Greenwood v Simpson

[2018] NZHC 845

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000524

[2018] NZHC 845

IN THE MATTER

Of the Estate of OSBORNE HOLMES GREENWOOD

BETWEEN

KELVIN PETER GREENWOOD

Plaintiff

AND

MARILYN CORRINE SIMPSON AND BRIAN KEITH GREENWOOD

Defendants

Hearing:	9 April 2018
Appearances:	D M Lester for the Plaintiff Defendants in person
Judgment:	30 April 2018

JUDGMENT OF DUNNINGHAM J

Decision

A.The defendants are jointly and severally liable to the plaintiff in the sum of $60,613.41.

B.Costs will be determined in accordance with the procedure set out at [63].

ESTATE OF OSBORNE HOLMES GREENWOOD [2018] NZHC 845 [30 April 2018]

Introduction

[1]                  The late Osborne Holmes Greenwood, and his wife Kura, had five children, four of whom are alive today. They are the plaintiff, Kelvin Peter Greenwood (Kelvin), the defendants, Marilyn Corrine Simpson (Marilyn) and Brian Keith Greenwood (Keith), and another sister, Kirsten Moghni (Kirsten), who lives in Sydney.

[2]                  The present dispute has arisen because Marilyn and Keith, as executors and trustees of the estate of their father, sold the major asset of the estate, the deceased’s home, to Marilyn’s son, Andrew James Simpson (Andrew) for approximately

$330,000, when its agreed market value at the time of sale was $570,0000.

[3]                  Kelvin says this was in breach of their obligations, as trustees and executors of the estate, to act prudently and reasonably in the sale of the property and to obtain a reasonable market price for the property. He claims that the shortfall of $239,427.94,1 being the difference between the market value of $570,000 and the sale price of

$330,572.06, should be repaid to the estate.

[4]                  Marilyn and Keith say that they were simply following their father’s instructions given to them during his lifetime, which was that he wanted them to sell the property to Andrew for “around $300,000”. They consider there was no inconsistency between carrying out their father’s verbally expressed wishes and the terms of the will which required them to sell or cash up the estate’s assets and divide them equally between the surviving four children. Accordingly, they are not in breach of their obligations as trustees and executors of the estate.

The issue

[5]                  The key issue arising in this litigation is whether the defendants had a duty to obtain a reasonable market price for the property, or whether their duties were properly discharged by selling the property in accordance with the deceased’s verbal instructions.

1      Information which came to light during and following the hearing suggests the shortfall is slightly more than this as the sale price was actually $327,546.36.

Background

[6]                  The late Mr Greenwood owned a home at 42 Torquay Place, Bryndwr, Christchurch (the property). His earlier will named Keith and another daughter, Sherron Ann Hill, as executors and trustees. In October 2005, Mr Greenwood made a new will where, because of Sherron’s ill health, he replaced her as trustee with his daughter Marilyn. Sherron has since died, leaving no surviving children.

[7]                  The October 2005 will was conventional in its terms. If Mr Greenwood predeceased his wife, she was to have the use, occupation and enjoyment of the home he owned at the date of his death until she died or vacated the property. However, should his wife predecease him, then his estate was to be divided:

… for such of… my children MARILYN CORRINE SIMPSON, KIRSTEN
 HELEN  MOGHNI,  KELVIN  PETER  GREENWOOD,  SHERRON ANN

HILL and BRIAN KEITH GREENWOOD as survive me and if more than one as  tenants  in  common  in  equal  shares  PROVIDED  HOWEVER  AND I

DIRECT that should my said children or any of them predecease me leaving a child or children (including any adopted children) who shall be living at my death then and in each case such last mentioned child or children shall take and if more than one as tenants in common in equal shares all that share and interest under this my Will which his her or their parent would have taken had he or she survived me.

[8]                  The will also empowered the trustees to sell the house and “any moneys derived from the sale of such original dwellinghouse or substituted dwellinghouse or houses and not used or required for the purchase of another dwellinghouse or houses shall fall into and form part of my residuary estate”.

