Jensen v Jensen

[2019] NZHC 329

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2018-470-128

[2019] NZHC 329

UNDER

Part 18 High Court Rules 2016

IN THE MATTER

of an application to remove a Trustee under the Court’s inherent jurisdiction

IN THE MATTER

of the estate of Doris May Jensen

BETWEEN

PETER GRAHAME JENSEN

Plaintiff

AND

LESLIE KEITH JENSEN

Defendant

Hearing:

14 December 2019

Counsel:

MP Ward-Johnson for plaintiff

No appearance for or on behalf of defendant

Judgment:

4 March 2019

JUDGMENT OF FITZGERALD J

This judgment was delivered by me on 4 March 2019 at 2:30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Ussher Lawyers, Whangamata (M Ussher)

Jensen v Jensen [2019] NZHC 329 [4 March 2019]

[1]                  The plaintiff, together with his brother the defendant, are executors of their mother’s estate.1 The main asset of the estate is Mrs Jensen’s residential home (the Property). Leslie has occupied the Property, on a rent-free basis, since at least 2012.

[2]                  Peter applies to remove Leslie as executor/trustee of Mrs Jensen’s estate, as well as an order for vacant possession of the Property. Peter says Leslie refuses to cooperate with him in administering the estate. Peter also says vacant possession of the Property is necessary so that it can be readied for sale, sold and the proceeds distributed in accordance with Mrs Jensen’s will. Peter says Leslie’s continuing intransigence and occupation of the Property is preventing this from occurring.

[3]                  Despite being served with these proceedings, Leslie has taken no steps in relation to them and the matter therefore proceeded by way of formal proof.

Factual background

[4]                  Leslie and Peter are two of Mrs Jensen’s three children. Sadly, their brother Neil died in 1975.

[5]                  Mrs Jensen died on 13 May 2017 leaving a will dated 23 January 2008. Probate of the will was granted by the High Court on 16 November 2017 and Peter and Leslie were appointed administrators of the estate. As noted in the introduction to this judgment, the estate’s primary asset is the Property.

[6]                  In her will, Mrs Jensen gave the whole of her estate to Peter and Leslie upon trust, to pay her debts and funeral expenses, and then to divide the remainder of her estate into three equal shares; one share to be paid to each of Peter and Leslie, with the third share being divided equally between Neil’s four children. Mrs Jensen therefore intended each of her three sons (and in Neil’s case, his children) to benefit equally from her estate.

1      To avoid confusion between the brothers, I will refer to the plaintiff as “Peter” and the defendant as “Leslie”. I mean no disrespect by referring to the parties by their first names. I will refer to their mother as “Mrs Jensen”.

[7]                  Mrs Jensen went into residential care in 2012. At that time, she took a number of steps to organise her affairs. It seems Leslie had been living downstairs at the Property for a number of years before 2012. On 25 August 2012, Mrs Jensen and Leslie signed a document which recorded that:

I, Doris May Jensen of Tairua, agree to give my son, Leslie Keith Jensen, the use of my property … for as long as he requires it.

My son shall be responsible for all outgoings on the property.

[8]                  Mrs Jensen and Leslie’s signatures on the document were witnessed by a Justice of the Peace who also signed the document. I will refer to the document as the “Letter of Agreement”.

[9]                  On 10 September 2012, shortly after the Letter of Agreement was signed, Mrs Jensen entered into a Crown Residential Care loan agreement (Loan Agreement). Pursuant to the Loan Agreement, the Crown made advances to meet  the costs of  Mrs Jensen’s residential care. This allowed her to retain the Property (in which Leslie was living). Under the terms of the Loan Agreement, the Crown’s advances were to be repaid (by Mrs Jensen or her estate, as the case may be) on the earliest of the following dates:

(a)any sale of the Property by Mrs Jensen; and

(b)except in circumstances not applicable in this case, 12 months after Mrs Jensen’s death.

[10]              Between 21 September 2012 and Mrs Jensen’s death, the Crown advanced a total of $135,981.26 under the Loan Agreement. Given Mrs Jensen died on 13 May 2017, those advances were due to be repaid on or before 13 May 2018. They have not been repaid, and the only realistic means of repayment is from the proceeds of sale of the Property. Mrs Jensen’s estate is therefore in breach of the Loan Agreement. The Crown has registered a caveat on the Property’s title, but has confirmed that it is prepared to extend the interest-free period under the Loan Agreement until the present litigation between Peter and Leslie is resolved.

