brought forward after giving Ian Easton an opportunity to purchase the Companies’ shares or land.

[113]   This is not an inaccurate summary of the wishes. I accordingly accept the first defendant did take into account the parents’ wishes. I do not accept Mr Parker’s argument that the first defendant considered that time was up, and was not obliged to consider the wishes. On the contrary the wishes remained a pressing issue notwithstanding Mr Hing described Mr Easton as being in “overtime”. For these reasons I do not accept this is a case involving any failure to consider the wishes. I accept the first defendant both considered Mr Easton’s offers to purchase, and considered the parents’ desire that he acquire the farm land if he could. The real issue is whether the first defendant made a decision reasonably open to it, particularly when accepting the offer by Mr McErlean and declining to consider further the potential offer by Mr Easton.

[114]   Mr Parker referred to the difficulties that Mr Easton had faced during the period when he operated the farm under a lease. Whilst those difficulties may not be irrelevant in a general sense, they ultimately did not affect the decisions the first defendant would need to make. Mr Easton would still be entitled to make an offer for the farm which the first defendant would need to consider. The first defendant could only accept his offer if it did not prejudice the other beneficiaries. The main relevance of the past difficulties is that it may partly explain why it was well beyond 10 years before a sale took place. The other significance of that delay is that it can be observed that the sisters have effectively been held out of receiving the full benefit of the Trust, while Mr Easton had enjoyed the principal property of the Trust on a day to day basis, at least to some extent. In the end the sisters will benefit from the improvement in the

28     At [20] above.

capital value of the property over that period, but they are now older and have not been able to fully enjoy the principal fruits of the Trust.

Were the decisions reasonably open to the first defendant?

[115]   I accordingly proceed to consider whether the decisions made by the first defendant were reasonably open to it. This incorporates consideration of whether the decisions were unreasonable, undertaken for proper purposes, considering relevant considerations and disregarding irrelevant ones, and whether they were rational. I will do so first by reference to the first defendant’s consideration of Mr Easton’s specific proposals, and then go on to address the more general criticisms raised.

[116]   The plaintiff first challenges the decision by the first defendant not to accept Mr Easton’s offers of $8.8 million first made on 25 August. I have little hesitation in concluding that these decisions were reasonably open to the first defendant, and there was nothing illegitimate in its reasons for not accepting the offers. It is clear that the first defendant genuinely considered the initial offer. Mr Hing described it as “the best approach by Easton thus far”. But it decided not to accept it for the reasons set out in Mr Chan’s letter of 27 September — that the most appropriate course was to continue to market the farm on the open market. In essence I accept that the first defendant was of the view that this offer was lower than what would likely be obtained by continuing to market the property. There was nothing unreasonable about that view, and neither did it involve any illegitimate reasoning. Moreover it proved to be the correct approach, as ultimately the property sold for $1 million more. For that reason I cannot see any basis for contending that the first defendant acted inappropriately, or in breach of trust, in declining to accept this offer.

[117]   That is also so when Mr Easton made the offer on an unconditional basis on  5 October. By that stage the Higgins group was showing an interest in purchasing the farm, and in an email of 3 October Mr Hing had expressed the view that in light of the market interest the value of the property might be “closer to $9.5 million” which was a reason to go to tender. Moreover Mr Howie had earlier explained that Mr McErlean would be paying $44,000 per hectare on the on-sale arrangements with Mr Easton, and if this rate was applied to the whole farm its value was approximately $9.3 million.

[118]   Mr Easton’s further offer on 9 October was for $9.3 million. I accept that more can be said in Mr Easton’s favour in relation to this offer, particularly as it represented a figure which the first defendant had indicated it would be willing to consider the matter further. It was also a figure that the sisters had said they might agree to. But by this stage the first defendant knew of the interest of the Higgins group, and had also received information that suggested that Mr Easton’s on-sale to the Higgins group would be at a profit to Mr Easton. Mr Hing formed the view that there was no reason why Higgins group would not be prepared to make an offer for the farms directly to the first defendant. Not only was this relevant, but it is arguable that the first defendant would not be acting in accordance with its duties to agree to a sale to Mr Easton without making sure there was not an on-sale profit being earned by him. The decision to continue to go to market rather than accept Mr Easton’s offer was reasonable in the circumstances.