[9]                  The uncontested evidence given in Court by Marilyn’s son, Andrew, was that sometime in 2008, his grandfather spoke to him about whether Andrew would be interested in buying his house now that Andrew had a family. Andrew was told by his grandfather that the price would be “about $300,000” but it would not be up for sale until both he and his wife were no longer living in it. He told Andrew to think about it as if Andrew was not interested, then the offer would be made to Andrew’s younger sister. Marilyn’s evidence corroborates this. She recalls that in 2008 her father told her that he had had a talk with Andrew and had offered to sell him the property once he and his wife no longer had a need for it.

[10]              At the time, the suggestion that Mr Greenwood would sell the property for about $300,000 was likely a modest discount on its market value, although I had no evidence on what its actual value was at that time. The only evidence before the Court of the value of the property prior to being rebuilt, was that its rating valuation in January 2016 was $400,000. It is likely that its value in 2008 was somewhat less. However, as a consequence of damage suffered in the Canterbury Earthquake sequence of 2010-2011, Mr Greenwood’s insurance company agreed that the house needed to be rebuilt. This meant that a brand new house would be built on the section in place of the existing home.

[11]              Andrew’s evidence is that this did not change his grandfather’s wish to sell the property to him. In early 2012 Andrew was told by his grandfather that he had “good news” for him. He said “Keith has got the insurance company to rebuild the house for you”. When Andrew asked what that meant, his grandfather said that, after his death, the house could be rebuilt and Andrew could choose the floorplan that suited him so he would be getting a good deal for his $300,000.

[12]              At this time Mr Greenwood was living at the property on his own as his wife had pre-deceased him, dying in December 2010. It was agreed with the insurance company that Mr Greenwood could stay in the property as long as he was able to, and that the rebuild would be deferred until Mr Greenwood was no longer living in the property.

[13]              In 2013, Mr Greenwood’s health declined and he signed an enduring power of attorney in relation to property, appointing Keith and Marilyn as his attorneys. On  28 April 2015 Mr Greenwood died. Keith contacted Andrew saying he had discussed the future of the property with his father and had been told by him that it had been agreed to sell it to Andrew. Keith wanted to check whether Andrew was still interested. If so, the price would be about $300,000 as agreed with his grandfather. Keith said his father was satisfied that this would still mean that the four children would receive about $100,000 each, which he considered would be enough for each of them.

[14]              Andrew confirmed that he still wanted to buy the property and the house was subsequently rebuilt in a new configuration to suit Andrew. Because Andrew wanted

some changes to the house which were not part of the agreed rebuild, he was to pay for those changes himself.

[15]              Andrew then arranged mortgage finance for the maximum that he could borrow  given  his  circumstances.  He  said  in  evidence  that  was  $330,000.  On 13 December 2016 he signed a sale and purchase agreement with the executors of the estate for the sum of $326,974.20. Keith explained that the price negotiated reflected an agreed sum of $320,000 with the balance of $6,974.20 reflecting the extras that Andrew had negotiated to be put into the house at his request. The property was transferred by the executors and trustees into Andrew’s name on 14 December 2016.

[16]              An explanation was subsequently given by way of memoranda as to the difference between Andrew’s recollection of the sale price, being $326,974.20, and the price recorded in the summary of the estate assets, which said the property was sold for $330,572.06. Andrew drew down $330,000 and paid it across to the estate. He also paid a further $572.16 for what was described as “late extras”, but he was then refunded $3,025.70 from the estate. The estate therefore received a net amount of

$327,546.36 for the property.

[17]              The defendants then arranged for the estate to be distributed. The property was not the only asset of the estate. There were also other investments making the total value of the estate assets  $415,786.92.  This  sum was distributed equally to the  four beneficiaries, so that each received a sum of $103,946.73.

