Forgan v Lee
[2025] NZHC 2310
•6 August 2025
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2025-409-175
[2025] NZHC 2310
UNDER the Trusts Act 2019 and in the Court’s inherent jurisdiction IN THE MATTER
of the Blackwood Bay Trust and the Snowden Trust
BETWEEN
REBECCA LUCY FORGAN
Plaintiff
AND
ARTHUR MATHEWSON LEE and
ROBYN ANDREA LEE (as trustees of the Blackwood Bay Trust)
First DefendantAND
ARTHUR MATHEWSON LEE and
ROBYN ANDREA LEE (as trustees of the Snowden Trust)
Second Defendants
Hearing: 6 August 2025 Appearance:
J M McGuigan and J I Taylor for Plaintiff
Judgment:
6 August 2025
ORAL JUDGMENT OF OSBORNE J
Introduction
[1] This case concerns two family trusts of which the settlor’s wife and their son are the trustees. As trustees, they have had the duties set out in pt 3 of the Trusts Act 2019 and (before its operation) under the Trustee Act 1956 and in equity.
FORGAN v LEE [2025] NZHC 2310 [6 August 2025]
[2] Regrettably, the two trusts have not been administered in accordance with the trustees’ duties. There have been serious breaches of duties on the part of one of the trustees, in particular through failure to avoid his conflict of interest and through exercising powers for his own benefit in relation to one of the trusts. In relation to both trusts, there have been breaches by both trustees of their duty to act for the benefit of the beneficiaries. Substantial losses for the trusts, through those breaches, appear inevitable.
[3] By this proceeding a beneficiary of the trust seeks the removal of the trustees from the trusts and the appointment of a professional trustee as trustee.
[4]The plaintiff’s claims are before me for formal proof.
[5] Comprehensive evidence has been filed. The need for the orders sought is manifest.
Blackwood Bay Trust
[6] The Blackwood Bay Trust was settled by David Lee by deed on 19 April 1973. David Lee is now aged 84 and has been diagnosed with early stage dementia. The current trustees of the Blackwood Bay Trust are David’s wife, Robyn Lee, and their son Arthur Lee.
[7] The trust is a traditional family trust and its beneficiaries include David’s and Robyn’s daughter (Arthur’s sister), Rebecca Forgan, who is the plaintiff. The trust remains a discretionary trust. On final distribution the assets will be held equally for Rebecca and Arthur on a hotchpot basis.
[8] The Blackwood Bay Trust has owned, since December 2003, a property at Blackwood Bay in the Marlborough Sounds.
Snowden Trust
[9] The Snowden Trust was settled by David and Robyn Lee by deed on 3 May 2016. The current trustees are Robyn and Arthur Lee. The Snowden Trust is a
traditional family trust. Rebecca Forgan is one of the discretionary beneficiaries and, on final distribution, the assets will similarly be held equally for Rebecca and Arthur.
[10] At the time this proceeding was commenced, the Snowden Trust owned two properties, being:
(a)Wai-iti Terrace, Christchurch (the residence in which David and Robyn resided); and
(b)a residence in Fendalton Road, where Arthur lived with his wife and children.
This proceeding to date
[11] The plaintiff commenced this proceeding by filing on 17 April 2025, a without notice interlocutory application for an interim injunction. Dunningham J granted the application the next day. The principal effect of the interim injunction was to prohibit Robyn and Arthur Lee, as the defendants, from exercising any powers over Blackwood Bay, Wai-iti Terrace or Fendalton Road or in relation to the assets of the two Trusts. The interlocutory application was directed to then proceed on an on-notice basis. The defendants were served. At the first call, both defendants were represented by Mr S Cottrell. The plaintiff had requested access to trust documents and financial information. Counsel advised the Court the parties were working to satisfy those requests. The proceeding was for call again on 5 May 2025.
[12] When the proceeding was again called there was no appearance for the defendants. Directions were made for the filing of a (pre-commencement) discovery application. On the following day Mr Cottrell filed a memorandum seeking leave to withdraw—he explained the defendants lacked the resources to instruct him or anyone else.
