Harrison v Harrison
[2015] NZHC 2935
•24 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1442 [2015] NZHC 2935
IN THE MATTER of the Valerie Geard Waiheke Trust IN THE MATTER
of a determination of a question arising in the administration of a trust, the determination of which is necessary or desirable to protect the trustees under
r 18.1(a)(ix) High Court Rules
BETWEEN
GRAEME ROSS HARRISON AND ADRIENNE HARRISON
Plaintiffs
AND
PAULINE JANICE HARRISON First Defendant
ANGELA JANICE HARRISON Second Defendant
CHILDFUND NEW ZEALAND LIMITED
Third Defendant
Hearing: 19 – 22 October 2015 Counsel:
RO Parmenter for plaintiffs
RA Rose for third defendantPJ Harrison and Associate Judge Harrison, first and second defendants, in person
Judgment:
24 November 2015
JUDGMENT OF FAIRE J
This judgment was delivered by me on 24 November 2015 at 12:45 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Harrison v Harrison [2015] NZHC 2935 [24 November 2015]
Contents
Introduction ............................................................................................................[1] First defendant’s status in this proceeding .............................................................[7] Factual background ................................................................................................[8] Documents executed by Valerie Geard on 18 October 2005 ...............................[12] Factual background subsequent to Valerie Geard’s death ....................................[21] The issues .............................................................................................................[45] Analysis ................................................................................................................[48]
What interest does the first defendant have as a final beneficiary and as a discretionary beneficiary in the Valerie Geard Trust? ..........................................[57]
Costs .....................................................................................................................[87]
Introduction
[1] The plaintiffs, in their capacity as trustees of the Valerie Geard Waiheke Trust, apply for orders in reliance either on the court’s inherent jurisdiction or under s 66 of the Trustee Act 1956 for:
(a) A determination of the question does either the first or second defendant have an interest in the assets of the Valerie Geard Waiheke Trust such as to make it unlawful for the plaintiffs to determine the Valerie Geard Waiheke Trust and distribute to ChildFund New Zealand Ltd either by selling a property at 19 Causeway Road, Waiheke and paying all proper debts of the Trust and distributing the resulting cash surplus to ChildFund New Zealand Ltd as a beneficiary or in some other way?
(b)If the determination of the question is answered in the negative, that the court order, pursuant to s 143 of the Land Transfer Act 1952, that caveat 9612733.1 be removed from certificate of title NA18C/1222,
which is a property located at 19 Causeway Road, Waiheke Island; and [2]
(c)
The
Costs.
third defendant is a charitable trust. It is a discretionary beneficiary of
the Valerie Geard Trust. It is a beneficiary entitled to the trust fund of the Valerie Geard Waiheke Trust at the date of its distribution. It broadly supports the plaintiffs’ position and in particular the relief referred to. In relation to the first relief sought by the plaintiffs, that is the determination of the question, counsel seeks an order that the plaintiffs, in their capacity as trustees, are authorised at a time of their choice to:
(a) Sell the Waiheke property;
(b)Distribute the net proceeds of sale after paying outstanding debts to the third defendant; and
(c) Wind up the Valerie Geard Trust.
[3] The first defendant is both a discretionary beneficiary and a final beneficiary. By virtue of being a final beneficiary she is also a default beneficiary whose interest may be defeated by the exercise of a power of appointment or advancement, in respect of the Valerie Geard Trust.
[4] The second defendant has an interest in the Valerie Geard Trust as provided in cl 11.1(a) of the trust deed, namely, the interest of the first defendant if the first defendant dies before the final vesting day.
[5] The first and second defendants have filed a statement of defence and counterclaim. They plead that the court should not make the proposed orders. A variety of matters are raised which, in summary, are as follows:
(a) The Valerie Geard Waiheke Trust is invalid because the plaintiffs’ resettlement of the property at 19 Causeway Road, Waiheke Island on that trust is ultra vires another trust, the Valerie Geard Trust;
(b) The plaintiffs are guilty of a fraud on a power on the grounds that the
Valerie Geard Trust deed does not confer a power of appointment on
trustees to add and remove the fixed final beneficiaries; (c)
The plaintiffs are guilty of breach of trust by failing to act in the best
interests of the final beneficiaries of the Valerie Geard Trust and have
preferred their own interests and have self-dealt and have treated the
Valerie Geard Trust as their own personal property; (d)
The plaintiffs are guilty of illegality and dishonesty in relation to their
management of the Valerie Geard Trust; (e)
The plaintiffs do not come to court with clean hands; and
(f)
The first and second defendants also rely on other unstated equitable grounds and principles.
[6]
The
first and second defendants seek the removal of the plaintiffs as trustees
of the Valerie Geard Trust. They do not quantify any damages. I infer from this that they seek a reversal of the resettlement of the property at 19 Causeway Road to the Valerie Geard Waiheke Trust together with costs and incidental orders.
First defendant’s status in this proceeding
[7] On 24 February 2015 Associate Judge Osborne, in the Christchurch Registry of this court, adjudicated the first defendant a bankrupt. The Official Assignee, acting in the first defendant’s bankrupt estate, on 12 August 2015 disclaimed all rights in this proceeding. The first defendant made application pursuant to s 119(2) of the Insolvency Act 2006. Arrangements were made for counsel for the Official Assignee to attend by telephone. I dealt with the application at the commencement of the trial. I issued a judgment in which I made orders pursuant to s 119(2) of the Insolvency Act 2006 that the interests of the first defendant in the trusts known as the Valerie Geard Trust and the Valerie Geard Waiheke Trust vest in her.
Factual background
[8] The late Mrs Valerie Geard settled the Valerie Geard Trust on 18 October
2005. It is referred to in the papers as the “first trust”. Also on 18 October 2005, she executed her will and a memorandum of wishes.
[9] Valerie Geard died in March 2006.
