Gough v Strahl
[2013] NZHC 3184
•29 November 2013
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2012-485-1574 [2013] NZHC 3184
BETWEEN HARCOURT DAVID GOUGH Plaintiff
ANDJOHN RUSSELL STRAHL First Defendant
AVENAL BERYL ELIZABETH MCKINNON
Second Defendant
CIV-2012-485-2027
BETWEEN AVENAL BERYL ELIZABETH MCKINNON
Plaintiff
ANDJOHN RUSSELL STRAHL First Defendant
HARCOURT DAVID GOUGH Second Defendant
Hearing: 4-6 November 2013
Counsel: N W Ingram QC and M T Kyriak for Mr Gough
R J B Fowler QC for Mr Strahl
J W A Johnson and H T Shaw for Mrs McKinnon
Judgment: 29 November 2013
INTERIM JUDGMENT OF MACKENZIE J
I direct that the delivery time of this judgment is
4.50 pm on the 29th day of November 2013.
Solicitors: Kyriak Law, Auckland, for Mr Gough
DLA Phillips Fox, Wellington, for Mr Strahl
Wynn Williams Lawyers, Christchurch, for Mrs McKinnon
GOUGH v STRAHL [2013] NZHC 3184 [29 November 2013]
Background
[1] Mr Tracy Thomas Gough was a successful businessman who established a substantial business, Gough Gough and Hamer Limited (GGH).
[2] Mr T T Gough was married twice. There were three children of his first marriage, two daughters (one of whom predeceased him) and a son. After his first wife’s death, he remarried and there was one child of this second marriage, a son. He died in 1954 and was survived by: his second wife; the surviving daughter of his first marriage, Miss B D Gough (who had no issue); the son of his first marriage, Mr O T Gough; and the son of his second marriage, Mr B T Gough. Mr O T Gough had four children. They were three sons; Harcourt, Tracy and Antony Gough; and a daughter, Avenal McKinnon. Mr B T Gough had two children, Gina Satterthwaite and Ben Gough. In this judgment, I shall refer to the children of Mr O T Gough and Mr B T Gough by their christian names. I do so for convenience and clarity, and intend no disrespect.
[3] Mr T T Gough left a substantial estate. From the time of his death, through to the present, there has been a history of litigation and family disputes. A quite complex trust structure has been created. That litigation, and the structure, forms the background to the present litigation. A brief description is necessary.
[4] In 1955, Mr T T Gough’s surviving daughter, Miss B D Gough, issued proceedings for further provision from the estate, under the Family Protection Act 1955. Those proceedings led to a long and difficult series of negotiations, which resulted in a Deed of Family Arrangement, approved by the (then) Supreme Court in
1962.1 The assets of the estate (which in substantial measure consisted of shares in
GGH) were to be held on the trusts set out in the Deed of Family Arrangement (which varied the trusts in the will). The broad effect of the trusts was that, subject to the payment of several annuities, the capital of the estate was held on trust as to one half for the issue of Mr O T Gough and as to one half for the issue of Mr B T
Gough.
1 In Re T T Gough, minute of Richmond J, 26 June 1962.
[5] In 1986, those arrangements were restructured. A variation of the trusts of the estate was approved by this Court under ss 64 and 64A of the Trustee Act 1956. A new deed was entered into (the 1986 Deed). The 1986 Deed carried the division of the estate into two halves a stage further than had been done in the 1962 Deed. Two subtrusts, the Owen Gough Subtrust and the Blair Gough Subtrust, were established, each with its own trustees. The head trustees were one trustee from each of the two subtrusts, together with a third person appointed by those two trustees. The head trustees were empowered to appropriate one half of the capital of the estate to each Subtrust. As well as creating two subtrusts within the estate, two separate family trusts were established, one for each branch of the family. The trust relevant to these proceedings is the O T Gough Family Trust, established by Deed dated
28 May 1987. The residuary beneficiaries of that trust were the four children of
Owen Gough.2
[6] As part of the 1986 rearrangement, the shareholding in GGH, the major asset in the estate, was restructured. A new company, Gough Holdings Limited (GHL) was formed. GHL acquired the estate’s shareholding in GGH, in return for redeemable preference shares in GHL, issued to the estate. The dividend stream from these shares provided funds to meet the estate’s obligations, in particular, to pay the annuities provided for in the 1962 arrangement.