[11]              Peter says in his affidavit sworn in support of his claim that despite the terms of the Letter of Agreement, Leslie has not made any financial contribution to the Property or its outgoings, including rent, rates, insurance or maintenance.2 Affidavit material before the Court describes the Property as being in a fairly run-down and unkempt state, which is obviously not conducive to maximising its sale price. Perhaps more worryingly, the Property is uninsured.

[12]              Returning to Mrs Jensen’s will (which pre-dated the Letter of Agreement by some four years), cl 5 provides as follows:

I direct that my son Leslie should be given first right of refusal for the purchase of my Tairua property at an amount to be determined by registered valuation to be obtained by my trustees such right to be exercised within 20 working days of the date of such valuation and to be settled within a further 20 working days after such exercise.

[13]              Following Mrs Jensen’s death, Leslie (via his solicitor) confirmed that he did not intend to exercise his first right of refusal. Peter notes that Leslie has also refused to sign a real estate agency agreement or take any other practical steps to enable the estate to be administered and its debts paid.

The orders sought and proposed next steps

[14]              As noted in the introduction to this judgment, given the difficulties between the two brothers, Peter seeks an order removing Leslie as an executor/trustee of the estate, as well as an order for vacant possession of the Property.

[15]              Assuming the orders are made, Peter proposes to take steps to ready the Property for sale, arrange for its sale, and then discharge the debt due to the Crown under the Loan Agreement, and pay the significant rates arrears. While there is no valuation evidence before the Court, Mr Ward-Johnson, counsel for Peter, confirmed at the hearing that the current value of the Property is well in excess of the debt due to the Crown and the territorial authorities for rates, such that there will be a reasonable sum left to distribute in accordance with Mrs Jensen’s will.

2      For example, there are presently reasonably significant rates outstanding in relation to the Property, being in excess of $13,000. As a result, a statutory land charge has also been registered against the Property’s title.

Removal of executor/trustee – legal principles

[16]              An executor/administrator may be removed from that role pursuant to s 21 of the Administration Act 1969. Section 21 relevantly provides as follows:

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 or her place, on such terms and conditions in all respects as the court thinks fit.

[Emphasis added]

[17]              Heath J in Farquhar v Nunns summarised the following principles when considering the power of removal under s 21:3

(a)The starting point is the Court’s duty to see estates properly administered and trusts properly executed.

(b)The jurisdiction is discretionary and heavily fact dependent.

(c)The wishes of the testator (evidenced by the appointment of a particular executor) are to be given consideration, but ultimately the question is as to what is expedient in the interests of the beneficiaries.

(d)Expedience is a lower threshold than necessity. Misconduct, breach of trust, dishonesty or unfitness need not be established.

(e)Hostility as between administrators/trustees is not itself a reason for removal, but hostility will assume relevance if and when it risks prejudicing the interests of the beneficiaries.

3      Farquhar v Nunns [2013] NZHC 1670 at [13].

[18]              The Court’s power of removal of trustees pursuant to its inherent jurisdiction involves similar principles, and was comprehensively summarised by Winkelmann J in Green v Green as follows:4

[600]     In any case, the Court also has an inherent jurisdiction to remove trustees as part of its general jurisdiction to supervise the administration of trusts.

[601]     When exercising its jurisdiction to remove trustees the Court is guided by the welfare of the beneficiaries. As the Privy Council stated in Letterstedt v Broers:

In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependent on details often of great nicety. But they proceed to look carefully into the circumstances of the case.

[602]     As well as the welfare of the beneficiaries, the security of trust property and the satisfactory execution of the trusts are recognised as guiding principles in the exercise of the Court’s jurisdiction. Dixon J stated in Miller v Cameron:

The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised. But in a case where enough appears to authorize the Court to act, the delicate question whether it should act and proceed to remove the trustee is one upon which the decision of a primary Judge is entitled to especial weight.

[603]     As  the  Court  of  Appeal  recognised  in   Medlessohn  &  Schmid   v Centrepoint Community Growth Trust the settlor’s intentions, neutrality between beneficiaries and promotion of the purposes of the trust are also relevant circumstances.

