Georgina Kain v Jonathon Rhodes Hutton

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 23/01
CA 246/01

BETWEEN	GEORGINA KAIN & OTHERS
Appellants

AND	JONATHON RHODES HUTTON & OTHERS
Respondents

Hearing:	10 & 11 June 2002
Coram:	Elias CJ Keith J Anderson J
Appearances:	R J Craddock QC and S P Rennie for Appellants T C Weston QC for First, Third and Fourth Respondents M R Camp QC for Second Respondent G D Jones for Fifth Respondent R A Osborne for Mary Hutton and A E Couper in their personal capacities
Judgment:	25 July 2002

JUDGMENT OF THE COURT DELIVERED BY ANDERSON J

These are appeals against decisions of Panckhurst J declining successive interlocutory applications by the appellants for removal of trustees and appointment of the Public Trustee as sole trustee in respect of a large number of trusts. The fifth respondent supports the appeals. The first application for, in effect, summary removal of trustees has been overtaken and largely exhausted by the second, in respect of which judgment was delivered on 3 October 2001.
The appellants, who are in various respects beneficiaries, began their substantive proceedings in June 2000 seeking extensive relief in connection with the relevant trusts. Trial of the substantive proceedings is scheduled to commence on 5 August. The intervening two years have been characterised by anxious and immensely expensive interlocutory manoeuvring of which the applications under appeal and these appeals themselves are exemplary.
The relief sought in the substantive proceedings includes an order removing all trustees from the trusts and appointing the Public Trustee, the very relief sought in the applications presently under appeal. Given the imminence of trial, the failure of the first interlocutory application, the distraction from wider issues raised by the litigation and the trouble and expense to which we have adverted, we express the view that it would have been better for the matter to proceed to trial on the substance of the grievances rather than by way of interlocutory and appellate excursions. We say immediately that it would take a compelling case to persuade us that summary removal of the trustees, and in particular the uncle of the appellants, Mr W A X Couper, will resolve the trust entanglements which have created such real and deep concern.
The major adversaries are descendants of Ernest Donald Couper and his wife Helen Ralston Couper, both now deceased. The appellants are five of the six children of the late Mr and Mrs Couper’s daughter, Janet Richmond Kain who married the fifth respondent George Thomas Kain. Janet died in 1986.
The second respondent, who is the focus of the appellants’ concern, is Janet’s surviving brother. Until he was in his sixties Mr W A X Couper was a childless bachelor and as such he appears to have been and to have been seen as a natural benefactor of the prospects and expectations of his late sister’s children, particularly his nephews. But in 1989 he married Annette Elizabeth, referred to herein as Mrs A E Couper, who had four daughters from a previous marriage. Mr W A X Couper had a natural interest in making some provision for his wife and new family and she herself had modest means in consequence of her matrimonial property settlement. With no apparent want of goodwill on the part of nephews and nieces Mr Couper made some provision for his wife and her issue in relation to trusts of which he was the settlor. Mrs A E Couper also settled a trust in favour of her issue and their spouses.
This case is concerned with 17 trusts of which the settlors are, variously, the patriarchal E D Couper, his wife H R Couper, Janet Kain either solely or together with her husband George Kain, W A X Couper, and Mrs A E Couper. As the surviving child of E D and H R Couper, and as the settlor of many of the trusts which are presently seized of palpable wealth, Mr W A X Couper has significant powers of appointment. Mrs A E Couper is the trustee of a number of trusts settled, in the main, by her husband. The equity in all the relevant trusts is some $25 million. Their assets are in some cases livestock, in other cases land, and in yet other cases both livestock and land.
Mr W A X Couper has farming interests which are not trust assets. These are managed in complex conjunction with trust assets actually or ostensibly, as the case may be, for common advantage. The symbiotic arrangements existed for several years without complaint by the appellants. A few of the trusts in fact reached their vesting dates years ago without apparent concern on the part of beneficiaries that the assets should be distributed. No doubt advantages were seen in Mr W A X Couper’s continuing husbandry.
But in more recent years the appellants have become concerned about Mr W A X Couper’s involvement in the trusts and management of trust property. That concern may have been influenced to some extent by an expressed desire by Mr W A X Couper to use his discretionary powers of appointment for the greater advantage of his nieces whom he regarded as having been treated less generously than their brothers. The matter is of course much more complex than that because of the particular influence Mr W A X Couper has in respect of so much trust property in relation to which his nephews and nieces are actual or potential beneficiaries in various default ways and discretionary degrees. The complexities of the integration of trust assets and Mr W A X Couper’s personal assets are such that whilst Mr W A X Couper and his advisers, with their hands-on involvement, may know everything of relevance to the question of trust management, inevitably the remoter beneficiaries have been less informed both generally and in particular respects. Inadequate knowledge of detail and anxiety as to motives seem to drive the appellants’ concerns. Their anxieties would be best addressed by inquiries as to management, the taking of accounts, the examination of conduct by reference to trust powers in relevant deeds of trust and legal principles, rather than by way of piecemeal interlocutory litigation.
The appellants’ latest statement of claim seeks relief in terms of 26 discrete respects. The first is the removal of all trustees and the appointment of the Public Trustee. But also sought is an order dismissing one of the respondents as accountant in respect of the trusts; an order for vesting of particular trusts; a declaration that distributions have been incorrectly declined and an inquiry into damages; orders for payment of costs and interest; an order for inquiry into income earned on vested trusts and not paid; orders seeking to declare unlawful and set aside transactions; orders for inquiry into losses; an order that a certain lease has not been validly executed with consequential inquiries as to damages if that be the case; and various other orders for inquiries into transactions specifically or generally. It is unnecessary to repeat the prayers verbatim, the above resume being sufficiently indicative of the scope and complexity of the issues. That complexity is significantly compounded by recognition of the utility of a general audit of the management of the trusts and the interaction of trust property with personal property, the implications of that intermingling in terms of the scope and powers of trust deeds and the disciplines of equity, and the analysis of specific transactions which have aggrieved the parties.
Panckhurst J who is familiar with the litigation and has twice dismissed the appellants’ interlocutory applications for summary removal of trustees and appointment of the Public Trustee indicated by his judgments his keen appreciation of the complexities and the impracticality of summary intervention in the respects sought by the appellants. In dismissing the first application he expressed the firm view that it would be inappropriate at that stage to order the removal of the trustees and appoint the Public Trustee. He regarded the case as “anything but straight-forward” and that it did not permit resolution in an interlocutory context. In his view resolution of the major issues ought await a full hearing following which questions of credibility and interpretation would be better able to be confronted. He also had considerable concerns about the wisdom of appointment of a professional trustee to manage lands and livestock so intertwined in the farming operations. In his view “the complexity of the situation … demands that one proceed with particular care in relation to removal.”
When, eight months later, the appellants iterated their request for summary intervention he found himself still unpersuaded that it would be in the interests of the beneficiaries as a whole for the Court to intervene and to appoint the Public Trustee at the instance of the appellants. He did note, however, as a striking feature, that both camps accepted the desirability of appointment of an independent and professional trustee although there had been no dialogue as to how that might be effectuated.
In the course of his decision on the first application Panckhurst J expressed great concern about the likely cost of a substantive hearing and the emotional impact for the family. He implored the parties to consider mediation. There was a subsequent mediation, funded by Mr W A X Couper, but regrettably it did not achieve resolution. The impending substantive hearing could have taken place earlier but the appellants sought an adjournment in view of the appeals now before this Court. We mention these matters as indicative of at least a degree of willingness on the part of Mr W A X Couper to obtain resolution of the disputes. That trusteeship is an onerous duty will not have escaped his notice.

