Espie v Espie
[2016] NZHC 2045
•31 August 2016
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2015-442-45 [2016] NZHC 2045
IN THE MATTER OF the Trustee Act 1956 BETWEEN
ROBIN GREY ESPIE Plaintiff
AND
PETER ROSS ESPIE First Defendant
ALEXANDER JAMES JEREMY GLASGOW
Second Defendant
Hearing: 26 August 2016 Counsel:
A G Stallard for plaintiff
No appearance for first defendant
No appearance for second defendant (attendance excused)Judgment:
31 August 2016
RESERVED JUDGMENT OF CULL J
Introduction
[1] The first defendant is a trustee of the Espie Family Trust (the Trust), which was settled on 1 November 1999 and which is the registered proprietor of a property situated at 4 Rotoiti Street, St Arnaud, Tasman District (the bach).
[2] The other trustee is Mr Glasgow, a solicitor and independent trustee. The discretionary beneficiaries are the plaintiff, his three adult children and the first defendant.
[3] An issue has arisen between the plaintiff and the first defendant as to the future administration of the bach. The bach is in a state of significant disrepair, there
ESPIE v ESPIE [2016] NZHC 2045 [31 August 2016]
are outstanding arrears of rates and insurance premia, and the insurance policy has lapsed.
[4] The proceedings filed on 24 August 2015 seek orders pursuant to s 51(2)(a) of the Trustee Act 1956 (the Act) removing the first defendant as a trustee of the Trust and an order pursuant to s 51(2) of the Act that the plaintiff be appointed as a substituted trustee.
[5] The first defendant was served with the proceedings on 10 September 2015 and he has taken no steps.
Relevant history
[6] At the date of settlement of the Trust on 1 November 1999, there were three trustees of the Trust. They were Mrs Jean Espie, now deceased, her son (the first defendant), and Mr Glasgow, a solicitor.
[7] The appointors in terms of the deed of trust were the three trustees acting jointly. The discretionary beneficiaries under the deed of trust were Mrs Jean Espie and her two sons (the plaintiff and the first defendant), together with their children. The plaintiff is the brother of the first defendant and a beneficiary of the Trust. He is also the father of three of the discretionary beneficiaries of the Trust.
[8] The only asset of the Trust is the bach, being the former family bach, which was left in the Trust for the benefit of the family. Being the only asset of the Trust, there was no additional fund to carry out maintenance and repairs, or pay rates and insurance.
[9] On the death of Mrs Espie, the first defendant became responsible for maintaining the bach and paying outgoings out of his own funds. The first defendant lives in Dunedin and the plaintiff lives in Auckland. The bach was not occupied, nor was it tenanted to generate income. There was evidence provided by way of email dated 2 March 2015 that the first defendant had communicated with his fellow trustee, Mr Glasgow, advising that he had visited the property and undertaken maintenance, as well as paying for tree cutting under power lines and re-roofing the
garage. He referred to having paid the rates for the Trust for many years and disagreed with a proposition that the plaintiff should be appointed as a trustee, because the plaintiff ’s primary interest in the bach was extracting capital. This email exchange between the first defendant and Mr Glasgow forms part of the on-going correspondence from January 2011 to 19 October 2015 among the trustees respectively and the plaintiff about the need to pay the electricity and other unpaid accounts for rates and insurance, as well as the need to undertake maintenance on the property.
[10] The affidavit of the plaintiff, filed in support of the proceedings, explains that he issued proceedings with extreme reluctance after years of broken promises and inaction on the part of his brother. One of his motivations in bringing the claim was to ensure that his children receive a good start in life, free from the burden of having to repay student loans, as they start out in their working lives.
[11] The plaintiff obtained the opinion of a restoration architect, Mr Bowman, who has inspected the condition of the bach and is of the opinion that remedial works are necessary to prevent existing defects worsening. Mr Bowman’s report dated 12 September 2015 was produced at the hearing. Mr Bowman concluded that the bach has had little or no maintenance for possibly 10 to 20 years. He was of the opinion that the bach was at a stage where, if no maintenance is carried out within a year, deterioration will accelerate at an increasing rate and costs will rise significantly. Mr Bowman had previously inspected the bach on 30 April 2013 and observed its condition had visibly worsened in the two and a half years between inspections, with the porch canopy having collapsed, more extensive paint peeling and a greater extent of rusting of the stove projection. He made a number of recommendations to ensure that the building was weathertight and that all rot was removed. He recommended that:
· the bach be re-piled within one year;
· the roof is replaced within five years, with appropriate flashings between the gable and lean-to roof;
· the exterior timber work should be stripped back to bare timber and re-painted within one year;
· the projection for the stove is removed and the area re-weatherboarded;
and
· the ground lowered at the back of the bach to at least 300 millimetres below the floor level.
