Frickleton v Frickleton
[2016] NZHC 389
•9 March 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-398 [2016] NZHC 389
UNDER s 21 Administration Act 1969 and s 51
Trustees Act 1956
IN THE MATTER
of an application to remove the executor of the Estate of Kalvyn William Frickleton and the trustee of the Frickleton Family Trust
BETWEEN
MARK ANDREW FRICKLETON Plaintiff
AND
CARL WILLIAM FRICKLETON Defendant
Hearing: 17 February 2016 Appearances:
M Freeman for the Plaintiff
J Grace for the DefendantJudgment:
9 March 2016
JUDGMENT OF THOMAS J
This judgment was delivered by me on 9 March 2016 at 11.30 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Solicitors:
Thomas Dewar Sziranyi Letts, Wellington.
Counsel:
J R Grace, Porirua.
FRICKLETON v FRICKLETON [2016] NZHC 389 [9 March 2016]
Introduction
[1] The plaintiff, Mark Frickleton (Mark), applies to remove the defendant, Carl Frickleton (Carl), as the sole executor of their father Kalvyn Frickleton’s estate, and as the sole trustee of the Frickleton Family Trust (the Trust). The applications are made under s 21 of the Administration Act 1969 and s 51 of the Trustees Act 1956.
[2] The essential allegations are that Carl, Mark and the other Frickleton siblings’ relationships have broken down to such an extent that Carl must be removed in order to ensure fairness amongst the beneficiaries.
[3] Mark proposes that Carl be replaced with the Public Trust in his role as executor and trustee. Carl opposes this and proposes that an additional independent accountant, Carey Rohloff, who is known to the family, be appointed as an additional trustee and executor.1 Both the Public Trust and Mr Rohloff consent to any such appointment.
Factual background
[4] Mr Kalvyn Frickleton, (Mr Frickleton), Mark and Carl’s father, died on
7 September 2009. His surviving children are Carl, Mark, Reece Frickleton and
Dean Frickleton (known as “Jim”).
[5] Mr Frickleton’s will was dated 10 June 1999, with a codicil dated
16 November 2004. Under the will, Mr Frickleton’s brother, Alan Frickleton, and lawyer, Ernest Gartrell, were named executors and trustees. The codicil replaced Alan, after his death, with Carl.
[6] The beneficiaries of Mr Frickleton’s estate are Mark, Reece, Jim and Carl. The beneficiaries of the Trust are the four brothers and any grandchildren of Mr Frickleton. The Trust assets are a 100 per cent shareholding in the company
Heritage Projects Limited, a yard rented to a car dealer in Lower Hutt, and storage
1 I queried the Court’s jurisdiction to appoint a further executor. Counsel for Carl filed a memorandum after the hearing addressing this issue. He concludes there is no such jurisdiction.
units adjacent to the car yard. Heritage Projects Ltd, of which Carl is the only director, is the company which manages the Trust’s assets.
[7] On 23 March 2010, the High Court removed Mr Gartrell as an executor and trustee, following an application by Carl. This was because Mr Gartrell, who had been Mr Frickleton’s solicitor, had been suspended by the NZ Law Practitioners’ Disciplinary Tribunal and was bankrupt. Mark consented to that application.
[8] Probate, in Carl’s name, was granted by the High Court on 23 April 2010.2
[9] The major dispute between the brothers appears to have arisen following Carl’s decision to attempt to recover a debt allegedly owed to the estate by Stag Trading Limited, a company of which Mark is the sole director and shareholder. On
24 January 2014, Carl, as executor of the estate, commenced proceedings against Stag Trading alleging it owed the estate a debt of $406,580.20 plus interest at 10 per cent compounding monthly (the debt). The debt was allegedly the result of Mark having purchased Mr Frickleton’s company, High Street Cars. Mark disputes this allegation. There has been an unsuccessful application for summary judgment in relation to the debt, but substantive proceedings remain and a High Court fixture in early May 2016 has been allocated.
[10] There is a further dispute relating to a $143,000 payment made by Heritage Projects Limited to Mark, which was allegedly paid in consideration of Mark’s contributions to the cost of his father’s funeral, rent costs and legal fees in a relationship property dispute in relation to Mr Frickleton’s former partner. Carl now claims that no evidence of payments totalling $143,000 has been provided by Mark, and, if he cannot prove that money was owed to him, it may be treated as a debt to the Trust.