[7] The ordinary (voting) shares in GHL were issued to the two family trusts, as well as some to family members. While the two family trusts held the majority of the voting shares, the trustees of those trusts were able to appoint all the directors of GHL. In 1997, when GHL was re-registered under the Companies Act 1993, the appointment of director provisions were altered. Under GHL’s constitution, the power to appoint directors was vested in the head trustees of the estate.
[8] In 1999, most of the estate’s redeemable preference shares in GHL were redeemed. The proceeds of that redemption were paid to the beneficiaries, half to the O T Gough beneficiaries and half to the B T Gough beneficiaries. These beneficiaries and the trustees of the two family trusts, entered into a Deed dated
26 August 1999 (the 1999 Deed), under which these parties agreed to indemnify the
2 There is a qualification to that in respect of Harcourt, which I address at [61].
estate trustees against any loss or claim arising from that payment to beneficiaries, and agreed to guarantee the payment of the annuities payable by the estate.
The proceedings
[9] That brief statement of background, which I will amplify as necessary to deal with specific issues, brings me to the two proceedings, which have been consolidated, with which I am concerned. Both proceedings relate to the O T Gough Family Trust, that is, the trust established by the Deed dated 28 May 1987 (the Trust Deed).
[10] In the first proceeding, issued in August 2012, Harcourt sought an injunction preventing Mr Strahl, the sole remaining trustee, from exercising any powers in respect of the O T Gough Family Trust except for the power to appoint new trustees and the power to seek directions from the Court. Mr Strahl brought a counterclaim in those proceedings seeking directions from the Court on a number of matters, in particular a request which had been made by Avenal for distribution of her share in the O T Gough Family Trust, and a proposal by Mr Strahl to give an indemnity to the retired trustees.
[11] The second proceeding issued in September 2012, was a claim by Avenal, against Mr Strahl and Harcourt, seeking:
(a) a distribution of her share from the Trust;
(b) a declaration as to Harcourt’s status as a beneficiary of the Trust; and
(c) a direction that Mr Strahl not appoint two persons proposed by
Harcourt as trustees.
[12] The issues which are raised in the two sets of proceedings may be briefly summarised as follows:
(a) whether Avenal’s request for distribution should be met and, if so, on
what terms;
(b) who should be appointed as trustees of the O T Gough Family Trust;
and
(c) whether Harcourt is a beneficiary of the O T Gough Family Trust consequent upon his dealings with Gabriel Investments Limited (which I describe at [61] and following); and
(d)whether directions should be given regarding the indemnity or release of Mr Farrant and Mr Hagan as retiring trustees of the O T Gough Family Trust.
Avenal’s request for distribution
[13] Avenal has requested that her interest in the O T Gough Family Trust be distributed to her. Mr Strahl has been willing to accede to that request. That distribution is opposed by Harcourt. The other beneficiaries, Tracy and Antony, support Harcourt’s opposition but are not formally parties to the proceedings.
[14] The Trusts on which the assets of the O T Gough Family Trust are held are described in the Trust Deed, in cl 2. That provides:
THE Trustees shall hold the assets more particularly described in the Schedule of Assets and also any moneys or real or personal property at any time hereafter paid or transferred to the Trustees or in any manner acquired by the Trustees to be held upon the trusts hereof and all moneys, investments and property from time to time representing the same (hereinafter referred to as “the Trust Fund”) as from the respective date of receipt by them of the respective parts thereof until the date of distribution (as hereinafter defined) UPON THE FOLLOWING TRUSTS, namely: …
[15] There are then set out detailed trusts as to income, which it is unnecessary for me to describe. The relevant part of the clause creating the trusts as to capital reads:
(v) UNLESS an appointment of capital as hereinafter provided has been made prior to the date of death of OWEN TRACY GOUGH, the Trustees shall hold the capital UPON TRUST for such one or more of the children of OWEN TRACY GOUGH as shall be living at the date of death of OWEN TRACY GOUGH and shall then have attained the age of TWENTY ONE (21) years or have married under that age or shall thereafter attain the age of TWENTY ONE (21) years or marry under that age and if more than one in equal shares as tenants in common …
[16] There was no appointment of capital prior to the death of Mr O T Gough. Although cl 2 refers to “the date of distribution (as hereinafter defined)”, there is no express date of distribution in the Trust Deed.
