Harre v Clark
[2014] NZHC 2533
•16 October 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-4304 [2014] NZHC 2533
BETWEEN LOIS VIOLET HARRE
First Plaintiff
RODERICK MCCRAE HARRE Second Plaintiff
AND
LYNETTE JOY CLARK First Defendant
COLIN JAMES LUCAS Second Defendant
Hearing: 6 October 2014 Counsel:
TM Molloy for Plaintiffs
AE Ferguson and FC Monteiro for DefendantsJudgment:
16 October 2014
JUDGMENT OF BREWER J
This judgment was delivered by me on 16 October 2014 at 11:00 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors: Walker & Associates (Auckland) for Plaintiffs
Wilson Harle (Auckland) for Defendants
Counsel: Tom Molloy
HARRE v CLARK [2014] NZHC 2533 [16 October 2014]
Introduction
[1] Mrs Lois Harre established a Family Trust in 1989. Its sole asset is a 29 acre rural property at Whenuapai. Mrs Harre has the power to appoint trustees. In 2007, Mrs Harre exercised that power to appoint her daughter, Mrs Lynette Clark, and a solicitor, Mr Colin Lucas, as trustees. Mrs Harre’s husband was also a trustee at the time, but he passed away in 2012 and was not replaced.
[2] The Trust’s land is a remnant of a farm which has been in Mrs Harre’s family since 1860. Mrs Harre lives on an adjoining property which she owned in common with her late husband. Mrs Harre has a life interest in her husband’s estate and, on her death, his estate will pass to the trustees of the Trust.
[3] Mrs Harre, now in her 80s, has been associated with the Trust’s land all her life. She and her husband farmed it for many years. Since Mr Harre died, Mrs Harre has continued to run cattle there. The land is not, and never has been, a viable economic unit. It has too small an area. Mrs Harre subsidises the cost of running the farming operation and the Trust has never derived an income from it.
[4] The beneficiaries of the Trust are Mrs Harre’s children, grandchildren, and their spouses. Its purpose is to provide for their “personal support benefit maintenance education or advancement in life”.
[5] Mrs Harre and her husband had five children, four of whom are still alive. They are Mrs Lynette Clark, Mrs Elaine Grant, Mr Roderick Harre, and Ms Andrea Harre. The fifth child, Mr Warren Harre, died in 2003. He is survived by his three children and their mother.
[6] Until recent years, the Trust slumbered. Mrs Harre and her husband farmed the land and looked after it as they always had. The Trust has not furthered its purpose because it has had no funds to do so.
[7] As Mr Harre neared the end of his life, the Harre family began to discuss what should become of the land. I infer that they did so, as is so often the case with families where family land is held in Trust, without particular regard to the legal
position of the Trust. A family meeting was held on 28 November 2009. There was a general feeling that the land should be sold. This meeting marks the beginning of the process of escalating disagreement which has led to this litigation.
[8] Mrs Lynette Clark, as a trustee, took the lead in advancing the sale of the land. In her affidavit, Mrs Clark describes herself as a business manager. I infer she is a good one. Her approach to selling the land was efficient and businesslike. She identified options for the method of sale. She kept her siblings informed and recorded her efforts. She involved her fellow trustee, Mr Lucas.
[9] There were, however, different views as to how the land should be sold. This slowed the process. Mrs Harre, as she made clear in her evidence, did not want the land auctioned. Mr Roderick Harre was interested in options for subdivision. He also wanted to see whether he could acquire some or all of the land, possibly with his sister, Ms Andrea Harre. Mrs Harre, who would naturally like to see at least part of the land stay in the family, would be pleased if that happened.
[10] Nevertheless, and after taking account of the various viewpoints, Mrs Clark and Mr Lucas, as trustees, scheduled an auction of the property for 17 March 2012. Mr Roderick Harre made it known he opposed this. On 13 March 2012, there was a meeting between him and the trustees. Mr Roderick Harre asked for time for him and his sister, Ms Andrea Harre, to put forward a purchase proposal. The trustees cancelled the auction.