[10] At the time of execution of the first trust, her will and her memorandum of wishes, and at the date of her death, Valerie Geard:
(a) was married to Mr David William Albert Geard;
(b)had four siblings: Brian David Harrison, Pauline Janice Harrison (the first defendant), Malcolm Armstrong Harrison and Graeme Ross Harrison (the first-named plaintiff);
(c) had a sister-in-law, the wife of Graeme Ross Harrison, namely
Adrienne Harrison (the second-named plaintiff);
(d)had a niece, Angela Janice Harrison (the second defendant and the daughter of her sister, Pauline Janice Harrison); and
(e) owned a residential property at 19 Mt Royal Avenue, Mt Albert, Auckland.
[11] I will return to the recent factual developments in this case shortly.
Documents executed by Valerie Geard on 18 October 2005
[12] Valerie Geard’s will:
(a) appointed the plaintiffs her executors and trustees;
(b)gave $25,000 to her husband together with any motor vehicle owned by her at the date of her death;
|
d
trustees in total, with the first plaintiff or other person holding the statutory power of appointment.
[15] The trust deed, in addition, contains a long list of general powers in cl 18.
[16] For the purposes of this proceeding, however, the trustees are given discretions:
(a) Under cl 4(1) they:
… may with respect to all or any parts of the income of the trust fund after payment of all expenses and other charges to be met from income, determine:
(1) To pay or apply the same to, for or towards the personal support, maintenance, comfort, education, advancement in life or otherwise howsoever for the benefit of such of the Discretionary Beneficiaries as may from time to time be living or in existence during the said period, or such one or more of them to the exclusion of the other or others and if more than one in such shares and proportions as the Trustees in their absolute and uncontrolled discretion shall think proper.
(b) Under cl 6 they:
… may at any time or times and from time to time apply or transfer the whole or any part of the capital of the Trust Fund to or for the benefit of such of the Discretionary Beneficiaries as may then be living or such one or more of them as may be living or such one or more of them to the exclusion of the others or other of them at such times and if more than one in such proportions and in such manner and subject to such terms and conditions as the Trustees shall think fit and without limiting the generality of the foregoing for the maintenance education advancement or benefit of such beneficiary or beneficiaries.
(c) Under cl 7:
The powers of the trustees in relation to income and capital contained in clauses 4 and 6 hereof shall, without in any way limiting or restricting such powers, include the power for the trustees in their absolute and uncontrolled discretion at any time or times during the trust period by deed to resettle UPON TRUST in any manner which, in the opinion of the Trustees, is for the benefit of any person who shall for the time being be a Discretionary Beneficiary under the trust hereof the whole or any portion or portions of the capital or
income of the Trust Fund PROVIDED HOWEVER that such resettlement does not transgress the rule against perpetuities.
(d) Under cl 12:
SUBJECT always to any express provision to the contrary contained herein every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion PROVIDED HOWEVER that no Trustee hereunder who is also a beneficiary hereunder shall exercise any discretion vested in the Trustees in his or her own favour and it is hereby expressly provided that all of the powers and discretions contained herein may be exercised by the remaining Trustees in favour of any Trustee who is also a beneficiary hereof.
and
(e) Under cl 21 they:
… may before the Vesting Date and without infringing the rule against perpetuities by deed revoke or enlarge all or any of the provisions of this deed concerning the management or administration of the Trust as the Trustees may consider necessary or desirable to ensure that the provisions of the Deed as amended shall be valid and effective under the laws of New Zealand.
[17] Clause 5 allows for the accumulation of income in any period and to add that to the capital of the Trust Fund. It provides:
CAPITLISATION
5.ANY income of any income year not paid applied or retained during or within six (6) months after the end of that income year shall be accumulated and any income so accumulated shall be added to and form part of the capital of the Trust Fund and shall be subject to the trusts and powers herein declared in respect of the Trust Fund.
[18] The trust deed contains the usual declaration of trusts to the effect that the trustees “stand possessed of the Trust Fund upon the trusts and with and subject to the powers and discretions expressly implied in the deed”.
[19] The third document executed by Valerie Geard on 18 October 2005 was her memorandum of wishes for the Valerie Geard Trust. That document set out its objectives as follows:
The objective of the documentation of my wishes is to give present and future Trustees of my Family Trust a clear indication of my intent and wishes when I established the Family Trust for the benefit of my family in future years.
It is my intention to ensure that both present and future members of my family, being my siblings and in particular my brother Malcolm Armstrong Harrison, have as much financial security as possible for the future. I see this security coming from returns earned on investments, rather than eroding the capital base itself except where the use of capital is necessary.
It is my intention that whoever be the Trustee maintains the Trust for the benefit of the Beneficiaries and in particular my siblings after my death. The Trust should only be wound up with the consent of my family and after the Trustees and my siblings have sought professional advice.
[20] It records that her property at 19 Mt Royal Avenue, Mt Albert be the primary asset of the trust. It further provides under the heading Standards I wish to adhere to “to assist family members on such terms as the Trustees shall in their absolute discretion determine”. Under the heading Administration five specific matters were mentioned as follows:
·I express the wish that my husband, David William Albert Geard be able to continue to reside at the Mt Royal Avenue property for a sufficient period of time to ensure an orderly transition to an alternative property following my death.
·I express the wish that my said brother Malcolm Armstrong Harrison be the primary beneficiary of my trust but also that my trustees endeavour to take the interest of my said husband, David William Albert Geard into account.
·I express the wish that the trust fund be applied, in large part, to purchase a residential property for the use and enjoyment of my brother, the said Malcolm Armstrong Harrison.
·I express the wish that any residue following the purchase of a property for my said brother be invested and that the income be applied to maintain the property.
·I express the wish that on my brother Malcolm’s death, that the trust fund be applied for the benefit of my brother and trustee, Graeme Ross Harrison, or should he predecease my brother Malcolm, then for the benefit of my said husband and ChildFund New Zealand Limited.
Factual background subsequent to Valerie Geard’s death
[21] Valerie Geard’s husband owned a property at 43 Seafield View Road, Grafton, Auckland and a second property on Waiheke Island. Malcolm Harrison, Valerie Geard’s brother, occupied her husband’s, David Geard’s, house on Waiheke Island.