[11] A further area of dispute arose out of the relationship property proceedings issued by Mr Frickleton’s de facto partner. In April 2013, Mark paid the former partner $80,000 and in return took an assignment of her relationship property and constructive trust proceedings. He then placed caveats on the Trust’s properties and
sought to negotiate the debt he or Stag Trading owed on the basis that he had benefitted the estate by removing a potential $400,000 liability to Mr Frickleton’s de facto partner. The caveats were ultimately removed by negotiation.3
[12] Reece and Jim have both provided affidavits supporting Carl continuing as trustee and executor and opposing the current application. They dispute Mark’s version of events, and state that he owes the debt.
The Law
[13] The application to remove Carl as executor of Mr Frickleton’s estate is made
under s 21 of the Administration Act 1969 which provides:
21 Discharge or removal of administrator
(1) Where an administrator is absent from New Zealand for 12 months without leaving a lawful attorney, or desires to be discharged from the office of administrator, or becomes incapable of acting as administrator or unfit to so act, or where it becomes expedient to discharge or remove an administrator, the Court may discharge or remove that administrator, and may if it thinks fit appoint any person to be administrator in his place, on such terms and conditions in all respects as the Court thinks fit.
(2) The administrator so removed or discharged shall, from the date of that order, cease to be liable for acts and things done after that date.
(3) Upon any administrator being discharged or removed as aforesaid (whether or not any other administrator is appointed) all the estate and rights of the previous administrator or administrators which were vested in him or them as such shall become and be vested in the continuing administrator or administrators (including any administrator appointed under subsection (1) of this section) who shall have the same powers, authorities, discretions, and duties, and may in all respects act, as if he or they had been originally appointed as the administrator or administrators.
(4) This section shall, with all necessary modifications, extend to the case where an administrator dies, and the powers and authorities hereby conferred may be exercised and shall take effect accordingly.
(5) Nothing in this section shall restrict section 8 of this Act.
[14] The relevant grounds for removal are if the administrator is unfit to carry out the role, is incapable of discharging the role or it is expedient to do so.
[15] The existence of a conflict of interest or hostility between the executor and the estate beneficiaries are not of themselves reasons to remove an executor. However, if either of those reasons prejudice the welfare of the beneficiaries or undermine the executor’s ability to perform his or her duties as administrator, removal may be expedient.4
[16] In Crick v McIlraith, the Court held that the term “expedient” imported considerations of suitability, practicality and efficiency rather than necessity.5 Within the context of s 21, the overarching question is whether the removal of an executor or administrator will be a suitable, practical and efficient means of advancing the interests of the estate and its beneficiaries.6 Due respect must be given to the wishes and autonomy of the testator.7
[17] In Coote v Warren, Panckhurst J said:8
[12] That said, the authorities in this context stress that the removal of executors, or trustees, is not to be undertaken lightly. Where possible, the wishes of the testator should be honoured. The Courts [sic] jurisdiction to intervene reflects its duty to ensure that estates are properly administered and trusts properly executed. The welfare of the beneficiaries, what will best safeguard their interests, is the yardstick to be applied. As a consequence, the jurisdiction is fact dependant and involves a large element of discretion. The circumstances of individual cases will necessarily be determinative of their outcome.”
[18] Mark also applies under the Trustee Act 1956 for the removal of Carl as sole trustee of the Trust. Section 51 provides:
51 Power of court to appoint new trustees
(1) The court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult, or impracticable so to do without the assistance of the court, make an order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.
4 Crick v McIlraith [2012] NZHC 1290; Nawisielski v Nawisielski [2014] NZHC 1547.
5 Crick v McIlraith, above n 4,at [18]
6 At [18].
7 At [19].
8 Coote v Warren [2013] NZHC 3210.
(2) In particular and without prejudice to the generality of the foregoing provision, the court may make an order appointing a new trustee in substitution for a trustee who—
(a) has been held by the court to have misconducted himself in the administration of the trust; or
…
[19] The Court also has an inherent jurisdiction to remove trustees as part of its general jurisdiction to supervise the administration of trusts.