[11] On 18 March 2012, Mrs Harre exercised her power of appointment under the Trust Deed. In a letter to the trustees, she advised them that, as of 18 March 2012, she appointed herself and Mr Roderick Harre as trustees. At the same time, she removed Mr Lucas as a trustee. The Trust Deed permits Mrs Harre to appoint herself as a trustee.1
[12] At first, Mr Lucas and Mrs Clark accepted the removal of Mr Lucas as a trustee. The necessary documents were signed by all parties. However, Mrs Clark
was not at all happy with the appointment of Mrs Harre and Mr Roderick Harre as
1 At [10].
trustees. On 1 December 2012, there was a meeting between Mrs Harre, Mr Roderick Harre and Mrs Clark to discuss the affairs of the Trust. The meeting had been requested by Mr Roderick Harre who had prepared an agenda. However, Mrs Clark made it clear that she did not regard this as a meeting of trustees.
[13] On Christmas Eve of 2012, Mrs Clark’s solicitor wrote to Mrs Harre’s solicitors asserting that the exercise by Mrs Harre of her power to remove Mr Lucas as a trustee was invalid. Matters escalated and on 13 May 2013 Mrs Harre exercised her power of appointment by removing Mrs Clark as a trustee. By this point, Mrs Clark’s position was that neither Mrs Harre nor Mr Roderick Harre were trustees because the exercise of the power of appointment was invalid due to conflict of interest. On 29 August 2013, Mr Lucas put on record that he did not accept his removal as a trustee. Mrs Harre and Mr Roderick Harre commenced this case on
25 September 2013.
[14] The dispute is about who should control the sale of the Trust’s land.
Mrs Harre and Mr Roderick Harre say they should be the ones to do that because: (a) They are the validly appointed trustees; and
(b)They will take whatever steps are necessary, including investigating fully the prospects of subdividing the land, to achieve the greatest return for the Trust.
[15] Mrs Clark and Mr Lucas say they should control the sale because:
(a) Mrs Harre and Mr Roderick Harre have ulterior and improper motives towards the land. These are, first, that Mrs Harre does not actually want the land to be sold at all because she wants to carry on using it as she always has; and, second, that she and Mr Roderick Harre want to transfer the land to Mr Roderick Harre, and, possibly, Ms Andrea Harre, at below market value so as to keep it in the family.
(b)Consequently, the exercise by Mrs Harre of her power of appointment to remove Mr Lucas as a trustee and to appoint herself and Mr Roderick Harre as trustees is invalid.
The proceedings
[16] Mrs Harre and Mr Roderick Harre claim an order vesting the land in their names.2 Currently, it is in the names of Mrs Harre’s late husband, Mrs Clark and Mr Lucas.
[17] Mrs Clark and Mr Lucas counterclaim by seeking declarations that:
(a) They remain as trustees (because Mrs Harre’s exercise of her power to remove them was “invalid and void”);
(b) Alternatively, a professional independent trustee be appointed; and
(c) “As long as [Mr Roderick Harre] intends to acquire the Trust property
[Mrs Harre and Mr Roderick Harre] cannot be trustees …”.
[18] Mrs Clark and Mr Lucas also seek directions as to the management of the sale of the land and how the proceeds should be distributed. This is predicated on the Court finding them to be trustees either because they remain so under the Trust Deed or in some derivative capacity:3
(a) the trust property is to be sold;
(b) sale of the trust property is to be by way of tender process;
(c) the tender process will be managed by the defendants as trustees;
(d) in the alternative, the tender process will be managed by a professional independent trustee to be appointed by the Court;
(e) the beneficiaries of the Harre Trust may participate in the tender process in the same way and to the same extent as all other third party participants in the tender process;
2 The prayer for relief refers to ss 52(1)(g) and 52(2) of the Trustee Act 1956 as providing the Court with jurisdiction. There was some discussion as to whether they do. I put that to one side. It is the existence of jurisdiction which is important, not its source.