[22] David Geard vacated the house at 19 Mt Royal Road, Mt Albert in September
2006 and went to Turkey for a holiday. The intention was that whilst he was away the first plaintiff would make 19 Mt Royal Road, Mt Albert ready for sale. At the same time, David Geard’s family home at 43 Seafield View Road, Grafton would be renovated and made ready for him to return to live in on his return to New Zealand. The renovations were to be paid for from the bequest of $25,000 made under the will, plus and extra sum of approximately $29,363, which was to be paid by the Valerie Geard Trust, representing five years of occupancy of David Geard’s house on Waiheke Island by Valerie Geard’s brother, Malcolm.
[23] At the same time as that was happening, the plaintiffs invited Malcolm Harrison to look for a property which the Valerie Geard Trust would buy on Waiheke Island so that he could occupy it. The property at 19 Causeway Road, Waiheke was identified. Because funds were not immediately available, the second plaintiff raised a loan with ASB so that the costs of the renovations and the deposit on the Waiheke property could be paid for. Clearly, the intention was that the loan would be repaid from the sale proceeds of 19 Mt Royal Avenue, Mt Albert.
[24] The trustees, acting in their capacities as executors and trustees of Valerie Geard’s estate, were able to sell 19 Mt Royal Avenue, Mt Albert for $512,000. After costs and expenses a net sum of $493,930.83 was realised.
[25] The trustees, then acting in their capacity as trustees of the Valerie Geard Trust, settled the purchase of the property in the trust’s name at 19 Causeway Road, Waiheke. The purchase price was $385,000. The result of the two transactions was that the loan, which the second plaintiff had to take out, could be repaid and the sales and purchases completed. In addition, some repairs and maintenance were carried out to 19 Causeway Road together with the purchase of some chattels for that
property. The trustees, in reliance on Valerie Geard’s memorandum of wishes, gave
occupation of the property to Malcolm Harrison.
[26] It is significant that I record that from the principal assets of the estate of
Valerie Geard, that is, the house proceeds of $493,930.83, the trustees paid: (a) $386,046.20 to purchase 19 Causeway Road, Waiheke;
(b) The bequest paid to the first defendant of $20,000; (c) The bequest paid to David Geard of $25,000; and
(d) The sum paid to cover the balance required for the renovations and on
account of Malcolm Harrison’s use of David Geard’s house of
$29,363,
which together totalled $442,409.20. The above summary takes no account of interest and costs of borrowing that had to be incurred to enable the transactions to take place.
[27] On 2 November 2007, Malcolm Harrison died as a result of an accident. The plaintiffs say, acting in their capacity as trustees, they decided that the trust would keep the Waiheke property for the first plaintiff’s use as per his sister’s wishes pending making a decision about a distribution to the third defendant before the vesting day. The plaintiffs say they maintained 19 Causeway Road, Waiheke and from time to time used it as a bach. There is some contest as to whether it was rented prior to Malcolm Harrison’s death. That seems unlikely. The plaintiffs say, however, at a later time it was rented with a view to covering ongoing costs of rates, insurance, power, lawn mowing etc.
[28] There are signs that all was not well in the relationships between the plaintiffs and the first defendant and the second defendant. Correspondence and another documents put to the defendants in cross-examination are written in a highly provocative and critical tone, evincing the first defendant’s criticism of Valerie Geard. The plaintiffs were also cross-examined. They made it clear that they would
not entertain any request for assistance from the trust that might be sought by the first defendant in particular.
[29] In a judgment delivered by Harrison J on 6 August 2008 his Honour referred to an application filed by the first defendant seeking orders against the plaintiffs in their capacities as trustees in the estate of Valerie Geard.1 The application was made on 20 March 2008. The application was originally made on behalf of the first defendant by a Christchurch law firm. However, they sought and were granted leave to withdraw before determination of the application by his Honour. Another matter of significance, also recorded in the judgment, is that counsel, Mr Parmenter and his instructing solicitor, did not appear when the application was heard by his Honour,
having regard to allegations of personal and professional misconduct made by the first defendant against both.
[30] The matter was resolved by his Honour noting that the bequest provided for the first defendant by Valerie Geard had been tendered by cheque. His Honour noted that the first defendant’s interest in Valerie Geard’s estate was confined to the bequest and that therefore she had no interest in obtaining an inventory and account of the estate. It appears that his Honour may have been misinformed, however, as to the position of the Valerie Geard Trust deed, because his Honour then went on to make an observation as follows:
The application also seeks orders relating to the Valerie Geard Trust Deed. Ms Harrison seeks a copy of the instrument together with accounts and financial statements. She has not established any interest in that trust. Indeed she has failed to show that she is a nominated beneficiary or has any other ground for obtaining the relief sought.
That last position seems to have arisen because his Honour must have been told that the first defendant was not named in the Valerie Geard Trust. That matter was later corrected, although obviously not drawn to his Honour’s attention.
[31] The second defendant referred to a minute of Winkelmann J made on 7 May
2008. I have considered it. Its purpose was to give directions to enable the
1 Harrison v Harrison HC Auckland CIV-2006-404-2003, 6 August 2008.
application which was determined by Harrison J to be determined. It does not, nor was it intended to, give any ruling on a substantive issue between the parties.
[32] The threat of legal proceedings by the first defendant and other undescribed actions, but described by the plaintiffs as the first defendant “causing mayhem”, appears to have been the catalyst for the plaintiffs to seek advice concerning the administration and management of the trust. Their solicitor arranged for a solicitor specialising in giving trust advice to be instructed. The plaintiffs did not physically attend upon the solicitor. The solicitor did not give evidence. The only clue as to what his advice was arises from the documents that were produced. Nevertheless, the solicitor’s assistance was sought as an expert in the field of trust law for the purpose of giving advice to the plaintiffs in their capacity as trustees.