[20] The test under s 51 of the Trustee Act is essentially the same as that in s 21 of the Administration Act.9 The guiding question, of expedience, is the same under both sections. Further, the Court’s parallel inherent, equitable, jurisdiction to remove and substitute trustees informs the circumstances in which removal is expedient under both s 21 of the Administration Act and s 51 of the Trustee Act.10
[21] When exercising its jurisdiction to remove trustees the Court is guided by the welfare of the beneficiaries. As the Privy Council said in Letterstedt v Broers:11
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 above enunciated, 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. But they proceed to look carefully into the circumstances of the case.
[22] In relation to the relationship between trustees and beneficiaries, the Court of
Appeal in Kain v Hutton said:12
… mere incompatibility between trustees and beneficiaries is not enough … Any incompatibility must be at such a level that the proper administration of the trust is seriously adversely affected and it has become difficult for a trustee to act in the interests of the beneficiary.
[23] Consequently, as with executors, misconduct on the part of the trustee, or incompatibility between trustees and beneficiaries can be reasons for removing a
9 Coote v Warren [2013] NZHC 3210.
10 Harsant v Menzies [2012] NZHC 3390.
11 Letterstedt v Broers (1884) 9 App Cas 371 (PC) at 387.
trustee, but whether a Court will do so will turn on whether those factors undermine the execution of the Trust for the beneficiaries.
[24] The jurisdiction to remove an executor or a trustee is largely fact dependent, and involves a large amount of discretion.13 The analysis must be “in macroscopic and not microscopic fashion” based on the impressions of the case.14
Analysis
[25] In summary, Mark claims that there is a conflict of interest in Carl’s role as beneficiary and his actions as executor, that there is hostility between the parties which prejudices the administering of the estate, and that there has been no accounting of the estate’s position. This makes it expedient to remove Carl as executor, Mark claims.
[26] The same arguments, in essence, are made about Carl as a trustee although there is also an allegation of self-dealing in relation to Carl’s renting of one of the Trust’s units.
Mr Frickleton’s wishes
[27] The plaintiff and defendant have different views as to how Mr Frickleton’s wishes as testator and settlor of the Trust should be interpreted. Carl contends that Mr Frickleton would have wanted him to remain as trustee and executor, as he wanted control of the assets to remain within the family. Mark contends that the proper interpretation of Mr Frickleton’s wishes is that he wanted more than one person to be in the role of executor and trustee.
[28] Mr Freeman, appearing for Mark, submits that, although the wishes of the testator are to be given considerable weight, Mr Frickleton’s intention was to have two executors (including one independent executor), and in that respect his wishes
have already been departed from.
13 Nawisielski v Nawisielski [2014] NZHC 1547.
14 Great Western Railway v Owners of SS Mostyn [1928] AC 57 (HL) at 62, cited with approval in
Hunter v Hunter [1938] NZLR 520 (CA) at 528.
[29] In Mr Freeman’s submission, the Trust deed implies that there should be more than one trustee given that three trustees were originally appointed. Instead, Carl has been sole trustee for five years following the removal or discharge of Mr Gartrell and, Mr Freeman says, he has received all the assets of the estate, operates his own business from Trust property (with no evidence as to his rent) and directs the company which runs the Trust assets.
[30] Mr Grace, appearing for Carl, submits that the fact Mr Frickleton’s original will appointed more than one executor does not mean that the remaining executor should be removed. Carl accepts that a second executor and trustee would be sensible, preferably a professional person with a connection to the family. Carl suggests that Mr Rohloff, the accountant who acted for Mr Frickleton at the later stage of his life, is appropriate.
[31] In Mr Grace’s submission, the wishes of the other, adult, beneficiaries are important and should be considered. All support Carl continuing as executor and trustee. Mr Grace says that Mark supported Carl continuing in this role until Carl pursued the debt against him, which he was obliged to do as executor. There is no basis to remove Carl simply for performing his duty, says Mr Grace.
[32] In relation to the Trust, Mr Grace refers to Carl’s evidence that Mr Frickleton clearly wished him to take over his position in relation to managing the Trust properties. Mr Frickleton also wanted the estate and Trust to remain run within the family and not by a corporation. He submits that, even though it was Mr Frickleton himself who allowed the number of trustees to be reduced to just one (by failing to replace Alan Frickleton, or Mr Frickleton himself when he was dying), an independent trustee such as Mr Rohloff could be appointed. The other brothers oppose the Public Trust being appointed as they will not know the family context, and it would be contrary to Mr Frickleton’s wishes.
