Grey v Grey
[2015] NZHC 1614
•10 July 2015
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2014-488-211 [2015] NZHC 1614
BETWEEN DOUGLAS GREY
Appellant
AND
DARRELL GREY Respondent
Hearing: 2 July 2015 Counsel:
M Tolhurst for Appellant
H Fulton for RespondentJudgment:
10 July 2015
INTERIM JUDGMENT OF FOGARTY J
This judgment was delivered by me on 10 July 2015 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Citylaw, Auckland
Bell-Booth Sherry, Auckland
GREY v GREY [2015] NZHC 1614 [10 July 2015]
Introduction
[1] There is a District Court judgment in favour of the respondent, Darrell Grey, against the appellant, Douglas Grey, in the sum of $60,000. It has not been paid. Darrell Grey had lodged a charging order against a residential property owned by the Douglas Grey and Citylaw Trustees Limited, as trustees of the Grey Family Trust, charging that property with the amount of the judgment. Douglas Grey applied to the District Court to set aside the charging order. In the judgment delivered on 4
December 2014 by Judge K B de Ridder, the Court refused to set aside the order. Douglas Grey lodged a notice of appeal from that decision and an application for stay of execution or stay or proceedings.
[2] To present the reasoning of the judgment under appeal, it is necessary first to set out the chronology of events and development of the dispute prior to the judgment, the subject of this appeal. This includes an earlier judgment of the District Court on 2 August 2013, which entered judgment for the plaintiff in the sum of
$60,000, by way of summary judgment and made no finding on the liability of the trustees of the Grey Family Trust, that issue not being before the Court. That earlier judgment is also by Judge K B de Ridder.
Chronology
[3] In 2004, Douglas Grey had created an express trust by deed, he being settlor and a co-trustee with his solicitor’s trust company. His counsel, Mr Tolhurst, is one of the directors of the company, Citylaw Trustees Limited. All the beneficiaries were discretionary. The primary beneficiaries, included himself, his wife and their two children. The trust is known as the Grey Family Trust (GFT).
[4] At some date between 2004 and 2007, the Douglas’ father, Mr Colin Grey,
transferred his property at Hillcrest in Auckland to the GFT for the consideration of
$365,000. This consideration remained a debt owing by the GFT to Mr Colin Grey.
[5] In 2006, the GFT borrowed on the security of the Hillcrest property from the
ASB Bank, likely in the region of $247,000.
[6] Still in 2006, the GFT bought the property at 6 Sunnyside Street for the purchase price of $265,000. The GFT borrowed from the ASB Bank the mortgage recording a priority reservation at $405,000.
[7] In February 2007, the father, Mr Colin Grey, made a will. The important clauses are cls 2 and 3:
2If my son Douglas Colin Grey survives me by 14 days I give and bequeath all my estate to him and appoint him sole executor.
3I forgive any loan owing to me from the Grey Family Trust as at the date of my death.
[8] In mid-2007, the GFT bought a property at Westview, Whangarei for
$220,000, again borrowing from the ASB Bank with a priority reservation at
$300,000.
[9] The Court does not have a current statement of assets and liabilities of the GFT. Mr Tolhurt, counsel and trustee, is challenging the above narrative which is drawn from the affidavit of Ms K A Sherry, solicitor for Darrell Grey. Ms Sherry records in her affidavit that Douglas Grey has refused to supply a statement of account and inventory of the estate which has been requested, including a request on
28 August 2013. This was the affidavit filed in support of the application for the charging order.
[10] Darrell Grey, is Douglas’ brother. Darrell Grey commenced proceedings in the District Court seeking relief under the Family Protection Act for being cut out of his father’s will. The defendants being his brother, Douglas, and the Trustees of the GFT.
[11] A judicial settlement conference was convened, present being the two brothers, the other trustees, Douglas’ wife and Citylaw were not present. A settlement reached. The Court issued a minute dated 23 September 2009. The essential parts of the Family Court minute recording the settlement:
[3] Settlement was reached and it is recorded by agreement between the two brothers that it is accepted that there has been a breach of moral duty so
that the last will and testament of the late Mr Colin Francis Grey, formally of
Auckland, lately of Whangarei, retired, can be amended as follows:
[4] Clause 2 of the existing will dated 20 February 2007 is deleted and replaced with the following clause:
If my son Douglas Colin Grey survives me by 14 days, then I appoint him sole executor and give and bequeath my estate as follows:
(a) Sum of $60,000 as a legacy to Darrell James Grey.