Appellants’ arguments

It was accepted on behalf of the appellants that the appeal being against the refusal of the High Court to exercise a discretion, this Court would need to be satisfied that the Judge acted upon a wrong principle, or that he failed to take into account some relevant matter, or that he took account of some irrelevant matter, or that he was plainly wrong (See Harris v McIntosh [2001] 3 NZLR 721, at 724). In counsel’s submission the Judge was plainly wrong or the judgment otherwise relevantly deficient. It was submitted that the matters justifying removal of the trustees were clear from the record and that this Court was not more disadvantaged by not having seen or heard the witnesses than the Judge who made his determination on the basis of affidavits. To the extent that there were differences between the deponents these exemplified the undermining of confidence which should inform the administration of the trusts.
In counsel’s submission the terms of Panckhurst J’s judgments recorded his concern that the trustees should be replaced. Panckhurst J expressed “no doubt that retirement of the present trustees in favour of an independent professional trustee is an entirely desirable course”. Counsel submitted that the Judge, informed as he was by the established principles and in no doubt that the trustees ought retire, should have made an order for removal accordingly and was wrong not to do so. Counsel submitted it was clear that the only reason the Judge declined the application for removal was his feeling that replacement of the trustees would be adverse to the beneficiaries’ interests by reason of the complexity of the farming operations and the interaction of the trusts in that respect. But, submitted counsel, the Judge was wrong to stay his hand on that basis. There is a distinction between the administration of the trusts themselves and the management of the farms. Removal of the present trustees including Mr W A X Couper whose involvement is profound would not or should not, per se, inhibit the appropriate management of the farms.
In addition, the decision of the High Court has committed the appellants to a long and expensive substantive trial for which they cannot afford counsel and which, perforce, they must conduct themselves. The trial was estimated at an earlier stage to take several weeks and in counsels’ present view that may extend even to five or six weeks. Of course the cogency of that submission depends, amongst other things, on the extent to which trial focuses on core issues rather than peripheral or inconsequential matters.
We do not intend to traverse the extensive submissions on behalf of the respondents but note their tenor in terms of the present trustees’ desire to achieve an unwinding of the complex loom of trusts and associated businesses. It is noted that Mr W A X Couper funded the unsuccessful mediation and that the respondents had commissioned a report from Mr B G Hadlee directed to an “unwinding”. Our examination of the respondents’ position is brief because we have not been persuaded that Panckhurst J was wrong in dismissing the applications under appeal.