[17] Clause 3 of the Trust Deed provides:
[set out from page 310 cl 3 – including para (a), (b) and (c)]
THE Trustees shall not distribute any of the capital until: (a) The death of OWEN TRACY GOUGH
AND
(b) All the Class A redeemable preference shares of Gough Holdings Limited issued pursuant to the Agreement for Sale and Purchase of the Shares of Gough Gough & Hamer Limited dated the 28th day of May 1987 have been redeemed.
AND
(c) All obligations to annuitants have ended either by agreement or by the death of the last annuitant.
[18] All three of the events referred to in cl 3(a), (b) and (c) have occurred, so that cl 3 no longer prohibits any distribution of capital. There is no other provision in the Trust Deed which affects the operation of cl 2(v).
[19] It is not in dispute that, under cl 2(v), Avenal has a vested interest in one quarter of the capital of the O T Gough Family Trust. She claims that she is entitled to have her share of the assets (in large part, shares in GHL) transferred to her under the rule in Saunders v Vautier.3 Under that rule, if there is only one beneficiary of a trust (or if there are several beneficiaries all of full age and capacity and of one mind and having a vested interest in the trust property) they may bring the trust to an end by directing the trustees to transfer the trust property to that beneficiary or
beneficiaries, despite any directions to the contrary in the trust document.
[20] At the hearing, I raised with counsel the possibility that Avenal’s entitlement
to be paid out her share may not depend upon the operation of the rule in Saunders v
Vautier. As I have noted, cl 2 refers to a date of distribution as defined in the Trust
3 Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482 (Ch).
Deed, but there is no express date of distribution in the Trust Deed. I raised with counsel the possibility that the Trust Deed is to be construed or interpreted so that cl 3, which prohibits distribution until certain specific events have occurred, operates as a negative definition of the date of distribution, such that the date of distribution is the date upon which the last of these three prohibitions ceases to apply. On that construction, the date of distribution would have arrived, and the trust property would be held on a bare trust for the beneficiaries.
[21] Counsel were agreed that it would not be appropriate for me to determine that question of the construction and interpretation of the Trust Deed in this proceeding. Two of the beneficiaries, Tracy and Antony, are not parties to these proceedings. A decision on the meaning of the Trust Deed would affect them. Further, the trusts of the O T Gough Family Trust are part of a wider series of arrangements. The construction or interpretation of the Trust Deed may affect those wider arrangements.
[22] Counsel for Avenal was content for her entitlement to be determined on the basis that it is necessary for her to rely upon the rule in Saunders v Vautier. That is to say, her claim is not advanced on the basis that her interest is one which the terms of the Trust Deed require be transferred to her by the trustees, because the date of distribution has arrived. I therefore proceed on the assumption that Avenal’s right to a distribution is dependent on the rule in Saunders v Vautier. I express no view on the interpretation of the Deed as to whether or not the date of distribution has arrived.
[23] The rule in Saunders v Vautier, is described in Lewin on Trusts in these terms:4
If there is only one beneficiary, or if there are several beneficiaries all of full age and capacity and of one mind, the specific execution of the trust may be stayed and the special trust will acquire the children of a bare or simple trust; for through whatever channel the settlor may have intended his bounty to flow, the beneficiaries, as the persons ultimately to be benefited, are in equity and from the creation of the trust, and before the trustees have acted in the execution of the trust, the absolute beneficial proprietors. The principle applies both to a trust fund as a whole and to a particular gift out of a fund, such as legacy.
4 John Mowbray QC and others Lewin on Trusts (18th ed, Sweet & Maxwell, London, 2008) at
[24-07] (citations omitted).
[24] In New Zealand, the rule is described in Garrow and Kelly Law of Trusts and
Trustees as follows:5
If a sole beneficiary has a vested interest in the trust property and has full legal capacity, that beneficiary may put an end to the trust by directing the trustees to transfer the trust property to that beneficiary, despite any directions to the contrary in the trust document. The same rule applies where there is more than one beneficiary. It applies even if they are not all entitled to benefit immediately but one after another. Provided that they are unanimous in wishing to end the trust, they may do so.
[25] Upon that formulation of the rule, it does not apply here. Avenal is not a sole beneficiary. The other beneficiaries are not unanimous in wishing to end the Trust.