(b) The remainder of my estate to the said Douglas Colin Grey. [5] The terms of payment of the $60,000 are to be the subject of a
separate contract to be entered into between Darrell Grey and
Douglas Grey which the Court does not need to be involved in. It is recorded however that the costs of bringing the claim by Darrell
Grey have to be met solely by him and met from the sum of $60,000
that will be paid to him by the estate. It also follows that the costs incurred by both the estate would be borne by the estate, and the costs incurred by Douglas Grey personally in his capacity will be borne by Mr Douglas Colin Grey.
[12] It may be noted that the Court minute (treated by the parties as an order of the Court) did not amend cl 3 of the will so that cl 2, as amended by the Court as part of the relief under the Family Protection Act, was inconsistent with cl 3 of the will, cl
4(b) being directly inconsistent with cl 3. This was because the only asset of his
father’s estate was the debt owing by the GFT.
[13] On the day before, there had been a settlement conference resulting in a handwritten agreement. The terms of that agreement are as follows:
Re Estate Colin Francis Grey
Memorandum of Settlement reached between Darrell James Grey and
Douglas Colin Grey.
1 Darrell shall be paid the sum of $60,000 on or before 30 May 2010.
2 Payment shall be made sooner than 30.5.10 and upon:
(a) sale of the house property at 6 Sunnyside St, Onerahi, Whangarei OR
(b) financed being raised on the security of that property.
Subject to paragraph 5 below
3Douglas and the (Douglas) Grey Family Trust agree to charge or secure the said property with payment of the settlement sum.
Subject to paragraph 5 below
4 These terms extend to and bind the Grey Family Trust as legalee of
the deceased’s estate to the intent and purpose that the Trust:
(a) agrees to the payment of $60,000 said be secured and
charged on the Trust’s paid property
(b) agrees to distribute from the Trust the settlement fund as and when the payment is due by these terms.
5The parties hereto Darrell Grey and Douglas Grey will request and instruct the trustees of the Grey Family Trust in the foregoing terms and use their best endeavours to secure such trust resolutions and the documentation therefore.
6These terms are in addition to and to give better effect to the orders made on 22 September 2009 in the Family Court at Auckland.
7 These are full and final terms of settlement.
Dated 22.9.09.
D C Grey
Darrell Grey
[14] The day after the handwritten terms of settlement were drawn up Mr Fulton, for Darrell Grey, wrote to Mr Tolhurt advising of the settlement. It records that the deferred payment scheme in the settlement was at the request of Mr Douglas Grey as he wanted to complete renovations to his home at Sunnyside Street, Onerahi, before it was offered for sale on the market. Douglas Grey had been joined by his wife as a trustee but she did not participate in the negotiations. It records that the GFT owned at least two properties at that time, one of which had negative equity. It would appear that the property at Sunnyside Street was to be offered for sale.
[15] On 19 October, Mr Tolhurst sent an email to Mr Fulton advising that his client had made an application to the bank for finance which had been largely positive. There was follow-up correspondence as to what happened. Then, on
17 May 2010 (approaching the deferred date of settlement, see cl 1), Douglas Grey
wrote to Darrell Grey advising that they had not been able to sell their properties and therefore he could pay the $60,000 by 31 May.
Don’t know where this goes: “Myself or the Grey Family Trust cannot make payment…..the money will be paid to you as soon as the properties are sold’
[16] In mid-2011, the GFT sold the Hillcrest property. The sale price was
$465,000, being $100,000 more than the acquisition value when the property was transferred from the deceased father to the GFT. In 2011 or later, the GFT sold the Westview property for $155,000, sustaining a loss of $65,000.
Judgment under appeal
[17] A consequence of Douglas Grey now applying to set aside the charging order is it brings into focus the liability of the GFT, that not having been resolved in the Court minute and, arguably, not in the handwritten settlement agreement.