[13] The defendants subsequently provided to the plaintiff some documentation but declined to provide important documents relating to guarantees the defendants had given over the debts of a company owned by Arthur Lee, Thermatech Ltd (Thermatech).
[14] On 9 May 2025, Associate Judge Lester granted the plaintiff’s application for pre-commencement discovery, within three working days, of Thermatech’s financial statements and documents showing its asset and liability position.1
[15] On 23 May 2025 the Court made directions in relation to the substantive proceeding.
[16] By 13 June 2025 the parties had agreed the Fendalton Road property should be listed for sale and counsel jointly sought an amendment to the interim injunction to permit the defendants to deal with the Fendalton Road property with the written agreement of the Plaintiff.
[17] In the meantime, the plaintiff had filed and served a statement of claim seeking the removal of the defendants as trustees and the appointment of an independent professional trustee. On 23 June 2025, the plaintiff filed and served an amended statement of claim, altering the relief sought in relation to the Snowden Trust to the removal of the trustees and the appointment of receivers to that trust—it had not been possible, because of the financial liabilities of that trust, to identify a willing professional trustee. (That situation has since reversed, with the sale of Wai-iti Terrace and Fendalton Road, as explained below at [39]–[40]).
[18] On 27 June 2025, Mr Cottrell (notwithstanding his earlier intention to withdraw) filed a memorandum in response to the amended statement of claim. The memorandum contained submissions against the appointment of receivers to the Snowden Trust. The defendants had not filed a defence to either the original statement of claim or the amended statement of claim. The defendants had not fully complied with the order for pre-commencement discovery.
[19] On 1 July 2025, Associate Judge Lester made directions for the defendants’ statement of defence to be filed by 11 July 2025. He reminded the defendants of their obligation to comply with the pre-commencement discovery order. The Judge recorded the directions were made on an unless basis—if they were not complied with, the plaintiff was entitled to apply for judgment by formal proof.
1 Forgan v Lee [2025] NZHC 1121.
[20] On 1 July 2025 the plaintiff filed and served a second amended statement of claim. Subsequent references in this judgment to the plaintiff’s “statement of claim” are to the plaintiff’s second amended statement of claim.
[21] In the period that followed, the defendants still failed to provide full discovery. On 14 July 2025, Associate Judge Lester by Minute confirmed the unless order had come into effect and made an order the defendants were debarred from defending this proceeding. The Judge ordered the defendants to pay to the plaintiff the costs of the interlocutory application on a solicitor-client basis.
The plaintiff’s causes of action
[22]The plaintiff pleads two causes of action, one in relation to each trust.
Borrowings and securities
The pleadings
[23] The plaintiff pleads in detail the way in which Arthur (with the co-operation of Robyn) has been using the assets of the trusts to effectively prop up the substantial financial difficulties of Thermatech. With such financial information relating to the trusts and Thermatech as the plaintiff has now been provided, the plaintiff in the statement of claim refers to information from Thermatech’s records (in particular for 2024) indicating:
(a)Thermatech made losses in 2023 and 2024;
(b)Thermatech’s liabilities exceed its assets by $750,000;
(c)drawings in excess of $150,000 had been made in the financial year ending 31 March 2024;
(d)the shareholders’ current account was overdrawn by $466,388; and
(e)there is a substantial loan balance owing to the plaintiff.
[24] The plaintiff pleads the defendants have caused the Blackwood Bay Trust, between 2019 and 2025, to provide guarantees for Thermatech loans to six non-bank lenders. The plaintiff pleads the defendants have granted mortgage security for those guarantees over the Wai-iti Terrace and Fendalton Road properties. And latterly have borrowed funds of approximately $2.5 million directly for Thermatech’s benefit. The statement of claim particularises each of the relevant transactions.
[25] The statement of claim identifies Thermatech has not serviced several of the loans.