Discussion

The jurisdiction to appoint and remove trustees is both inherent and statutory, the legislative authority being s51(1) of the Trustee Act 1956 which provides as follows:
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.
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. The relevance of that objective is recognised in well-known cases such as Letterstedt v Broers (1884) 9 App Cas 371 and Hunter v Hunter [1938] NZLR 520.
The circumstances in which a Court will exercise its power to remove trustees are authoritatively and conveniently summarised in the speech of Lord Blackburn in Letterstedt v Broers, supra, at pp385-86 which we now cite, as did Panckhurst J.
But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.
It seems to their Lordships that the jurisdiction which a Court of Equity has no difficulty in exercising under the circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in the place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.
Where circumstances show that the Court should act more or less summarily, on an interlocutory rather than a substantive application, or even ex parte, the Court has jurisdiction to do so. In Clarke v Heathfield [1985] ICR 203, the English Court of Appeal upheld an ex parte order for the removal of trustees and the appointment of a receiver in order to protect trust monies which were being salted away by the trustees of a striking union. That such power exists is not really in dispute in the present case, it being rather a question whether the circumstances warrant its exercise.
In the present case we are not persuaded that the Judge was wrong to exercise his discretion in favour of a carefully considered approach which has regard to the realities of the complex “interrelationship between the farming operation and the trusts”. The Judge had to consider not only the question of removal but also of replacement of trustees. The present trustees have a knowledge and depth of experience which no newcomer could readily acquire.
Moreover, Mr W A X Couper is not a bare trustee. He is also the donee of powers of appointment and nothing has been put forward to satisfy us that he should be summarily stripped of the concomitant powers.
We are not prepared to find error on the part of the Judge, familiar as he was with the litigation, in seeing the interests of the beneficiaries as a whole served by a less summary process than that in issue. And even if trustees were removed it may not necessarily be suitable for every trust to have the same trustee or trustees. Indications for distinguishing trusts or categories of trusts may arise from a more considered enquiry than is possible on an interlocutory application.
It is obvious to us as it plainly must have been to Panckhurst J that the apprehended shortcut might prove a mere cul de sac. This is because the issue is not merely who should be the trustees but, crucially, how the management of the trusts is to be evaluated, historically, and how any failure to account for or misuse of trust assets, or other breaches of trust, if they have occurred, are to be identified and rectified. Mere removal of the present trustees would not attain those objectives; nor would it necessarily be as conducive to their achievement as, for example, the appointment of an additional rather than substitutionary trustee, or the appointment of a receiver. Clarke v Heathfield, supra, is an example of the latter course, but the Court’s equitable power to appoint a receiver has been recognised for centuries. See, for example, Gladdon v Stoneman (1808) 1 Madd 143 N; 56 ER 54. A receiver will be appointed where the affairs of a trust are in disorder and the appointment is necessary to secure continuity of management; Attorney-General v Schonfield [1980] 3 All ER 1.
In the present case the objectives of the maintenance of experience and expertise and the appointment of a new trustee or trustee capable of exercising manifestly disinterested power to make inquiries and report to the Court might be achieved by the expedient of appointing a receiver without removal of trustees, as occurred in Attorney-General v Schonfield or by appointing an additional trustee who will, in that capacity, have access to all relevant trust information either by voluntary submission or empowered by Court direction.
It is to be borne in mind that the Court has wide powers to conduct inquiries and accounts without necessarily having to try, in a single session, a multiplicity of issues many of which are or may be capable of resolution only on an orderly and sequential basis. The Court’s powers, not only in its general equitable jurisdiction but also in terms of r324 and r384 of the High Court Rules as well as s68 Trustee Act 1956 may be conducive to orderly examination.

Result

For the reasons indicated we are not persuaded that Panckhurst J was in error in exercising his discretion to dismiss the applications under appeal and the appeals are accordingly dismissed. In the circumstances we think it appropriate to reserve the question of costs in respect of which counsel may file memoranda.

Solicitors
Rhodes & Co, Christchurch for Appellants
Chapman Tripp, Christchurch for First, Third and Fourth Respondents
Phillips Fox, Wellington for Second Respondent
Lane Neave, Christchurch for Fifth Respondent
Duncan Cotterill, Christchurch, for Mary Hutton and A E Couper

[2002] NZCA 180

25 July 2002