Hinde v Cranwell

[2012] NZHC 63

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-000882 [2012] NZHC 63

BETWEEN  MARIAN SYBIL HINDE Plaintiff

ANDRUSKIN LEWIS CRANWELL First Defendant

ANDDAVID FRANKLIN CRANWELL Second Defendant

Appearances: M J Ruffin for Plaintiff

S Connelly for Defendants
R Broad for Guardian Trust

Judgment:      7 February 2012

JUDGMENT OF WHATA J

This judgment was delivered by Justice Whata on

7 February 2012 at 2.30 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

M J Ruffin, PO Box 1662, Shortland Street, Auckland 1140

S Connolly, PO Box 1348, Shortland Street, Auckland 1140
Copy to:

W M Patterson, PO Box 1772, Shortland Street, Auckland 1140

A McEwan, PO Box 446, Napier 4140 (DX NP 70034, Napier)

R Broad, Guardian Trust, PO Box 913, Wellington 6140 ([email protected])

HINDE V CRANWELL HC AK CIV-2011-404-000882 [7 February 2012]

Introduction

[1]      John Franklin Cranwell appointed three of his four children, Marian, Ruskin and David as administrators of his estate.  Probate was granted in early August 2008. No substantial distribution of the estate has been achieved in the period since.  The administrators blame each other for this.  In particular Marian considers that Ruskin and David have been derelict in the performance of their duties and are in a position of conflict.   Ruskin and David cannot, it appears, work with Marian and consider that she is predisposed against them. They contend that it is expedient that all of them are removed as administrators.

[2]      The key issue in this case is whether I should remove any or all of the children and if so, on what basis.

Background

[3]      The late John Cranwell died on 12 July 2008.  The four beneficiaries under his will are his four children, Lucille, Marian, Ruskin and David.

[4]      Probate was granted on 11 August 2008.  The primary assets under the will are two unit title apartments (one in Freemans Bay and one in Mission Bay).  The other assets include:

(a)       A share portfolio of listed companies;

(b)      Some chattels held by Ruskin and David;

(c)      A balance of $150,000 of various unsecured on demand loans acknowledged in the unilateral deed of acknowledgement of debt between John Cranwell and Ruskin, as to an advance of $50,000 and in a further unilateral deed of acknowledgement between John Cranwell and Ruskin as to an advance of $150,000.

(d)A loan of $150,000 from John Cranwell to David and to others as trustees of the David Cranwell Family Trust and trustees of Margaret Cranwell Family Trust recorded in a loan deed dated 6 August 2002.

Procedural background

[5]      At  the conclusion  of the hearing in August  2011  the parties agreed  that matters might best be resolved via an appointment of the New Zealand Guardian Trust Company Limited (“Guardian Trust”) as an administrator to work collaboratively with the executors.  To that end consent memoranda were filed and an order was made appointing Guardian Trust as an additional administrator of the estate.  Subsequent to the sealing of that order, the Guardian Trust lodged a report for the period ended 30 September 2011 as requested by the Court.  In that report, the Guardian Trust signalled that it considered that its appointment is not valid under s

21 of the Administration Act 1969.   It stated that the Guardian Trust can only be appointed if one or more of the original executors are removed.   It nevertheless helpfully set out the actions that would be carried out once the Guardian Trust has received and accepted a valid appointment.  The report then identified the relevant bank accounts, debts and investments, furniture and effects and residential property held by the estate.  It also detailed the loans to David and Ruskin.  In its report the Guardian Trust also recorded the following:

During  the  meeting  [held  on  27  September  2011]  it  became  clear  to Guardian Trust that there is severe tension in the family relationships and Guardian Trust now has real doubt going forward as to whether the estate administration will be progressed without Guardian Trust being appointed as Executor, to enable Guardian Trust to take real control of the estate assets and administration.

[6]      The Guardian Trust then expressed a preference that it be appointed as sole executor and trustee of the estate.

[7]      I then invited memoranda from counsel for the parties as to the way that they wished to proceed.  Ultimately, counsel for David and Ruskin reached the view that a decision was needed, as the Guardian Trust felt it was unable to assist on what it thought was an unlawful basis.   Counsel for Ms Hinde, however, expressed the strong view, that having consented to its appointment, the Guardian Trust could not

now resile from the sealed order and that the agreed approach should continue. While I appreciated Ms Hinde’s commitment to a collaborative approach, it became evident to me that whatever the validity or invalidity of Guardian Trust’s appointment, without the ongoing support of the Guardian Trust, a collaborative approach was not tenable.   Indeed it could lead to further ancillary action wasting both the Court’s time and the resources of the parties.  On that basis I resolved to proceed to judgment.