[26] The plaintiff also pleads the defendants have made repeated requests to her to subordinate a first ranking mortgage she holds over the Blackwood Bay property to enable further borrowing with a priority sum of $600,000 to be secured against the property.
[27] The plaintiff pleads General Finance Ltd, as mortgagee, in February 2025 issued notices of default under the Property Law Act 2007 (PLA) in respect of loans secured over the Wai-iti Terrace and Fendalton Road properties. The consequence of a sale of the properties would be that David and Robyn would be without a home. The plaintiff pleads she had until recently been largely unaware of the trustees’ dealings with trust assets but in April 2025 she had become aware that:
(a)Arthur and/or Thermatech had accrued over $3 million in debt, secured against the Wai-iti Terrace and Fendalton Road properties;
(b)Arthur had not been servicing that debt;
(c)the PLA notices had been issued over the Wai-iti Terrace and Fendalton Road properties; and
(d)the defendants were intending to obtain further borrowing over Blackwood Bay, including by subordinating the plaintiff’s security interest.
Blackwood Bay Trust
[28]Upon the basis of those matters, the plaintiff pleads:
(a)The trustees (and particularly Arthur) have acted in a self-interested manner and contrary to the best interests of the beneficiaries by using trust assets as security for Arthur’s personal and company borrowing.
(b)The trustees have recklessly used trust assets, caused the dissipation of significant trust equity and endangered the home of Robyn and David, who are vulnerable.
(c)The trustees have either refused to obtain legal advice or refused to follow legal advice in providing guarantees of Thermatech’s loans.
(d)The trustees appear to have been administering the Snowden Trust without having the deed or knowing the terms of that trust.
(e)Arthur is in a position of conflict as a trustee of the Trust given his personal interest in Thermatech. Arthur owns and operates Thermatech, is a personal guarantor of Thermatech’s debts, and planned to borrow further funds against Trust property to meet Thermatech’s debts.
(f)The trustees have unreasonably withheld and/or delayed providing relevant trust information to the plaintiff beneficiary, despite urgent steps being needed to preserve equity in the Trust.
(g)Arthur has failed to provide accurate and up to date information about Thermatech’s financial position despite court orders requiring him to do so.
(h)The trustees have sought to pressure the plaintiff into subordinating her first ranking mortgage which is clearly contrary to her interests.
(i)A responsible trustee is urgently required to:
(i)take control of trust assets; and
(ii)preserve as much equity in the Trust as possible.
[29] The plaintiff identified Covisory Trust No.2 Limited (Covisory) as a professional trustee willing to accept appointment as a replacement trustee of the Blackwood Bay Trust. Covisory is a subsidiary of Covisory Trust Services Ltd, whose directors include Marcus Diprose, a lawyer and chartered accountant with substantial experience in trust services. Mr Diprose has provided an affidavit setting out his and Covisory’s relevant qualifications and consenting to Covisory’s appointment.
[30] In her first cause of action, the plaintiff seeks an order removing the defendants as trustees of the Blackwood Bay Trust and appointing Covisory as trustee.
[31] The plaintiff seeks an order for costs on a solicitor-client basis to be paid to her from the Trusts.
Snowden Trust
The pleadings
[32] The plaintiff, in relation to the Snowden Trust, relies on the same general factual background as applies to the Blackwood Bay Trust. The plaintiffs pleaded the appointment of receivers to the Snowden Trust was reasonably necessary and just and equitable because:
(a)Arthur and Robyn have acted contrary to the interests of the beneficiaries by causing the assets of the Trusts to be dissipated by providing guarantees of borrowing by Thermatech.
(b)Loans secured against trust assets are in default and continue to accrue significant interest and default interest. Urgent steps need to be taken to repay these debts and prevent the continued dissipation of trust equity.
(c)Wai-iti Terrace and Fendalton Road are subject to PLA Notices and are at imminent risk of being sold at mortgagee sales. These properties must inevitably be sold to meet the Trusts’ debts.