[119]   Moreover, again, it proved to be the right decision. The Higgins group subsequently offered the first defendant $10.128 million for the farm, albeit on condition that it acquired Mr Easton’s land as well. The first defendant then ultimately sold the farm to Mr McErlean for $9.8 million, higher than Mr Easton’s offer. Once again, therefore, I see no basis for saying that the first defendant acted inappropriately, or was in breach of trust, in declining Mr Easton’s offer. There were good reasons, soundly based, for doing so.

[120]   Finally, did the first defendant acted inappropriately, or in breach of trust, in deciding not to investigate further Mr Easton’s proposal that he purchase for $9.7 million, but instead proceed to confirm the sale to Mr McErlean for $9.8 million?

[121]   The documentary record of the reasons why the first defendant decided to proceed in this way can be found in Mr Hing’s email at 4.44 pm29 and his email at

6.05 pm30 provided in light of Mr Chan’s advice at 5.10 pm.31 There are a series of reasons why I conclude that these decisions were open to the first defendant. First there was a genuinely held scepticism that Mr Easton was in a position to make an

29     At [79] above.

30     At [83] above.

31     At [81] above.

offer at this level given that it was apparent that he needed an on-sale partner (either Mr McErlean, or the Higgins group) in order to achieve such a sale, and the first defendant had information that suggested he had no arrangement with either. Second, Mr McErlean’s offer was time sensitive — possession needed to be given the following day. There was a material risk that if it did not accept Mr McErlean’s offer he could withdraw it just as the Higgins group had that morning. In that context it was a relevant consideration for the first defendant that Mr Easton’s discussions with the Higgins group had resulted in the Higgins group withdrawing as a possible purchaser. The first defendant knew that Mr Easton had raised the water access issue, and had a legitimate concern that his dogged determination to acquire the farms might deter someone  like  Mr McErlean.  The  view  they  expressed  at  this  stage  was  that  Mr McErlean might be put off, or might come back at a lower price — or as Mr Hing put it in his email at 6.05 pm “[w]e probably will lose McErlean, take the tender and be facing a $9.0m outcome”. This was a legitimate view and justified the first defendant proceeding as it did.

[122]   Moreover it was also probably the right decision. Mr McErlean had put his best foot forward and offered $9.8 million because of his concern that the Higgins group might acquire the land. If he had known that the Higgins group had withdrawn their interest this incentive would have been removed.

[123]   I also do not accept Mr Parker’s argument that the first defendant was obliged to explore with Mr McErlean whether he would accommodate a short extension. The first defendant reasonably contemplated risk in taking such a step. The Higgins group had already withdrawn because of a perception that Mr Easton had caused difficulty with the sale. Accordingly the approach of the first defendant was understandable.

[124]   There may have been a possible deal under which Mr McErlean would only obtain the part of the farms that he most wanted, leaving the balance to Mr Easton. But as events had unfolded, particularly with the interest of the Higgins group, that was not the option that Mr Easton progressed. Mr Easton made the decision to discontinue his negotiations with Mr McErlean, and take up the discussions with the Higgins group. This is in part the reason why the events developed in the way that

they did. So the fact that this deal never came to fruition was at least partly due to  Mr Easton’s own making.

[125]   For these reasons I do not accept the decision made by the first defendant not to discuss Mr Easton’s offer further, but rather to accept Mr McErlean’s offer was not reasonably open to it, or that it involved inappropriate decision-making. I also do not accept Mr Parker’s argument that the first defendant was exhibiting a dogged refusal to entertain Mr Easton’s reasonable offers. On the contrary I accept on the evidence they gave the offers careful consideration.

Particular criticisms of the first defendant

[126]   Notwithstanding the above, it is appropriate to consider the matters that are raised to suggest that the first defendant did not make the decisions appropriately.  Mr Parker argued that the first defendant took into account irrelevant considerations, made a decision that was perverse and/or unreasonable, and that the decisions were motivated by bad faith.

Personal profit

[127]   First it is clear the first defendant formed the view that Mr Easton was attempting to make a personal profit from his proposals, particularly in relation to his arrangements with the Higgins group. This is particularly significant in relation to Mr Easton’s offer for $9.3 million. As Mr Hing reported the first defendant viewed this as including an attempt to “on-sell the land at a profit”.