[8]      I record that my reference to the Guardian Trust’s view on the relationship between the executors is only relevant insofar as it provides background to the position adopted by the Guardian Trust.  It is not evidence that has been subject to the proper scrutiny of this Court.  For the reasons I set out below, however, and quite independently of the view expressed by the Guardian Trust, it is plain to me that the executors can no longer work together for the purposes of the efficient management of the estate.

Administration of estate

[9]      Little  or  no  progress  or  substantive  progress  has  been  made  in  the administration of the estate since probate was granted on 11 August 2008.  Matters have  reached  the  point  where  both  Ruskin  and  David  agree  to  resign  as administrators on the condition that Marian does the same.   This has been their position since at least 10 May 2009.   David expressed an interest in resigning in early 2009.

[10]     Illustrative  of  the  difficulties  between  the  executors  are  the  numerous allegations made by Marian concerning the administration of the estate by David and Ruskin, including the following:

(a)       The administration of the estate has become increasingly slow and

expensive because of David and Ruskin’s attitude.

(b)Marian has been starved of information, in the sense that there have been ongoing difficulties with communication between her and her

brothers and their advisers.

(c)      David and Ruskin have failed to properly address their unsecured loans from the estate, both in terms of repayment and interest.

(d)The  deceased  has  lodged  flawed  income  tax  returns,  including, Marion says, failure to account for interest income on the loans to Ruskin.

(e)       The estate has failed to properly resolve the issue of gift duty liability.

(f)       David  and  Ruskin  have  displayed  poor  quality  decision  making including a belaboured approach to freeholding one of the apartments held by the estate.

(g)       There are burgeoning legal and accounting fees.

(h)David and Ruskin improperly refused to obtain appropriate chattel valuations.

(i)        David and Ruskin wrongly refused to attend executors’ meetings.

(j)Ruskin is a creditor of the estate and has invoiced the estate for work undertaken by his advisers when that work was being undertaken for him and not as work for the estate.

(k)There have been prolonged disputes about the management of the apartments – Marian is concerned about protecting the estate from any litigation after the sale of the Mission Bay apartment given its history of water ingress.

(l)Dereliction of executors’ duties by Ruskin and David.   In this regard Marian refers to 12 ringbinders of estate correspondence dealing with those derelictions.

(m)      Ruskin has failed to account for chattels.

(n)David   and   Ruskin   have   failed   to   protect   the   estate   and   its beneficiaries,  including  in  relation  to  management  of  the  estate’s share portfolio.

(o)There are conflicts of interest between David and Ruskin and their executors’ duties, more specifically relating to their indebtedness to the estate and decisions that needed to be made (including freeholding the apartment) in beneficiaries’ best interests, given that those loans were a partial source of necessary funding to purchase the freehold.

(p)David commenced Family Court proceedings against the estate, apparently in collusion with Ruskin.

[11]     The following passages from Marian’s No. 1 affidavit reflect the nature of her

concerns and her very firm view of them:

215.David  in  his  capacity  as  a  trustee  of  the  two  family  trusts  that borrowed $150,000 in total from Dad has failed to refinance that unsecured on-demand loan, or to see the interest is paid to the Estate (Exhibit Volume C, pages 627-628), while in his capacity as an executor he has failed to call up the loan or pursue interest.  David suggested the Estate waive the interest his Family Trust owed the Estate, which conflicted with his duty as an Executor (Exhibit Volume B, page 391, paragraph 12).

216.David has apparently been advised that he is entitled to 23.33% of the   Estate   assets   without   allowing   for   liabilities   (actual   or contingent).   His desire as at 16 September 2010 was to receive

23.33% o the share portfolio, and to use that to reduce the trusts’

debt to the Estate.  (Exhibit volume C, page 722).  This is clearly incorrect being contrary to the Will.

(Emphasis in original)

And further:

178.Ruskin and David appeared to have used Lucille’s known lack of money to apply pressure to her to force her to agree to settle David’s claim for further provision from the Estate.

[12]     An earlier passage shows Marian’s rather meticulous attention to detail:

174.     Ruskin requested and obtained from Carlile Dowling in early 2010 a refund of various fees ($150, $112.50, $67) incurred by him, but without my authority or knowledge, and which do not appear to relate solely to the Estate.  (Exhibit Volume C, at pages 635 paragraphs 4-5; 678 chattels heading).