3 Statement of defence dated 29 November 2013, at [30].
(f) the sale proceeds shall be distributed equally among the beneficiaries of the Harre Trust, namely Lynette Joy Clark, Elaine Rhonda Grant, Roderick McCrae Harre, Andrea Elizabeth Flora Harre and Warren Lloyd McCrae Harre (as to the share of Warren Harre, the proceeds will be distributed equally amongst his children);
(g) within 20 working days of the date of final distribution of the sale proceeds to beneficiaries, the trustees shall resolve to wind up the Harre Trust; and
(h) the defendants are released and discharged from all present and future liabilities, actions, suits, proceedings, expenses, costs, penalties or demands whatsoever for which they or one of them may be liable and which arise out of acts or omissions on their respective parts in the course of the above sale and distribution processes and the administration generally of the Lois Violet Harre Trust.
[19] Finally, Mrs Clark, as a beneficiary of the Trust, applies as a backstop measure for similar orders:4
(a) the trust property is to be sold;
(b) sale of the trust property is to be by way of tender process;
(c) the tender process will be managed by the defendants as trustees;
(d) in the alternative, the tender process will be managed by a professional independent trustee;
(e) the beneficiaries of the Harre Trust may participate in the tender process in the same way and to the same extent as all other third party participants in the tender process;
(f) the sale proceeds shall be distributed equally among the beneficiaries of the Harre Trust, namely Lynette Joy Clark, Elaine Rhonda Grant, Roderick McCrae Harre, Andrea Elizabeth Flora Harre and Warren Lloyd McCrae Harre (as to the share of Warren Harre, the proceeds will be distributed equally amongst his children).
Issues
[20] I take the issues to be:
(a) Who are the trustees?
(b) What, if anything, should the Court do to regulate the sale of the land?
4 At [39].
Who are the trustees?
[21] It is axiomatic that trustees must keep faith with their Trust. They have legal ownership of the Trust’s property, but it is not theirs. Their ownership of it is solely to enable them to give effect to the purposes of the trusts they have undertaken to discharge. They must act in utmost good faith in doing so. The minimum necessary to comply with the irreducible core of obligations owed by trustees is to perform the
trust honestly and in good faith, for the benefit of the beneficiaries.5
[22] Trustees are able to receive remuneration for their services. Sometimes this is provided for within the trust deed or there can be prior agreement between the trustees and beneficiaries. The Courts may allow payment to any trustee whether past or present for that person’s service, as is just and reasonable.6
[23] A trustee can also be a beneficiary of a Trust. In this case, the Trust Deed is silent on that point but the general law permits it.7 However, if a trustee is also a beneficiary then the trustee has a duty to avoid conflicts of interest or, perceptions of conflict, when making decisions as a trustee.8
[24] The power of appointment and removal of trustees is a fiduciary power regardless of whether that power is possessed by a trustee or any other individual.9
Therefore, a settlor of a Trust who retains the power of appointment of trustees is also under a fiduciary duty to exercise that power only in the best interests of the Trust. In the common law there existed a presumption that it would be an improper purpose for an appointor to use the power to appoint themselves as a trustee.10
Thomas and Hudson on the Law of Trusts notes that as a general rule, and in the absence of express provision to the contrary, an appointor may not appoint himself.11
In this case there is express provision to the contrary. Clause 10(e) of the Trust Deed
allows Mrs Harre to appoint herself trustee.
5 Armitage v Nurse [1997] EWCA Civ 1279 at 253 per Lord Justice Millett.
6 Trustee Act 1956, s 72, and per inherent jurisdiction.
7 Re Heberley (deceased) [1971] NZLR 325 (CA) at 332-333.
8 Blair v Vallely HC Wanganui CP8/98, 23 April 1999.
9 Carmine v Ritchie [2012] NZHC 1514 at [66].
10 Re Skeat’s Settlement (1889) 42 Ch D 522, Re Newen [1894] 2 CH 297, Montefiore v Guedella
[1903] 2 Ch 723.
11 Geraint Thomas and Alistair Hudson The Law of Trusts (2nd ed, Oxford University Press, Oxford, 2010) at 639.
[25] The power of appointment, or removal, must be exercised in good faith, for a proper purpose, consistent with the object of the power and in the best interests of the beneficiaries as a whole.12 The Court of Appeal of the Supreme Court of Western Australia noted:
The discretion is to be exercised by reference to the objects and purposes of the trust, having regard to the competing interests of the various potential beneficiaries, and without taking into account improper, irrelevant or irrational considerations.