[12] Once those repairs were undertaken, Mr Bowman observed that the interior could then be upgraded. If the stove projection was removed as recommended, the kitchen would also need to be re-planned.
[13] The plaintiff sought a market valuation of the bach. As at 19 April 2012, the valuation was assessed at $310,000 including GST. Mr Stallard, counsel for the plaintiff, advised the Court that the current government valuation of the property is
$315,000, with a land value of $230,000 and improvements of $85,000.
[14] However, the bach was uninsured, as the insurance policy had lapsed. The plaintiff produced the rates invoice and the historical rating information for the property. The invoice shows arrears in the sum of $4,647.30 and the annual rate instalment due for payment by 22 August 2016 is $2,774.40.
[15] The plaintiff deposed that although the first defendant has made numerous promises and “statements of intent” since 2009, without following anything through to actual sale, he has never unequivocally stated that he does not want to sell the bach. At the time of swearing his affidavit in 2015, the plaintiff observed that the bach was full of the first defendant’s personal items. He expressed his frustration at the first defendant’s lack of action, observing that if his brother had taken a proactive approach to the issues, there could have been a solution which could have satisfied the rest of the family. He cited, as an example, that the deed of trust authorised the trustees to borrow money and redevelop the site but there was no willingness by the first defendant to take any steps.
[16] In addition to his affidavit, the plaintiff appeared in support of the orders sought. He had not received any correspondence from the first defendant, nor had the first defendant taken any step in the proceeding. The plaintiff has received copies of the correspondence between Mr Glasgow and the first defendant.
[17] The plaintiff explained that the future intention of the trustees was to borrow money to pay the insurance and any other essential outgoings, which will enable the trustees to list the property for sale and distribute the assets of the Trust in accordance with the provisions of the deed of trust.
[18] Although I did not hear from Mr Glasgow, the plaintiff has deposed that Mr Glasgow is in favour of the plaintiff becoming a trustee of the Trust and that he took steps to persuade the first defendant that it was commercially realistic for the bach to be sold and the net sale proceeds distributed. Mr Lawes, counsel for Mr Glasgow, confirmed by memorandum that Mr Glasgow does not oppose the orders sought.
The proceedings
[19] The statement of claim pleads three causes of action:
(a) removal of the first defendant as a trustee pursuant to s 51(2)(a) of the
Act on the grounds of misconduct in the administration of the Trust;
(b)breach of trust on the grounds of lack of agreement between the trustees, resulting in dysfunction;
(c) breach of trust on the part of the first defendant by inaction.
[20] The relief sought has been framed in the alternative, namely orders pursuant to s 51 of the Act that the first defendant be removed as a trustee and the plaintiff be appointed as a substitute, or an order pursuant to s 64 of the Act directing that the bach be sold forthwith.
[21] Mr Stallard advised the Court that it was unnecessary to address the order for sale because the trustees will need to consider a number of matters relating to the bach, before it is listed for sale. He sought the orders under s 51 of the Act as pleaded.
[22] The proceedings were issued on 24 August 2015. An affidavit of service deposed that the first defendant was personally served with the proceedings on
10 September 2015 at his home in Dunedin. The process server arranged to meet the first defendant, who confirmed his identity to the process server and signed for the documents. The plaintiff confirmed that no further information or correspondence had been received from the first defendant since the date of service of the proceedings.
[23] I am satisfied that the appropriate steps have been taken to engage with the first defendant in order to progress matters concerning the bach, prior to the proceedings being issued. I am also satisfied that the proceedings have been served on the first defendant and no steps have been taken by him, despite the lapse of almost one year. It is necessary to deal with the issue of the removal of the first defendant as a trustee of the Trust in the interests of the beneficiaries.
Jurisdiction to remove trustees
[24] The jurisdiction of the High Court in trust matters derives from the Court’s inherent jurisdiction and from statute. The Court of Appeal has helpfully summarised the position in Clarke v Karaitiana:1
The jurisdiction of the High Court in the field of trusts is both statutory and inherent. The inherent jurisdiction is derived from the Court’s general supervisory powers in equity relating to the supervision of trusts for the welfare of beneficiaries.2 The inherent jurisdiction of the Court includes the power to enable it to act effectively within its jurisdiction.3 The Court may exercise its inherent jurisdiction even in respect of matters which are regulated by statute, so long as it can do so without contravening any statutory provision.4
1 Clarke v Karaitiana [2011] NZCA 154, [2011] NZAR 370 at [38].
2 Kain v Hutton CA23/01, 25 July 2002.
3 R v Connelly [1964] AC 1254 at 1301 (HL).
4 Taylor v Attorney-General [1975] 2 NZLR 675 (CA) at 680; Donselaar v Mosen [1976] 2 NZLR
191 (CA) at 192; Schier v Removal Review Authority [1999] 1 NZLR 703 (CA).