[128]   I accept that there might be some criticism of the first defendant for forming these views without raising them directly with Mr Easton and his advisers. But I nevertheless accept that this was a legitimate concern for a trustee in the position of the first defendant, and that there was a basis for the view that there was a personal profit for Mr Easton arising from his offers involving the Higgins group. He had “allocated” the potential offer by the Higgins group at $11.605 million so that the Trust farm would receive $9 million and he would receive $3 million for his own farm. He perceived that as fair to the Trust because it corresponded to the advice on the market value of the Trust farm, with a higher price per hectare for his Home block justified

because of the greater infrastructure that it had to support the farm. But the price per hectare for his farm was significantly greater under this plan, and there were different perspectives on the value of his Home block. Most importantly the Higgins group itself was later only prepared to offer $1.678 million for the Home block rather than the $3 million Mr Easton had in his own mind (or the $2.3 million he counter-offered).

[129]   It was reasonably open for the first defendant to form the view, as it did, that the Higgins group could deal directly with the Trust to acquire  the farm, and that  Mr Easton did not need to be a go-between. That avoided any complications involving a suggestion of personal profit from Mr Easton’s contemplated on-sale, and still allowed Mr Easton to sell his own land if he wanted. That was a reasonable, and appropriate approach in the circumstances.

[130]   I accordingly do not accept Mr Parker’s submission that the first defendant acted unreasonably by taking no steps to address the apportionment of value between the Trust farm and the Home block. It could have attempted those discussions, but a reasonable alternative involved asking the Higgins group to offer directly for the Trust farm, and for Mr Easton to make his own arrangements for the sale of the Home block. That is effectively what the Higgins group subsequent offer to the first defendant contemplated.

[131]   Neither do I accept Mr Parker’s argument that the first defendant considered Mr Easton’s arrangements with the Higgins group were inconsistent with the parents’ wishes. Whether an arrangement that involved Mr Easton on-selling the farm to a third party was completely consistent with a memorandum of wishes can be debated. The reality is that it is not a circumstance expressly addressed by the memorandum. I agree, however, that it can be seen as consistent with the wishes to the extent that they were ultimately directed at Mr Easton being able to preserve his livelihood more than a desire to keep the farm within the family. But Mr Hing agreed that the on-sale was not inconsistent with the wishes. I do not accept the argument that the first defendant regarded that arrangement as being inconsistent with the parents’ wishes.

[132]   Neither do I accept Mr Parker’s related argument that the first defendant was motivated by bad faith by wishing to remove Mr Easton as the middle man. For the reasons explained this was an approach reasonably open to it.

Personal criticisms

[133]   The second related criticism is that it is apparent that the individuals involved in this matter for the defendants formed adverse views of Mr Easton. For example when considering Mr Easton’s final proposal Mr Nettleton indicated that Mr Easton’s conduct gave him “no confidence in the reliability of anything Ian puts forward” and Mr Hing had raised whether it was simply a “tactic” for him to challenge a sale to  Mr McErlean. There were other adverse views, including that Mr Easton’s proposed arrangements with the Higgins group were inconsistent with the idea of a family legacy, and Mr Hing’s comments in his email at 11.38 pm on 19 October.

[134]   Whilst there may be different perspectives on these criticisms of Mr Easton, they do not show a failure by the trustee to make appropriate decisions. This had become a highly contentious matter involving years of dispute. It was open for the trustee to view some of Mr Easton’s plans and negotiations with a degree of scepticism. He had tried to make an arrangement with the Higgins group that involved him on-selling the land at a higher price, effectively at the Trust’s expense. And his subsequent arguments with the group caused it to withdraw the proposal to purchase altogether.

[135]   Moreover in the end it is the actual decisions made by the first defendant and whether they were reasonably open to it that matter, notwithstanding any personal views of Mr Easton formed along the way. So I do not accept that these views mean that the decisions made were inappropriate.

The sisters’ views

[136]   The next argument is that the first defendant acted inappropriately in seeking to get the sisters agreement to the sale, and that they did so after the first defendant had provided advice to them that made them adverse to any agreement being reached with Mr Easton. I do not accept the validity of these criticisms. In the highly

contentious circumstances involved it was obvious that the first defendant would at least try to seek agreement of all three beneficiaries. The first defendant acted properly in consulting with the sisters with that objective. The trustee also properly provided its views about the proposals as part of this consultation. I do not accept Mr Parker’s argument that the sisters’ views were an irrelevant consideration.

[137]   I also do not accept that the first defendant was proceeding on the basis that they were obliged to obtain their consent before acting. As Mr Hing said in evidence, and as recorded in the contemporaneous documents, the first defendant was aware that the sisters could have unreasonable views. For that reason, had it come to it, I am satisfied that the first defendant would have made a decision without the sisters agreeing if the first defendant had viewed it as the appropriate decision.