[33] As result, three specific documents followed. The first was a resolution of trustees of the Valerie Geard Trust, dated 4 October 2009. It records the only asset of the Valerie Geard Trust, other than a small amount of cash, is the property at
19 Causeway Road, Waiheke occupied by Malcolm Harrison prior to his death. It further makes reference to the memorandum of wishes of 18 October 2005 and the statement:
I express the wish that on my brother Malcolm’s death, that the trust fund be applied for the benefit of my brother and trustee, Graeme Ross Harrison, or should he predecease my brother Malcolm, then for the benefit of my said husband and ChildFund New Zealand Limited.
[34] The resolution then resolves that the Waiheke property be resettled on the terms of a trust which:
a.Empower the Trustees to apply the income and capital of the Trust Fund during the joint lifetimes of GRAEME ROSS HARRISON and his wife ADRIENNE for their maintenance and benefit as the Trustees think fit (with power for the trustee to permit they and the survivor of them to use and occupy the Waiheke property upon such terms as the trustees shall think fit).
b.Upon the death of the survivor of them to hold the Trust Fund upon trust for ChildFund New Zealand Limited.
The resolution provided that any remaining cash was to be applied in repayment of the resettlement. The trustees of the trust were to be the above-named plaintiffs.
The resolution named the new trust the Valerie Geard Waiheke Trust. It further provided that:
a formal trust deed was to be prepared by [the trust expert solicitor] of Auckland, Solicitor and to contain such other terms and provisions as he (acting as an expert) shall consider necessary to give effect to the resolution and Birdsey & Associates be instructed to take all necessary steps to record the settlement and transfer.
Birdsey & Associates were the solicitors who had been instructed by the plaintiffs at this time and who were instrumental in the instruction of the trust expert. The resolution added that it was to have effect from 5 November 2009.
[35] The second document was the Valerie Geard Waiheke Trust Deed. It was signed by the plaintiffs on 8 March 2010 in their capacity as settlors and trustees. The property at 19 Causeway Road, Waiheke was transferred to the plaintiffs as a resettlement of the Valerie Geard Trust although no specific record appears on the title because the actual trustees remained the same for both the first and the second trust. The small balance that was in the Valerie Geard Trust was put in an interest bearing account. The Valerie Geard Waiheke Trust requires the trustees to hold the trust property until the death of the survivor of the plaintiffs and thereafter to distribute to the third defendant.
[36] The minutes of the Valerie Geard Waiheke Trust, which constituted the third document in the sequence, were then executed on 8 March 2010 They confirmed:
(a) the plaintiffs as trustees;
(b) the trust took effect from 5 November 2009;
(c) the Valerie Geard Trust resolutions of 4 October 2009; and
(d) the resettlement and transfer to the Valerie Geard Waiheke Trust of
19 Causeway Road, Waiheke Island, together with other management matters that do not affect this proceeding.
[37] The first defendant commenced a proceeding in her own name and in the name of the Valerie Geard Family Trust in 2012.2 That proceeding pleaded that the plaintiffs had acted in breach of their obligations as trustees by keeping and using the trust property for their own benefit to the exclusion of the second plaintiff and her brother, Brian Harrison. The proceeding was confined to a claim against the plaintiffs as trustees of the Valerie Geard Trust.
[38] In an interlocutory judgment delivered in that proceeding,3 Toogood J recorded that Associate Judge Doogue set down three interlocutory applications for hearing on 23 July 2012 namely:
(a) an application by Pauline Harrison for removal of the solicitor and counsel acting for the second defendants in that proceeding, who are the current plaintiffs;
(b)an application by the first and second defendants in that proceeding (the above-named plaintiffs) for security for costs against the second plaintiff (the above-named first defendant); and
(c) an application by Brian Harrison, who had been named as a third plaintiff in the proceeding, but who wished to discontinue.
[39] His Honour directed that Brian Harrison be permitted to discontinue and he dismissed the second plaintiff’s (the above-named first defendant’s) application to disqualify counsel and his instructing solicitor from acting in the proceeding. His Honour then considered the application for security for costs, which included an analysis of the merits of the plaintiff’s (first defendant in this proceeding) claims so far as that was revealed to his Honour.
[40] Of some significance are his comments which are recorded as follows:
[29] On the face of the relevant documents, there is considerable force in Mr Parmenter’s submission that the plaintiff’s primary claim that the trustees should make a final distribution to her as a final beneficiary
2 Valerie Geard Family Trust v Harrison CIV-2012-404-993.
3 Valerie Geard Family Trust v Harrison [2013] NZHC 385.
cannot succeed. Even if the Court was to find that the defendants had misused their powers as trustees, the appropriate remedy would be to replace them, not for the Court to interfere in the exercise of discretions plainly conferred by the Trust Deed.
[30] The allegations of misuse of trust funds in respect of the purchase of a television set, and two new vehicles, and the alleged misuse of trust funds to pay off a personal loan are not supported by credible evidence from the plaintiff. The allegations are, in any event, answered in Mrs Harrison’s affidavit by supporting documents.
[31] The defendants’ careful and detailed response to the allegations of misfeasance are to be contrasted with the wide-ranging, unfocused, exaggerated and inherently implausible allegations made by the plaintiff. Unsubstantiated allegations of deceit and misleading conduct by the defendants and legal practitioners, and the attacks on judicial officers, which are contained in the plaintiff’s memorandum, give me no confidence that the plaintiff has a meritorious claim. Furthermore, it is apparent from the approach which the plaintiff has taken to the interlocutory issues which have arisen so far, that she is incapable of addressing the real issues arising in the litigation with any proper focus. Given that the plaintiff is acting in person, there is a real risk, in my view, that the substantive hearing would occupy far more time than Mr Parmenter’s estimate of two days.
[32] For those reasons, I am not persuaded that the making of an order for payment of security of costs would unfairly prevent the plaintiff from bringing a bona fide claim which has a reasonable prospect of success. The circumstances revealed by the evidence properly before the Court do not indicate that the defendants’ actions have rendered the plaintiff impecunious. The defendants have not taken any steps which would justify the Court holding that they should continue to meet the cost of defending what can only be regarded, at this point, as wild accusations by the plaintiff. They should not be forced to do so at considerable expense without some comfort in knowing that any costs award in their favour is likely to be met.