(d)Arthur and Robyn have failed or refused to:
(i)defend the application for their removal as trustees; or
(ii)agree to step down as trustees.
(e)An independent professional is urgently required to:
(i)take control of the Trusts’ assets;
(ii)sell Wai-iti Terrace and Fendalton Road;
(iii)repay the Trusts’ debts; and
(iv)preserve as much equity in the Trusts as possible.2
[33] The plaintiff pleaded she had been unable to find an independent professional trustee willing to accept appointment as trustee of the Snowden Trust, as professional trustees advised they were not willing to assume the risk associated with the unlimited guarantees given by the defendants in their capacities as trustees of the Snowden Trust.
[34] The plaintiff identified that Diana Matchett and Colin Gower of BDO had consented to their appointment as receivers of the Snowden Trust.
[35] The proposal that receivers be appointed to the Snowden Trust was met, as I have said, with a response from Mr Cottrell. He referred to the possible stigma of
2 The plaintiff did not plead in relation to the Snowden Trust (unlike the pleading in relation to the Blackwood Bay Trust) that Arthur had a conflict of interest—that aspect of the pleading may be explained by the fact that the Snowden Trust deed permitted the trustees to make trust decisions despite a conflict of interest, upon a prescribed procedure. The defendants have not produced evidence that the prescribed procedure was followed. The plaintiff’s claim in relation to the Snowden Trust is nevertheless assessed on the pleadings without regard to the apparent conflict of interest Arthur had.
receivership upon the process of selling trust properties and the possibility General Finance might step in and appoint its own receiver.
[36] The plaintiff, through her solicitors, then recognised the possibility that to avoid a receiver being appointed, the court might consider appointing Public Trust as trustee of the Snowden Trust under s 114 of the Act (subject to Public Trust’s right to be heard). For the reasons identified below at [42]–[43] that course need no longer be considered. The Court is grateful to Mr Traves, solicitor for Public Trust, for filing in the meantime a memorandum setting out Public Trust’s position and abiding the Court’s decision. Public Trust is entitled to costs in relation to that attendance and an order will be made in that regard.
Evidence as to both Trusts
Generally
[37] The plaintiff has provided extensive evidence in support of formal proof. In particular, she has provided a series of affidavits as to her knowledge of the Trusts’ affairs and as to the increase of that knowledge over time and through discovery from the defendants.
[38] In particular, the plaintiff has provided the relevant documentation in relation to the constitution of the Trusts, the assets and the financial dealings of the Trusts, as is necessary to establish the allegations in the statement of claim. To the extent the plaintiff has been provided with information relating to Thermatech, that information is also the subject of her affidavit evidence and supports relevant allegations relating to Thermatech in the statement of claim.
The sale of Fendalton Road and Wai-iti Terrace
[39] The plaintiff, to assist the Snowden Trust to try to recover financially, provided her written consent to a sale process for Fendalton Road. The property was subsequently sold following auction for $2.8 million.
[40] The plaintiff did not at the same time give her written permission for the sale of Wai-iti Terrace—she had hoped the sale of that property (her parents’ home) could
be avoided. The trustees, without the plaintiff’s consent, listed Wai-iti Terrace for sale and only after the event, on request for an explanation, sought the plaintiff’s agreement to a sale. She reluctantly gave it to avoid the prospect of a mortgagee sale. The property subsequently sold following auction for $1,175,000.
Financial update
[41] The secured General Finance loan balance at 23 July 2025 was $2,774,824.41. Two other loan balances (to other financiers) totalled $350,033.52.
[42] The sales of Fendalton Road and Wai-iti Terrace, rendering $3,975,000, mean the known liabilities to those financiers do not exceed the value of realisations, with the consequence Covisory is now prepared to be appointed trustee of both trusts.
[43] The plaintiff has provided an updating affidavit dealing with these developments. Mr Diprose has also by affidavit consented to Covisory’s appointment as trustee of the Snowden Trust (in addition to the Blackwood Bay Trust).