[604]     In considering whether a trustee should be removed it is not necessary to establish that there has been a breach of trust, but equally establishing a breach of trust will not necessarily be sufficient to justify the removal of a trustee. Inconsequential mistakes should not be allowed undermine a settlor’s intention. Nor will a trustee be removed simply because of a position of conflict between duty and interest. Whether or not a position of conflict will justify removal depends on the nature of the conflict and the other circumstances of the case.

4      Green v Green [2015] NZHC 1218 at [598]-[606]. More recently, see Peng v Rothschild Trust (Schweiz) AG [2017] NZHC 25 at [38] where similar principles were stated.

[605]     As to incompatibility between trustees and beneficiaries the Court of Appeal in Kain v Hutton said:

…mere incompatibility between trustees and beneficiaries is not enough … Any incompatibility must be at such a level that the proper administration of the trust is seriously adversely affected and it has become difficult for a trustee to act in the interests of the beneficiary…

[606]     What is apparent therefore, is that each or any of the existence of conflicts of interest, misconduct on the part of the trustee, incompatibility or hostility between trustees and beneficiaries can be reasons for removing a trustee, but whether removal is appropriate in a particular case will depend on whether any of those factors are present to a sufficient extent to undermine the satisfactory execution of the trust for the welfare of the beneficiaries.

[Footnotes omitted]

Should Leslie be removed as executor/trustee?

[19]              Having carefully considered the evidence filed in support of Peter’s claim, I am satisfied it is appropriate to remove Leslie as executor/trustee.

[20]              The uncontested evidence is that Leslie is exhibiting a degree of intransigence which is preventing the estate being dealt with in an orderly way. In short, it is now approaching two years since Mrs Jensen’s death, and no substantive steps have been taken to deal with her estate and distribute the residue in accordance with her will. The inescapable inference is that Leslie’s current situation, in which he lives in the estate’s main asset on a rent-free basis and pays no outgoings, is adversely affecting his ability (and willingness) to properly and promptly carry out his duties as co- executor and trustee of his mother’s estate.

[21]              As matters presently stand, a significant debt is owed by the estate to the Crown, with the estate being in breach of the Loan Agreement. For now, the Crown is taking a benevolent approach by extending the loan’s interest-free period pending determination of these issues. That is unlikely, however, to continue indefinitely. Were the Property to be sold by way of mortgagee sale, it would no doubt be for a price discounted to true market value, which is not in the interests of the beneficiaries of Mrs Jensen’s will, including Leslie himself.

[22]              Further, the outstanding rates need to be paid, and maintenance carried out on the Property in order to achieve its maximum sale value, again being in the interests of all beneficiaries, including Leslie. It is also concerning that the Property is

uninsured. This could, of course, be of very significant prejudice to all beneficiaries if there were to be a fire, natural disaster, or the like. Plainly it is in all parties’ interests for the Property to be sold without further delay. That is not, however, able to occur given Leslie’s failure to engage with his brother on the proper administration of   Mrs Jensen’s estate or to deliver up vacant possession of the Property.

[23]              The status quo is according unacceptable and ought not to continue. There will therefore be an order removing Leslie as executor and trustee of Mrs Jensen’s estate.

[24]              I have considered whether an additional executor/trustee ought to be appointed in Leslie’s place. I do not consider that is necessary. I am satisfied Peter has and will continue to take all reasonable steps to wind up the estate’s affairs in an orderly way. He is represented by solicitors in doing so and will no doubt seek advice as and when required. Appointing a professional trustee/executor would, for example, incur fees which would have the effect of further depleting Mrs Jensen’s estate.

Should an order for vacant possession be made?

[25]The Laws of New Zealand provide that:5

Upon death, all real estate to which the deceased was entitled devolves from time to time, on their personal administrator. Immediately upon a grant of administration of the estate of any deceased person, all the estate then unadministered of that person, whether held by them beneficially, or held by them in trust, is to vest in the administrator to whom administration is granted. However, nothing is to affect the earlier vesting in an executor by operation of law.

[26]              With Leslie having been removed as an executor, the Property will vest in Peter as the sole continuing executor. Peter, on behalf of the estate, will have the right to exclude all other persons from possession.6 An order for vacant possession can therefore be made unless Leslie can demonstrate a legal entitlement to continue to occupy the Property.