[18] Judge de Ridder faced an argument from the applicant that Douglas Grey had no interest in the property of the Trust and so no interest was capable of being charged. The reply was that Douglas Grey, as executor of his father’s estate, had a beneficial interest in the debt owed by the Trust to the estate or, alternatively, by reason of his beneficial interest in the estate.
[19] Section 96A(1) of the District Courts Act 1997 provides:
96A Charging orders
(1A) A charging order may be made in respect of any of the following property:
(a) Any estate, right, title, or interest in possession, remainder, reversion, or expectancy, and whether vested or contingent, in any land held by the judgment debtor in the judgment debtor's own name:
(b) Any right or interest of the judgment debtor in any partnership:
(c) Any shares held by the judgment debtor in any company incorporated in New Zealand, or having an office in New Zealand in which transfers of shares may be registered:
(d) Any estate, right, or interest in possession, remainder, reversion, or expectancy, and whether vested or contingent, in any land, or in any money, shares, or other chattels held under or by virtue of any express or implied trust for the judgment debtor.]]
[20] The Judge examined the terms of settlement set out above. He relied on cl 5 of the minutes of the settlement conference, recording that the $60,000 is to be paid to Darrell Grey by the estate. He then noted that the separate contract provides the mechanism. He held that by reason of the separate contract, the Trust had become involved in the settlement:
As Douglas Grey is a trustee and beneficiary of the Trust, Darrell Grey is and was entitled to proceed on the basis that Douglas Grey acted with full authority of the trustees to bind the Trust to complete the settlement reached. Accordingly, in my view, the Trust is subject to either an express, or at least an implied Trust to meet the agreed sum to be paid to Darrell Grey.
[21] In addition to defending this reasoning, Mr Fulton, for the respondent, filed a memorandum of alternative grounds. He submitted that the GFT is subject to a constructive trust, the trustee of which is Douglas Grey as executor of his father’s estate and the beneficiaries being himself and his brother, Darrell Grey, to the extent of $60,000 by reason of the amendment to cl 2 of the will by order of the Family Court, as set out above. That Mr Douglas Grey’s failure as the executor of his father’s estate to administer it and recover the $60,000 in order to pay his brother his legacy, is a breach of trust or fiduciary duty, including breach by acting with a conflict of interest. That includes his personal use and enjoyment of the property owned by GFT and otherwise failing or refusing to require GFT to account to his father’s estate. As the estate was and is contained within the assets of the GFT, in the circumstances the property of the GFT is subject to a Trust who pay the estate the
$60,000 owed to the estate and from the estate to Darrell Grey, his brother.
[22] He also pleaded in the alternative that the appellant had agreed, as sole beneficiary of the estate, to pay his brother, Darrell Grey, the sum of $60,000 from the loan owing by the GFT to the estate. The third point was that the GFT trustees had agreed to the terms of payment of the legacy from the property immediately following the settlement. That third argument relies on the narrative of facts set out above from the affidavit of Ms Sherry.
The liabilities of the GFT
[23] A significant part of the appellant’s arguments is that the trustees of the GFT, as trustees, are not bound by the settlement. That charging orders can only be registered against land held by the judgment debtor in the judgment debtor’s own name.1 Supporting arguments are that there are no beneficiaries to the Trust with vested interests. They are all discretionary beneficiaries. Douglas Grey’s participation in the settlement did not bind his co-trustees, his wife and Citylaw
Trustees Limited. He cited authority to the effect that a beneficiary under a discretionary trust has no legal or equitable interest in that trust2 nor a proprietary interest,3 nothing more than an expectancy.4
[24] As a second argument he also relied on the proposition that the agreement anticipated that resolutions would have to be passed by the trustees to give effect to the settlement. As no resolutions had been passed, the trustees of the GFT had no obligation to raise $60,000 to pay to Darrell Grey. Thirdly, he argued that before there could be a charge on any property owned by the GFT, there had to be an agreement in writing signed by all the trustees to comply with s 2 of the Contracts Enforcement Act 1956. Fourthly, he argued that the trustees had no power to delegate their decisionmaking to one trustee, relying on s 31 of the Trustees Act
1956.
[25] All of these arguments depend on an interpretation of the amendment to the terms of the will as the remedy under the Family Protection Act and the terms of the settlement. I have already touched on these two points in the introduction.
