Macnamara v Macnamara
[2023] NZHC 715
•3 April 2023
NOTE: ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B, 11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000404
[2023] NZHC 715
BETWEEN SHERYL ANN MACNAMARA
Plaintiff
AND
NOEL JAMES MACNAMARA
Defendant
CIV-2020-404-000646 BETWEEN
NOEL JAMES MACNAMARA
PlaintiffAND
SHERYL ANN MACNAMARA
First Defendant
Continued overleaf…
Hearing: 15 March 2023 Appearances:
L J Kearns KC for Ms Macnamara N J Macnamara in person
J P Cundy for the trustees of the Macnamara Home Trust and the Macnamara Family Trust
Judgment:
3 April 2023
JUDGMENT OF WYLIE J
(Application for directions)
This judgment was delivered by Justice Wylie
On 3 April 2023 at 2.00 pm Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:…………………………
MACNAMARA v MACNAMARA [2023] NZHC 715 [3 April 2023]
Continued from previous page
BETWEENSHERYL ANN MACNAMARA, NOEL JAMES MACNAMARA AND GRAHAM
LINCOLN WILFRED CRAIG as trustees of the MACNAMARA HOME TRUST
Second Defendants
ANDSHERYL ANN MACNAMARA, NOEL JAMES MACNAMARA AND GRAHAM
LINCOLN WILFRED CRAIG as trustees of the MACNAMARA FAMILY TRUST
Third Defendants
Solicitors/counsel:
Shieff Angland Lawyers/L J Kearns KC/J S Langston, Auckland Claymore Partners Ltd/B O’Callahan, Auckland
J Cundy, Auckland
Introduction
[1] The applicants, Christopher Darlow and William Patterson (the trustees), are the trustees of the Macnamara Home Trust (the Home Trust) and the Macnamara Family Trust (the Family Trust—jointly the Trusts). They have applied to the Court for directions under s 133 of the Trusts Act 2019 (the Act).
[2] Mr Macnamara has filed a memorandum. He opposes the application in part. He has not filed a formal notice of opposition but no issue was taken with this.
[3] Ms Macnamara, through her counsel, Ms Kearns KC, actively supported the trustees’ application. She also sought to clarify some issues from her perspective.
Background
[4] The background to this matter was comprehensively set out in my judgment of 23 March 2022.1 It can be summarised relatively briefly for present purposes.
[5] Mr and Mrs Macnamara married in February 1991 and they separated in February 2019. During their marriage they acquired numerous assets. When they separated, most of their assets were owned by the then trustees of one or other of the Trusts that they had settled during their marriage. The then trustees of the Home Trust owned the family home at Karaka and a holiday home in Pauanui; the then trustees of the Family Trust owned 998 of 1,000 shares in a company known as Oneheat Ltd (Oneheat).
[6] Following their separation Mr and Ms Macnamara were unable to agree on what was to happen to the Trusts’ various assets. Their disagreements were such that the Trusts were not able to be properly administered. Both parties filed proceedings but before these could be heard, they agreed to the resignation of the then trustees of both Trusts, the appointment of the trustees as independent trustees, and on the steps that the trustees were to take to resolve matters.
1 Macnamara v Macnamara [2022] NZHC 547.
[7] Consent orders were made by Moore J on 27 August 2020.2 The then trustees of both trusts were removed and the trustees were appointed in their stead. The consent orders required the trustees to take various steps to effect a resettlement of the trusts including, but not limited to, the following:
4.1 Forthwith engaging a reputable real estate agency for the purpose of selling the Pauanui property owned by the … Home Trust …
…
4.3After consulting with Ms Macnamara and Mr Macnamara, establish the rental payable to the … Home Trust by Mr Macnamara and/or [Oneheat] … for the use of the Karaka property owned by the … Home Trust.
4.4Reconcile the accounts of [Oneheat] … , determine any liability of Ms Macnamara, Mr Macnamara or the Trusts to [Oneheat] … and take all steps as necessary to sell the shares/business of [Oneheat] … through the existing broker.
4.5After consulting with Ms Macnamara and Mr Macnamara, and following the taking of advice from a reputable real estate agency, to determine the sale processes and the reserve price of the Karaka Property to enable the Karaka Property to be sold for the best price.
…
4.8On sale of the Trusts' assets, and after payment of the Trusts' liabilities, payment of the Trustees' reasonable fees and subject to any funds that the Trustees determine need to be held back, to distribute the net proceeds of sale to new trusts for Ms and Mr Macnamara in accordance with the resettlement provisions of the Trusts.
[8] The consent orders also recorded that, subject to the above, orders for sale were to issue in respect of the Pauanui property, the Karaka property and Oneheat. Leave was reserved to the parties and to the trustees to apply to the Court for further directions. Both Mr Macnamara and Ms Macnamara agreed to withdraw their respective proceedings, with no issue as to costs.