[26] The rule in Saunders v Vautier has however been extended beyond its original bounds. In Stephenson (Inspector of Taxes) v Barclays Bank Trust Co Ltd, Walton J, after describing the rights of the beneficial interest holders collectively in a trust fund who are all sui juris and acting together, went on to describe the interests of one of the joint beneficiary interest holders in these terms:6
So much for the rights of the beneficial interest holders collectively. When the situation is that a single person who is sui juris has an absolutely vested beneficial interest in a share of the trust fund, his rights are not, I think, quite as extensive as those of the beneficial interest holders as a body. In general, he is entitled to have transferred to him (subject, of course, always to the same rights of the trustees as I have already mentioned above) an aliquot share of each and every asset of the trust fund which presents no difficulty so far as division is concerned. This will apply to such items as cash, money at the bank or an unsecured loan, stock exchange securities and the like. However, as regards land, certainly, in all cases, as regards shares in a private company in very special circumstances (see Re Weiner's Will Trusts and possibly (although the logic of the addition in facts escapes me) mortgage debts (see Re Marshall ([1914] 1 Ch 192 at 199, [1911–13] All ER Rep 671 at 674) per Cozens-Hardy MR) the situation is not so simple, and even a person with a vested interest in possession in an aliquot share of the trust fund may have to wait until the land is sold, and so forth, before being able to call on the trustees as of right to account to him for his share of the assets.
[27] It is clear that the interests of the beneficiaries, including Avenal, are vested, both in interest and in possession. The rights of the beneficiaries are not subject to
being defeated by a future event, so they have a vested interest in the trust property.
5 Greg Kelly and Chris Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at [25.27] (citations omitted).
6 Stephenson (Inspector of Taxes) v Barclays Bank Trust Co Ltd [1975] 1 All ER 625 (Ch) at
637-638.
Because all of the events which may postpone their right to present enjoyment of the trust property have occurred, their interest gives the right of present enjoyment.7 So, it is vested in possession. There is nothing in the Trust Deed which limits the right of each beneficiary to have his or her share transferred to the beneficiary.
[28] The assets of the Trust are principally shares in a private company, GHL. Therefore, the main issue as to the application of the rule, as it is expressed in Stephenson, is whether there are “very special circumstances” which mean that Avenal may have to wait before being able to call on the trustees as of right to account to her for her portion of the shares in GHL.
[29] Before addressing that question by reference to the facts of this case, I discuss the authorities, as they relate to what might be ‘very special circumstances’ which would justify a departure from the general rule.
[30] The reference to “special circumstances” appears to have originated in Re
Marshall. Cozens-Hardy MR said:8
Speaking generally, the right of a person, who is entitled indefeasibly in possession to an aliquot share of property, to have that share transferred to him is one which is plainly established by law. There is also another case which is equally plain and established by law, that where real estate is devised in trust for sale and to divide the proceeds between A., B., C., and D.
- some of the shares being settled and some of them not - A. has no right to say "Transfer to me my undivided fourth of the real estate because I would rather have it as real estate than personal estate." The Court has long ago said that that is not right, because it is a matter of notoriety, of which the Court will take judicial notice, that an undivided share of real estate never fetches quite its proper proportion of the proceeds of sale of the entire estate; therefore, to allow an undivided share to be elected to be taken as real estate by one of the beneficiaries would be detrimental to the other beneficiaries. But that doctrine, it seems to me, has no application, apart from special circumstances, to personal property. …
[31] That passage identifies a doctrine that real property is not to be distributed in undivided shares. The reason for that doctrine is that an undivided share has a lesser value. That suggests that the “special circumstances” which would justify the
extension of that doctrine to personal property, such as shares, would be likely to be
7 Charles Harpum, Stuart Bridge and Martin Dixon Megarry and Wade The Law of Real Property
(8th ed, Sweet & Maxwell, London, 2012) at [9-001].
8 Re Marshall [1914] 1 Ch 192.
circumstances which might lead to a diminution in value if the property were divided.
[32] In Re Sandeman’s Will Trusts, the relevant asset was a shareholding in a private company. It was contended that all of the shares should be left in the hands of the trustees, because they constituted a controlling interest. Clauson J noted that the Courts had been careful never to define in precise terms exactly what would be good grounds for departing from the general rule that the beneficiary was entitled to
a transfer.9 The fact that the shares, in total, constituted a controlling interest was not
a special circumstance which would justify the Court refusing to give effect to the beneficiaries’ rights, because the trustees, in having regard to the interests of the beneficiaries, would need to take into account the wishes of the different beneficiaries in exercising their voting power, so that the shares might not be voted as a block.
