Lusty v Thorburn
[2021] NZHC 1774
•15 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2593
[2021] NZHC 1774
UNDER The Contract and Commercial Law Act 2017 and the Declaratory Judgments Act 1908 IN THE MATTER
of an application for specific performance
BETWEEN
AILEEN BERYL LUSTY, RONALD HUNT LUSTY and WARWICK JAMES ROLAND
BROWNE as executors of the Estate of Kenneth Richard Lusty
Plaintiffs
AND
CRAIG MAXWELL THORBURN, and
CARLY EVE THORBURN as trustees of the THORBURN TRUST
Defendants
Hearing: 2-3 November 2020 Appearances:
M J Matthew for the Plaintiffs A A H Low for the Defendants
Judgment:
15 July 2021
JUDGMENT OF POWELL J
This judgment was delivered by me on 15 July 2021 at 3.30 pm pursuant to R 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Lusty v Thorburn [2021] NZHC 1774 [15 July 2021]
[1] The plaintiffs, Aileen Lusty, Ronald Lusty and Warwick Browne, as executors of the estate of Kenneth Lusty (“the executors”), seek specific performance of a lease dated 29 March 1990 (“the lease”).
[2] The lease is in respect of land at 82 Duck Creek Road, Stillwater (“the land”). The land is located on the southern side of the Wade River (now generally referred to as the Weiti River), with the river forming the south western boundary of the Whangaparaoa Peninsula. The majority of the land is located on the river side of Duck Creek Road, but a small section lies across the road (“the detached section”).
[3] Ken Lusty (“Mr Lusty”) leased the land from Fred Thorburn (“Mr Thorburn”). At the time Mr Thorburn held the land as the sole trustee of a charitable trust established by a conveyance in 1901 (“the Thorburn trust”). There is no dispute that the lease provided for a term of 21 years with one right of renewal for a further 21 years, and was thereafter expressed to be perpetually renewable.1 By the time the initial term of the lease expired on 20 December 2010 both Mr Thorburn and Mr Lusty had passed away. Although the parties came close to registering a variation of the lease which would have had the effect of extending the original lease term to 2031, no renewal was ever signed and these proceedings were eventually issued in 2018.
[4] The executors seek an order requiring the defendants, Craig Thorburn and Carly Thorburn, as the current trustees in whom the land is vested (“the trustees”),2 to proceed to execute the renewal of the lease. In the alternative, and at the very least, the executors seek an order that the initial term of the lease has already been extended until 2031 through the variation of the lease Authority and Instruction instrument agreed in 2012 and executed as a deed, notwithstanding its subsequent rejection by the Registrar General of Land Information New Zealand on the basis that the term of the lease had expired. The executors have also applied for a range of other orders designed to avoid future disputes given their position the lease is renewable in perpetuity. Finally, the executors seek payment of their costs in full, either as damages or through an award of indemnity costs.
1 See [33] below.
2 It is noted that on 18 November 2018 Craig Thorburn and Carly Thorburn incorporated the Thorburn Trust under the Charitable Trusts Act 1957 but continue to be registered as the owners of the land at issue.
[5] In response, the trustees maintain that to sign the renewal, and indeed subsequent renewals, would be in breach of their obligations as trustees as the lease is in breach of the terms of the Thorburn trust. Specifically, they contend Mr Thorburn breached his obligations as trustee in entering the lease and allege Mr Lusty was a party to that breach. Accordingly, they submit that as trustees, they cannot grant a lease in the terms of the Lease in issue. Alternatively, the trustees say that the executors are not entitled to specific performance because they were in breach of their obligations under the lease at the time of renewal, and, even if they were not, the court cannot award specific performance where to do so is a breach of trust.
[6] Following an unsuccessful application for summary judgment,3 the dispute has continued by way of normal proceedings through to the present hearing.
Relevant background
[7] The Thorburn trust was established on 3 July 1901. On that day Andrew Weatherspoon Thorburn transferred the land to his two sons, Robert Thorburn and Andrew Weatherspoon Thorburn Junior (“Andrew Thorburn”).
[8] The transfer, made pursuant to conveyance number 155844 (“the conveyance”) was expressed to be in trust and required Robert Thorburn and Andrew Thorburn to hold the land on the following terms:
… firstly as to so much and such part thereof containing 1 rood more or less as has been set apart and used as a burial ground in trust as a burial ground forever for the internment of the settlors residing in the Lower Wade and such other persons as shall be approved of by the trustees subject to such regulations as they may think fit to make. Secondly as to the remainder of the said land in trust to lease the same for such terms and subject to such rent and conditions as the trustees shall deem expedient and upon trust to apply the nett annual rent or income arising therefrom towards maintaining the graves of the said Andrew Weatherspoon Thorburn and his wife and family in thorough good order and repair and maintaining the said burial grounds in good order.
[9] The nature of the transfer was recognised through the lodging of a caveat against the title by the District Land Registrar the grounds for the caveat relevantly
3 Lusty v Thorburn [2019] NZHC 2610.
stating it was intended “to prohibit any dealings inconsistent with the provisions of [the conveyance].”
[10] The exact area of the land transferred has not been determined as even today the Certificate of Title is limited as to parcels. Estimates of the size of the land vary from approximately 5000 square metres4 to 6070 square metres.5 The one rood stated in the conveyance to have been “set apart and used as a burial ground in trust” is equivalent to just over 1000 square metres (roughly equivalent to a quarter of an acre), and therefore the burial ground as described in the conveyance would encompass between one fifth and one sixth of the land as a whole.
[11] It appears that at the date the Thorburn trust was created the burial ground was already occupied by Andrew Weatherspoon Thorburn’s eldest daughter, Eliza,6 and his first wife Margaret who had passed away in 1880. Not long after the conveyance was effected Andrew Weatherspoon Thorburn joined them, dying later in 1901 at the age of 70.