(Emphasis in original)

[13]   David and Ruskin respond that the application is based on Marion’s “intransigence towards them and hostility as to any views they may have which are in conflict with hers”.  David refers to what he describes as “increasingly irrational behaviour”.   He repeats numerous accusations he says are contained in Marion’s affidavit against David, Ruskin and various independent advisers. David also describes how Marion obtained the removal of their father’s longstanding accountant on the basis that he consented to his removal when, in fact, there was no such consent.  He then refers to significant cost associated with the new accountants. He then complains about how Marion retained new lawyers to handle the sale of estate properties  without  David  and  Ruskin’s  permission,  though  no  appointment  was made.

[14]      Both Ruskin and David also respond to the key matters identified by Marion. The common theme to their response is that Marion is making much ado about relatively minor matters and thereby causing excessive cost to the estate.  They then add that the authoritarian stance adopted by Marion has resulted in a failure to dispose of the major assets and to distribute the proceeds of sale.

[15]     On the key issue of their indebtedness to the estate, David and Ruskin submit that the repayment of their loans is guaranteed by offsetting any debts to the estate against the distributions to come from the estate.  Further, they are concerned that Marian is likely to treat the loans to David and Ruskin in a way that would disadvantage both of them unfairly.

[16]     As  to  allegations  about  the  quality of  their  decision  making,  David  and Ruskin submit that they are experienced businessmen and that their decision making is demonstrated through their affidavits and exhibits.

[17]     The general tenor of David and Ruskin’s response to Marion’s allegations is

captured by the following passage taken from the submissions of their counsel:

51.She appears to have some difficulty differentiating her role from being a barrister to being an executor.  She is unable or unwilling to take independent professional legal advice on matters.

[18]     Marian rebuts their evidence in a further detailed affidavit No. 3 spanning some  165  paragraphs  with  numerous  cross  references  to  multiple  volumes  of exhibits.  Indeed, this affidavit refers to the minutiae of the estate’s activities and the chronology of the executors’ dealings with some of them.

[19]     Marian explains that the delay was caused by the need to properly deal with real issues affecting the estate, including an arbitration affecting the Freeman’s Bay apartment and the obtaining of freehold title.  She also refers to the tax issues that needed to be solved and the need for new accountants. Ruskin’s debt needed to be properly calculated, and David’s Family Court proceedings intervened. Water ingress issues with the Mission Bay apartments added to the delay.

[20]     Marian also plainly has a very different view as to the appropriateness of David and Ruskin’s performance as executors, and has kept a bank of information to support her position.   She maintains that her “accusations” and concerns set out above remain valid, and has provided detailed evidence to support her view. She also provides a detailed accounting of the costs incurred by the estate through the new accountants and maintains that they were valid.

Assessment

[21]     The  jurisdiction  to  remove  an  administrator  is  provided  by  s  21  of  the

Administration Act 1969. That section states:

21       Discharge or removal of administrator

(1)       Where an administrator is absent from New Zealand for 12 months without leaving a lawful attorney, or desires to be discharged from the office of administrator, or becomes incapable of acting as administrator or unfit to so  act,  or  where  it  becomes  expedient  to  discharge  or  remove  an administrator, the Court may discharge or remove that administrator, and

may if it thinks fit appoint any person to be administrator in his place, on such terms and conditions in all respects as the Court thinks fit.

...

[22]     It will be observed that I may exercise the power of removal and appointment on any terms and conditions I think fit.

[23]     I  am  usefully  assisted  in  assessing  the  scope  of  this  jurisdiction  by  the following comment of Stout CJ in Re Edward Watts [1917] NZLR 791 at 792:

In my opinion "misconduct in his office" does not necessarily imply immoral or  criminal  conduct.  It  means  misconduct  in  his  office.  If  an  executor became a felon he did not lose his right to be appointed an executor: ... In In the Goods of Loveday (3) Jeune, President of the Court, said: "The real object which the Court must always keep in view is the due and proper administration  of  the  estate  and  the  interests  of  the  parties  beneficially entitled thereto; and I can see no good reason why the Court should not take fresh action in regard to an estate where it is made clear that its previous grant has turned out abortive or inefficient."