[33] In Re Wiener’ Will Trusts, the relevant asset was a 45 per cent shareholding in a private company.10 The opposition to distribution was by beneficiaries who would become entitled to the other 55 per cent of the shares. They contended that the shares would be more valuable if held as part of a controlling interest than if held in separate parcels. Harman J held that that was not a special circumstance which could justify refusing the transfer of the shares. He said that to accede to the submission that the transfer should be refused would mean in effect that there never could be a division, because it must involve the loss of control.
[34] In Lloyds Bank plc v Duker, the relevant assets were shares in a private company.11 The Court held that the circumstances were such that to transfer the beneficiaries’ entitlement in specie would result in that beneficiary obtaining markedly more than his proportion of the total value of the shareholding. The Court accordingly held that the trustee should not transfer the shares in specie but should sell all the shares on the market, and distribute the proceeds in the appropriate
proportions.
9 Re Sandeman’s Will Trusts [1937] 1 All ER 368 (Ch).
10 Re Wiener’s Will Trusts [1956] 2 All ER 482 (Ch).
11 Lloyds Bank plc v Duker [1987] 3 All ER 193 (Ch).
[35] A case which I have found particularly helpful is a recent decision of the
Supreme Court of New South Wales in Re Henley (In the Estate of Weinstock).12
The relevant asset was a shareholding in a private company. The case bears some similarity to the present, in that among the special circumstances relied upon to resist a transfer to a beneficiary was a history of litigation between the contending beneficiaries. One of the claimed special circumstances (or risk of prejudice) was that the beneficiary resisting transfer would suffer prejudice from the breaking up of a controlling interest in the company. Slattery J described that argument as having
already been put and answered in Re Sandeman’s Will Trusts13 and Re Wiener Will
Trusts.14 The second special circumstance (or risk of prejudice) alleged was that an in specie distribution of the shares would result in an unequal distribution of value, by enabling one beneficiary requesting the transfer to take control of the company, and the remaining beneficiary as a minority shareholder would be vulnerable to oppressive conduct. Slattery J held that the case was distinguishable from Lloyds Bank plc v Duker on the unequal value point. He noted that oppressive conduct would be amenable to remedy under company law, and dismissed the argument that the conduct might not be readily remediable under company law as oppressive
conduct by saying:15
… in my view this argument really only illustrates the limitations of attempting to administer the corporations through the law of trusts and succession, which are ill-equipped for that purpose.
[36] The third matter relied upon as a special circumstance (or risk of prejudice) was what the Judge described as “the parties’ immense appetite for litigation”.16 He said:17
… Of that appetite there can be no doubt. But it does not seem to me to be a special circumstance. On the past history of these parties, the risk of prejudice from this quarter is no different whether or not a distribution occurs.
12 Re Henley (In the Estate of Weinstock) [2013] NSWSC 975.
13 Re Sandeman’s Will Trusts, above n 9.
14 Re Wiener’s Will Trusts, above n 10.
15 Re Henley (In the Estate of Weinstock), above n 12, at [116].
16 At [117].
[37] Guided by those authorities, I turn to the facts of this case, to consider whether Avenal is prima facie entitled to a distribution and whether there are special circumstances (or risk of prejudice) which should prevent distribution.
[38] Avenal’s interest is a one quarter share as tenants in common in the capital of the estate. In Re Henley, Slattery J considered at some length the issue whether a share held under a tenancy in common is a share to which the rule in Saunders v Vautier applies.18 He held that it is.19 I respectfully agree with that reasoning. Avenal is prima facie entitled to the distribution she has requested, unless there are special circumstances (or risk of prejudice) which preclude a distribution.
[39] Mr Ingram submits that if Avenal’s one quarter share in the Trust property were distributed to her, prejudice would be suffered by the other three beneficiaries of the O T Gough Family Trust in two respects. Both of these relate to the position of the O T Gough Family Trust as part of the wider arrangements relating to the estate of T T Gough, under the will and the 1962 Deed of Family Arrangement.
[40] The first claimed prejudice is that under cl 16 of the 1999 Deed the trustees of the O T Gough Family Trust have agreed that the costs and expenses of administering the estate Trusts shall be borne equally by the O T Gough Family Trust and the B T Gough Family Trust if the Head Trust has insufficient funds to do so. Harcourt submits that prejudice would be suffered by the remaining beneficiaries, in that any costs and expenses of administering the Head Trust would be borne by the remaining beneficiaries, to the exclusion of Avenal.
