Little v Little

[2014] NZHC 3159

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-2421 [2014] NZHC 3159

IN THE MATTER	of the Trustee Act 1956
BETWEEN	DEIDRE ANN LITTLE Plaintiff
AND	JOHN LAWSON LITTLE Defendant

Hearing:	30 September 2014
Appearances:	K E Swadling for Plaintiff A D Marsh for Defendant
Judgment:	11 December 2014

REASONS FOR JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 11 December 2014 at 10.30 am pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors:           Carson Fox Bradley Limited, Auckland

Saunders Robinson Brown, Christchurch

Counsel:            K E Swadling, Auckland

Copy for:           Howick Trustee DL Limited, Auckland

LITTLE v LITTLE [2014] NZHC 3159 [11 December 2014]

Introduction

[1]      I issued a results judgment in this matter on 3 November 2014, removing the Plaintiff and Defendant (“Mrs Little” and “Mr Little”) as trustees of the Woodside Trust (“trust”), and appointing Howick Trustee DL Limited (“Howick Trustee”) as sole trustee in their place.1   I said that my reasons would follow, as they now do.

Application

[2]      Mrs  Little  applies  to  remove  Mr Little  as  a  trustee  on  several  grounds, including that he has failed to account for trust funds and has acted unilaterally, contrary to the terms of the deed of trust dated 20 May 2002 by which the trust was settled (“deed of trust”).2

[3]      Mrs Little’s application is made pursuant to the Court’s inherent jurisdiction to remove a trustee as an aspect of its more general jurisdiction to supervise the execution of a trust, and pursuant to s 51 Trustee Act 1956, which provides:

51       Power of Court to appoint new trustees

(1)       The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult, or impracticable so  to  do  without  the  assistance  of  the  Court,  make  an  order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

(2)       In particular and without prejudice to the generality of the foregoing provision, the Court may make an order appointing a new trustee in substitution for a trustee who—

(a)      has been held by the Court to have misconducted himself in the administration of the trust; or

…

[4]      It  is  common  ground  that  the  jurisdiction  to  remove  a  trustee,  whether pursuant to the inherent jurisdiction or to s 51, is to be exercised to ensure the proper

execution of the particular trust.  Having heard evidence from the parties, and from

1      Little v Little [2014] NZHC 2714.

2 Statement of Claim dated 15 September 2014, at [19].

Mr Winefield to whom I refer below, I am satisfied that it is necessary to make an order removing Mr Little as a trustee.

[5]      In the course of the hearing, counsel for Mr Little made an oral application for an order removing Mrs Little as a trustee.   Mrs Little had no prior notice that such an application would be made, and her counsel opposed the order sought.  For the reasons given below, however, I am satisfied that I should remove Mrs Little as a trustee also.

Background

[6]      Mr and Mrs Little married in 2002 and separated in August 2013.   They settled the trust on 20 May 2002.

[7]      The trust is a discretionary trust.  Each of Mr and Mrs Little and their son, a minor, is a beneficiary. Their son is the final beneficiary.

[8]      Mr and Mrs Little and ABD Trustees Limited (“ABD”) were the first trustees. ABD retired on or about 29 October 2012.

[9]      The  deed  of  trust  provides  that  trustees  must  exercise  their  powers, authorities and give directions unanimously, by resolution in writing, signed by all trustees and recorded in the trustees’ minutes.3   The trustees have not kept a minute book or any other record of their resolutions.

[10]     The assets of the trust that are relevant to this judgment include:

(a)       a residential property situated in St Heliers, Auckland (“St Heliers property”); and

(b)      98 per cent of the shares in Prince & Princess Limited (“P & P”).

Each of Mr and Mrs Little is a director of P & P and each owns one per cent of the shares in the company.

3      Deed of Trust dated 20 May 2002, cl 13.

Discussion

[11]     I  heard  evidence  from  each  of  Mrs  Little,  Mr  Little  and  David  Stuart Winefield.    P & P engages  Mr Winefield’s  company, Alwin  Partners  Limited,  to maintain its “MYOB” records.

[12]     For the reasons given below, I am satisfied that Mr Little has no grasp of the duties owed by a trustee and that he cannot be relied upon to fulfil his obligations as such.  In particular, Mr Little has failed to separate his duties as a trustee from the pursuit of his personal interests.  Some of the evidence I heard concerns Mr Little’s conduct as a director of P & P but it discloses the same failure to separate his obligations from his personal interests.   Mrs Little is also open to this criticism, although on the evidence it appeared that her failings were less numerous and less significant.  For instance, Mrs Little was reluctant to accept that she should pay rent to the trust for her occupation of the St Heliers property.

[13]     First, I heard evidence that Mr Little had disposed of a valuable trust asset, unilaterally.

[14]     As at the end of 2013 the trust held a minority shareholding in Skip Hop Inc. Skip Hop is incorporated in the United States.   A third party made an offer to purchase  all  the  shares  in  Skip  Hop.    Without  consulting  Mrs Little,  Mr Little arranged the sale of the trust’s shareholding to the third party and instructed that the proceeds of sale, approximately US$300,000, should be deposited into an account in his name with the Commonwealth Bank of Australia.

[15]     Mr Little  was  cross-examined  as  to  why  the  proceeds  of  sale  had  been deposited into an account in his name rather than one in the names of the trustees. There was no satisfactory explanation as to why this had occurred.  Mr Little was adamant that he had applied the proceeds of sale of the shareholding to meet trust or P & P expenses so that no loss had been caused in fact.  I am unable to determine whether this is correct.  Regardless, Mr Little’s unilateral actions constitute a breach of his obligation to act unanimously and to ensure that trust assets are appropriately identified as such.