[24]     It is also relevant to draw on the observations of Myers CJ in Hunter v Hunter [1938] NZLR 520 (CA) at 530-531, dealing with hostility between trustees and beneficiaries:

As is said in Letterstedt v Broers [(1884) 9 App Cas 371], however, “It is quite true that friction or hostility between trustees and the immediate possessor of the trust estate is not of itself a reason for the removal of the trustees. But when the hostility is grounded on the mode in which the trust has been administered ... it is certainly not to be disregarded”. The hostility might be one-sided, or it might be deliberately induced by the tenant for life, and in such a case, at all events unless it appeared that there were other circumstances which made the continuance of the administration by the existing trustees prejudicial to the interests of other beneficiaries, the Court would probably refuse to order their removal.

[25]      Further, as Callan J also observed in Hunter v Hunter at 553-554, hostility will justify removal where hostility gives rise to “... a condition of affairs which is detrimental to the proper and efficient management of the estate”.

[26]     All of this is overlaid by the general duty of an executor/trustee to “act even- handedly in  the  best  interests  of  all  the  beneficiaries  and  claimants  against  the estate”.[1]

[1] Estate of Farnsworth v Farnsworth HC Auckland M1767/97, 12 January 1999 at 20

[27]     Finally,  I  am  also  conscious  that  I  should  not  readily  replace  executors identified by the deceased to manage the estate.   Mr Cranwell sought to have his highly qualified children actively involved in the management of his estate.   My intervention, if any, should be limited to what is strictly necessary to achieve the proper and efficient management of the estate.

[28]     Regrettably, I am in little doubt that it is expedient to replace some or all of the executors with the Guardian Trust.  It is not necessary for me to make findings on all of the specific allegations of misconduct.  Both sides have reason for complaint and over three years have elapsed without any real progress.  In this regard my most significant concern has three related elements, namely:

(a)      First,   the   executors   simply   cannot   work   together.      Marian’s meticulous attention to detail is treated by David and Ruskin as intransigence.  David and Ruskin’s pragmatism is treated by Marian as evidence of sloppiness and lack of capability or self interest.  I do not accept those criticisms are entirely fair but the distance between their two methods is simply too great to bridge.   It is untenable to proceed without some change and the removal of either Marian or David and Ruskin or all of them.

(b)Secondly, David and Ruskin’s family trust and personal debts to the estate give rise to a potential conflict of interest that in my view now makes it difficult for them to remain without the prospect of further conflict and acrimony.  Marian plainly considers that her brothers are furthering their own interests by managing the estate in such a way that avoids calling in the loans immediately.  By contrast, they view the interests of the estate as inherently protected by virtue of the fact

that any payment out to them will be reduced by the loans.  But it is

their duty as executors to secure repayment in accordance with the terms of the loans, and if they do not, to provide a rational basis for not doing so.  Given the hostility between the executors, it is a matter that must be resolved on the basis of independent advice and/or by an independent administrator.   Plainly also David and Ruskin do not want the burden of administration in the present hostile context.

(c)      Thirdly, Marian has lost the appearance of impartiality on this key issue.  Her brothers appear vulnerable to her decision making should she remain as an administrator.   I do not mean to infer that Marian would act in bad faith.  But given her strident views, her brothers are likely to perceive unfairness, particularly in relation to any decision by Marion that might directly affect them.  While normally loans on

personal security must be got in as soon as possible,[2] the exact timing

of the call in remains a discretionary matter.   It might be said that calling in the loans immediately may cause unnecessary hardship to David or Ruskin, and that this would be contrary to their father’s intentions.    Conversely,  prompt  call  in,  with  interest,  may be the required outcome to ensure fairness across all beneficiaries. Alternatively, Marian might be right that as a matter of law the will does not allow the simple offsetting exercise promoted by David and Ruskin.  I offer no view on this as I have not heard detailed argument on it.  But it is easy to see that a decision on the loans by Marian will be viewed with suspicion.  It may give rise to challenge and further acrimony, particularly if the decision is premised on Marian’s interpretation of the will, and not on independent advice.

[2] Dr N Richardson (ed) Nevill’s Law of Trusts, Wills and Administration (10th ed, LexisNexis, Wellington, 2010) at 20.3.1

[29]     For completeness I address briefly some of the other concerns raised by Marian and the responses of David and Ruskin.  While those concerns and responses give rise to legitimate complaints, they relate to matters which ought to have been capable  of  resolution  between  executors  acting  in  the  best  interests  of  the

beneficiaries and in the efficient disposition of assets under the will.  In this regard,

the differences between the executors on the chattels, gift duty, and the management of the shares, the reimbursements to Ruskin and the apartments should have been resolved in a common sense way and failing that, through genuinely independent advice.  But in this case, the siblings were so far apart that they often struggled to agree on independent advisers.  When they did obtain independent advice, they often

remained dissatisfied and, in some cases, refused to follow it or sought other advice.[3]

There is nothing inherently wrong in being circumspect, but the failure to agree on proper process has been the real problem for the administration of the estate, rather than the issues affecting the disposition of assets.