[41] Those costs are potentially substantial. Mr Strahl’s evidence is that payment of costs to the Head Trust of approximately $107,000 for a six month period has been made. Mr Strahl estimates that the ongoing costs of the Head Trust will be of a similar order.
[42] I am of the clear view that the liability of the trust under cl 16 of the
1999 Deed is not a special circumstance which should prevent a distribution to
18 At [69]-[84].
Avenal. Her request for a distribution does not put her at an advantage over the other beneficiaries. Each of them is equally able to request a distribution. The liability of the trustees under cl 16 is not a matter which would justify the trustees in refusing a distribution to any beneficiary. It is not a matter which the Court could properly regard as a special circumstance to justify refusing a distribution.
[43] The potential liability under cl 16 is, however, a matter which must be addressed in making the distribution. One way that could be done would be for the trustee to estimate the present value of the contingent liability and to take that amount into account in valuing the share to which Avenal is entitled, in making the distribution. That would appear to be a very difficult exercise.
[44] Another way the issue could be addressed would be for Avenal to make other arrangements to meet that part of the liability for costs which would fall to her share if it remained in the Trust. There are several ways that could be done, as canvassed at the hearing.
[45] One would be for Avenal to give an indemnity of her share to the trustees of the O T Gough Family Trust. Another would be for her to give an indemnity direct to the trustees of the estate.
[46] Because, as I have held, this liability is not a special circumstance which justifies retention of Avenal’s share in the Trust, the way the issue is addressed is a matter for Avenal and Mr Strahl as trustee, not for the Court, or for the other beneficiaries. If Mr Strahl considers that further directions would assist him in deciding how to deal with the issue, I will consider an application by him. In case it may assist, I venture the tentative view that an indemnity direct to the trustees of the estate might be preferable.
[47] The second special circumstance or risk of prejudice relied upon is that there is significant ongoing family conflict regarding the estate, directly associated with the control of GHL. Harcourt’s evidence is that he believes that the broader conflicts facing the O T Gough family are more likely to be resolved with the membership of the O T Gough Family Trust remaining unaltered. His evidence is that the essence of
the broader family conflict is that Ben, a member of the B T Gough side of the family, is actively seeking to control GHL. He believes that if Ben were to take control this would likely result in a significant loss to the O T Gough beneficiaries as Ben’s intention is to minimise the dividend return while he is in control. Harcourt’s fundamental concern is that any alteration of the O T Gough Family Trust may disadvantage all of the O T Gough Family Trust beneficiaries, including Avenal, in circumstances where Harcourt is seeking to preserve the Trust structures that were put in place to promote harmony within the broader family. Harcourt accordingly has reservations about any steps which could be interpreted as a piece-meal dismantling of the Trust structure which he believes not to be in the best interests of himself and his siblings.
[48] Harcourt in his evidence says that Mr Strahl’s view is that if Ben was permitted to take control in the manner that he currently intends that would be unfair and highly undesirable to the O T Gough Family Trust and its beneficiaries. That is based upon an email sent by Mr Strahl on 2 August 2013, which referred to the possibility that Ben, as an employee director of the company, might not be subject to the normal rotation of directors. Mr Strahl said:
The practical effect of this is that the B T family will have the continued ability to have a family member as a representative on the Board, but the beneficiaries of the O T Gough Family Trust will not. In my opinion given the large shareholding of the O T Gough Family Trust, that would be unfair and highly undesirable to the O T Gough Family Trust and its beneficiaries.
[49] There is no evidence that the outcome of that issue, namely whether Ben’s position as an employee of the company exempts him from the provisions as to rotation of directors, would be in any way affected by a transfer of the shares currently held by the O T Gough Family Trust to the beneficiaries.
[50] There is no evidence from which the Court could properly infer that Ben’s involvement in GHL might disadvantage the O T Gough Family Trust, or that the value of the GHL shares might be adversely affected. The Court cannot form any view about the internal affairs of GHL, or what is in the best interests of that company. It is not appropriate for the Court to become embroiled in a long standing and bitter family dispute, by making any findings about the merits of that dispute.
[51] I find that neither Ben’s position in GHL, nor a dispute between the two branches of the family as to the way in which GHL is managed, is a special circumstance which should prevent a distribution to Avenal.