5      Laws of New Zealand Administration of Estate Vol I (online ed) at [283].

6      See Hinde McMorland & Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at [3.008]: “A tenant in fee simple in possession is entitled to exclude all other persons from the land and, if wrongfully dispossessed, can recover possession by peaceable re-entry or by taking proceedings for recovery of possession.”

[27]              It seems likely Leslie continues to occupy the Property on the basis of the Letter of Agreement. The question for the Court is therefore whether the Letter of Agreement gives Leslie the legal right of continued occupation?

[28]              As a preliminary point, the courts typically interpret agreements between parents and children as not giving rise to legal relations.7 In this case however, the Letter of Agreement contains a level of planning and formality which I am satisfied rebuts that presumption:

(a)First, a handwritten note, written by Peter’s wife shortly before the Letter of Agreement, contained a suggestion to Mrs Jensen that a third party formulate a document along the lines of the Letter of Agreement, and suggests getting three copies. This indicates a level of formality not present in many intra-family arrangements.

(b)Second, the Letter of Agreement itself is witnessed by a Justice of the Peace. This, in my view, further reinforces it was intended to be legally binding.

[29]              On the basis the Letter  of  Agreement  was  legally  binding  as  between  Mrs Jensen and Leslie (and thus Mrs Jensen’s estate and Leslie), it is necessary to consider whether it gave rise to a license to use the Property, or some form of informal lease. A lease entails the grant of the legal right to exclusive possession.8 A lessee can therefore exclude all others from  the  land,  including  the  lessor  (in  this  case,  Mrs Jensen), and can assign or sublet (unless expressly forbidden to do so).9 Conversely, a license is a mere permission to occupy or use the land, without the transfer of any legal estate.10

[30]              I consider the Letter of Agreement gave rise to a license rather than a lease, for the following reasons:

7      Jeremy Finn Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [5.3.2].

8      G W Hinde and others Principles of Real Property Law (2nd ed, LexisNexis, Wellington, 2014) at [11.002].

9      At [11.008].

10     At [17.001].

(a)First, the document does not describe itself as a lease and does not involve the details (term, rent, etc) that would normally be expected if it were intended to be a lease. Although this is not determinative, given the degree of formality which appears to have gone into the drafting and signing of the Letter of Agreement, it might have been expected the parties would have referred to the Property being “leased” to Leslie if that had been intended.

(b)Second, Fisher J, writing for the Court of Appeal in Fatac Ltd, when considering a similar issue, emphasised the importance of examining the contract or grant’s effect.11 Here, the reference to “use” of the Property rather than “possession” of the Property more closely resembles a license than a lease

(c)Third, the Letter of Agreement is between two family members. Principles of Real Property Law notes that is one instance where a right of exclusive occupation might not give rise to a lease.12

(d)Fourth, the absence of rent points against the creation of a lease; as held in McLaughlin v McGarry, payment of rates (or in this case, the expectation of their payment) cannot be classed as rental payments.13

(e)Finally, it is unlikely Mrs Jensen intended to give Leslie exclusive possession of the Property, including in relation to herself (for example, were she to move out of residential care and wished to return to the Property). This again points to a license rather than a lease.

[31]              On the basis, therefore, that the Letter of Agreement gave Leslie the right to use and occupy the Property, the next question is whether that right continued despite Mrs Jensen’s death?

11     Fatac Ltd (in liq) v Commissioner of Inland Revenue [2002] 3 NZLR 648 at [31] and [69] (CA).

12     Hinde and others, above n 9, at [11.009](e).

13     McLaughlin v McGarry (2000) 15 PRNZ 178 at [30], per Master Venning (as he then was).

[32]              I am satisfied that the reference in the Letter of Agreement to Leslie being entitled to use the Property “for as long as he requires it” must be read consistently with Mrs Jensen’s will, a very formal document executed by her only a few years prior to the Letter of Agreement. Mrs Jensen would no doubt have had her will in mind when she was organising her affairs in 2012 prior going into residential care. The will envisaged Leslie having a first right of  refusal  to  purchase  the  Property  upon  Mrs Jensen’s death. That is inconsistent with any suggestion Leslie’s occupation and use of the Property pursuant to the Letter of Agreement was intended to operate indefinitely.