[18]              In March 2017, Kelvin consulted a lawyer about the administration of the estate. At that stage he understood that the property had been transferred to Andrew for the sum of $530,000, being $50,000 less than the current rating value and approximately $80,000 to $90,000 less than what Kelvin understood to be the current market value. As a result, Kelvin’s lawyer sent a letter to Keith on 9 March 2017, alleging that he and his co-trustee were in breach of their duties and seeking full disclosure of all accounts relating to the estate.

[19]              Keith and Marilyn responded, defending their actions, saying that their late father had offered the property to Andrew “at a price based on its then valuation”. Keith said that:

My father’s instruction to myself and Marilyn were quite clear that this was the price the house was to be first offered to Andrew upon his death, no matter how far in the future that this date was. All the family, both in NZ and Aust. knew that this would happen.

[20]              When Keith sent Kelvin’s calculated share of the estate to him via Kelvin’s lawyers, Kelvin’s lawyers responded saying that the sum paid was accepted by their client “as an interim distribution” but “our client reserves all his rights to pursue the executors for the shortfall”.

[21]              On 3 August 2017, these proceedings issued, with Kelvin, as plaintiff, seeking an order that the defendants pay the estate of the late Mr Greenwood the sum of

$239,427.94 plus interest and costs.

[22]              The defendants admit the factual background to the claim set out in the statement of claim, including that the market value of the property at the time of sale was $570,000. They deny, however, that they had a duty to act “prudently and reasonably in the sale of the property, in particular to obtain a reasonable market price for the property” and they deny that they breached their duties by selling the property to Andrew at an undervalue.

[23]              The defendants also counterclaimed for various sums which they alleged the plaintiff owed to the estate, but as these claims were not supported with evidence, nor pursued in the case presented in this Court, I address these no further.

[24]              The defendants continue to defend their actions as being consistent with their legal obligations in administering the estate of their late father on the following grounds:

(a)the verbal instruction by the deceased to the executors had testamentary effect;

(b)the defendants, as executors of the will, had fiduciary, ethical and moral obligations to the testator to carry out his verbally expressed wishes;

(c)alternatively, there was a pre-existing agreement with Andrew which bound the defendants as the personal representative of the deceased.

[25]              However, in the event that the Court finds they were in breach, it should exercise its discretion under s 73 Trustee Act 1956 to relieve the defendants from personal liability.

I address each ground in turn.

Did the instruction by the deceased to his executors regarding the property have testamentary effect?

[26]              The plaintiff did not deny that Mr Greenwood had expressed a wish to sell his property to his grandson for approximately $300,000, although he was on record as saying he was not aware of those discussions. His real concern was that, unless that wish was incorporated in a binding agreement prior to his late father’s death, or was reflected in his late father’s will and so had testamentary effect, the executors and trustees could not fulfil that wish without being in breach of their obligations to the beneficiaries in the will.

[27]              The defendants accept that their late father did not put the instruction regarding the property in writing, either as a codicil or an amendment to the will. While they acknowledge that this was “an important instruction”, they do not consider that the failure to put it in writing defeats it having testamentary effect.

[28]              Their submissions were to the effect that their father did not put the instruction in writing “as he did not consider he was changing his will: his beneficiaries would still receive the residue in four equal parts, and they would still receive approximately

$100,000 each”, which was an amount he had previously said was an adequate sum for each of them to receive. They submit that the instructions in the will which permitted them to sell the property were “sufficiently broad to accommodate instructions from [the deceased] to his executors to dispose of his estate as he saw fit”.

They say that both their father and they believed that the wording of the will was “sufficient to empower them to sell the property to family according to [the deceased’s] instructions” and “the wording of the will does not preclude the existence of a fiduciary duty to [the deceased]”.

[29]              They submitted that I should, therefore, focus on the testator’s orally expressed intentions and interpret the will in light of that. To support that submission they referred to cases involving unsigned wills or poorly drafted wills where reference might be had to the testator’s verbal statements to discern his or her testamentary intentions.