The effect of the Court minute
[26] The new cl 2 of the existing was put in place by cl 4 of the Family Court minute. Its terms require an amendment of cl 3. The fact that it did not expressly
amend cl 3 is not a ground for rewriting cl 2 of the order. The immediate
1 District Courts Act 1947 s 96A(1).
2 R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd & ors [1992] 10 WAR 59, at p 64 lines 25 – 27.
3 At p 79, lines 14 - 15.
4 At p 79, lines 19 – 20.
consequence of the amendment of cl 2 of the will is that the executor of the estate, Douglas Grey, has an obligation as trustee to pay the sum of $60,000 as a legacy to his brother, Darrell, from any assets of the estate. If cl 3 of the will as originally made stays in place, then the estate has no asset to the sum of $60,000 to be distributed as a legacy to Darrell Grey. When drafting cl 2, the testator knew that the only asset of the estate was the debt of $365,000 owed by the GFT.
[27] No Court will allow cl 3 of the will to defeat the amendment of cl 2 reached in the settlement of the family protection claim and ordered by the Court. There has been no appeal against the amendment to cl 2. That is why the parties to the settlement can go back to the District Court to seek an amendment to cl 3. The amendment would have to accommodate cl 2 which is the dominant clause.
[28] It is sufficient for this Court to find that as a result of the settlement, it is inevitable, no matter how cl 3 is amended, that the trustees of the GFT have an obligation to pay the sum of $60,000 out of the debt back, but can treat the balance of $305,000 as forgiven.
[29] All the indications from the chronology of facts set out above, are that all the trustees of the GFT - Douglas Gray, his wife and Mr Tolhurst, as a director of the corporate trust and with the same fiduciary duties in that regard – accepted the settlement and made efforts to borrow against GFT assets, the sum of $60,000. In that respect, Citylaw Trustees Limited ratified the decision of its co-trustee. That conduct is objective evidence of confirmation by the co-trustees of the assumption of liability by Douglas Grey as a trustee of the GFT estate, to repay part of the debt, the sum of $60,000 to himself as executor of his father’s estate in order then to discharge his obligation as executor to pay the same sum as a legacy to his brother Darrell.
[30] There remains a question as to whether this debt is chargeable against property beneficially owned by the GFT. However, there is no doubt that when the trustees accepted liability to raise, if they could, $60,000 that they ratified the settlement.
[31] The trustees of the GFT have an obligation to pay this debt of $60,000. If they choose not to, in order to advantage one of their co-trustees, who is also a discretionary beneficiary, in order to frustrate the administration of the estate of the father, the question becomes whether the Court in equity can intervene by orders ad personam or by way of removal of trustees of one or both of the trusts in order that the respective trust obligations are discharged.
[32] The High Court is the custodian of trusts. It is part of the inherent jurisdiction of a High Court Judge to safeguard trusts and not let them fail. Included in this is the power to remove trustees and appoint new trustees.
[33] Before exercising this power, the Court needs to know whether the problem is that the trustees of the FGT cannot raise $60,000 or, rather, do not want to raise
$60,000. To that end, this is an interim decision as I indicated it would be at the end of the hearing.
[34] Exercising the inherent jurisdiction of this Court, I order the trustees of the
GFT:
(a) to account to this Court as to whether they can raise $60,000 from trust assets without selling them, by borrowing or, alternatively, why they cannot sell trust assets to raise the $60,000; and
(b)to advise the Court whether or not they are prepared to repay the debt found by this Court to be owing by them as trustees of $60,000 to Mr Douglas Grey, as executor of his father’s estate.
[35] So the trustees of the GFT are given one calendar month to so advise the Court. On receipt of that advice, which is to be copied to the solicitors for the appellant, Bell-Booth Sherry, Auckland, the appellant has a further 14 working days to file any affidavit in reply and the trustees of the GFT have a further seven days to file a limited reply to that reply, not raising any new matters.
[36] The jurisdiction now asserted by this Court by its inherent jurisdiction to protect trusts, recognising a need to intervene in order to bring all relevant facts to the Court’s knowledge before imposing any charge or obligation on the trustees. Equity looks at all the facts.
[37] It remains an open question as to whether the issues between the parties will be resolved by this appeal, or remitted back to the District Court, or resolved in whole or in part by exercise of the inherent jurisdiction of this Court.
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