[41] His Honour then assessed the appropriate award and concluded that security in the sum of $25,000 should be given. He set a time for that and also ordered a payment of $3,854 for costs on the disqualification application and further $2,500 on the application for security for costs.
[42] The judgment was not immediately sealed.
[43] The next development occurred with the lodging by the first and second defendants of a caveat on the title of the property at 19 Causeway Road, Waiheke on
6 January 2014. It records that the first and second defendants claim:
A beneficial interest in the land as cesta que trust which is property purchased from the trust fund of the Valerie Geard Trust made by deed by the first defendant’s sister, of which the registered proprietor (the plaintiffs) are trustees.
It then refers to the sale and purchase agreement which effected the transfer to the trustees.
[44] The caveat was sustained in a judgment delivered by Associate Judge Matthews on 6 May 2014. The plaintiffs say that that situation arose through an oversight and that it had been their intention to challenge the caveat. However, that was not done. What followed the caveat judgment, however, was this proceeding. Also, there followed steps to enforce the order for costs that had been made by Toogood J in relation to the Trustee Act 1956 proceeding which came before him. That led ultimately for an order for adjudication of the first defendant as a bankrupt, to which I have made reference.
The issues
[45] This proceeding, including the counterclaim, raises the question as to whether the first and second defendants have any interest in either the assets of the Valerie Geard Trust or the Valerie Geard Waiheke Trust, which would prevent the court from sanctioning the proposed steps and distribution referred to in [1] of this judgment.
[46] If the answer to the first issue mentioned is “no”, the next issue is whether the court should make the orders which have been sought in [1](b) and (c) of this judgment.
[47] There are a number of subsidiary issues which are necessary to determine as part of the consideration of these first two issues. They are:
(a) Did the Valerie Geard Trust give the plaintiffs, as trustees, a discretion to make income and/or capital distributions to any object, including a trustee who is also a beneficiary, to the exclusion of other objects as the trustees think fit? What restrictions, if any, are imposed on a
trustee given such a discretion? What interest does the first defendant have both as a final beneficiary and a discretionary beneficiary?
(b)Were the plaintiffs’ actions, in their capacity as trustees, in resettling the property at 19 Causeway Road, Waiheke on the terms of the Valerie Geard Waiheke Trust permissible under the terms of the Valerie Geard Trust?
(i)Was Mr Harrison’s participation in the resolution to resettle the property on Valerie Geard Waiheke Trust a breach of cl 12 of the Valerie Geard Trust because he is both a trustee and a beneficiary of that trust, and is a beneficiary of the resettled trust?
(ii)Has the power of resettlement been exercised fraudulently because Mrs Harrison is a beneficiary of the Valerie Geard Waiheke Trust and may benefit from the resettlement?
(iii)If there is a breach, or if the power of resettlement was exercised fraudulently, what are the consequences?
(iv) Can Mr Harrison’s signature be severed from the resolution
providing for resettlement?
(v)Can the court nevertheless save the resettlement either by directions under s 66 of the Trustee Act 1956 or in reliance on the court’s inherent jurisdiction?
(c) In addition, is the resettlement of the 19 Causeway Road, Waiheke property on the Valerie Geard Trust consistent with the memorandum of wishes?
(d) Do the plaintiffs, in their capacity as trustees of the Valerie Geard
Waiheke Trust, have a discretion which permits them to sell
19 Causeway Road, Waiheke and distribute the proceeds, after
payment of costs and other expenses of the trust, to the third defendant?
(e) Is it appropriate that the court make an order removing the first and second defendants’ caveat which is currently registered against the title of 19 Causeway Road, Waiheke?
(f) Should the court make orders removing the plaintiffs as trustees and appointing a new trustee and any other consequential orders flowing from such order?
(g)Is the counterclaim and matters raised in it an abuse of process because of the existence of the proceeding Valerie Geard Family Trust v Harrison?
Analysis
[48] The plaintiffs’ application requires a consideration of Valerie Geard’s will, trust deed and memorandum of wishes. It also requires a consideration of the Valerie Geard Waiheke Trust deed. Accordingly, I shall briefly refer to the approach which must be followed in interpreting this category of documents.
[49] Subject to due allowance being made for the difference in context, the interpretation of trust instruments is essentially the same as that applying to contracts. The law in New Zealand is reasonably settled.4 The words in issue are to be read in context of the whole document and of the surrounding circumstances. The exercise is undertaken with the object of identifying the meaning that the parties intended, though an inquiry as to what a reasonable and properly informed third
party would consider that the parties intended the words to mean is undertaken.
4 Investor Compensation Scheme Ltd v West Bromich Building Society [1998] 1 WLR 896, [1998]
1 All ER 98 (HL); Wholesale Distributors Ltd v Gibbons Holdings Ltd [2007] NZSC 37, [2008]
1 NZLR 277; Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444; and Zurich Australian Insurance Ltd t/a Zurich New Zealand Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 838.
[50] In a situation like the present, one must bear in mind that the document is a unilateral document. There is no question of negotiation among family members of Valerie Geard. That position led Ms Rose to provide a summary, which I adopt:
37.1the Court will interpret powers in a trust deed by first referring to the words used in their natural and ordinary meaning;
37.2regard must be had to the deed’s/settlement/s purposes so that, where more than one interpretation is available, the interpretation that best advances the settlor’s (or draftsman) intention is preferred;5
37.3the Court is entitled to search for the subjective intention of testator/settler. This distinguishes the way in which courts interpret wills and trusts, as contrasted with the approach to contracts;6
37.4the approach must be tailored to the type of trust in issue. For example, strict application of contract interpretation principles (or even complete setting aside of principles of trust law) is more easily justified in cases involving commercial trusts.7 Likewise, charitable trusts require a different approach to interpretation;
37.5 the welfare of beneficiaries is the Court’s dominant and prime
consideration;8 and
37.6where there is ambiguity, the Court will lean to that construction which has been adopted over a long period, and will seek to give a power its most ample operation so as to avoid a construction that causes unjustifiable inconvenience.9
[51] I accept Ms Rose’s submission that what is required when determining whether the trustees have acted within the scope of, and/or effected valid executions of their resettlement or appointment powers, is whether their actions have given effect to Valerie Geard’s intention, distilled through application of a “practical and
purposive” rather than a “detached and literal” construction.10
5 Gerald Dworkin Odgers’ Construction of Deeds and Statutes (5th ed, Sweet & Maxwell, London, 1967) at 31 –36, 39 – 50 and 55 –58.