[12] There is no evidence to suggest that either Robert Thorburn or Andrew Thorburn took the terms of the Thorburn trust particularly seriously. Certainly, it appears no steps were taken to utilise the land as a burial ground “for settlers residing in the lower Wade” after the death of Andrew Weatherspoon Thorburn, and there is no record of any further burials taking place. Instead the brothers leased out the whole of the land, initially to one of their sisters, later to a neighbour, and the property remained leased in its entirety at the time they in turn passed away in 1950 and 1945 respectively. Although the area in which the Thorburn graves at least were located was initially ringed by a circle of macrocarpa, these were chopped down by the lessee at some point and around the same time it appears the three Thorburn headstones appear to have been buried to prevent damage from the lessee’s cattle grazing on the land. No steps were taken by Robert Thorburn or Andrew Thorburn to appoint new trustees prior to their deaths.
4 According to a valuation undertaken by Barker and Morse Ltd in 2002.
5 Figure adopted by Rodney District Council and Auckland Council for rating purposes.
6 Eliza having died in 1864 aged 11 years, 11 months.
[13] The last lease granted by the initial trustees ended in 1974 and from then on the land was effectively abandoned, such that the Rodney District Council looked to sell the land to satisfy unpaid rates.
The Thorburn trust is confirmed
[14] That the land was not ultimately sold was due to the efforts of Mr Thorburn. Mr Thorburn was a great-grandson of Andrew Weatherspoon Thorburn, the grandson of Robert Thorburn and father of the current trustee Craig Thorburn. As a boy it appears Mr Thorburn had visited the property with Robert Thorburn and in later life took it upon himself to look after the land. There is no dispute that over a significant period Mr Thorburn put in a substantial effort caring for the property. In addition to clearing vegetation Mr Thorburn located the headstones of Andrew Weatherspoon Thorburn, Margaret Thorburn and Eliza Thorburn that had been buried, and he paid off the outstanding rates claimed by the Rodney District Council.
[15] At some point after the outstanding rates had been settled Mr Thorburn was introduced to Mr Lusty. Mr Lusty immediately saw the potential of the land, both for housing purposes and for locating a jetty with access to deep water.
[16] With this in mind, in February 1987 Mr Thorburn and Mr Lusty signed an agreement for sale and purchase of the land. This provided Mr Lusty would pay Mr Thorburn $380,000, conditional on Mr Thorburn being able “to give clear unencumbered title”. The transaction did not proceed as Mr Thorburn was unable to provide a title; he did not own the land.
[17] Given this position Mr Lusty sought advice from John MacDonald, a solicitor at Short & Co, in Auckland. Mr MacDonald provided an opinion to Mr Lusty on 28 April 1987 “in relation to the problem of acquiring an interest in the property situated on the Weiti River under the name Thorburn”. In the opinion Mr MacDonald noted the creation of the Thorburn trust and noted:
[Mr Thorburn] now wishes to become registered as proprietor and sell the land to you free of the trust. Whether he can do this will depend on whether the trust is valid and if it is not what the position is in relation to the descendants of the original settlor.
[18] On this issue Mr MacDonald indicated that he considered the Thorburn trust was “at least in part a valid charitable trust”. Given that position Mr MacDonald noted a number of problems that would have to be overcome. First, Mr MacDonald made clear that in the event a new trustee was appointed:
[h]is first obligation is to administer the trusts the subject of his appointment and this is so even though many years have passed and the use of the land as burial ground is no longer practised.
[19]He then went on:
It seems unlikely that with only three persons ever having been buried there that the land would become a public graveyard.
The High Court either at common law or under the Charitable Trust Act 1957 can vary the provisions of a Trust where there is no longer any need for it or it is otherwise impracticable. The Privy Council has held that where there had been an express gift of land and money for charitable purposes the gift wasn’t invalidated by the fact that the particular application could not take effect.
The obvious effect of this is that neither Mr. Thorburn nor any of the other descendants would get any monetary gain and in fact if he were appointed trustee then the general position is that Trustees must not make a profit for themselves out of the trust estate. It would not however prevent a valid lease of the land being given to you at a proper rental.
[20]Mr MacDonald concluded by noting:
If the Trust is valid then the land can be disposed of by the Trustee to you under a Lease, the terms of which are basically up to the parties for negotiation. It would certainly be conceivable that a long term or perpetual lease could be created subject to sufficient income to care for the burial ground.
[21] Upon receipt of Mr MacDonald’s advice Mr Lusty and Mr Thorburn wrote a joint note to Short & Co, dated 23 June 1987, confirming that they wished Mr Thorburn to be appointed a trustee and that an agreement for a 99 year lease of the property with rights of renewal be drafted, on the basis of a single payment of
$380,000.00, payable over a five year term. Short & Co responded in July 1987 by advising the process would take much longer to effect than Mr Lusty and Mr Thorburn contemplated.
[22] In the event it was not until August 1988 that proceedings were filed in the High Court at Auckland on behalf of Mr Thorburn, seeking a declaration that the Thorburn trust was valid and an order that Mr Thorburn be appointed as a trustee.
[23] While waiting for the application to be heard Mr Lusty and Mr Thorburn continued to meet to discuss possible future arrangements. On 26 May 1989 Mr Lusty and Mr Thorburn met and the handwritten minutes of this meeting, signed by both Mr Lusty and Mr Thorburn, relevantly recorded:
[Mr Thorburn] has paid on the property
A: Rates
B: Clearance of gorse and labour C: Legal fees
D: Court costs
E Travelling expenses to Whangarei on title search F: Maintenance lawn mowing
G: Fencing
H: Retaining walls and earthworks.
[Mr Thorburn] is to [be] reimbursed for the above expenses as a prepayment prior to [Mr Lusty] paying the Trust a lease fee.
The exact amount of the reimbursement is to be determined between [Mr Thorburn and Mr Lusty] at the signing of the lease of the land.
[24] The signed notes went on to confirm that in addition Mr Lusty “agreed to allow [Mr Thorburn] to reside on a holiday basis on the property during his lifetime” and that “the grave site does not get built on and is maintained as a historical site”.
[25] Mr Thorburn’s application to the High Court was heard by Sinclair J in November 1989, and judgment was given a few days later.7 Granting the relief sought by Mr Thorburn, His Honour noted the history of the Thorburn trust and the failure of Robert Thorburn and Andrew Thorburn to appoint replacement trustees during their lifetime. His Honour then noted:8
7 Re Thorburn HC Auckland M1229/88, 10 November 1989.
8 At 4.
On such evidence as is available, it would appear that there has been no trustee to the present Trust since the death of Robert Thorburn on 19 May 1950. For the past 15 years [Mr Thorburn] has looked after the property and has restored it from the overgrown state into which it had fallen. The graves and burial grounds have been located and are now well maintained and [Mr Thorburn] has ensured that the property has been looked after in accordance with his great grandfather’s wishes. In addition he personally has paid the rates which had accrued up to the time when he stepped in.