[30]              However, I do not consider that this case is analogous to such cases. Here there is a standard will, drafted by a lawyer, and executed by the testator. There is no ambiguity on the face of the document as to the testator’s intentions or wishes and therefore no need to resort to external evidence to shed light on his intentions. As the defendants themselves note, s 32 of the Wills Act 2007 allows the Court to refer to external evidence if the will is uncertain, but that is not the case here.

[31]              The only other circumstances in which oral statements can have testamentary effect are set out in s 34 of the Wills Act and relate to an oral will made by a member of the Armed Forces on active service. Again, as these circumstances do not apply, the deceased’s wishes must be gleaned from the written will.

[32]              In summary, there are no circumstances here that warrant examination of the oral statements made by the deceased, or that permit them to have testamentary effect.

Did the executors have duties, whether described as fiduciary, or as “moral” or “ethical” duties, to give effect to the testator’s expressed wishes?

[33]              The defendants are in error when they refer to the existence of “a fiduciary duty” being owed by the executors to the testator. Rather, personal representatives are

charged with acting “prudently and properly in the management of the estate as a whole”.2

[34]              Although the defendants focus on their role as personal representative of the testator, arguing this required them to give effect to his expressed wishes, this is to overlook that a personal representative, in accepting the office, becomes a trustee and their duties are circumscribed accordingly. As s 2(1) of the Trustee Act provides, the expressions “trust” and “trustee” in the Trustee Act extend to the duties incidental to the office of a personal representative and “trustee” where the context of that Act so admits, includes a personal representative. In short, the defendants have obligations as trustees in administering the estate in terms of the will.

[35]              As a trustee, they must “execute the trust with reasonable diligence, and conduct its affairs in the same manner as an ordinary prudent person of business would conduct his or her own affairs”.3 As the plaintiff submits, in the circumstances of the executors of an estate dealing with a residential property, and in the absence of any other factor, their duty is to obtain the best price available in the circumstances. In other words, they should sell the property for market value. In addition, as the plaintiff submits, a trustee may not make a gift or voluntary payment out of the trust property unless the trustee is authorised to do so by the instrument creating the trust.4 Here, the plaintiff says the transaction in this case amounts to the trustees giving Andrew a gift from the estate when he was not a beneficiary.

[36]              Having found in this case that the orally expressed wishes of the testator did not have testamentary effect, nor should the will be interpreted in light of them, I consider the defendants had no ability to sell the property for what they acknowledged was a significant undervalue on what could be achieved in the market at the time.

[37]As was said in Buttle v Saunders:5

2      Wills and Succession (online looseleaf ed, LexisNexis) at [11.17] citing Re Lepine, Dowsett v Culver [1892] 1 Ch 210, 219 (CA) and Re Charteris, Charteris v Biddulph [1917] 2 Ch 379, 388, 397 (CA).

3      Laws of New Zealand Trusts at [299].

4      Laws of New Zealand Trusts at [300].

5      Buttle v Saunders [1950] 2 All ER 193 at 195.

It is true that persons who are not in the position of trustees are entitled, if they so desire, to accept a lesser price than that which they might obtain on the sale of property, …. Trustees, however, are not vested with such complete freedom. They have an overriding duty to obtain the best price which they can for their beneficiaries.

[38]              Furthermore, although it was not raised by any party in submissions, the defendants can not rely on the defence in s 14(b) of the Trustee Act which relieves trustees from personal liability for selling land at undervalue if they have first obtained a valuation of the land from a duly qualified person and have sold the land at not less than that valuation. The defendants did not get a valuation and knew they were selling at undervalue.

[39]              My conclusion that the defendants had a duty to obtain market value for the property means the real issue is whether there was a concluded agreement reached during the lifetime of the testator which bound the executors to sell the property at less than market value.

Was there an enforceable agreement reached between the deceased and Andrew as to the sale of the property?