[25] The importance of the objective of the welfare of beneficiaries has been recognised in such cases as Letterstedt v Broers, where Lord Blackburn said:5
In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle … that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependent on details often of great nicety. …
[26] Brown J in Dawson v Paul,6 in applying the above two authorities, heard a without notice interlocutory application to remove and substitute a trustee and made orders in reliance both upon s 51(2)(d) and on the Court’s inherent jurisdiction, where the defendant trustee was made bankrupt and had taken no steps in the proceeding.
[27] The present case concerns a trustee who has been inactive in dealing with the administration, upkeep and potential sale of the Trust’s only asset. Section 51(2)(a) provides a ground for removal, where a trustee has misconducted himself in the administration of the trust.
[28] Section 51(1) of the Act provides that an order may be made appointing a new trustee:
… whenever it is expedient to appoint a new trustee … and it is found inexpedient, difficult, or impracticable so to do without the assistance of the court, [the court may] make an order appointing a new trustee … in substitution for … any existing trustee …
[29] The Court has jurisdiction to remove a trustee where friction of personalities or honest differences of opinion make it difficult for a trustee to act in the interests of the beneficiary, where there has been no misconduct on the part of the trustee.7 The Court of Appeal in Mendelssohn v Centrepoint Community Growth Trust found that, as a general principle, it is the Court’s task under s 51(1) to appoint the person best
suited to administer the trust in the circumstances prevailing.8
5 Letterstedt v Broers (1884) 9 App Cas 371 (PC) at 387.
6 Dawson v Paul [2014] NZHC 15, [2014] 2 NZLR 689.
7 Plumley v Plumley (1979) 3 MPC 139 (SC).
8 Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA) at 97.
[30] The plaintiff is a qualified barrister and solicitor, who was admitted in 1998 and commenced practice as a sole practitioner in 1998. He holds diplomas in business, both in finance and marketing. He is well suited to performing the duties of a trustee, from both his training and experience.
[31] There are other examples where the Court is likely to remove trustees where a trust has not been operated in a satisfactory manner for a number of years and where trustees refused to act in a reasonable and co-operative manner with other trustees.9
Decision
[32] This case has proceeded by way of formal proof, with the plaintiff providing affidavit and viva voce evidence. On reviewing the evidence adduced, together with the additional exhibits provided, I am satisfied that there is an urgent need to deal with the asset of the Trust in order to preserve the maximum return to the beneficiaries. Adopting the words of Lord Blackburn, the Court is guided by the concern for the beneficiaries’ welfare in removing the first defendant as a trustee here.
[33] In making the orders for removal and substitution of trustees, I am persuaded by the following factors:
(a) there can be no further delay in remedying the outstanding issues in relation to the deteriorating Trust property, namely the payment of outstanding rates arrears and insuring the property; undertaking such remedial work as is needed to ready the bach for sale; and/or such other steps to preserve the value of the Trust asset;
(b)the first defendant has taken no steps in his position as co-trustee to discharge his duties as a trustee of the Trust;
9 Attorney-General v Ngati Karewa and Ngati Tahinga Trust HC Auckland M2073/99,
5 November 2001; Re Chiswell HC Auckland M770/99, 4 June 1999.
(c) the first defendant has failed to engage and/or respond appropriately to his co-trustee’s requests to undertake steps in relation to the Trust asset and consequently is not an appropriate person to remain as a trustee of the Trust;
(d)the first defendant has been served with these court proceedings to remove him as a trustee but has failed to take any step in the proceedings and refrained from making any communication with either his co-trustee or the plaintiff.
[34] Consequently, orders are made pursuant to s 51(1) and (2)(a) of the Trustee
Act 1956 and the Court’s inherent jurisdiction:
(a) removing the first defendant as a trustee of the Trust; and
(b)appointing the plaintiff, Robin Grey Espie, of Whangaparaoa, solicitor as a trustee of the Trust in substitution for the first defendant.
[35] Leave is reserved to apply in the event that any consequential direction is required.
[36] The plaintiff does not pursue any application for costs in these circumstances.
Cull J
Solicitors:
Garry Pollak, Auckland for plaintiff
Glasgow Harley Lawyers, Nelson for defendants
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