Removal and replacement of trustees
[44] Under ss 112 and 114 of the Trusts Act 2019, whenever it is necessary or desirable to remove a trustee and it is difficult or impracticable to do so without the assistance of the Court, the Court may make an order removing a trustee and appointing a new trustee.
[45] Ms McGuigan, for the plaintiff, has correctly identified the relevant principles as set out by the Court of Appeal in Tod v Tod:3
(a)The starting point is the Court’s duty to see estates properly administered and trusts properly executed.
(b)This jurisdiction involves a large discretion which is heavily fact- dependent.
(c)The wishes of the testator/settlor (evidenced by the appointment of a particular executor or trustee) are to be given consideration, but ultimately the question is as to what is expedient in the interests of the beneficiaries.
3 Tod v Tod [2015] NZCA 501, [2017] 2 NZLR 145 at [22].
(d)Expedience is a lower threshold than necessity, and imports considerations of suitability, practicality and efficiency. Misconduct, breach of trust, dishonesty, or unfitness need not be established.
(e)Hostility as between administrators/trustees and beneficiaries is not of itself a reason for removal, but hostility will assume relevance if and when it risks prejudicing the interests of the beneficiaries.
Blackwood Bay Trust
[46] I accept Ms McGuigan’s submission that it is difficult to imagine a more clear-cut case where removal of trustees is appropriate than in the case of the Blackwood Bay Trust.
[47] The trustees clearly acted, with a conflict of interest, to allow Arthur, for his personal benefit (including the benefit of Thermatech), to utilise trust assets. As Arthur’s financial position deteriorated, the defendants’ attempts to use Blackwood Bay as security for further lending have compounded the failure to protect the Trust’s interests. The refusal and reluctance of the defendants to provide trust information and to co-operate as the plaintiff identified and raised concerns, involved a fundamental failure to act in good faith toward beneficiaries.
[48] In short, the defendants cannot be relied upon to exercise their fiduciary duties as trustees and to prudently manage the affairs of the Trusts. It is expedient in the interests of the beneficiaries that a replacement trustee be appointed.
[49] Ms McGuigan has appropriately articulated in detail the numerous failures of the trustees. Her submissions on all details are appropriately supported by the evidence but do not here require further discussion given the blatant extent to which the defendants have breached their duties in the fundamental ways I have identified.
Snowden Trust
[50] It is unsurprising, given the guarantee liabilities the defendants have caused the Snowden Trust to assume, that a professional trustee was not initially identified for appointment as trustee of the Snowden Trust.
[51] The trustees clearly acted contrary to the best interests of the beneficiaries by allowing Arthur, for his personal benefit (including the benefit for Thermatech), to borrow funds by giving security over the Trust’s assets and causing the Trust to incur interest liability and to fall into default of its obligations under the loans. The trustees thereafter failed to provide the plaintiff with trust information to which she was entitled. It is expedient in the interests of the beneficiaries that a replacement trustee be appointed.
[52] It is clear, for similar reasons as apply to the removal of the defendants as trustees of the Blackwood Bay Trust and the appointment of Covisory to that trust, that there should be appointment of a replacement trustee for the Snowden Trust. Now that Covisory consents to such appointment, there is a suitable appointee.
Costs
[53] The plaintiff seeks costs on a solicitor-client basis for all steps in the proceedings, to be paid from the assets of the Blackwood Bay Trust and the Snowden Trust jointly and severally.
[54] This application accords with the recognised principles in relation to proceedings brought by a beneficiary for the removal of trustees.4
[55] The Court has previously fixed costs in relation to pre-commencement discovery and ordered the defendants to pay those costs personally.
[56] The plaintiff’s solicitors have provided the Court with some details of the remaining costs and disbursements incurred in relation to this proceeding. The costs in particular are very significant. I have discussed with Ms McGuigan some aspects of the costs which I consider may need reconsideration. Without suggesting the plaintiff’s costs might be considered unreasonable in their amount, I consider it appropriate with the appointment of Covisory as trustee to provide the new trustee with an opportunity to make any submission it wishes to make in relation to the reasonableness of the plaintiff’s solicitor-client costs and disbursements.