6 For comment on the difference between trusts and contracts, see Greg Kelly and Chris Kelly
Garrow and Kelly: Law of Trusts and Trustees (6th ed, LexisNexis, Wellington, 2005) at 12 –13. Note, however, that pension trusts do combine elements of trust and contract.
7 See, for example, Manukau City Council v Lawson [2001] NZLR 599 (HC) at [31](a) and Re Andrews HC Christchurch M5/02, 21 June 2002 at [26] and [58]. It is for this reason that pension/superannuation trusts are treated differently to ordinary family trusts.
8 Letterstedt v Broers (1884) 9 AppCas 371 at 386 per Lord Blackburn; [1881-85] All ER 882.
9 In the context of statutes, see also Francis Bennion Bennion on Statutory Interpretation (5th ed, LexisNexis, London, 2008) 869, citing R v Committee of Lloyd’s, ex p Moran (1983) The Times,
24 June 1983: “… a statute cannot be interpreted according to its literal meaning without testing
that meaning against the practical outcome of giving effect to it.”
10 Re UEB Industries Pension Plan [1992] 1 NZLR 294 (CA) at 297.
[52] In [19] and [20] of this judgment I set out the important provisions of the memorandum of wishes signed by Valerie Geard at the time she executed her will and the Valerie Geard Trust as settlor.
[53] I adopt the following summary of position in relation to settlor’s wishes:11
Settlor’s wishes
In a conventional family trust the funds comprised in the settlement are the settlor’s bounty. Except to the extent that he has reserved powers to himself or conferred them on third parties, the trustees are the means that he has chosen to benefit the beneficiaries out of property of his own. He could have done so by gifts made directly to them but instead has interposed a trust, so as to make continuing provision for them after his death or to give them the security of a proprietary interest, rather than a precarious dependency on him, or to take advance of opportunities for tax planning or for a variety of other reasons. So far as the trustees are given dispositive powers, they are to make choices which the settlor could have made himself.
Trustees therefore rightly give great weight to the settlor’s wishes, either expressed from time to time during his lifetime or recorded, usually in documentary form, before his death. Letters or memoranda of wishes from the settlor are now commonplace; on occasion a precatory clause is inserted in the trust instrument, for example asking the trustees to consider someone as the primary beneficiary. The significance of the settlor’s wishes has grown with the growth of wide discretionary trusts and powers in preference to trusts comprising wholly or mainly fixed interests. Without some guidance from the settlor, trustees would often have difficulty in identifying who ought to benefit. “The settlor’s wishes”, the Supreme Court has held, are always a material consideration in the exercise of fiduciary discretions”. It was previously well established that the trustees are entitled to take serious account of the settlor’s wishes and it is the better view that they are bound to do so; the notion that the trustees may be entitled to take it into account but not bound to do so is in our view wrong, for it is either a relevant consideration which in view of its importance ought to be taken into account or an irrelevant one which should not. The trustees may properly be led by the settlor’s wishes to take a decision which they would not otherwise have taken. The propriety of deference to the settlor’s wishes is also reflected in the decisions on applications by beneficiaries for disclosure of letters or memoranda of wishes. Although such applications have met with varying degrees of success, no criticism is made in them of trustees who pay close attention to the settlor’s wishes. In a different context, the court has treated it as a sufficient reason for overturning an appointment made by trustees that they believed that they were thereby giving effect to the settlor’s wishes when in fact through a misunderstanding, they were not.
[Citations omitted]
11 Lynton Tucker, James Brightwell, Nicholas Le Poidevin QC, Lewin on Trusts (19th ed, Sweet & Maxwell, United Kingdom, 2014) at [29-162] – [29-163].
[54] It will be apparent from the factual background I have recorded that, of the five specific matters headed under “Administration” in relation to the memorandum of wishes, only the last is relevant at this time. That is because Valerie Geard’s husband, David Geard, has died, as has her brother, Malcolm Harrison. Further, Mr Graeme Harrison has given evidence that he and his wife, Mrs Adrienne Harrison, have decided “that it is almost time to distribute the assets of the Waiheke Trust to ChildFund”. He wishes to sell the Waiheke property, finalise the accounts and distribute the balance to the third defendant.
[55] That statement of intent discloses that Mr Harrison does not require for himself the retention of the trust fund for the purpose of the fifth bullet point under the five specific matters. That, then, only leaves applying the benefit of the trust fund for the benefit of the third defendant.
[56] It is against that background, then, that I now consider the specific issues referred to [45] to [47] of this judgment.
What interest does the first defendant have as a final beneficiary and as a discretionary beneficiary in the Valerie Geard Trust?
[57] A starting point for this analysis is a consideration of cls 4, 6 and 7 of the Valerie Geard Trust. These clauses do not create trust obligations. The trustees are given a discretion as to whether to exercise the powers contained in cls 4 and 6. Clause 7 makes it clear that the power to resettle is no way limited or restricted by the discretion given to the trustees in relation to the distribution of income and capital. The powers given to the trustees are fiduciary powers only.
[58] If the trustees exercise the powers they also have a discretion to select which object will benefit and by how much.
[59] If they do not exercise their discretion to make a distribution of income, then cl 5 applies. The result is a default trust is created. The income is accumulated and becomes part of the trust fund capital and will be subject to the trusts and powers declared in the trust deed.