[52] The broader thrust of Harcourt’s argument is that conflict between the O T Gough family and the B T Gough family is inevitable, and that it is in the interests of the O T Gough family to stick together in that conflict. That proposition cannot properly constitute a special circumstance to prevent any of the beneficiaries calling for the transfer to them of the property to which they are entitled. If every beneficiary considers that he or she has common cause with other members of the O T Gough family in any respect, that common cause can be maintained whether the shares in GHL are held by the trustees, or by the beneficiaries. The position of the other family members will in that event not be disadvantaged if each beneficiary is able to make that decision. If, on the other hand, any beneficiary does not agree with a common approach, it would not be right for the Court to deprive that beneficiary of a distribution, so as to hold that beneficiary to a common cause which he or she does not espouse. If any beneficiary does not consider that his or her interests are coincident with those of the siblings, that is a choice the beneficiary should be free to make.
[53] It is also submitted that the trust structures were put in place to promote harmony within the broader family and should be preserved for that purpose. I find in the material before me no evidence that the structure has achieved that objective. The evidence indicates very substantial disharmony.
[54] I am of the clear view that the inter-family conflict is not a matter which may properly be held to constitute a special circumstance to deprive Avenal of her right to have her share of the trust property transferred to her.
[55] For these reasons, I find that Avenal is entitled to have her share of the assets distributed to her.
Appointment of trustees
[56] Clause 4 of the Trust Deed provides for three trustees, appointed for fixed terms of three years designed to expire at annual intervals. New trustees are appointed by the continuing trustees, who are to consult with all adult beneficiaries with a view to obtaining the consent of the majority. The appointment is subject to the consent of the majority of all adult beneficiaries. As there are four adult beneficiaries, the consent of three of them is required.
[57] The trustees of the O T Gough Family Trust were, at March 2012, Messrs J R Strahl, J Hagen and I Farrant. Mr Farrant’s term was to expire on
31 March 2012. He advised that he did not seek to be reappointed. Mr Hagen’s term was to expire on 31 March 2013. He resigned as a trustee on 20 July 2012. Mr Strahl continued as sole trustee. His term is to expire on 31 March 2014.
[58] Because Mr Strahl is now the sole trustee, the power of appointment is vested in him. There have been lengthy exchanges, over more than a year, over who should be appointed. I do not propose to describe the detail. The present situation is that Harcourt and his brothers propose the appointment of Messrs C P Burrowes and R S Bijl. They are both chartered accountants in Christchurch. Avenal does not consent to their appointment. Mr Strahl is not willing to appoint Messrs Burrowes and Bijl and seeks directions from the Court.
[59] Mr Strahl’s reluctance to appoint Messrs Burrowes and Bijl was a proper exercise of his discretion as trustee. They were proposed by Harcourt and his brothers without any prior consultation with Avenal. Under cl 4 of the Trust Deed, the appointment of the trustees is subject to the consent of the majority of the beneficiaries. That does not mean that the majority of the beneficiaries have the right to direct the trustees as to who shall be appointed. The trustees are required to consult with all beneficiaries with a view to obtaining the consent of the majority. I consider that the appointment of Messrs Burrowes and Bijl, over Avenal’s objections, in the circumstances in which they were proposed, would have been likely to inflame and exacerbate the already considerable dissension and suspicion within the family.
[60] The decision I have reached on the first issue, namely that Avenal’s share in the corpus of the Trust should be distributed to her, is relevant to the appointment issue. She will no longer be a beneficiary in the Trust. She will no longer have any status as one of the beneficiaries whose consent is relevant. In those circumstances, once the distribution to her has been made, there appears to be no reason not to appoint Messrs Burrowes and Bijl, who have the consent of all three remaining beneficiaries.
Harcourt’s interest, and Gabriel Investments Limited
[61] As I have noted at [5], the children of Mr O T Gough were all residuary beneficiaries in the T T Gough Estate. In about 1985, Harcourt assigned his vested interest in the income and remainder of the estate to Gabriel Investments Limited (GIL), a company incorporated in the United Kingdom. Thus, at the time the O T Gough Family Trust was formed in 1987, Harcourt was not a beneficiary of the estate: GIL was. That was taken into account in the Trust Deed. Under cl 2(v) of that Deed, set out at [15], Harcourt was, on the face of the clause, a beneficiary of the Trust. However, reflecting the arrangement which he had entered into with GIL, there was a special provision, in cl 8. That provided:
(a) THE interest which Harcourt David Gough would, but for the provisions of this Clause, have had in the Trust shall be vested in Gabriel Investments Limited. For the avoidance of doubt it is hereby declared that where the interest of a beneficiary pursuant to this trust is subject to contingencies as to his or her life, the interest of Gabriel Investments Limited shall be subject to the same contingencies as affect the life of Harcourt David Gough.