[138]   The ultimate decision was the product of the views of a number of individuals. The views of Mr Hing were obviously important, but he was also receiving advice from Mr Chan and Mr Nettleton. Ultimately the directors of the first defendant would also need to approve the decision. Within that decision-making framework I am satisfied that the first defendant did what it thought was in the best interests of the Trust, recognising what the parents’ wishes were, and in light of the advice that it had received.

Commission

[139]   The next argument is that the first defendant did not make arrangements that avoided Mr Easton having to pay a real estate commission on any sale to him, and also failed to disclose the commission arrangements notwithstanding that Mr Easton’s offers were being made on the assumption that no such commission would be payable.

[140]   I do not accept that this involved any failure by the first defendant to act appropriately, or that it affected the legitimacy of the decision it ultimately made. Initially there were arrangements with the real estate agent that contemplated a reduced commission if Mr Easton was the buyer. The very fact that such a reduced commission arrangement was negotiated demonstrates that the first defendant treated Mr Easton as a viable purchaser. I do not accept that it was unreasonable for the first defendant not to negotiate an arrangement that excluded commission. The first

defendant was entitled to negotiate arrangements with the real estate agent that it thought to be most appropriate for the Trust overall.

[141]   I do not agree with the first defendant’s argument that it informed Mr Easton that commission was payable. There is a possible reference to such advice being given to Ms Harper in one of Mr Chan’s documents, but Mr Chan did not give evidence and when Ms Harper was asked she said she was not told. Moreover the offers Mr Easton then made assumed no commission was payable, so it is apparent Mr Easton and his advisers were not told of the need to pay commission.

[142]   I accept that the first defendant can be criticised for not advising Mr Easton of the commission arrangements. But it ultimately did not matter — the first defendant effectively assumed in its decision-making that Mr Easton would top up his offers to meet the commission he had not factored in. So when responding to his last proposal for $9.7 million Mr Hing  commented  that  “commission  cannot  be  voided  so  [Mr Easton’s offer] must be $9.8m”. In my view, had it mattered, the first defendant would have reverted to Mr Easton to obtain the extra amount. But it did not matter. Mr Easton’s offers and proposals were not declined because of this factor.

The position overall

[143]   More generally I do not accept the plaintiff’s arguments that the first defendant treated Mr Easton as “their enemy”, or that the first defendant exhibited a dogged refusal to entertain Mr Easton’s reasonable proposals. Neither did the first defendant impede Mr Easton in making offers. Throughout the process the first defendant sought to manage a difficult situation as well as it could. It treated Mr Easton’s proposals appropriately, taking into account the desirability of him acquiring the farm if he could, but recognising that the other beneficiaries could not be prejudiced by an offer being accepted that reflected less than the proper value of the farm.

[144]   For all the above reasons I do not accept the plaintiff’s argument that the first defendant acted in breach of trust.

Dishonesty

[145]   The above conclusions are sufficient to dismiss the plaintiff’s claims against the first defendant for breach of trust. But the second element to establish a breach of trust is that the plaintiff needs to establish dishonesty. I will only deal with this element briefly given the conclusions above.

[146]There is a provision in the Trust Deed limiting liability. It provides:

20.0 Trustees’ indemnity except for fraud

No Trustee shall be liable for.

(a)Any loss not attributable to dishonesty or to the wilful commission by the Trustee of any act known to the Trustee to be a breach of trust; or

(b)The neglect or default of any solicitor, bank, accountant, auditor, stockbroker, investment advisor or other agent employed in good faith by the Trustee; or

(c)Any claim made against the Trustee by any beneficiary or any creditor or any other person having any claim against the Trust Fund which cannot be satisfied because of any resettlement or other distribution of any or all the Trust Fund to any Discretionary Beneficiary;

AND in particular no Trustee shall be bound to take any proceedings against a co-trustee or former Trustee for any breach or alleged breach of trust committed by such co-trustee or former Trustee.

[147]Section 73 of the Trustee Act 1956 also provides:

73       Power to relieve trustee from personal liability

If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed the breach, then the court may relieve him either wholly or partly from personal liability for the same.