[26] Justice Sinclair went on to review the applicable law and concluded that “the purposes and objects of the Thorburn Trust can be held by this court to be charitable”.9 On the issue of whether the purpose of the Thorburn trust was public or private His Honour noted:10
… in the instant case, the Trust is not for a selected group of persons but embraces the whole of the community of the Lower Wade and thus falls within the ambit of the decision just referred to.
[27] Sinclair J concluded the Thorburn trust was for the public benefit. In particular, and after reviewing a number of cases including Scottish Burial Reform Cremation Society Ltd v Glasgow Corporation11 his Honour stated:12
By analogy with the Scottish Burial case, I accept the submission that the purpose of the Thorburn Trust does come within the class of ‘charitable trust’, it being for the advancement of religion. In the absence of any evidence to the contrary such Trusts are presumed to be for the public benefit. But in this case there is the additional public benefit in that the Trust specifies for the provision and maintenance of a burial ground for the rest of the Lower Wade area thus enabling burial of persons within their community, and falling within the category provided for, rather than burial at a considerable distance from the community.
(emphasis added)
[28] Finally, having declared the Thorburn trust was valid Sinclair J appointed Mr Thorburn as the trustee, and made an order vesting the land in Mr Thorburn.13
9 At 7.
10 At 8 – 9.
11 Scottish Burial Reform Cremation Society Ltd v Glasgow Corporation [1968] AC 138, [1967] 3 All ER 215 (HL).
12 At 9.
13 At 10 – 13.
The lease is granted
[29] Vesting the land in Mr Thorburn as trustee enabled Mr Lusty and Mr Thorburn to proceed with a lease. Short & Co (David Short) continued to act for Mr Lusty, and Hesketh Henry, who had acted for Mr Thorburn in the High Court application, continued to act for him on the drafting of the lease. By mid-February 1990 at the latest a draft lease was being circulated. Relevantly for the purposes of the present application, Hesketh Henry advised Mr Thorburn, on 12 February 1990:
As discussed with you we record our advice to you that as trustee you are required to enter into this lease not on your own behalf but on the behalf of all beneficiaries under the trust despite it being unclear who precisely those beneficiaries are. You are therefore answerable to any beneficiaries on a personal basis for any actions you take as trustee.
For this reason we believe that you ought to endeavour to obtain a market rental for the land and that any profit the trust may make can then be distributed to such of the beneficiaries who claim an entitlement.
[30] Similar comments appear to have been provided by Hesketh Henry to Short & Co, and Hesketh Henry reiterated their concerns again to Mr Thorburn on 15 February 1990 advising:
[t]hat we are still concerned that you are entering into a lease on behalf of the trust in perpetuity at a rental which cannot increase by more than 500% each 21 years.
[31] While the lease was being drafted Mr Thorburn and Mr Lusty went ahead and signed a further agreement on 2 March 1990 (“the side agreement”).14 There is no indication as to who drafted this agreement or whether solicitors were involved in its drafting. The side agreement provided:
IT IS AGREED THAT IN CONSIDERATION OF THE SIGNING OF A LEASE COVERING THE LAND DESCRIBED AS FOLLOWS:
PARISH OF OKURA, BEING PARTS OF ALLOTMENT TEN AND BEING ALL THE LAND COMPRISED IN CERTIFICATE OF TITLE VOLUME 584 FOLIO 253.
MR KENNETH RICHARD LUSTY will reimburse MR FREDERICK OWEN THORBURN the sum of TWO HUNDRED AND FIFTY
THOUSAND DOLLARS ($250,000.00), to compensate expenses directly
14 Dated 9 February 1990.
connected with the development and future maintenance of the described property.
The schedule of payment is to be conducted in equal instalments over a three year period, commencing with a first payment upon the signing of the described lease.
The payment schedule is set out as follows:
1) UPON SIGNING THE LEASE. AMOUNT. DATE SIGNED.
$ 30,000.00 2 March 1990
2) EACH 6 MONTHS PERIOD
THEREAFTER $ 44,000.00
3) TOTAL PAYMENT: $250,000.00
4) IT IS AGREED THE TOTAL OR PART SUM CAN BE PAID IN GREATER AMOUNTS, AND IN THE EVENT OF HARDSHIP AN AGREEMENT FOR DELAY OF PAYMENT CAN BE WORKED OUT BETWEEN BOTH PARTIES.
[32] The lease was signed on 29 March 1990 and consent appears to have been received from the District Land Registrar (as caveator) to enable the lease to be registered.
[33] The lease provided for a term of 21 years commencing on 20 December 1989 with one right of renewal for the same period.15 The initial rental was $1,000 per year while clause 15 provided that the rental for the renewed term was fixed at $1,500 per annum. Clause 20 then provided:
At the expiration of the renewed lease, the lessor shall first offer a new lease to the lessee upon similar terms as herein contained and at a rental to be determined by arbitration as herein provided but in no case is the rental to be in excess of 500% of the rental for the prior term.
[34] The existence of the burial ground was specifically mentioned in cls 5(b) and 6(b). Clause 5(b) prevented the lessee from building any structure or obstruction on the burial ground. Clause 6(b) in turn provided:
The Lessee will during the said term keep and maintain the burial ground that is situated upon the said land and marked approximately in red on the attached plan in good substantial order condition and repair and will keep regularly
15 Clause 13.
mown trimmed clipped weeded and tidy any lawns and lawn edges on or adjacent to or about the burial ground and will carefully water tend and cultivate any trees shrubs and gardens in or about the burial ground and replace any trees or shrubs which may require replacement with trees or shrubs of similar quality.
[35] The plan referred to in cl 6(b) is not before the Court and does not appear to have ever been attached to the lease. The exact area referred to is therefore unclear.
[36]In addition to these clauses, cl 4 is also relevant and provided:
The Lessee will fence and keep fenced the said piece of land with a good and substantial legal fence without making any claim for any contribution therefor from the Lessor. Any surplus rental is to be used by the parties in maintaining the foreshore area, walls and jetty.