Resolution

[3] For example in relation to the valuations of the paintings and the dealings with the apartments.

[30]     I remove David and Ruskin as executors and replace them with the Guardian Trust.   This avoids any further issue of conflict of interest concerning their debts (either personal or through associated bodies).  I also foresee difficulties with Marian working with the Guardian Trust.   I mean no criticism of her.   Her meticulous attention to detail should not be automatically conflated with intransigence.   But I am concerned to ensure the efficient disposition of the assets of the estate and there is a need for decisiveness if that is to be achieved.   There is ample evidence that Marion is immovable once she has formed a view on how to proceed and she is well able to marshal her resources to support her position.  The following passage from her No. 3 affidavit illustrates the strength of her opinion once tested:

51.David lacks the grounds or expertise to form any such opinion as to the professional expertise of any lawyer.  I note the tardy response of that firm in October 2009 when the freeholding proposal for the whole of the Freeman’s Bay development was on foot, and the cost incurred as to resolving the Executors’ obligations under the agreement to purchase the freehold of the apartment.  Their advice on the law as to conditional agreements seems to have been oral to Ruskin and David, but conflicted with known law.

[31]     There  is  then  the  prospect  of  the  existing  hostility  manifesting  itself  as conflict between Marian as an executor, if she remains, and David and Ruskin as beneficiaries.  Both sides have been demonstrably difficult at times and it would be

naive to think that the hostility will subside if only Marian remains as an executor.

[32]     Nevertheless, this is not a situation where Marion is in a position of obvious conflict beyond her status as a beneficiary.  Unlike her brothers, she is not indebted to the estate.  She also possesses a significant amount of information that may be of assistance to the speedy disposition of the estate assets.  She was also prepared to work with the Guardian Trust on the consensus based approach previously agreed by the parties.

[33]     On balance, however, my priority must be the efficient administration of the estate for the benefit of all beneficiaries.   More than three years of inertia is long enough.  A large part of the delay is explained by the inability of the executors to agree on proper processes.   I also note the Guardian Trust’s preference to work alone.   The Guardian  Trust  is  plainly concerned  about  its  ability to  work  with Marian.  It will not serve the interests of the beneficiaries for the Guardian Trust to be embroiled in any decision making conflict with Marian.  I have little doubt that the Guardian Trust will take into account and address the concerns raised by Marian, and if necessary seek independent advice where that is prudent.  But ultimately the Trust needs to be free to make a decision on how to proceed without undue delay. Accordingly  the  proper  and  efficient  administration  of  the  estate  will  be  best achieved through the sole and independent administration of the Guardian Trust.

[34]     I am fortified in this approach by the very clear and uncontroversial way the

Guardian Trust proposed to deal with the estate’s assets as set out in its September

2011 report.  Indeed Marian’s summary of the remaining tasks in her affidavit No 3 suggests that an independent administrator ought to be able to complete the administration of the estate efficiently.

[35]     I am hopeful that Marian will continue to assist the Guardian Trust given both her expertise and attention to detail.   As I have said, my decision should not be viewed as a criticism of her.  Rather the time has been reached for decisiveness and independence.

[36]     Accordingly there shall be an order removing Marian, David and Ruskin as executors and replacing them with the Guardian Trust.   So as to ensure that all parties concerns are fully ventilated if necessary, I also reserve leave to all parties in

this proceeding, and the Guardian Trust, to apply for directions in respect of any aspect of the further administration of the estate.

[37]     The parties have 14 days to apply for costs.  I do not encourage inter party claims.

Solicitors:

M J Ruffin, PO Box 1662, Shortland Street, Auckland 1140
S Connolly, PO Box 1348, Shortland Street, Auckland 1140

Copy to:

W M Patterson, PO Box 1772, Shortland Street, Auckland 1140

A McEwan, PO Box 4346, Napier 4140 (DX NP 70034, Napier)

R Broad, Guardian Trust, PO Box 913, Wellington 6140