[40]              The defendants repeatedly referred to there being an “agreement” that the property be sold to Andrew for “about $300,000”. However, as the defendants admitted, any such agreement was not legally enforceable. Nevertheless they saw it as a commitment by their late father which they should “honour”.

[41]              Any suggestion that there was either an option to purchase or a contract to purchase is readily disposed of. The alleged agreement is uncertain as to price. The defendants repeatedly asserted that the agreement was to sell to Andrew at “about

$300,000” or “approximately $300,000”. There is no mechanism provided for settling the price and it seemed, from the evidence given, that the price finally agreed on was in part determined by Andrew’s borrowing capacity at the time of the agreement.

[42]              More importantly, whether described as an option to purchase or an agreement for sale and purchase, such agreement as there was, was a verbal agreement only. It is, therefore, not binding on the estate because it is not an agreement in writing as required by s 24 of the Property Law Act 2007.

[43]              Furthermore, if it was an option to purchase, it was not an agreement which was supported by consideration and so was not contractually enforceable against the estate.

[44]              As I have said, the defendants have conceded that the agreement was not legally enforceable and so I do not dwell on these points. In short, in the absence of any obligation to Andrew being contractually binding on the testator, and therefore on his personal representatives, the defendants were obliged to complete their duties under the will in accordance with the usual requirement to act prudently and properly in the management of the estate as a whole.

Should the Court exercise its discretion under s 73 Trustee Act 1956 to relieve the defendants from personal liability?

[45]              Although not pleaded, the defendants’ submissions concluded with a request that the Court consider its discretion under s 73 Trustee Act to relieve them from personal liability if they were in breach.

[46]Section 73 provides:

73       Power to relieve trustee from personal liability

If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed the breach, then the court may relieve him either wholly or partly from personal liability for the same.

[47]              I saw no prejudice to the plaintiff in allowing the defendants to amend their pleadings to raise this issue as no additional evidence was sought to be adduced in support of it, and the plaintiff was able to respond with submissions on that issue.

[48]The essential requirements of s 73 are that the trustees:

(a)acted both honestly and reasonably; and

(b)ought fairly to be excused for both breaching the trust and omitting to obtain directions from the Court.

[49]              The phrase “honestly and reasonably” is conjunctive.6 The plaintiff raised no challenge to the defendants acting with an honest belief that they were entitled to sell the house at an undervalue because that accorded with their late father’s wishes. He focussed  instead   on   their   obligation   to   act   reasonably.   As   was   said   by Sir Robert Megarry VC in Cowan v Scargill, that duty is not discharged merely by showing that the trustee acted in good faith and with sincerity since honesty and sincerity are not the same as prudence and reasonableness.7 While Cowan concerned a trustee’s obligation in respect of the investment of funds, there is no difference in principle between investment to obtain the best return for beneficiaries and the realisation of property to achieve the same results.8

[50]              “Reasonably” here means reasonably as trustees. The standard of conduct to be applied in determining the question of reasonableness “appears to be that of the ordinary business man without regard to the business and other qualifications of the particular trustees”.9

[51]              I am satisfied that the defendants knew that they were selling at a significant undervalue and that Andrew, who was a son of one of the defendants, would benefit from that. The defendants acknowledged that they had not sought Kelvin’s views as  a beneficiary before proceeding on that course of action. Given Marilyn’s conflict of interest, with her son benefitting significantly from the defendants’ decision, and the defendants’ express acknowledgement that the “agreement” with Andrew was not legally enforceable, the failure to seek legal advice on what they proposed was a glaring omission. In that combination of circumstances, I do not consider that the defendants could be said to have acted reasonably.

6      Wong v Burt [2005] 1 NZLR 91 (CA) at [57].

7      Cowan v Scargill [1985] Ch 270 at 288.

8      Kilsby v Kilsby (1996) 1 NZTR 6-001 at 121.

9      Stevenson v Brand [1917] NZLR 902 at 908 citing, In re Grindley [1898] 2 CH 593 at 601 and In re MacKay [1911] 1 Ch 300 at 304-306.