[26] The use of a power of appointment to achieve a purpose which is not in the best interests of the beneficiaries as a whole will be a fraud on the power and will be set aside by the Court.13
[27] In this case, the issue is whether the removal by Mrs Harre of, first, Mr Lucas and, second, Mrs Clark was for the improper purposes alleged; namely, to enable Mrs Harre to continue to have the use of the Trust’s land and to connive with Mr Roderick Harre for him (and possibly Ms Andrea Harre) to acquire the land at a below market price. The onus of proving the existence of improper purposes is on Mrs Clark and Mr Lucas. The civil standard of proof (the balance of probabilities) applies.
[28] Mrs Harre, in her affidavit, makes it clear that she saw the family meeting of
28 November 2009 as agreeing to:14
… investigate the value of the Property so that informed decisions could later be made in relation to its future use, and Roderick would investigate possible subdivision of the Property with a view to adding value to the trust estate. At this stage there was no firm decision to sell the Property. We all just wanted to know what it was worth and what options were available.
[29] In Mrs Harre’s view, there was no urgency for the sale of the land.
12 Carmine v Ritchie, above n 9, at [70]. See also Scaffidi v Montevento [2011] WASCA 146 at
[149]-[150].
13 Carmine v Ritchie, above n 9, at [70].
14 Affidavit of Lois Violet Harre in support of application and for orders under section 52 of the
Trustee Act 1956, sworn 22 July 2014, at [42].
[30] Mrs Harre deposed also that she became aware that her son, Roderick, and her daughter, Andrea, had expressed an interest in buying either the whole of the land or a part of it. She and her husband approved of that.15
[31] Mrs Harre makes no secret that she was opposed to the auction which was scheduled for 17 March 2012. Mrs Harre deposes that she did not consider that it was a prudent course to take:16
(a) The property market appeared to be depressed; little interest had been expressed in the Property; and the Trustees appeared intent on selling the Property at the bottom of the market in circumstances where there was no urgency to sell the Property.
(b) The Trustees did not appear willing to consider subdivision as an option to obtain greater value for the Property.
(c) The Trustees had not obtained a formal valuation of the Property.
(d) I was not happy that the Property was being auctioned, and had expressed this to Lynette.
(e) I was not happy that the Trustees appeared intent on auctioning the Property, and going against the wishes of Roderick and Andrea who wished to either purchase part or all of the Property. This was causing a rift in family relations.
(f) That the beneficiaries (and myself) had not been advised of the reserve that would be set at auction.
[32] Coming to the removal of Mr Lucas as a trustee, Mrs Harre deposes:
57.The Trust that I had formed to advance the well being of my family was now causing division. The Trustees were disregarding my wish that any of my children who might wish to carry on the family ownership of at least part of the Property, would be able to do so. I was concerned that the family (and beneficiaries) were divided between Roderick and Andrea on the one hand, and Lynette and Elaine on the other hand.
58.As a result, I made the decision to remove Colin Lucas as trustee, and appoint Roderick and myself as joint trustees, together with Lynette. I had not originally wanted to appoint myself as Trustee and had approached my accountant to see whether he would be willing to take on the role. He had previously indicated that he was willing, but due to ill health, he was unable to do so. I approached my solicitor, who was unwilling to take on the position. I also gave consideration to appointing all the beneficiaries as trustees of the
Trust. Ultimately, I considered that the arrangement that I settled on was more likely to achieve agreement between the beneficiaries (and trustees) in relation to the Property. It would require Lynette, Roderick and myself to reach unanimous decisions in relation to the Property in the best interests of all beneficiaries.