[148]   In Spencer v Spencer the Court of Appeal confirmed that dishonesty has a particular meaning in the context of allegations against a trustee. The Court said:32

32     Spencer v Spencer [2013] NZCA 449, [2014] 2 NZLR 190.

[131] We conclude that in New Zealand, the assessment of a trustee’s honesty comprises both subjective and objective elements. A critical first step is to establish what the trustee actually knew about the terms of the trust relevant to the breach alleged and whether the trustee knew that the impugned conduct amounted to a breach of trust. The trustee’s knowledge might include constructive knowledge arising from wilful blindness in the sense described in Westpac although we do not need to determine that in this case. The second step requires an assessment of whether, in the light of what the trustee knew, he or she acted in the way an honest person would in the circumstances. This is to be assessed on an objective basis. A trustee who believes his or her actions or omissions were in the best interests of the beneficiaries will not necessarily be entitled to protection.

[149]   Here I have no hesitation in concluding that the first defendant acted in a way an honest trustee would act in the circumstances. The first defendant dealt with a difficult situation, and addressed the conflicting interests in the way that the Trust Deed contemplated, and it did not do so inappropriately.

Recoverable damages

[150]   Finally I briefly address the first defendant’s arguments that the plaintiff would not be entitled to recover the claimed losses in any event. I do not address the causation arguments that have been advanced in the absence of finding a recoverable breach. But I do address, at least in a preliminary way, the first defendant’s argument that the consequential losses claimed by the plaintiff are not recoverable as a matter of principle.

[151]   In essence the first defendant’s argument is that damages for breach of trust are limited to the amount that is necessary to restore the trust fund. Consequential losses are not recoverable. Whilst a number of texts and authorities were referred to, for present purposes it may be sufficient to refer  to  Bank  of  New  Zealand  v  The  New Zealand Guardian Trust Co Ltd where Fisher J described the position in the following way:33

For an action founded upon breach of trust, there would seem to be a relevant loss to the trust estate wherever there has been a diminution in the value of the property directly or constructively held on trust. In those circumstances a defaulting trustee must restore the lost trust property in specie or provide its equivalent in equitable compensation: …

33     Bank of New Zealand v The New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 213 (HC) at 244–245.

As [the] authorities indicate, a beneficiary alleging breach of trust is not required to satisfy the “close nexus” requirements of substantial causation, reasonable foreseeability, or other rules of remoteness discussed earlier. But it is still a case of restoring to the trust that trust property lost to the trust estate by the trustee’s breach or its financial equivalent. Even where the trustee has profited from a breach of trust (not alleged here) the remedy is no more than the enforcement of a particular form of trust extending to property which for present purposes is deemed to have been acquired on the beneficiaries’ behalf. Even there, it is therefore a particular form of restoration of a deficiency caused to the trust estate. It is not a remedy for independent losses suffered personally by one or more of the beneficiaries.

[152]He also said:34

Where there is a conventional trust deed without more, it would usually seem reasonable to infer that the risk for which the trustee was to be responsible was loss to the trust estate. Something positive in the terms of the trust, or in the course of dealing between the parties, would normally seem necessary before it would be reasonable to impose upon the trustee the additional responsibility of protecting beneficiaries against personal losses extraneous to the trust estate.

[153]   But without deciding the point, this all depends on the terms of the Trust and the circumstances. What Fisher J said was in relation to “a conventional trust deed without more”. If the terms of the trust contemplate giving the beneficiary a particular benefit, and that does not happen because of a breach of trust, a rule that damages are limited to restoring whatever deficiency there is in the trust fund may not be appropriate. The trust fund may remain fully intact, but the benefit to the beneficiary may not have been given, and the failure may have caused the beneficiary loss. The test for identifying the loss, and accordingly the damages, might not be confined to restoring the fund in those circumstances.

[154]   It needs to be remembered there is a very high threshold for recovery against a trustee. There must not only be a breach of trust, but the breach of trust must be dishonest (albeit on the partly subjective, partly objective test). I am not convinced that there is any policy justification, or sound reason in principle, not to award damages for consequential losses if they are directly caused by a dishonest breach of trust in the circumstances I have just described.

34     At p 248.

Further cause of action: Shareholder oppression

[155]   The plaintiff’s alternative cause of action is for shareholder oppression under s 174 of the Companies Act 1993. It was not the primary focus of the plaintiff’s case, but it remains necessary to address the claim.

[156]   The approach adopted to claims for shareholder oppression is well settled, and essentially involves application of the approach described by the Court of Appeal in Thomas v H W Thomas Ltd.35 Mr Easton was a shareholder in IEL, and he claims he suffered prejudice as a result of the actions taken by the other shareholders — primarily the first defendant — because of the decision to sell the principal asset of the company, being its interest in the family farm.

[157]   It is noteworthy that the claim only arises in relation to IEL and not IGBML given that Mr Easton was not a shareholder in IGBML.