[60] The distinction between trust powers and mere powers was explained by
Park J in Breadner v Granville-Grossman:12
50.It is trite law that there is a distinction between two kinds of dispositive discretions which may be vested in trustees. There are discretions which the trustees have a duty to exercise (sometimes called ‘trust powers’), and discretions which the trustees may exercise but have no duty to exercise (sometimes called ‘mere powers’). The distinction is most familiar in the context of discretions to distribute income. In cases of trust powers the trustees are bound to distribute the income, but have a discretion as to how it should be divided between the beneficiaries. In cases of mere powers the trustees have two discretions—first a discretion whether to distribute the income or not, and second, if they decide that they will exercise the first discretion, a further discretion as to how to divide the income between the beneficiaries. In the latter kind of case there will usually be a default trust which deals with the income if the trustees do not exercise their discretion to distribute it. Typically the default trust will provide for the undistributed income to be accumulated or to be paid as of right to a beneficiary whose interest in it is vested but defeasible by the trustees exercising their discretion to distribute.
[61] When the Valerie Geard Trust is considered it is apparent that the trust’s provisions are in the nature of a power. The interests of the first defendant, and even that of the second defendant, do not give rise to a proprietary interest in the trust property. They would only obtain such an interest if the power is exercised in the first defendant’s favour by the trustees, or if there is no exercise of the power by the trustees and the vesting date arrives. In that event the first defendant is a default beneficiary with a vested or contingent interest, which is liable to be defeated by the
exercise of the power of appointment.13
[62] The submissions of the plaintiffs and the third defendant focused on whether the resolution contravenes cl 7. In particular, the parties focussed on whether the words “resettlement should be for the benefit of a discretionary beneficiary” engaged the principles of fraud on a power. The plaintiffs and the third defendant submitted in their separate submissions, relying on the decision of the Supreme Court in Kain v Hutton, that the trustees exercised the power of appointment in favour of
Mr Harrison, the object of the power under the terms of the first trust, and that any
12 Breadner v Granville-Grossman [2001] ChD 523 at 540.
13 Kain v Hutton [2008] NZSC 61 at [25].
benefit bestowed on Mrs Harrison, a non-object, was not the primary purpose for the appointment.
[63] It is certainly arguable that the resolution and resettlement were an exercise of the power of appointment, the purpose of which was to benefit Mr Harrison, with any benefit to Mrs Harrison being permissible, as per the finding in Kain v Hutton.14
[64] However, for reasons which I explain below, I consider that the question posed at [1](a) of the judgment is best answered by focusing on whether the resolution passed by the plaintiffs on 4 October 2009 was valid.
[65] That resolution, on its face, contravenes the provisions of the Valerie Geard Trust in one instance, and contravenes the law that a trustee must not deal with trust property for his own benefit in the second instance.
[66] There are two specific questions that arise out of the resolution of 4 October
2009.
[67] The first question arises because Mr Graeme Harrison, a trustee and beneficiary of the Valerie Geard Trust, signed the resettlement resolution and in doing so, on its face, breached cl 12 of the Valerie Geard Trust deed.
[68] The second question arises because Mrs Adrienne Harrison, in her capacity as a trustee of the Valerie Geard Trust, signed the resettlement resolution and thereby became a beneficiary of the new resettled trust. In short, she, as a trustee, created a beneficial interest for herself. That is not expressly authorised by the Valerie Geard Trust deed. On the face of it, it would seem to contravene the rule that a trustee must not deal with the trust property for the benefit of the trustee.
[69] Clause 12, reproduced above, concerns trustees benefitting from the trust. The deed prevents a trustee who is also a beneficiary of the trust from exercising any
discretion in his own favour, but allows the remaining trustee, who is not a
14 At [20] and [21] per Blanchard, McGrath and Anderson JJ, at [49] per Tipping J.
beneficiary, to exercise any powers and discretions in favour of the trustee who is a beneficiary.
[70] The relevant principles can be set out briefly. The fundamental duty of a trustee is to carry out the terms of the trust.15
[71] Trustees are first and foremost fiduciaries who must not put themselves in a position where their duties and interests conflict. A conflict of interest will typically arise where a trustee enters into a transaction involving trust property through which he or she stands to benefit personally, either directly or indirectly.16 It is sufficient to show that the trustee placed himself in a position of only a real sensible possibility of conflict.17 The question of whether a conflict of interest exists is an objective test, and not an assessment of the trustee’s subjective decision.18 A robust and realistic
view is to be taken to determine the question.19
[72] The basis for the rule against self-dealing is accordingly that a trustee must not deal with the trust property for his own benefit.20 The essence of the rule was stated in Aberdeen Railway Co v Blaikie Brothers:21
… it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect.
[73] The rule applies not just to purchases of trust property by a trustee, but also to other self-dealing transactions such as loans made by trustees out of trust assets to themselves.22 The reasons behind the rule were summarised in Equity and Trusts in
Australia and New Zealand and cited by Allan J in Chellew v Excell:23
15 Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA) at 95.
16 Law of Trusts Liability (LexisNexis, online ed) at [6.2].
17 Boardman v Phipps [1967] 2 AC 46 (HL) at 124 per Upjohn LJ.
18 Boardman v Phipps at 124; New Zealand Maori Council v Faulkes [2014] NZHC 1777 at [206].
19 New Zealand Maori Council v Faulkes at [206].
20 Greg Kelly and Chris Kelly Garrow and Kelly: Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2005) at [20.157].
21 Aberdeen Railway Co v Blaikie Brothers (1854) 2 Eq Rep 1281 at 1286; [1843-60] All ER 249 at
252 per Cranworth LJ.
22 Woodward v Smith [2013] NZHC 1226 at [47](b).
23 Chellew v Excell [2009] 1 NZLR 711 (HC) at [18].
The purchase, (or lease), of trust property by a trustee is generally prohibited. This is because it places the trustee’s personal interest in conflict with the duty to the beneficiaries, and the trust may derive an advantage over third party purchasers by reason of her or his knowledge of the property. The same prohibition applies in the case of a sale of trust property by co-trustees to one of themselves and third parties. Equity treats any such transaction as voidable at the instance of the beneficiaries, however open or honest the trustee’s conduct and however fair the price.