(b) References in the Trust to the children or adult children of Owen Tracy Gough shall be read as including Gabriel Investments Limited and excluding Harcourt David Gough but, references to the spouse or children of such adult children shall include the spouse or children of Harcourt David Gough to the intent that his spouse and children receive the interests they would have received were it not for the provisions of this clause.
[62] Harcourt’s evidence is that the arrangement with GIL was later unwound, and his interests were transferred back to him personally. GIL was subsequently removed from the register of companies.
[63] In her proceedings, Avenal claims that the transfer back did not include Harcourt’s interest under the 1987 Deed, and that no lawful assignment of the interest of GIL in the Trust to Harcourt has ever occurred.
[64] Avenal’s claim would have had relevance for this proceeding if she remained a beneficiary of the Trust, because the question of whether Harcourt’s consent to the appointment of Messrs Burrowes and Bijl as trustees was effective under cl 4 of the Trust Deed would have been relevant. My decision that Avenal is entitled to have her share of the trust property distributed to her means that the question raised by this aspect of her claim is no longer of practical significance in this proceeding.
[65] As I discussed with counsel during the hearing, I do not consider it is appropriate to address the question of Harcourt’s entitlement in the present proceedings, as they are presently constituted. There are other parties who would have a right to be heard on the question of the identity of the beneficiaries. Those parties are not all before the Court. One of the possible outcomes pleaded in Avenal’s statement of claim is that the Harcourt/GIL share has passed to the three residual beneficiaries, namely Tracy, Antony and Avenal. Tracy and Antony have not become parties to these proceedings, although they are aware of them. That is apparently because they consider that their interests are sufficiently aligned with those of Harcourt to make their separate representation unnecessary. On the question of the entitlement to the Harcourt/GIL share, their interests are, on Avenal’s pleadings, not aligned with those of Harcourt.
[66] Avenal’s statement of claim also asserts other possibilities as to who might now be entitled to the Harcourt/GIL share if it has not been reassigned to Harcourt. None of those other parties are before the Court.
[67] In those circumstances, it is not appropriate to deal with this issue, on the pleadings as presently constituted. I adjourn this aspect of the proceedings, so that the parties can consider either taking further steps in these proceedings, or commencing separate proceedings, to resolve the issue.
[68] In those circumstances, it is best that I say nothing more about the argument. The only point which I need note is that I had, during the hearing, ruled inadmissible paragraphs 59 to 61 of Harcourt’s affidavit sworn on 7 October 2013, relating to the Harcourt/GIL issue. I indicated that I would give my reasons in this judgment. Because I have reached the view that it is not appropriate to address that issue in this proceeding, all evidence on the issue is irrelevant. In those circumstances, and because the matter may have to be revisited, it is better that I do not give my reasons for having ruled the evidence inadmissible.
Indemnity for retired trustees
[69] Mr Strahl had proposed that Messrs Farrant and Hagen be provided with an indemnity and discharge, on standard terms, for any liabilities incurred by them while acting as trustees, for which they would have been indemnified if they continued as trustees. Harcourt opposed that, and Mr Strahl raised this issue by way of counterclaim in Harcourt’s proceeding.
[70] In his opening submissions, Mr Fowler QC indicated that it was Mr Strahl’s intention to grant such an indemnity unless the Court directs otherwise. In his closing submissions, Mr Fowler confirmed that it was Mr Strahl’s intention to grant an indemnity.
[71] No reason has been shown which persuades me that it would be inappropriate for Mr Strahl to follow what he, as an experienced commercial lawyer and trustee, regards as usual practice on this issue. I do not give any direction on the point.
Interim judgment
[72] I have set out my conclusions on all the issues on which findings are required. Their implementation will require further actions, on the part of Mr Strahl in particular.
[73] I consider that the appropriate course is to issue this present judgment as an interim judgment under r 11.2 of the High Court Rules. Any issues which arise in the implementation of my conclusions, and any necessary orders, can be addressed
by a subsequent final judgment if required. I reserve leave to any party to apply further as necessary.
[74] Costs are reserved. The parties may submit memoranda if they are unable to agree.
“A D MacKenzie J”
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