[158]   I accept that Mr Easton is able to advance such a claim notwithstanding that he is a 76.8 per cent shareholder in the B shares of IEL. The B shares reflected the equity interests in the company. But they were non-voting shares. The day to day control of the company was vested in the holders of the A shares. The first defendant owned all the A shares, and had control of the company, and that control could give rise to oppression of the other shareholders under s 174. Section 174 makes no reference to the claiming shareholder being a “minority” shareholder. In Sturgess v Dunphy the Court of Appeal observed that relief under s 174 was available to majority shareholders if the relevant defendant had “the capacity, as a matter of fact and law, to behave in a manner that oppressed the majority shareholders”.36

[159]   But I do not accept the plaintiff’s argument that any oppression within the meaning of s 174 arose in this case, essentially for the reasons already addressed. It is well established that claims under this section must be considered in light of all the facts and circumstances. Here the company acted as a vehicle in an overall structure, with the terms of the Trust, including the discretionary powers of the trustees

35     Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (CA). See also Latimer Holdings Ltd v Sea Holdings Ltd [2005] 2 NZLR 328 (CA).

36     Sturgess v Dunphy [2014] NZCA 266 at [136].

governing the relationship between the parties. The existence of companies as separate legal entities performing functions within the overall structure means that company law principles cannot be ignored. An independent director, Mr Nettleton, had been appointed to ensure that the relevant company law principles were applied. But the need to consider all the relevant circumstances for the purposes of shareholder oppression claims means that the terms of the Trust, and the proper exercise of trustee powers under that Trust, are decisive in this case. If the conduct complained of involved the legitimate exercise of powers in the manner contemplated by the Trust, I cannot see how the plaintiff can sustain a claim that that action amounts to illegitimate shareholder oppression that was not permitted. That is particularly so when the terms of the Trust required equal treatment of the three beneficiaries. Decisions made by the trustees in furtherance of the obligations of the Trust, including the requirement for equal treatment, cannot be stifled by the application of s 174.

[160]   I also cannot identify any conduct by the second defendant (or the other defendants) that could be said to involve unfair treatment of Mr Easton as a shareholder that was not conduct in furtherance of the terms or legitimate objects and purposes of the Trust. For this reason the claim for oppression also fails.

Conclusion

[161]   For the above reasons the plaintiff’s claims are dismissed. The proceeding is otherwise adjourned for the purposes of addressing the remaining distribution issues, although the Court has been advised that it is unlikely that it will be required to determine any such issues.

[162]   Mr Easton was 15 when he left school and joined his father on the farm. They worked together on the farm until his father was no longer able to, and Mr Easton worked on the farm by himself from that time. Mr Easton and his wife moved into the Home Block house in 1971 or 1972. As a result of the decisions challenged in this case he was required to stop farming the family farm, and they ultimately sold the Home Block. That was an unfortunate end to a farming career, but in the end it was a consequence of the decision of Mr Easton’s parents that their assets would be divided equally between the three children. The terms of the Trust, and the memorandum of wishes, only gave Mr Easton a chance to be able to acquire the farm if he could afford

to do so after a period of ten years. The memorandum of wishes referred to this as a hope. But he could not afford to do so even after 17 years, and he needed a partner in order to make any proposal. In the end one of his prospective partners purchased the farm.

[163]   In his evidence Mr Easton referred to promises he said that his parents, and particularly his father had made that his work on the farm would be recognised in a greater share of the parents’ assets, and that he expected to carry on farming on the family farm. With the exception of his inheritance of the Home block that was not the effect of his parents’ decisions reflected in the terms of the will, the memorandum of wishes, and the terms of the Trust. Mr Easton expressed some surprise and disappointment at some of his parents’ decisions when he became aware of them. But this was ultimately the issue, and the problem that came to a head in this case was the very problem the parents foresaw in the memorandum of wishes, although they may not have appreciated the full extent of the disputes that would subsequently emerge because of it.

[164]   Ultimately the plaintiff’s claims must be dismissed. The defendants will also be entitled to costs, although there may need to be some allowance in relation to the costs of the arguments concerning privilege that need to be taken into account. If costs cannot be resolved I will receive a memorandum outlining the claim for costs (no more than 10 pages plus a schedule) which should be responded to within 10 working days by memorandum in response (no more than 10 pages plus a schedule).

Cooke J

Solicitors:

Parker & Associates, Wellington for the Plaintiff/Applicant Carlile Dowling, Napier for the Defendants/Respondents