[33] As to her decision to remove Mrs Clark as a trustee, Mrs Harre deposes to the events which culminated in the letter of 5 May 2013 from Mrs Clark’s solicitors in which her removal of Mr Lucas as a trustee and her appointment of herself and Mr Roderick Harre as trustees were questioned. Mrs Harre deposes:17
Given Lynette’s position it appeared to me that the trust was in a stalemate; that this was not in the beneficiaries’ best interests; and that the only way to resolve this stalemate was for me to remove Lynette as trustee. This was not a decision that I made lightly, as I was aware it could cause further division between my children and myself. As set out in my letter, I did not wish to take control of the Trust. My sole intention was to ensure that the Property was sold in a way that was in the best interests of all beneficiaries.
[34] As to the allegation of improper preference, Mrs Harre deposes:18
Lynette’s assertion that I intended to sell the Property to Roderick and/or Andrea on terms more favourable than would be available on the open market was completely incorrect, and inconsistent with everything that I had set out in my correspondence. I had and have no intention of favouring either Roderick or Andrea or any other beneficiary and had therefore suggested the tender process as a means to ensure that highest possible price was achieved, whilst also ensuring that Roderick and/or Andrea had an opportunity to purchase the Property at that price if they chose to.
[35] Mrs Harre completes her affidavit by asserting that she is aware of her obligations as a trustee and is familiar with the Trust Deed. She intends to fully comply with her obligations as a trustee and to act in the best interests of all beneficiaries.
[36] I had the opportunity to observe Mrs Harre while she was being cross- examined. I assess her as a determined and formidable person who, at the age of 86, is in possession of her faculties. She did not enjoy being cross-examined and was laconic in her responses to questions. There was nothing in the content of her evidence, or in her affect, which led me to doubt her veracity.
[37] Mrs Harre was clear that she never agreed to the property being sold, just that its value be investigated. She confirmed that she would (quite naturally) prefer a member of the family to retain a piece of the land but denied being prepared to give any preference. Mrs Harre also denied an overriding personal interest in retaining her own use of the land.
[38] When asked about her decision to remove Mr Lucas as a trustee, Mrs Harre replied:19
That would have been because I felt that he was not doing the best for the trust, doing enough for the trust.
[39] Mrs Harre denied that one of her reasons for removing Mr Lucas as a trustee was her desire to keep the land inside the family. When she was referred to para 57 of her affidavit where she complained that the trustees were disregarding her wish that any of her children who might wish to carry on the family ownership of at least part of the property would be able to do so, her response was that the trustees were not allowing part of the family “to have their say about it”.20
[40] Mrs Harre was referred also to a letter she wrote to Mrs Clark on 11 April
2013 in which she expressed herself as being “very frustrated and concerned with the failure to resolve between yourselves the disposal of the property and the distribution of the sale monies”.21 In the letter, Mrs Harre wrote:22
I know any transaction in respect of the property must be undertaken at market value of the property. As we all know, the auction that was proposed by Colin Lucas and yourself did not proceed because there was a real risk the property could have passed out of the hands of members of the family which was not what your father and I wanted. For this reason and the fact that I myself still wish to be involved with my cattle I am not prepared for the property to be put up for auction.
However, I suggest that to satisfy all of your interests that the property be put up for sale by tender. Which may or may not be through a real estate agent; obviously it would be a good idea to avoid the agent’s fees. Then once all tenders are received, Roderick and Andrea have the first opportunity to meet the highest tendered price, if it is not them who have tendered it. So Roderick and Andrea can choose whether or not to meet the highest tendered
19 Notes of evidence taken before the Hon Justice Brewer, at 14.
20 At 16.
21 Common bundle of documents, at 96.
price and, if they do not, then the property is sold to the third party who put in the highest tender. I feel that the tender process would be best as it enables other potential purchasers to become involved so as to get a greater degree of certainty of what is the current market value of the property. If for some unexpected reason there are no tenders I would propose that you and Elaine get a registered valuation of the property and Roderick and Andrea do the same. If the valuations are the same that is fine. Roderick and Andrea buy out you, Elaine and Warren’s children’s share at this value. If the valuations are not the same but reasonably similar then Roderick and Andrea buy at the average of the two valuations. If the two valuations are not reasonably similar then the two valuers would appoint a third valuer who would then make his decision as to the current market value of the property which would be binding on everybody.