[37] The final payment under the side agreement was received by Mr Thorburn on 24 December 1993 (“the 24 December payment”). The cheque for $83,000.00, in addition to constituting the balance of the $250,000.00 agreed, also included a payment of $1,000.00, said to be for the rent owing from March 1993 to March 1994. On the same day Mr Lusty and Mr Thorburn confirmed that Mr Lusty was to pay the rates on the land, and was responsible for the maintenance of the foreshore and jetty. In particular Mr Lusty was to hold the “licence” for the jetty, and the parties not only recorded their agreement that the lease had been paid until 2013, a separate receipt was issued by Mr Thorburn to Mr Lusty which stated explicitly that the lease “Lease paid in full for 21 years”.
[38] Over the next 12 months the relationship between Mr Thorburn and Mr Lusty appears to have cooled somewhat. It is unclear what was the trigger for the breakdown but within a short time of the 24 December payment Mr Thorburn began questioning whether in fact the rental had been paid to the end of the initial term. This appeared to prompt a query from Mr Lusty to Short & Co as to whether he could obtain the freehold title. In response, Mr Short wrote to Mr Lusty on 15 February 1995. Mr Short appeared to have only just read Sinclair J’s judgment and provided a copy to Mr Lusty. Mr Short made it clear that, given the judgment, any transfer of the freehold to Mr Lusty was likely to be a breach of the Thorburn trust and, as a result, the leasehold interest already held by Mr Lusty was “almost certainly the best way of protecting your interests”.
[39] Not long after receiving Mr Short’s advice Mr Lusty wrote to Mr Thorburn on 21 March 1995 to attempt to straighten out matters between them. After setting out the background as he saw it, including that the purpose of the $250,000 was to reimburse Mr Thorburn for his “costs, labour and work on the property”, Mr Lusty had “agreed to purchase the leasehold rights from [Mr Thorburn], with a formal lease granting [his] family the use of the land in perpetuity”. Mr Lusty then turned to the 24 December payment and asserted that the cheque paid on that date was “the balance of monies agreed upon for the leasehold rights” and that “that part of the final settlement [by separate cheque] would prepay the annual ground rental until the year 2013 [the first 21 year lease period]”. Mr Lusty then went on:
It was also clearly understood that the writer (or successors to my Estate) would be responsible until the year 2013 for the maintenance of the gravesite and property as per the terms of the original Trust and subsequent confirmation of Trust by Justice Sinclair.
This maintenance has continued from the settlement date (and will continue) at a high standard that you yourself have commented on, with no cost to you or the Trustees.
You will recall that it was decided by us both that I would hold the ground rental monies and apply same to assist the maintenance of the property with liason in the future between your son and my son Andrew Wilson Lusty (appointed trustees).
[40] Mr Lusty went on to list his contributions towards the property including Mr Thorburn’s legal expenses, reconstruction of the foreshore and wharf, the water bore and overall landscaping of the land, as well as paying the rates over the previous five years. He sought a reconfirmation of his view of the original understandings so that future trustees “clearly understood that the ground rental was a nominal fee on an annual basis (in perpetuity) to cover the maintenance of the property – foreshore and gravesite”.
[41] It is clear from subsequent annotations to the letter Mr Thorburn did not agree with much of what Mr Lusty said and indeed it is apparent that parts of Mr Lusty’s letter were quite inconsistent. On the one hand Mr Lusty appeared to be saying the rental had been paid until 2013, on the other that the rental was being held by him and applied to maintenance on the land, notwithstanding his assertion that it was Mr Lusty that had met the maintenance costs on the land “at no cost to [Mr Thorburn or the
Trustees]. As well as annotating points of disagreement on his copy of Mr Lusty’s letter, Mr Thorburn sought confirmation from the Bank that only a single bank cheque had been received on 24 December 1993. Despite these issues, the lease continued, with Mr Lusty having plans drawn up for a substantial home to be constructed on the property and undertook further work on the foreshore and wharf/jetty. None of the plans drawn up included any reference to the location of the burial ground, or even the known gravesites.
[42] Although plans were drawn up and construction had apparently commenced, further work ceased after Mr Lusty suffered an aneurism in 1999 as from then on (according to his widow, Aileen Lusty) Mr Lusty was an invalid until his death in April 2010.
[43] Notwithstanding Mr Lusty’s illness, Mr Thorburn continued to produce a number of notes disputing that the ground rent had been paid. Mr Thorburn also took steps to record the “Thorburn burial ground” in the Rodney District Plan although the ground being discussed with the Rodney District Council appeared to extend to no more than a circle with a ten-metre diameter (an area of approximately 78.54 square metres) and appointed and replaced various additional trustees (including Craig Thorburn) although continuing to take the leading role as the face of the Thorburn trust.
[44] It was during this period that both Mr Thorburn and Mr Short first raised the issue as to whether the $250,000 paid to Mr Thorburn equated to the market value of the land at the time the lease was entered into. This was mentioned in a letter by Mr Short dated 24 July 2001, while a file note by Mr Short referring to conversations with Mr Thorburn showed that Mr Thorburn was looking for a further payment based on his view of the value of the land, Mr Short also noted Mr Thorburn was talking about defining the “gravesite”, with Mr Short recording that it was defined in the conveyance as a quarter acre but that in discussion with Mr Thorburn Mr Short had “volunteered a figure of 500 square metres”.
[45]Mr Thorburn responded by noting that originally Mr Lusty had offered him
$380,000 for the freehold and:
When we could not get it freehold he took out a lease for 21 years with rights of renewal for 21 years and paid me $250,000 and he would build me a small cottage on the land for use at weekends and holidays for rest of my life, which I have not received.
[46] Mr Thorburn also reiterated his position that the ground rental had not been paid since 1994. Eventually matters relating to rental were resolved in the meantime when Mr Lusty wrote to Mr Thorburn on 8 October 2001 enclosing a cheque for
$9,000.00 which he stated paid the annual rental through to 31 March 2002, and confirmed that future rental payments would be made when they fall due.