4 Re Buckton [1907] 2 Ch 406 at 413–415; and McCallum v McCallum [2021] NZCA 237 at [34]– [35]. See also High Court Rules 2016, r 14.6(4)(d).
[57] A suggestion has been made by Mr Cottrell that the defendants, as trustees, should have the opportunity to be heard on the question of costs. I have not adopted that course for three reasons:
(a)as of now, the defendants will no longer be trustees—Covisory is the appropriate trustee to make any submissions;
(b)the defendants are not entitled to be heard, as I will explain (below at [60]); and
(c)it ill behoves the defendants, against the background of their failures to safeguard the interests of the Trusts, to suggest that their views on the extent to which the plaintiff might be denied full recovery of her costs and disbursements should be accorded any weight.
Result
[58]I order:
(a)Arthur Mathewson Lee and Robyn Andrea Lee are removed as trustees of the Blackwood Bay Trust;
(b)Covisory Trust No.2 Limited (Covisory) is appointed as trustee of the Blackwood Bay Trust pursuant to s 114 Trusts Act 2019;
(c)Arthur Mathewson Lee and Robyn Andrea Lee are removed as trustees of the Snowden Trust;
(d)Covisory is appointed as trustee of the Snowden Trust pursuant to s 114 Trusts Act 2019;
(e)The Snowden Trust is to pay Public Trust’s reasonable costs and disbursements on a solicitor-client basis, in relation to the proceeding, to be paid from the assets of the Snowden Trust and to be fixed by the Court on the papers, with Public Trust to file (and serve upon
Covisory) within 15 working days a memorandum attaching details of Public Trust’s claimed costs and disbursements; and
(f)the costs and disbursements of the plaintiff in relation to the proceeding are reserved. The plaintiff is to file and serve within 15 working days a more fully detailed explanation of its costs and disbursements. Covisory may, within 10 working days thereafter, file and serve a memorandum containing any submissions it wishes to make in relation to the reasonableness of the solicitor-client costs of the plaintiff. Covisory has leave to personally file its memorandum without legal representation if it wishes. In the event such memorandum is filed, the plaintiff has leave to file and serve a reply memorandum within five working days thereafter. Costs and disbursements will then be ordered and fixed on the papers.
Addendum
[59] On the eve of this hearing, the Court received from Mr Cottrell a seven-page memorandum containing submissions. The memorandum commenced with a complaint that Mr Cottrell had not been served with documents filed in preparation for the formal proof hearing. While acknowledging the defendants had been debarred from defending this proceeding, Mr Cottrell submitted they should be entitled to “correct aspects of the plaintiff’s submissions and evidence which are factually wrong or otherwise misleading”.
[60] It is not appropriate to receive submissions from Mr Cottrell on behalf of the defendants in this situation. The proceeding was listed for formal proof with no notice required to be given to the defendant, pursuant to r 15.9(2) High Court Rules 2016.5 In this proceeding, the defendants chose not to enter a formal appearance for reasons identified by Mr Cottrell in his memorandum filed on 6 May 2025. Their failure to provide an address for service meant, pursuant to r 6.20, they were not entitled to be served with notice of any step in the proceeding or with copies of any further documents filed in the proceeding or to address the Court.
5 See also Walls v Ulsterman Holdings Limited (in liq) [2019] NZSC 126 at [9]–[10].
[61] To accede to Mr Cottrell’s implicit request for leave to address the Court, notwithstanding the provisions of r 6.20, would effectively cut across the reason for and consequences of the debarring order made on 14 July 2025, in relation to which no appeal has been filed.
[62] I am accordingly giving judgment in this case in accordance with the evidence filed by the plaintiff and having regard to the submissions filed for the plaintiff.
Osborne J
Solicitors:
J M McGuigan for Plaintiff
Copy to: Public Trust, Christchurch (G P Traves)
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