[41] In the letter, Mrs Harre urged Mrs Clark to “sign the document which confirms Colin Lucas’s removal as a trustee and the appointment of Roderick and I as the two trustees. Then the three of us as the trustees can start the tender”.
[42] It was suggested to Mrs Harre that it was a concern to her that the sale of the property would mean she would lose its use. Mrs Harre replied, consistent with the passage I have just quoted:23
No. If the place had to be sold it had to be. I would have faced that if it came to that.
[43] Mrs Harre was also cross-examined about her reason for removing Mrs Clark as a trustee. Mrs Harre was mostly monosyllabic in her answers but the impression I got was that she was unhappy with Mrs Clark opposing her proposals as set out in the letter to which I have just referred. The penultimate exchange in cross- examination is as follows:24
Q. Mrs Harre, is it your view that the children Roderick and Andrea should be able to acquire the property or part of it without cost?
A. No.
[44] I note that when it was my opportunity to ask Mrs Harre questions, I enquired as to what she and Mr Roderick Harre would do with the land if she succeeded in dismissing Mrs Clark and Mr Lucas as trustees. Her reply was that she had not really thought about that and agreed that at the moment she has no idea what would
be done with the property.
23 Notes of evidence, above n 19, at 18.
24 At 26.
[45] Mr Roderick Harre also filed an affidavit and was cross-examined. In the affidavit, he described his recollection of the interactions which led to the cancellation of the auction. He deposes that at about that time he discussed the matter with Mrs Harre:25
… who was not comfortable with the Trustee’s (sic) actions to date, and their intention to sell the Property by auction. Lois considered the best course would be to replace Colin Lucas as trustee with both her and I joining Lynette as joint trustees, and that this would bring the discussions on the future of the Property back to the family.
[46] Mr Roderick Harre concludes his affidavit as follows:
69.Since the family meeting in 2009 I do not consider that the Trustees actions have been in the best interests of all the beneficiaries, or consistent with their obligations as Trustees, for various reasons, including that:
(a) The Trustees refused to give proper consideration to subdivision of the Property, which I had offered to fund, despite the fact that it was likely to return a greater amount to beneficiaries;
(b) The Trustees refused to give proper consideration to a boundary adjustment which would allow the Property to be sold in two blocks, despite the fact that it was likely to return a greater amount to beneficiaries;
(c) The Trustees refused to engage fully with either Andrea or I, as beneficiaries, regarding our proposal to purchase the Property for full market value, which was an outcome wanted by the settlor, Lois.
(d) The Trustees did not obtain a valuation for the Property at the time they were attempting to auction it in March 2012;
(e) The Trustees refused to provide beneficiaries with important information regarding the proposed auction, such as the reserve price.
70.At no time have I ever suggested that Andrea or I should be entitled to purchase the Property for anything less than full market value. Nor has my mother, Lois.
71.If the Court confirms my position as joint trustee, then I am aware that if the Property is to be sold, it must be sold for full market value, and in the best interests of all beneficiaries.
25 Affidavit of Roderick McCrae Harre in support of an application for orders under section 52 of the Trustee Act 1956, sworn 22 July 2014, at [48].
72.The first step that I will take as joint trustee is to arrange a meeting of the trustees and beneficiaries with the purpose of gauging each beneficiary’s individual current desire regarding the Property, and to reach agreement on what should be done with the Property, and how that should occur.
73.My position is that I would like an opportunity, on an equal basis with all other beneficiaries, to acquire the Property or part of it, at market value, if the Property has to be sold.
[47] In giving oral evidence, Mr Harre stuck to his position. Cross-examination focused on the reasonableness of the position taken by Mrs Clark and the apparent delays by Mr Harre in making a proposal to purchase the land. When asked:26
Q. So your plan, then, is for the trust to subdivide the property and pay beneficiaries out over time?
A. No, my plan is to look into all options to deal with the property that will suit all the beneficiaries, whatever that may be. And that may be as simple as a boundary change.