[47] Mr Thorburn died in 2004. Although at that date Craig Thorburn appears to have been the sole surviving trustee and Carly Thorburn appears to have been appointed shortly thereafter, subsequent payments of rent were made by Aileen Lusty to Mr Thorburn’s widow, Joan Thorburn
The attempt to renew the lease
[48] Upon Mr Lusty’s death the executors became the registered proprietors of the lease. On 14 May 2010 the estate’s solicitor Graeme Cox of Rennie Cox prepared a letter addressed to Joan Thorburn purporting to give “formal notice of the estate’s desire to renew the lease for a further term of 21 years in terms of clause 13 [sic] of the lease document”. According to Aileen Lusty, she hand-delivered the letter to Joan Thorburn.
[49] By this time, and although Short & Co had previously agreed that it “should not act for Mr Thorburn or the Thorburn trust and only for Mr Lusty’s interests” the firm, now renamed Short & Partners, commenced acting for the estate of Mr Thorburn after Mr Lusty’s death. In that capacity Mr Short wrote to Craig Thorburn on 7 December 2010 and reminded him that the lease would expire on 21 December 2010 and seeking instructions in relation to the renewal.
[50] On 15 February 2011 Mr Cox faxed Mr Short confirming his understanding that Aileen Lusty had provided the notice of renewal to Joan Thorburn in June 2010 and requesting a deed of renewal.
[51] Mr Short responded on 18 February 2011. No issue was taken by the trustees with the form of the notice for the renewal given or indeed the fact it had been served on Joan Thorburn. Instead three issues were raised on behalf of the trustees; an increase of rental to $7,500.00 per annum, the need for maintenance to be undertaken and the possibility of the adjoining owner using the detached section of the land. Mr Short annexed a lease variation instrument for Mr Cox’s perusal and requested Mr Cox’s “PC [Primary Contact] and CP [Conveyancing Professional] details and we will forward an A&I [Authority and Instruction Form] for execution by your clients”.16 As Mr Short’s response indicated, the documents sent by Mr Short did not include a new lease as might have been expected. Instead the lease variation instrument provided that the lease be “varied as set out below” namely:
… the lease is renewed or extended to 19 December 2031 and varied the rental payable to $7,500 per year.
[52] At this point Mr Cox responded to the three issues raised by Mr Short. He noted that pursuant to clause 15 of the lease the renewed rental was fixed at $1,500 per year, confirmed that the maintenance work had been “put in hand”, and advised that the executors would advise whether the detached part of the land could be leased. Mr Short subsequently agreed that the rental payable on renewal was $1,500 per year, and Mr Cox went on to request an amended lease variation instrument, after confirming the executors “did not wish to vary the existing arrangement and are not interested in any boundary adjustment”. In the event it was Mr Cox who amended the lease variation instrument, and this was sent to Short & Partners for execution by the trustees on 28 April 2011.
[53] By this time, it became apparent that the trustees, together with Joan Thorburn, had begun questioning whether the lease reflected the original agreement between Mr Lusty and Mr Thorburn. By 11 November 2011 Mr Short advised Mr Cox:
The Thorburns are refusing to sign off the documentation as they are adamant, and Mrs Joan Thorburn is also adamant, that the lease was a lease for 21 years with one right of renewal for 21 years and that is their position.
16 Details and documents to authorise the lodging of a dealing for registration with Land Information New Zealand.
[54]In response Mr Cox responded:
The lessee totally refutes the lessor’s position as set out in paragraph one of that facsimile. The terms as to renewal in clauses 13 to 16 are in our opinion absolutely clear. With regard however to the first term of renewal the necessary notice has been delivered to Mrs Joan Thorburn by Mrs Aileen Lusty the notice being contained in our letter dated 14 May 2011. Subsequently we received the renewal documents from your firm which required variation only as to the ongoing rental as $1,500.00 (not $7,500.00) which was acknowledged as being correct.
Leaving aside what is obviously a total disagreement as to the ongoing renewal situation (and the lessee will in due course do what is necessary to obtain its right for renewals) we have not yet entered into the area of disagreement and it appears that we are agreed at least that the second term should be commenced.
Can we accordingly at least register the first renewal which requires the consent of the caveator which we would expect would be given on application?
[55]In response Mr Short advised on 21 December 2011:
We are instructed that Craig and Carly Thorburn will execute documentation to roll the lease over for 21 years from 20 December, 2010. They reserve their rights concerning the perpetual nature of the lease.
[56] Confirming this position on 9 March 2012 Mr Short wrote to Mr Cox enclosing a client authority instruction form executed by the trustees, together with an amended lease variation instrument, to enable registration of the variation to occur.
[57] Rennie Cox attempted to register the lease variation instrument, but this was ultimately rejected by Land Information New Zealand on 28 March 2012 on the basis that a variation could not be registered as the lease had expired on 20 December 2010.
[58] Having filed a caveat to protect the executors’ interest in the land, Mr Cox prepared a new lease in the form of the old lease (“with the current lessor and lessee now specified”). This was forwarded to Mr Short on 1 November 2012 with the request that the new lease be signed and returned with the necessary authority and instruction form. Despite further follow up into 2013 no further progress was made towards registration and in August 2013 Ms Low was instructed on behalf of the trustees. From that point the positions of the parties have hardened through to the issue of the present proceedings in 2018.
Were the executors in breach of the lease at the time of the purported renewal?
[59] It is apparent from the narrative set out above that there was considerable informality with the way both Mr Thorburn and Mr Lusty dealt with the lease which makes any assessment of breach extremely difficult.
[60] Both Mr Thorburn and Mr Lusty appeared to have quite different understandings of their respective obligations at different times, and indeed both demonstrated more than a certain amount of inconsistency. It is, for example, not at all clear from the narrative why Mr Lusty considered that the rent due under the lease had been paid to the end of the first term when all but $1,000 of the 24 December payment appeared to relate to the $250,000 payable under the side agreement or if (apparently in the alternative) he had retained the rental payments (other than the
$1,000 noted) to enable him to maintain the land (despite the lack of any such provision in the lease) the maintenance was then at no cost to the trustees. It is equally difficult to understand why when Mr Thorburn agreed the 24 December payment only included rental of $1,000 he nonetheless wrote out a receipt to Mr Lusty apparently confirming that the rental to the end of the initial term had been paid.