[33] There is no disagreement between the parties that Mr Frickleton’s wishes should be respected, and are to be given weight by the courts. I am not persuaded by Mark’s contention that, as one of Mr Frickleton’s proposed executors died, his wishes have already been altered so that doing further damage to his wishes is not
important. The better view of Mr Frickleton’s wishes is that Carl is the person whom he chose to administer his estate. Mr Frickleton chose Carl as executor and he can be taken to have understood that, as executor, Carl would become a trustee of the Trust on Mr Frickleton’s death.15
[34] In any event, the fact Mr Frickleton wanted Carl to be executor of his estate is not determinative. It is simply one principle for the court to bear in mind in exercising its discretion.
[35] Similarly, submissions as to the number of trustees Mr Frickleton allegedly intended to control the Trust offer little support to the current application to remove Carl. I accept the submission that more than one trustee was intended and note the provisions of the Trustee Act in this regard.16 Mark proposes replacing Carl with the Public Trust. Carl proposes that he be joined by an independent accountant in administering the Trust and estate, which is closer to Mr Frickleton’s wishes. Clearly, therefore, both take the view that more than one trustee and executor would be appropriate.
Conflict of interest?
[36] In Mr Freeman’s submission, Carl is impeding the administration of the estate, is a source of hostility and prefers the interests of others over Mark. Mr Freeman says that Carl has a conflict of interest, as he personally stands to benefit from the litigation that he (on behalf of the estate) is currently pursuing against Mark and Stag Trading. He submits that there is a “self-dealing” conflict between Carl’s interest as a beneficiary and his entrenched attitude toward pursuing the estate’s debts at all costs.
[37] Mark claims this personal interest is the reason the brothers are supporting
Carl in the claim. Regardless of the merits of the claim, he submits that the conflict of interest cannot be allowed to continue. Mark maintains that Carl’s determined
15 I acknowledge that there was another executor and two other trustees.
16 Trustee Act 1956, ss 43 and 45.
targeting of him is not treating the beneficiaries in an even-handed manner and is not impartial.
[38] In Mr Freeman’s submission, this litigation has gone well beyond the usual course of debt collection. He says that effectively Mark is facing a claim from Carl, his brother, whereas any claim should be from the estate on a measured and rational basis. He refers to the case of Hunter v Hunter.17 In Hunter, there were allegations of a conflict of interest against the trustees and executors of the deceased, Lord Hunter’s estate. The plaintiff was the wife and widow of the testator who was
entitled to the net income of the estate. The particular allegation arose from the payment of around £1,166 on behalf of the testator to a Mr Thomas Hunter, who was the father of the two current trustees and executors. They therefore received it on distribution of his estate. The plaintiff requested that the trustees look into the payment, given that the testator had been found to lack testamentary capacity at the time of the gift, and further that the payment had been made by a banker, Mr Dunn, who acted at times as the solicitor for the trustees and as the estate’s stock agent, and the validity of the gift would turn entirely on his evidence. The trustees refused to look into the gift. Myers CJ held that the appropriate course of action, even prior to the plaintiff’s request, would have been to obtain advice from independent counsel as to whether to pursue the debt, and (with Blair J) suggested that the trustees in question should also have asked the Court for directions. The full court agreed that the conflict warranted removal.
[39] In Mr Grace’s submission, there is no breach of any duties to the estate and Carl is acting even-handedly in pursuing the debt. He says that any hostility is very different from cases requiring removal of an executor. There is also no underlying ill-feeling, other than Carl attempting to fulfil his duties as executor by pursuing the debt. Mr Grace refers to Carl’s evidence that he tried for six months to negotiate repayment of the debt with Mark before proceedings were commenced. In contrast, Mr Grace points to the evidence of Mark’s hostile actions, such as caveating the
Trust’s properties in May 2013 without, he says, a basis for doing so.