[74] The rule is of very wide and strict application, as was stated in Re
Thompson’s Settlement, Thompson v Thompson:24
… the wider principle that a man must not put himself in a position where duty and interest conflict or where his duty to one conflicts with his duty to another. … The principle is applied stringently in cases where a trustee concurs in a transaction which cannot be carried into effect without his concurrence and he also has an interest in or holds a fiduciary duty to another in relation to the same transaction. The transaction cannot stand if challenged by a beneficiary because in the absence of an express provision in the trust instrument beneficiaries are entitled to require that the trustees act unanimously and that each brings to bear a mind unclouded by any contrary interest or duty in deciding whether it is in the interests of the beneficiaries that the trustees concur in it.
[75] Adherence to the rule against self-dealing is so strict that the Courts have not allowed questions as to the fairness or unfairness of the transaction entered into to be raised in opposition to the application of the rule.25 In Chellew v Excell Allan J held that the court had no option but to apply the rule where it is engaged, and that it is doubtful whether the court had a discretion to decline to enforce the rule against self- dealing.26 The explanation for such strict application was given by Dobson J in Dever v Knobloch:27
Equity is absolute on the point because of the consistent high standards expected of those entrusted with the custody and management of property that belongs beneficially to others.
[76] Despite the apparently strict prohibition on self-dealing, trustees may in certain cases engage in it, provided unanimous consent of the beneficiaries28 or of
the court29 has been obtained first.
24 Re Thompson’s Settlement, Thompson v Thompson [1986] Ch 99, [1985] 2 All ER 720 at 730.
25 Aberdeen Railway Co v Blaikie Brothers, above n 21, at 252, per Cranworth LJ.
26 Chellew v Excell, above n23, at [43].
27 Dever v Knobloch HC Napier CIV-2008-441-537, 29 October 2009 at [41].
28 Horden v Horden [1910] AC 465 (PC); Naera v Fenwick [2013] NZCA 353 at [90].
29 Naera v Fenwick at [90].
[77] In respect of the first issue with the resolution, on their face, the facts suggest that the plaintiffs did not properly carry out the terms of cl 12. The clear contemplation of cl 12 is to prevent the possibility of a conflict of interest arising by requiring a non-beneficiary trustee to exercise the power in favour of the trustee who is a beneficiary. Mr Harrison however found himself in such a conflict of interest and in contravention of cl 12 when he, in his capacity as a trustee of the Valerie Geard Trust, signed the resolution appointing himself as a beneficiary of the resettled trust. The resolution is therefore invalid in this respect.
[78] The third defendant has suggested in its submissions that the court may exercise its inherent jurisdiction and sever Mr Harrison’s signature from the resolution. However, even if I were to do so, the resolution would nevertheless be invalid due to my finding that Mrs Harrison’s signature on the resolution engaged the rule against self-dealing.
[79] One of the purposes of the resolution was to make Mrs Harrison a beneficiary of the resettled trust. The resolution and resettlement allowed her to use the property during her lifetime, including if she survives Mr Harrison. Significantly, Mrs Harrison is not a beneficiary of the Valerie Geard Trust.
[80] It follows that on an objective assessment of the resolution and the relevant context in which it was passed, Mrs Harrison entered into an engagement in which she had a personal interest which conflicted with the interests of the discretionary beneficiaries of the Valerie Geard Trust, whose interests she is bound to protect. As discussed above, in such situations the trustee’s true intentions are irrelevant, as any placement of oneself into such a conflict of interest engages the rule against self- dealing. The fact that the trustees sought legal advice before effecting the resolution does not negate or ease the application of the self-dealing rule. There is nothing in the facts that indicate the rule should not be engaged, as no consent was sought from the remaining beneficiaries or the court to pass the resolution in the form in which it was passed.
[81] I note also that the resettlement could not have been carried out without
Mrs Harrison’s concurrence on the resolution. Her signature was given in her
capacity as a trustee who is not a beneficiary in order to comply with the terms of cl 12 and exercise a power in favour of Mr Harrison, a trustee who is a beneficiary.
[82] The legal authorities are clear that wherever self-dealing occurred, the court must invalidate the transaction in question. The conclusion is that both trustees’ signatures on the resolution are invalid; a situation which cannot be corrected by severing Mr Harrison’s signature. It follows that the resettlement is ineffective, with the result that the property at 19 Causeway Road, Waiheke remains subject to the Valerie Geard Trust.
[83] The first and second defendants did not seek any monetary damages from the plaintiffs. The only practical consequence of my finding that the resettlement is invalid is that the property at 19 Causeway Road, Waiheke will go back to being held by the Valerie Geard Trust, of which the plaintiffs are still trustees.
[84] Given that the plaintiffs only sought the order to remove the caveat over
19 Causeway Road, Waiheke if I answered the first question in the negative, it is unnecessary for me to make the order for the removal of the caveat. Further, in the absence of argument on the applicable legal principles, I am unable at this stage to determine whether the first defendant, as a final and/or default beneficiary, has a caveatable interest in the property at 19 Causeway Road, Waiheke. For this reason I decline to remove the caveat at this time.
[85] I briefly note the issues raised by the third defendant about the first and second defendants’ counterclaim. I accept counsel’s submission that the court has no jurisdiction to entertain a counterclaim filed in respect of an application by trustees to seek directions under s 66 of the Trustee Act 1956. Accordingly, I have not taken the matters raised in the counterclaim into account.
[86] In any case, the allegations of fraud contained in the counterclaim have in part been addressed by Toogood J in his interlocutory judgment. Those proceedings remain extant pending payment of security for costs. To address these issues in this proceeding would be an abuse of process and a distraction from the plaintiffs’
application. If they are to be pursued, that must occur in the proceeding CIV-2012-
404-993.
Costs
[87] The first and second defendants are successful in opposing the plaintiffs’ application. The first and second defendants are self-represented and are not entitled to costs. However, they are entitled to reasonable disbursements. I order that these
shall be fixed by the Registrar.
JA Faire J
Solicitors: Birdsey & Associates, Auckland
Bell Gully, Auckland
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