[61] The position is also not helped by the fact that neither Mr Thorburn nor Mr Lusty kept detailed records of the payments, a position compounded after Mr Thorburn’s death when ongoing rental payments were made to Joan Thorburn rather than the trustees who succeeded Mr Thorburn.
[62] Ultimately I am not satisfied in the circumstances as they existed that there had been any ongoing breach of the lease prior to the end of the initial term and indeed no issue was initially taken by the trustees to decline to renew on that basis, or indeed to take any issue with the fact that the notice of renewal was given to Joan Thorburn rather than to the trustees.
[63] I, therefore, conclude that the breaches of the lease now alleged by the trustees provide no basis for declining to renew the lease and, even if they had and there had
been a clear refusal to renew on that basis, relief would have been available pursuant to s 261 of the Property Law Act 2007.17
[64] The issue turns to the terms of the lease and whether those are consistent with the Thorburn trust.
Was the lease consistent with the terms of the Thorburn trust?
[65] As the narrative also makes clear, the lease entered into by Mr Thorburn and Mr Lusty was not consistent with the terms of the Thorburn trust set out in the conveyance and explained at length by Sinclair J in finding that the conveyance had given rise to a valid charitable trust.
[66] First, while Associate Judge Paulsen in his judgment in the summary judgment application did not accept the trustee’s argument that the whole area of the land could not be leased,18 I nonetheless agree with Ms Low the conveyance and Sinclair J’s judgment made it clear that the burial ground did not just consist of the three Thorburn graves but encompassed a defined area of one rood. As previously noted one rood is approximately a quarter of an acre and, therefore, the area encompassed by the burial ground must equate to some 17 to 20 per cent of the total area of the land.19 That is the area which according to the conveyance had been “set apart and used as a burial ground … forever for the interment of the settlers residing in the lower Wade and such other persons as shall be approved of by the trustees …”.
[67] The terms of the Thorburn trust make it clear that it is only the balance of the land (the remaining 80 – 83 per cent) located outside of the burial ground that is available to be leased, not the land in its entirety.
[68] It is difficult to see how the terms of the Thornton trust could be interpreted otherwise. If the whole of the land was leased out the burial ground would be unable
17 This section provides that where a lessor refuses to extend or renew a lease with a right of renewal, on the basis that the lessee is in breach in some respect or has not complied with time limits for exercise of the option, the lessee may apply to the court for relief under s 264. A court may then grant relief against the refusal of the lessor to extend or renew the lease.
18 Lusty v Thorburn, above n 3, at [32].
19 See [10] above.
to be used because it would prevent access by those, otherwise entitled, seeking to have their loved ones buried there. The fact that the entirety of the land was leased indeed explains why there was no further burials after Andrew Weatherspoon Thorburn in 1901. It is clear that both the earlier leases (prior to 1974) and the current lease effectively prevent public access to the burial ground. Access to the burial ground was further restricted by the effect of cl 4 of the lease given it required Mr Lusty to fence off the land in its entirety. When coupled with the fact that the lease was intended to operate in perpetuity, this effectively prevents any use of the burial ground. The fact that the burial ground may not be currently able to be used for burials as Ms Matthew submitted, is irrelevant to the issue of whether the lease is consistent with the terms of the Thorburn trust.20 Likewise the fact that cl 5(b) of the lease prevented construction on the burial ground and cl 6(b) required the burial ground to be maintained in “good substantial order condition and repair” is also still manifestly inconsistent with the expressed purpose of the Thorburn trust as interpreted by Sinclair J, as for the reasons noted not only were further burials effectively precluded in perpetuity, but as no plan delineating the burial ground appears to have been attached to the lease the area subject to cl 5(b) and cl 6(b) was effectively not defined.21
[69] Given this position there can be no doubt that the combined effect of the failure to “carve out” the burial ground, the requirement to fence off the entire property, and the potentially indefinite duration of the lease combined to effectively frustrate the sole charitable purpose for which the Thorburn trust was established and thereby contravened the terms of the Thorburn trust as recorded by Sinclair J in his judgment. As Ms Low submitted:
That, the burial ground is to be used for the interment of the residents of lower Wade is the only purpose to which the burial ground can be put. As an aside, had the Trust simply provided for the maintenance of the private graves of the Thorburn family (as the gratification of his own vanity or as a personal monument) it would not have been charitable.22
20 Noting there is no dispute that the burial ground would not currently comply with the relevant parts of the Burial and Cremation Act 1964.
21 Ms Matthew submitted that the catchall provision “as shall be approved of by the trustees subject to such regulations as they may think fit to make” apply to the definition of the burial ground. Such a submission is untenable given the burial ground is expressed to have already been made.
22 See Mellick v Asylum (President and Guardians) (1821) Jac 180, 37 ER 818; see also
Re Thorburn, above n 7, at 8.
The [trustees] are not saying the trustees could not grant a lease in respect of the remainder. Simply that such lease could not include the burial ground. The [trustees] are not saying the trustees could not engage with the lessor for him to carry out the obligation to maintain the burial ground and graves. What was not permissible, was a lease that by its very nature precludes the proper use of the burial ground.
The Lease undermines the entire sub stratum of the Trust; the primary purpose for which the Trust was established. The Lease means the burial ground is no longer available to the residents of lower Wade, indeed the residents of lower Wade cannot visit the burial ground because the lessee has a right to quiet enjoyment under the Lease. The burial ground cannot be used for interment of residents of lower Wade (whether permissible as a matter of law or not). All that might be said, is that the burial ground might be being maintained (and that is arguable).
While it may be impractical and/or inexpedient for the burial ground to now be used for interment of residents of lower Wade,23 this does not relieve the trustees of their fiduciary duty to act only in accordance with terms of trust. It may mean that a Part Ill scheme under the Charitable Trusts Act 1956 is required in respect of the burial ground. That is not an issue for this court.
(footnotes included)
[70] Far from being able to lease out the burial ground, the trustees have a clear obligation to either attempt to give effect to the charitable purpose or to otherwise make application to the High Court to seek a change to that charitable purpose or such other directions as may be appropriate. In the interim it is clear that for a lease to be consistent with the terms of the Thorburn trust it would have had to exclude one rood encompassing the burial ground, while continuing to provide the ability for local residents (being the settlers of the lower Wade) or others approved by the trustee to be buried there.