[48] The evidence on behalf of Mrs Clark and Mr Lucas was accepted also in affidavit form. Mrs Clark was cross-examined and I found her to be clear and businesslike. She did not make allegations of bad faith, but expressed her belief that Mrs Harre would like to continue in possession of the land and that she and Mr Roderick Harre would like to keep the land in the family even at an undervalue.
[49] The test is whether Mrs Harre exercised her power to appoint herself and Mr Roderick Harre as trustees and to remove Mrs Clark and Mr Lucas, for a proper purpose, consistent with the object of the power, and in the best interests of the beneficiaries as a whole. The proper purpose must have been her dominant purpose. If Mrs Harre did not exercise her power in this manner it will be a fraud on the power and the Court will invalidate the appointments and removals of the trustees.
As the Supreme Court said in Kain v Hutton:27
The party seeking to upset the appointment as a fraud on the power bears the onus of proof. What that party must establish is that the real purpose of the appointor, without which the appointment would not have been made, was to benefit the appointor or a non-object (stranger) rather than benefiting an object:
26 Notes of evidence, above n 19, at 44.
27 Kain v Hutton [2008] NZSC 61, [2008] 2 NZLR 589 at [19]–[20].
“The court looks to both the instrument itself and extrinsic material to determine whether the appointor would ever have exercised the power, had it not been for a purpose of benefiting herself or himself or non-objects, or whether such a purpose was merely incidental to a primary purpose of benefiting valid objects. ”
Upjohn J said in Re Burton’s Settlements; Scott v National Provincial Bank Ltd that the “purpose and intention” (Lord Parker’s phrase) of the appointor is to be ascertained as a matter of substance and not solely by analysing the effect of the appointment, though that, of course, is important. “One must try to discover his genuine intention”. An appointment subject to a condition to be performed by the nominated appointee, such as the establishment of a trust, may be a fraud on the power if the purpose of the imposition of the condition is to benefit the appointor or a third person who is not an object of the power. But an object may very well be benefited when a relative of the object receives a benefit. Frequently, in a family situation an indirect benefit to the object may be what really moves the appointor to make the appointment.
Discussion
[50] I do not consider that Mrs Clark and Mr Lucas have established on the balance of probabilities that Mrs Harre appointed herself and Mr Roderick Harre as trustees for an improper purpose. Nor did she remove Mrs Clark and Mr Lucas for an improper purpose. This is a dispute between the settlor of a Family Trust and two of her children who are among the discretionary beneficiaries of the Trust. Mrs Harre, as settlor, does not see any need to hurry the sale of the Trust’s land. Indeed, because of its location, it has appreciated in value potentially by some millions of dollars over the last few years. If subdivision restrictions are further relaxed (as is being publicly discussed), the rise in value might very well continue. Mrs Harre’s dominant purpose in appointing herself and Mr Roderick Harre as trustees was to take control of the sale of the land in the best interests of all beneficiaries. In particular, she considered that a sale by tender would realise the best price. I consider she acted to benefit the purpose of the Trust, namely the advancement in life of the beneficiaries, rather than to benefit herself and Mr Roderick Harre. There is no cogent evidence that her real purpose was to continue to have personal use of the land. I have no doubt that, as a trustee, Mrs Harre will be guided on the sale and distribution of the Trust’s assets by the beneficiaries. She seems to have a good knowledge of the operation of the Trust Deed and to appreciate the need for independent legal advice.
[51] Mrs Harre removed Mrs Clark and Mr Lucas as trustees because she did not approve of the way they were going about putting the land on the market. She also felt that unnecessary family discord was being created.
[52] I accept that Mrs Harre would prefer to keep at least some of the land in the family. But there is no evidence which persuades me that that preference extends beyond giving beneficiaries a chance to purchase at market price.
[53] Similarly, I accept that Mr Roderick Harre has no intention of misusing his position as a trustee to acquire any part of the Trust’s property at an undervalue. His appointment was not for the improper purpose of obtaining the property below market rates. I do not find that he is motivated as a trustee to do anything adverse to the interests of the beneficiaries. To the contrary, he wishes to identify how best to maximise the return to the beneficiaries from the Trust.