[33]              Mrs Jensen also entered into the Loan Agreement only two weeks after the Letter of Agreement. It would have been clear to Mrs Jensen that in the event of her death, advances made under the Loan Agreement would have to be repaid within one year. Based on the evidence before the Court, the only realistic source of funds for such repayment was the proceeds of sale of the Property (there being no other assets of any substance in the estate). It strikes me as highly unlikely that at the time she entered into the Loan Agreement, Mrs Jensen expected that the advances under the Loan Agreement would be repaid without the Property being sold, because she had given Leslie an indefinite right to use and occupy it.

[34]              Further, it is clear from the terms of Mrs Jensen’s will that she intended her three children (or in the case of Neil, his children) to benefit equally from her estate. To construe the Letter of Agreement as giving Leslie an indefinite right to use and occupy the Property rent free, with the (very small) balance of the estate being shared equally between the beneficiaries, would result in a significant imbalance between the siblings and their children (in the case of Neil), and would therefore be contrary to Mrs Jensen’s clear intention that her children share equally in the residue of her estate.

[35]              In these circumstances, an interpretation of the Letter of Agreement which limits Leslie’s right to occupy and use the Property up until the time of Mrs Jensen’s death, from which point the terms of her will prevail, means the will, the Letter of Agreement and the Loan Agreement are consistent with each other, and reflects   Mrs Jensen’s overriding intention of equal division of her estate.

[36]              For completeness, I note that Leslie’s rights under the Letter of Agreement were conditional upon him meeting all outgoings in relation to the Property in any event. He has plainly not complied with those terms. Accordingly, had it been necessary, Mrs Jensen’s estate could have taken steps to cancel the Letter of Agreement, and thus terminated any continuing right of occupation. Given, however, my conclusion on the proper interpretation and operation of the Letter of Agreement, it is not necessary to consider this alternative argument further.

[37]              Given Leslie’s legal  right  to  occupy  and  use  the  Property  ceased  on  Mrs Jensen’s death, Peter, on behalf of the estate, has the right to exclude all other persons from possession. Vacant possession orders have been made in similar cases where the Court’s assistance was required to bring that about.14

[38]              While I will make an order for vacant possession, I do take into account the practicalities involved, given the order will require Leslie to vacate the Property and move into alternative accommodation. In this context, I note from the correspondence before the Court that Leslie appears to have accepted for some time that the Property will need to be sold and he will need to find alternative accommodation. I also note that as long ago as the end of 2017, Leslie was wanting to have a “last Christmas” at the Property with his family. That time has, of course, long since passed.

[39]              Leslie has therefore been on notice for a considerable period that the Property must be sold and he will need to find alternative accommodation. To enable Leslie some further time to make suitable arrangements, but not to delay the Property’s sale any longer than necessary, the vacant possession order will take effect two months from the date of this judgment, namely on 6 May 2019. Absent agreement by Peter, on behalf of the estate, to an extension, Leslie must vacate the Property on or before that date.

14 See, for example, Aronui Ko Huarau Trust Board v Harris [2015] NZHC 2911; Moore v Harry [2017] NZHC 1587; Macfarlane v Perpetual Trust  Ltd  [2018] NZHC 1055; The Public Trust   v Turner [2017] NZHC 2979.

Result and costs

[40]              I make orders in accordance with paragraphs (a) and (b) of the prayer for relief of the statement of claim dated 28 August 2018, save that order (b) is to take effect as of as of 6 May 2019.

[41]              Peter also seeks costs. Presumably this is an order that Leslie reimburse to the estate the costs of these proceedings, in respect of which Peter will no doubt seek indemnity from the estate.

[42]              Costs are intended to reflect a party’s conduct in and the outcome of proceedings, rather than conduct taking place prior to proceedings having been commenced. Leslie has not participated in these proceedings. If I were to make any orders as to costs, I would need to hear from Mr Ward-Johnson as to the basis upon which a costs order ought to be made in these circumstances, with reference to any relevant authorities.

[43]Should Peter pursue an order for costs, a memorandum, being no longer than

5 pages in length, may be filed within 15 working days of the date of this judgment.

Fitzgerald J