[71] For completeness, I do not consider that the total consideration paid by Mr Lusty was inadequate had the lease otherwise been consistent with the Thorburn trust. This issue was, in many ways, the focus of the hearing before me: with all parties (and indeed Associate Judge Paulsen) accepting that the rental would never “get to market” in the event that the Lease ended up being perpetually renewed. This lead to a considerable focus on the $250,000 paid by Mr Lusty under the side agreement and whether this was in fact equivalent to the purchase price of the freehold
23 It seems that it is still possible, see s 47 of the Burials and Cremations Act 1964.
given the initial low level of rental, including valuation evidence as to what the market price of the land might have been at the time the lease was signed.
[72] In the event there was no real disagreement that $250,000 was at or close to the market value of the land in 1990.24 When this is coupled with the ongoing rental payable under the lease, it is clear that the consideration as a whole could not be described as inadequate.
[73] It is in fact difficult to see the basis for the conclusion the rental payable under the lease would never get to market and that “the difference between the rent payable under the lease and market rent will increase exponentially over time”.25 On the contrary it is clear that while the rental was well below market for both the initial term and renewal it would ultimately get to market if the lease continued to be renewed in accordance with cl 20, most likely between the 2074 and 2095 renewal dates, which in the context of a perpetually renewable lease appears reasonable.26
[74] Likewise, although the $250,000 payment made under the side agreement was expressed to be a personal payment by Mr Lusty to Mr Thorburn to reimburse Mr Thorburn’s expenditure on the property and future work he would undertake and both Mr Lusty and Mr Thorburn clearly treated the payment as such, it is clear that it constituted the consideration for the grant of the lease by Mr Thorburn as the sole trustee of the Thorburn trust.
24 There were two retrospective valuations before the Court. Edgar Smithies set the retrospective valuation at $190,000 including GST; while Peter Bates set the retrospective valuation at
$175,000.
25 Lusty v Thorburn, above n 3, at [38].
26 For example, in the event the lease was renewed in perpetuity:
§1990-2011 rental: $1,000 per year
§2011-2032 rental: $1,500 per year.
§2032-2053 rental: $1,500 per year increased by up to 500 per cent giving $7,500 per year maximum.
§2053-2074 rental: $7,500 per year increased by up to 500 per cent giving $37,500 per year maximum.
§2074-2095 rental: $37,500 per year increased by up to 500 per cent a rental of $187,500 per year maximum.
§2095-2116 rental: $187,500 per year increased by up to 500 per cent a rental of $937,500 per year maximum.
§2116-2137 rental: $937,500 per year increased by up to 500 per cent a rental of $4,687,500 per year maximum.
[75] As trustee Mr Thorburn was not entitled to receive payments personally, still less to profit personally from granting the lease to Mr Lusty. It follows that, at law, he would have held the payment under the side agreement on a constructive trust in favour of the Thorburn trust, except to the extent he was legitimately able to claim reimbursements for expenditure incurred on behalf of the Thorburn trust.27 That, however, was and remains a matter between the Thorburn trust and Mr Thorburn, and does not affect my conclusion that the consideration ultimately paid by Mr Lusty under both the side agreement and as rental was not inadequate.
Are the executors entitled to a renewal of the lease?
[76] As a result of my conclusions that the lease breaches the terms of the Thorburn trust the next issue to be considered is whether the executors are nonetheless entitled to a renewal of the lease.
[77] Ms Matthew submitted that in the event that the lease breached the terms of the Thorburn trust the executors were nonetheless entitled to renewal because:
(a)The executors can rely upon the deed of variation signed and supplied by the defendants on 9 March 2011 which, although it was signed after the lease expired, is still enforceable as a deed, and that there is otherwise no reason not to give effect to that deed.
(b)Section 22 of the Trustee Act 1956 otherwise prevents the trustees from avoiding the lease unless they can show fraud on the part of Mr Thorburn and actual or constructive knowledge of that fraud by Mr Lusty, and that there is no evidence to support any such allegations.
27 In accordance with the “no profit” principle, the trustee must account as a constructive trustee for monies received by reason of their position as trustee including incidental profits: see Jessica Palmer “Constructive Trusts” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd edition, Thomson Reuters, Wellington, 2009) 335 at 338 for discussion of this principle. This common law principle is now expressed in ss 36 and 37 of the Trusts Act 2019: duty not to profit and duty to act for no reward. Per s 38(2) of the Trustee Act 1956 (now expressed in substantially similar terms in s 81 of the Trusts Act 2019), a trustee may reimburse themselves for all expenses reasonably incurred in execution of the trust. Per s 81(2) of the Trusts Act 2019, a trustee who incurs an expense or liability when acting reasonably on behalf of the trust is entitled, if the trustee has paid the expense or discharged the liability out of their own funds, to reimbursement from the trust property.
(c)The executors are not otherwise in breach of the terms of the lease.
[78] In Ms Matthew’s submission the trustees’ argument, that they cannot commit to an extension of the lease on the current terms because it would be in breach of the Thorburn trust, misstates the nature of the situation as they are not being asked to commit to a new contractual obligation.
Can the executors rely upon the authorised deed of variation?
[79] As noted, the so-called deed of variation was in fact a lease variation instrument in terms of s 116 of the Land Transfer Act 1952.28 This section made it clear that an extension of term had to be registered before the expiry of the then current term of the lease, and as the attempt to register the instrument took place some 16 months after the expiry of the lease term it was properly rejected by Land Information New Zealand.
[80] Although, as noted, the instrument did state that “the term of the lease is renewed or extended to 19 December 2031” it did so in the context of a variation on an extant lease, which in this case had already expired. It follows that the instrument was insufficient to constitute a renewal of the lease and as a result the fact that a variation was authorised by the trustees cannot amount to an agreement that the lease should be renewed. The variation of an existing lease is not the same as a renewal29 and is therefore not determinative.30
28 Now replaced by s 92 of the Land Transfer Act 2017.
29 See [82] below.
30 For completeness, it is appropriate to note that the trustees have raised the issue of estoppel by representation as an affirmative defence to the executor’s claim for specific performance of the lease based on the A&I form. The trustees say that the executors are estopped from relying on the A&I in order to enforce the lease other than in relation to the first renewal period, because of Mr Cox’s representation (which the trustees relied on) that the A&I form represented only a “middle ground” which avoided the issue of ongoing renewal in the short term.