17 Hunter v Hunter [1938] NZLR 520.
[40] In Farquhar v Nunns, Heath J declined to remove executor/trustees of an estate in circumstances where there was a conflict between their roles and their personal financial interest as beneficiaries of the estate.18 The context in that case was that the executors were the daughters of the deceased, and the sole beneficiaries of the estate, and the applicant was the deceased’s wife, who claimed an equitable or property relationship entitlement to land. Heath J found there was no need for an order to remove the executors, as they had been undertaking the administration of the estate competently and there was nothing to suggest any misconduct, stating:
[40] While I have no doubt that Ms Farquhar believes that Ms Nunns and Ms Clarke are exhibiting a degree of hostility towards her, the evidence does not go far enough to persuade me that is so. The steps taken by the administrators are under remarkable. In the context of contested litigation, Ms Nunns and Ms Clarke are entitled to take a robust approach in defending their right to property left by their father to them and, so far as the estate's defence of the proceedings brought in the equitable jurisdiction of the Court is concerned, they have identified reasons why the claim is opposed. It is not for me to second-guess the correctness or otherwise of the points they have advanced. They are matters to be determined by the Court in due course.
[41] In contrast, in Bupa Care Services v Gillibrand, Heath J ordered removal of the trustee and executor.19 In that case, a creditor of the estate sought to recover a debt. The estate’s main asset was another debt owed to it by the executor, which he had not paid into the estate as he blamed the creditor for playing a role in his father’s death. Heath J held that the executor was required to conduct a dispassionate review of information coming into an executor’s possession when determining if a claim against the estate should be accepted.20 It was clear that the executor was influenced in his decision-making by the desire not to pay any money out of the estate, which was halting the proper administration of the estate. The executor did not bring an independent mind to the question of whether the debt was valid.
[42] Here, it is to the benefit of the estate overall if the debt is pursued successfully and there is no conflict of interest between Carl’s role as executor and his position as beneficiary. In any event, his actions are not self-dealing in that they
are not pursuing his own interests to the expense of the estate and beneficiaries. The
18 Farquhar v Nunns [2013] NZHC 1670.
19 Bupa Care Services NZ Ltd v Gillibrand [2013] NZHC 2086, [2013] 3 NZLR 701.
20 At [18].
fact that the action is to the detriment of one beneficiary does not constitute self- dealing.
[43] Although Carl will benefit if the claim is successful, nothing suggests that he not acting impartially in fulfilling his role as executor, when he has an obligation to pursue the estate’s debts. I do not accept Mark’s contention that comments in Carl’s affidavit that Carl is concerned an independent trustee would not pursue the debt with the same zeal as he would, suggest an overall bias toward pursuing Mark. Carl takes issue with the appointment of the Public Trust and the concept of being replaced. Reece and Jim also appear to view the Public Trust as linked with Mark and therefore biased, which may reflect why Carl is concerned as to how the Public Trust would pursue the debt. In my view, and subject to the comments in the subsequent paragraphs, there does not appear to be any impropriety on the part of Carl and in that sense, the case is much closer to the Farquhar case than Bupa Care Services.
[44] As I indicated at the hearing, there are two aspects of the claim which raise some concern. First, the interest rate which is claimed. As I understand it, the claim is for interest at 10 per cent compounding monthly as a result of which the debt has escalated significantly from the core sum. There is apparently some support in the evidence for this claim because interest rates at this level were charged on prior occasions by the Trust and it is alleged that Mark has previously acknowledged the interest rate.
[45] The second issue which is of some concern is the claim against Mark personally alleging fraud. This relates to the fact that, at some stage, it appeared that Mark transferred the debt to himself, that is, he placed himself in the position of creditor. Mr Freeman said this was simply an accounting error. That may be so, but Carl cannot be criticised for raising this issue.
[46] In any event, the claim has a fixture in early May. If the parties are unable to settle the proceeding, and both Mark and Carl contend they aspire so to do, then the claim will be determined.
[47] In these circumstances, I do not consider this is a ground for removal.
Conflict of interest as trustee
[48] In relation to the claim that Carl has a conflict of interest in his role as trustee, Mr Freeman alleges that Carl is obtaining an improper benefit from his use of Trust premises to operate his business.
[49] Mark originally contended Carl was using more than one unit and not paying rent. Carl’s position is he is using one unit only and the rent he pays was agreed by all beneficiaries including Mark. Carl says Mr Frickleton wanted him to take over using one of the units just like Mr Frickleton had done. The difference is that Carl is paying rent. He is also managing the other units which is to the benefit of the Trust.