[16]     Several of Mrs Little’s allegations concern the manner in which Mr Little has conducted the affairs of P & P since separation.  I address these below.  As I have said, some may be more properly categorised as a breach of a director’s duties to his fellow board member, Mrs Little, but I consider them relevant for the reasons in [12] above.

[17]     There is no dispute that Mrs Little has, on many occasions, asked Mr Little to provide information relating to P & P’s affairs, including P & P’s “MYOB” records. Mr Little acknowledged that he had refused to provide such information, contending that it was in the best interests of P & P to withhold the information and that, in any event, there was no good reason for Mrs Little to be informed.

[18]     Mr Little’s reluctance to provide information to Mrs Little continued even after she had commenced proceedings in September 2014 and notwithstanding that Mr Little  undertook  to  the  Court  that  information  would  be  provided.    These undertakings were given in response to an application by Mrs Little for interim relief.  In the course of a telephone conference with counsel on 19 September 2014, Ellis J declined to grant interim relief on the basis of undertakings proposed by

Mr Little.4   One of Mr Little’s undertakings was that he would:5

… provide an electronic copy of the MYOB records for [P & P] on a

monthly basis.

[19]     As at the date of the hearing, Mr Little had still not provided to Mrs Little a copy of any MYOB records, notwithstanding that such files were available up to and including July 2014. When questioned about this Mr Little said:6

The Court order previously, ten days ago was on a monthly basis, there was no specific set date or months that needed to be given.

And

… it wasn’t specific as of when it should commence from.

4      Teleconference Minute of Ellis J dated 19 September 2014.

5 At [3].

6      Notes of Evidence dated 30 September 2014, at 49 and 50.

[20]     The  files  could  and  should  have  been  made  available  promptly  and Mr Little’s prevarication likewise causes concern as to the extent to which he can be relied upon.

[21]     I am also satisfied that Mr Little has represented to third parties that the directors of P & P have approved certain matters, when they have not.  For instance, the Directors’ report included with P & P’s financial statements for the year ended

31 March 2014 represents that:

The Directors are of the opinion that the state of affairs of the company is

satisfactory …

And also that:

The  Directors  of  the  company  resolved  to  pay  a  shareholder  salary  as follows:

John Little                 $64,325

[22]     Mr Little signed the Directors’ report “For and on behalf of the Board” on or about 11 September 2014.   In evidence Mr Little acknowledged that he had not consulted Mrs Little regarding the preparation of P & P’s financial statements, the content of the Directors’ report, or the salary paid to him.

[23]     Mrs Little also challenged Mr Little as to transfers of funds by P & P from its current account at the Bank of New Zealand to an on-call account in Mr Little’s own name at the same bank.

[24]     Mr Little contended that nothing turned on the fact that the account was in his personal name, pointing to the fact that P & P had included the on-call account as a current asset in its financial statements as at 31 March 2014.  Mr Little’s evidence was that P & P had transferred the funds to protect those funds from Mrs Little and that the funds had been transferred back to P & P’s current account, as P & P required.

[25]     There  was  no  satisfactory  explanation  as  to  why  Mr Little  should  have transferred P & P’s funds to an account in his personal name.   Nor was there any evidence of an unauthorised application of P & P’s funds by Mrs Little.  Lastly, when

cross-examined on the matter, Mr Little expressed himself to be unsure as to whether he had opened the on-call account, when he must have known that he had done so.7

[26]     It is unnecessary for me to discuss other matters on which Mrs Little relied. What I have said is more than sufficient to require Mr Little’s removal, and I order accordingly.

Mrs Little

[27]     Clause 15.5 of the deed of trust provides:

Unless the Trustee is a company the number of Trustees must be no fewer than 2.

[28]     Accordingly, Mrs Little could not continue as sole trustee even if I considered it appropriate for her to do so, which I do not.

[29]     I  accept  the  submission  of  counsel  for  Mr Little  that,  given  the  parties’ estrangement,  Mrs Little  cannot  be  expected  to  be  even-handed  between  all beneficiaries of the trust.   Counsel submitted, correctly, that often the Court will make an order removing estranged spouses as trustees of a trust of which both are beneficiaries.  By way of example, counsel referred me to the following statement by

Dunningham J in Powell v Powell:8

[57]      A number of High Court cases concerning deadlocks in the context of family disputes were referred to in submissions. It was urged on me that a reasonable conclusion from these cases was that, if the trusts are deadlocked, the Court would usually intervene to remove both trustees and appoint an independent trustee or trustees. However, many of these cases concerned separated spouses who were also both beneficiaries of the trust, meaning it would be difficult to retain just one or other trustee and still be confident that the welfare of all beneficiaries would be promoted by that course of action.

...

[30]     In the circumstances, I am satisfied that I should make an order removing

Mrs Little as trustee.

7      Notes of Evidence, above n 6, at 76.

8      Powell v Powell [2014] NZHC 476 at [57].

Appointment

[31]     At the conclusion of the hearing, I asked the parties to confer as to who I

might appoint as trustee, whether or not Mrs Little continued as a trustee.

[32]     Ultimately the parties agreed that I should appoint Howick Trustee, being an entity independent of them both.  Shane Hussey of Auckland, Chartered Accountant, is  the  sole  director  and  shareholder  of  Howick  Trustee.    By  affidavit  sworn

29 October 2014, Mr Hussey confirmed to the Court that he would have the day to day responsibility for undertaking the tasks necessary to ensure that Howick Trustee complies with its obligations as trustee.

[33]     A copy of these reasons is to be delivered to Howick Trustee.

Costs

[34]     Each party sought costs from the other.  Despite the order removing her as a trustee, the successful party to the proceeding is Mrs Little.  Given that, Mr Little is to pay Mrs Little’s costs on a 2B basis, with disbursements as fixed by the Registrar.

..................................................................

M Peters J