[52]              Accordingly, I find that the defendants were in breach of their duties as the executors and trustees of the estate of the late Mr Greenwood and I turn now to the question of relief.

Relief

[53]              The plaintiff seeks  an  order  that  the  defendant  pay  the  estate  of  Osborne Holmes Greenwood the sum of $239,427.94, along with interest and costs.

[54]              In fact, as explained in [16] above, the estate did not receive $330,572.06 for the property. It received $327,546.36 because it refunded some money to Andrew. The difference between the agreed market value of the property, and the net sale price is, therefore, $242,453.64.

[55]              I note, in passing, that had the defendants endeavoured to sell the property at market value they would, no doubt, have had to engage a real estate agent and incur costs in doing so. However, as that was not pleaded by the defendants as reducing any liability to the estate (or to the plaintiff), nor was there any evidence adduced to quantify such a cost to the estate, I have ignored it for the purposes of granting relief.

[56]              The next factor I need to consider is whether I should consider the defendants’ liability to the estate (and thereby to all beneficiaries), or simply to the plaintiff.

[57]              There is no suggestion that the plaintiff is authorised to act on behalf of the estate, or on behalf of the other beneficiaries. Indeed, the other beneficiaries have all disputed his position and his claims. Even Kirsten, who took no active part in these proceedings, provided a statement which expressed the support for Keith and Marilyn carrying out the wishes that their late father had made clear to several family members.

[58]              As Kelvin does not represent the balance of the beneficiaries, and only has an interest in a quarter share of the estate, I do not consider that he can require repayment of the difference between the sale price and market value to the estate. Indeed, it seems the other beneficiaries either have, or would, release and indemnify the defendants for distributing the estate in the manner that they have.

[59]              However, he has established that, as a consequence of the defendants’ failure to comply with their duties, he has received approximately $60,000 less than he otherwise would have received from the distribution of the estate. I therefore consider the defendants’ liability in respect of this claim must be confined to their liability to the plaintiff and I quantify that liability as being $60,613.41. The defendants are jointly and severally liable to the plaintiff for that sum.

[60]              The plaintiff seeks interest on that sum. However, no submissions were made on this aspect of the claim. There is a discretionary power under s 87 of the Judicature Act 190810 to award interest at up to the prescribed rate in any proceedings for the recovery of:

(a)any debt or damages; and

(b)a debt in which interest is payable as of right, but where the rate has not been agreed on or is not prescribed.

However, the present claim does not fit those categories. That said, Courts of equity have a jurisdiction to award interest which is outside and additional to the statutory power contained in s 87(1).11

[61]              Notwithstanding that, I am not satisfied that this is a case where interest should be awarded between the date the cause of action accrued (which presumably is the date of the transfer of the property) and the date of judgment. The plaintiff has already had the benefit of the defendants’ earnest attempts to minimise costs to the estate, for example, by handling the transfer of the property themselves. He also benefitted from the fact that no deduction has been sought for the potential costs which would have been incurred in achieving a sale at market value.

10     The new regime under the Interest on Money Claims Act 2016 only applies to proceedings commenced after 1 January 2018.

11     Rama v Millar [1996] 1 NZLR 257 (PC) at 262.

Costs

[62]              The situation is different in respect of costs. As is the usual case, I consider costs should follow the event. The proceeding was categorised as a category 2 matter at the first case management conference and nothing about the conduct of the case suggests that higher or lower costs should be awarded than costs  calculated on a    2B basis. However, as I did not hear from the parties on costs I will afford an opportunity to make submissions if higher or lower costs are sought.

[63]I therefore order:

(a)unless costs submissions are filed and served within 20 working days of receipt of this judgment, the plaintiff is awarded costs on a 2B basis;

(b)if costs submissions are filed and served, they are to be no more than five pages in length; and

(c)any submissions in response are to be filed and served within a further 10 working days and, again, are to be no more than five pages in length.

Solicitors:
Layburn Hodgins, Christchurch