[50] Mr Grace refers to the payment of $143,000 of Trust money to Mark as an indication of Carl’s willingness to treat Mark fairly. He says it is hardly unfair to seek evidence of the expenditure of such a large sum of money and indeed Carl will be failing in his duty to the other beneficiaries were he not to do so.
[51] There is clearly some level of crossover between Carl’s roles as director of the major Trust asset, the sole trustee and as an occupier of Trust property. The situation must, however, be considered in the context of the family arrangement and the family history of use of the units. While it might be advisable for the market rent for the unit to be assessed, I am not satisfied this issue, in the circumstances, amounts to a conflict of interest sufficient to warrant Carl’s removal as trustee.
Failure to keep proper accounts (Trust and estate)
[52] Mr Freeman also submits that there has been no accounting of the funds of the estate in the five years since Carl has been executor. All the estate assets have apparently been transferred, without Mark’s consent he says, to the Trust. This “raises the spectre of a breach of trust”, Mr Freeman suggests.
[53] Aside from the debt, the only asset of the estate, apparently, is
Mr Frickleton’s life insurance policy. Mark believes that the proceeds of the policy
have been transferred to the Trust. Carl’s evidence is that the proceeds have been used to pay some of the debts of the estate and to maintain Trust property. His evidence is that Mark agreed to this. Whether all the beneficiaries agreed or not is a factual issue. The difference between Mark and Carl over whether the beneficiaries agreed to the use of the proceeds does not mean that Carl needs to be replaced as executor and trustee.
[54] In Mr Grace’s submission, despite some level of informality in managing the estate, which is only to be expected, he says, in a family situation, it has been properly managed. He refers to the evidence showing that the management of the estate has occurred promptly and efficiently, and says that no distributions can be made until the estate’s assets and Mark’s obligations are fully determined. Carl says that he has accounted to the family, although at times informally via family meetings.
[55] Carl concedes that some of his record keeping in relation to the estate and Trust decision-making has been less than satisfactory, insofar as oral agreements should have been recorded. He also acknowledges that the “estate has been managed with some informality”.
[56] Carl also maintains that he cannot provide an account of the expenditure of the estate until Mark accounts for his expenditure of approximately $140,000 which was paid to him by the Trust. There appears to be some merit in this position. This relates to the money which Mark claimed to have expended after Mr Frickleton’s death and which was paid to him in 2010. Carl seeks sufficient detail to substantiate that payment, referring to the affidavit an executor must swear in support of his or her application for probate. In that affidavit, executors must swear they will, if required, file in Court and verify by affidavit an accurate inventory of the deceased’s estate, and an account of the deceased’s estate that is accurate, states the dates and details of all receipts and disbursements and states which of the receipts and
disbursements are on capital account and which on revenue account.21
21 High Court Rules, schedule 1, Form PR 1, paragraph 11.
[57] Indeed, it could be considered ironic for Mark to criticise Carl for lack of accounting records when he is unable to provide documents to substantiate payment of $143,000.
[58] Carl’s affidavits appear to contain accounting information in relation to the Trust. It appears to me that Mark was satisfied with the general approach until proceedings for recovery of the debt were commenced. Any inadequacies in the record-keeping do not appear to be at the level which would require the Court to intervene. As noted in the analysis of the case law above, the Court will typically intervene only if the actions of the executor are undermining the interests of the beneficiaries and jeopardising their welfare. It does not appear from the evidence that the account-keeping has caused any detriment or problems to the beneficiaries, despite Mark being upset with the lack of records. It appears that Carl could provide most of the information sought, including financial records, if requested.
[59] On the information currently before me, I do not consider that the Court should remove Carl as administrator on this basis.
Hostility (Trust and estate)
[60] The major underlying theme of Mark’s arguments is that the hostility between him and Carl is such that there is no ability for administration of the estate or management of the Trust successfully to continue. Mark’s argument is primarily based on Carl bringing litigation against him, which he sees as inherently hostile.