The executors reply that there is no estoppel arising out of Rennie Cox’s letter dated 15 November 2011, as Mr Cox plainly stated that “the lessee totally refutes the lessor’s position” and that the statement “can we at least register the first renewal” could not be construed as a concession to the trustees’ position and that any arguments about the interpretation of the lease were going to be the same regardless of whether the term was extended by a further 21 years.
On the issue of estoppel, it appears as if the parties are talking past each other. The trustees assert that the executors are estopped from relying on the A&I form as an enforceable deed other than in relation to the first renewal period. However, the executors have only ever asserted that they are entitled to rely on the 2012 A&I as an enforceable deed of variation extending the term of the lease to 19 December 2031. Any claims of an enforceable right of renewal by the executors arise in reliance on the original lease, independent from the A&I form. However, the executors’
[81] Instead, the issue remains whether the Court should order specific performance and direct the trustees to execute the renewal.
Should specific performance be ordered?
[82] It is well understood that when a right of renewal is exercised it results in a new lease.31 It follows that when the attempt to vary the lease failed because it had already expired it was necessary to prepare (as Rennie Cox did on behalf of the executors) a new lease in the same terms as the original save that the draft reflected the change in parties. Contrary to Ms Matthew’s submission it is clear that in these circumstances the trustees were being required “to commit to a new contractual obligation”.
[83] Given this position, s 22(1) of the Trustee Act as relied upon by the executors, can have no application. This section provided:
Where an instrument is made or executed in professed exercise of the power to sell, exchange, lease, or mortgage conferred by the instrument (if any) creating the trust or by this Act or any other Act, the title of the purchaser, transferee, lessee, or mortgagee shall not be impeachable except on the ground of fraud, or be affected on the ground that no case has arisen to authorise the sale, exchange, lease, or mortgage, or that the power was otherwise improperly or irregularly exercised; but any person damnified by an unauthorised or improper or irregular exercise of the power shall have his remedy in damages against the person exercising the power, and no purchaser, transferee, lessee, or mortgagee shall be concerned to see to the application of the money paid by him, or be responsible for the misapplication thereof.
[84] The effect of this section is that, in the absence of fraud on the part of Mr Thorburn and actual or constructive knowledge of that fraud on the part of Mr Lusty, the original lease could not have been set aside during its term simply because the terms of the Thorburn trust had been breached. The situation is, however,
response to the trustees’ claims of estoppel engages with the issue of estoppel without recognising the fundamental misunderstanding between the parties at its core. Accordingly, and as already noted because the A&I was not enforceable given the initial term had already expired estoppel is not a live issue, as the parties are essentially agreed as to the scope of the A&I.
31 See Otehei Bay Holdings Ltd v Fullers Bay of Islands Ltd [2011] NZCA 300, [2011] 3 NZLR 449 at [61] – [62]; see also Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at [14]; and Sina Holdings Ltd v Westpac Banking Corporation [1996] 1 NZLR 1 (CA) at 5 – 6.
different where, as here, the Court is being asked to compel the present trustees to execute a new lease document in breach of that same trust.
[85] Instead, in circumstances where I have found that the terms of lease clearly breach the terms of the Thorburn trust, it would be quite wrong to grant the executors specific performance and order the trustees to sign a new lease giving effect to the renewal. Specific performance is, as has been repeatedly emphasised, a discretionary remedy for the Court. While specific performance is typically appropriate where the proceedings relate to an agreement regarding land,32 this is always subject to the “equity of the particular case”.33 Plainly, it is difficult to see any circumstances where a court would grant specific performance where such an order would compel a party to breach the terms of a charitable trust so as to frustrate the trust’s sole charitable purpose.34 Even if it is difficult to discern from the narrative exactly how much understanding Mr Lusty and Mr Thorburn had of the terms of the Thorburn trust, all parties are well aware of those terms now that the lease has come up for renewal. Accordingly, a grant of specific performance would be manifestly inappropriate in the circumstances. The executors’ application must be dismissed.
[86] Given my reasons for declining to order specific performance it is also clear that s 261 of the Property Law Act 2007 cannot assist the executors. While the section forms a sub-part of the Property Law Act that must be applied as a code, s 261 only applies where a lessor is refusing to renew a lease because of an alleged breach of the terms of the lease and therefore has no application in this case.
Future steps?
[87] In reaching the decision that the executors are not entitled to a renewal on the same terms as the lease I am conscious that:
32 See for example McLean Tower Ltd v Ash Road Investments Ltd [2007] NZCA 307 at [27]; citing
Foreman v Hazard [1984] 1 NZLR 586.
33 See Andrew McIntyre “Specific Performance” in Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thomson Reuters, Wellington, 2011) 359 at 361; citing Gurney v Gurney (No 2) [1967] NZLR 922 at 929.
34 See Jacobs v Bills [1967] NZLR 249; Ngai Tahu Property Ltd v Dykstra (2009) 10 NZCPR 734.
(a)the trustees have made it clear that they are prepared to execute a lease with the executors that is consistent with the terms of the Thorburn trust; and
(b)there are a number of improvements located on the land, including the jetty, which are in any event the property of the executors.
[88] In those circumstances some accommodation appears sensible. Quite clearly there is nothing in the terms of the Thorburn trust that would preclude a new lease of the land in favour of the executors, whether the balance of the land (excluding the burial ground) or just access to the wharf and jetty (as long as any such access avoids the burial ground).
[89] At the same time it will be incumbent on the trustees to explore whether the charitable purposes identified by Sinclair J can still be given effect to at this point, or whether it will be necessary to apply to this Court for directions in relation to the future of the Thorburn trust.
Decision
[90] The application for specific performance and the other relief sought by the executors is dismissed.
[91] The trustees are entitled to costs. Given the long and protracted history of this matter to date it would be seem appropriate that costs should only be considered following any future negotiations for new lease arrangements as foreshadowed above. In the event that costs issues cannot ultimately be resolved in the course of such negotiations then, after the expiry of three months, leave is reserved for the filing of memoranda following which I will determine the issue on the papers.
Powell J
3
3
0