[54] There is a general rule against self-dealing which can prevent trustees from being able to purchase trust property.28 However, an express provision in the Trust instrument can effectively exclude the application of this rule.29 The Trust Deed seems in principle to sanction trustees purchasing trust property. The last clause of the Deed allows trustees to sell property to other trusts of which the trustees are also trustees, or to companies with which they are associated, “notwithstanding that their
or his interest or duty in any particular matter or matters may conflict with their or his duty to the trust fund or the beneficiary therein”. I am not sure how free a rein this would give the trustees since the supervisory jurisdiction of the Court is broad; but it does show that this is not a Trust which forbids trustees purchasing Trust property. Nevertheless, sale at an undervalue would be extraordinarily difficult to
justify,30 and I do not think there is a risk of it in this case.
[55] I conclude that Mrs Harre acted legally in removing Mr Lucas as a trustee and in appointing herself and Mr Roderick Harre as trustees. Likewise, she acted legally in removing Mrs Clark as a trustee. Mrs Harre and Mr Roderick Harre are
entitled to be registered as proprietors of the land.
28 Ex P James (1803) 8 Ves 337 at 345 see also Re Thompson’s Settlement [1986] Ch 99.
29 Swain v The Law Society [1983] AC 598 (HL) per Lord Bingham.
What, if anything, should the Court do to regulate the sale of the land?
[56] The Trust Deed and ss 14,15 and 16 of the Trustee Act 1956 give the trustees the power to sell the land, and to subdivide it for that purpose. They are able to sell by auction or on terms.
[57] I do not see any need for the Court to intervene to regulate the sale of the land. I am satisfied that Mrs Harre and Mr Roderick Harre are aware of their obligations under the Trust Deed and will act in the best interests of the beneficiaries. There seems to be general agreement that the Trust’s land should be sold. Indeed, given that to this point the Trust has been unable to advance its purpose because of lack of income, that would seem to be a course properly open to the trustees. The timing of any such sale, and the method of sale best calculated to maximise the sale price, is for the trustees – no doubt in consultation with the beneficiaries.
[58] The Court has a supervisory jurisdiction to authorise dealings with Trust property,31 and this can be called on if necessary by the trustees or by the beneficiaries.
Decision
[59] I make an order pursuant to s 52(1)(h) of the Trustee Act 1956 vesting the
Trust’s land (98-100 Totara Road, Whenuapai, being 11.6100 hectares and being Lot
2, DP81411, contained in Identifier NA38B/84 North Auckland Registry) in the plaintiffs, Lois Violet Harre and Roderick McCrae Harre.
[60] I decline to make any of the declarations sought by Mrs Clark and Mr Lucas. [61] I decline to give any of the directions sought by Mrs Clark and Mr Lucas.
[62] I decline to make any of the orders sought by Mrs Clark as a beneficiary of the Trust.
Costs
[63] The plaintiffs are entitled to have their reasonable costs paid out of the Trust estate.
[64] The defendants may also have their reasonable costs paid out of the Trust estate.
[65] As Gilbert J notes in Carmine v Ritchie:32
It is well settled that a trustee who is concerned that a power removing him or her as a trustee has been exercised contrary to the best interests of the beneficiaries should apply to the Court for directions as to whether the purported removal was valid. A trustee in this position should place the material facts before the Court and outline the nature of his or her concern. A trustee is entitled to an indemnity for costs reasonably and properly incurred in making such an application.
[66] In this case the defendants had genuine concerns about the legality of their removal. Although they did not take the initiative in seeking directions, the case was conducted to that end.
[67] In my view, the defendants are entitled to the protection normally afforded to trustees. They sought direction from the Court under s 66 of the Trustee Act 1956 and have maintained a reasonable stance. Reimbursement for trustees, where expenses are reasonably incurred is the default position. Otherwise trusts would be unworkable. In my view, the defendants acted reasonably and properly in incurring the expense of litigation, and it would be unfair were they not to be indemnified through the trust assets when they sought directions from the Court in what they
believed to be the best interests of the Trust.
Brewer J
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