[61] In and of itself, bringing litigation does not necessarily create such hostility as to impede the ability of Carl to administer the estate and Trust for the benefit of the beneficiaries as a whole. That would mean that no executor could pursue any beneficiary for debts to the estate without warranting their own removal. Further, to the extent that the litigation is causing the hostility, replacing Carl with another executor will only replace the source of the tension as there is likely to be ongoing tension with the new executor who pursues the debt action.
[62] Mark alleges that Carl is biased and overly vigorous in pursuing the debt. However, the claim does not appear to be frivolous or vexatious. The analysis
undertaken by Associate Judge Smith (although ultimately declining an application for summary judgment based on a possible Limitation Act defence) seems to suggest that there is a relatively strong basis for any reasonable executor to seek to reclaim the debt.22 No evidence suggests that Carl has been unreasonable in bringing the action. Mr Freeman concedes that the action would continue if Public Trust took over as executor.
[63] There has obviously been some breakdown in the relationship between the brothers, which appears to have begun around the time that the debt was pursued. This has reached the stage where, although Carl, Reece and Jim are prepared to mediate, their lawyer suggests they mediate only through “caucusing”, i.e. without being in the same room. Although in their affidavits the brothers say that Mark can call them about any issue, other than the legal proceedings, the fact that they are having limited communication suggests some diminution in their relationships, and that the hostility is becoming more than one-sided. This breakdown appears to have been in a large part precipitated by antagonism on Mark’s part, particularly following the legal proceedings against him.
[64] Regardless of the source of the relationship breakdown, the major focus is on the impact of that breakdown and whether it has broken down so that the existing “condition of affairs … is detrimental to the proper and efficient management of the estate”.23
[65] The relationship has not reached the point where the estate or Trust is in any kind of “deadlock” – Carl, as sole executor and trustee, is still able to fully make decisions. It is in this sense not the type of hostility which underpins many applications to the court between disputing executors or trustees, or where the executor refuses to engage in distributing the estate. Carl relies on this fact in his submissions.
[66] I acknowledge there is some evidence of the involvement of the other two brothers in Trust decisions something, perhaps, not unexpected in a family
22 Frickleton v Stag Trading Ltd [2015] NZHC 2534.
23 Hunter v Hunter, above n 14, at 553.
arrangement. There is some suggestion that Mark will receive no distribution until he has provided sufficient evidence to justify the payment to him of $143,000. This type of approach supports the appointment of a second trustee.
[67] I consider that an appointment of an independent trustee is warranted, not only to comply with the Trustee Act but also to bring an element of independence and objectivity to the situation.
[68] Each side opposes the trustee proposed by the other. The Public Trust is considered somehow biased or connected to Mark. From the perspective of Mark, Mr Rohloff, having worked with Carl for the last five years, is perceived as not being independent.
[69] Mark also opposes the appointment of a second trustee, additional to Carl, on the basis of the risk deadlock in decision making in which case the status quo would remain. I am not satisfied that it is an insurmountable concern and the trustees can always apply the Court for directions.24
[70] In the circumstances, I conclude that a second trustee should be appointed. That person should be an independent professional, either a solicitor or an accountant. I encourage the parties to cooperate to agree such a person. Failing agreement within 28 days of this decision, each is to file a memorandum suggesting the names, qualifications and willingness to act of two appropriately qualified people. I will then issue a decision on the papers.
Conclusion
[71] I consider that Carl is administering the estate and Trust for the benefit of the beneficiaries overall and that it is not expedient for him to be removed. The
application for his removal is dismissed.
24 Trustees Act 1956, s 66 and New Zealand Māori Council v Foulkes [2014] NZHC 1777, [2015] NZAR 1441. As referenced by the Court of Appeal in Hunter v Hunter, above n 17, the inherent jurisdiction of the court’s to supervise the administration of trusts also provides a basis for such an action. Trustees can also make Beddoes applications to the Court in respect of whether to bring or defend proceedings: Re Beddoe [1893] 1 Ch 547, applied recently in Fundación Pimjo AC v Aguilar & Aguilar Ltd [2015] NZHC 1402.
[72] Carl’s application for appointment of an additional trustee to the Trust is
granted. The parties are to comply with the directions in paragraph 70.
Costs
[73] Failing agreement on costs, the defendant is to file a memorandum within 28 days with a response from the plaintiff 14 days thereafter.
Thomas J
2
9
1