[9] Regrettably, the consent order did not result in an end to Mr and Ms Macnamara's disagreements. This Court has since been called upon to make a large number of decisions, all purportedly in reliance on the leave reserved to apply for further directions.3
2 Macnamara v Macnamara HC Auckland CIV-2020-404-404.
3 Macnamara v Macnamara, above n 1, at [12]–[36].
[10] Relevantly, Ms Macnamara applied in June 2021 to vary the terms of the consent order. I dealt with this application in my judgment of 23 March 2022. The judgment:
(a)directed the trustees to deduct from the new trust to be settled in favour of Mr Macnamara, and to apply to the new trust to be settled in favour of Ms Macnamara:
(i)half of the rental that the trustees determined that Mr Macnamara (and Oneheat) owed to the Home Trust for the use of the Karaka property without set-off or deduction; and
(ii)half of the amount that the trustees determined that Mr Macnamara owed to Oneheat for unauthorised drawings and unauthorised salary without set-off or deduction; and
(b)varied the consent orders to require that:
(i)the trustees determine what proportion of costs incurred by them (including disbursements) in implementing the consent order was caused by Mr Macnamara’s unreasonable conduct;
(ii)the costs attributable to Mr Macnamara, the costs of $5,975 (which Mr Macnamara had agreed to pay the trustees in March 2021), and the costs and disbursements incurred by the trustees in responding to Ms Macnamara’s application were met by Mr Macnamara, be deducted from the new trust to be settled in favour of Mr Macnamara and applied to the new trust to be settled in favour of Ms Macnamara; and
(iii)the trustees implement the recommendations of Mr Tauber in his report dated 21 May 2021.
[11] The judgment noted that once the trustees had reconciled Oneheat’s accounts and determined the costs attributable to Mr Macnamara, they could apply for
directions under s 133 of the Act and, equally, that Mr Macnamara could seek to review the trustees’ determinations under s 126 of the Act.
[12] Mr Macnamara asked me to recall my judgment. He also sought leave to appeal to the Court of Appeal. I declined the application for recall on the papers.4 The application for leave to appeal was declined by me on 23 June 2022 following a hearing.5 Insofar as I am aware, Mr Macnamara did not seek special leave to appeal and no review of the trustees’ various determinations has been sought.
[13] Some progress has been made in implementing the consent order. The Pauanui and the Karaka properties have been sold. Various liabilities have been met. The trustees have made some interim distributions to the parties. They are currently holding a little over $2,000,000 on trust. The trustees’ application for directions is intended to bring matters to a head and facilitate the final distribution of the net assets of the Trusts between the parties.
Applications for directions—relevant law
[14]Section 133(1) of the Act provides as follows:
133 Trustee may apply to court for directions
(1)A trustee may apply to the court for directions about—
(a)the trust property; or
(b)the exercise of any power or performance of any function by the trustee.
…
(3)On an application under this section, the court may give any direction it thinks fit.
…
[15] A trustee acting under a direction of the Court is treated as having discharged the trustee’s duties as a trustee in relation to the direction, even though the order giving
4 Macnamara v Macnamara [2022] NZHC 1145.
5 Macnamara v Macnamara [2022] NZHC 1478.
the direction is later declared invalid, overruled, set aside or found to be otherwise ineffective.6
[16] The predecessor to s 133 was s 66 of the Trustee Act 1956. Section 66 was in substantially similar terms and this Court has confirmed on a number of occasions that s 66 continues to inform the interpretation of s 133.7
[17] Section 66 was designed to remove doubt regarding the propriety of a course of action contemplated by trustees.8 It stands side by side with this Court’s inherent equitable jurisdiction to review the administration of trusts.
[18] In New Zealand Māori Council v Foulkes,9 Kós J was considering an application for directions under s 66. He noted that the section could be used to resolve any live question of interpretation of the trust deed in issue, as well as any uncertainty as to the exercise of a power. He considered that s 66 was “a robust, parallel source of jurisdiction to resolve any substantial question of law concerning the meaning or administration of a trust”.10 He noted that the existence of a dispute, or at least a doubt, was essential before s 66 could be engaged.11
[19] In Re Honoris Trust,12 Fitzgerald J also considered the application of s 66 in some detail. In some respects she took a different view than Kós J in Foulkes. She:
(a)referred to Court of Appeal authority13 and held that the power to seek directions is not restricted to minor or procedural issues;
(b)expressed the view that there is no threshold requiring trustees to be in genuine doubt before making an application for directions;
6 Trusts Act 2019, s 134(1).
7 Re Darlow [2021] NZHC 2184 at [30]; Re McMillan [2021] NZHC 1497 at [7]; Holland v Jonkers
[2021] NZHC 3469 at [89].
8 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 5.3.3(8).
9 New Zealand Māori Council v Foulkes [2014] NZHC 1777, [2015] NZAR 1441.
10 At [46].
11 At [47].
12 Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [35]–[40].
13 Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at [32].
(c)referred to English authority14 where it had been held that there are at least four distinct situations where trustees can seek directions;
(d)noted that one of those situations arises:
… where the issue is whether the proposed course of action is a proper exercise of the trustees’ powers where there is no real doubt as to the nature of the trustees’ powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers. … there is no doubt at all as to the extent of the trustees’ powers nor is there any doubt as to what the trustees want to do but they think it prudent,
… to obtain the court’s blessing on a momentous decision. In a case like that, there is no question of surrender of discretion …
(e)held the view that the jurisdiction conferred by s 66 extends to the making of what have become known as “blessing orders” in such situations;15 and
(f)commented on the appropriate approach to such applications as follows:
[55] … Given the potential for disadvantages to beneficiaries resulting from “blessing” orders if improperly made, it is paramount that applicant trustees provide the court with all relevant facts, documents and information when making an application. Further, it is imperative that when considering such an application, a judge only make the orders sought after “scrupulous consideration” of the evidence. The court will not rubber stamp such applications, and if the court is left in doubt, then it may withhold its approval.
[56] Hart J in Public Trustee v Cooper stated that, when considering an application for blessing orders, the court should consider the following matters:
(a)First, has the trustee in fact formed the opinion which the court is asked to bless?
(b)Second, is the opinion formed one at which a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the trust deed, could properly have arrived?
14 Public Trustee v Cooper [2001] WTLR 901 (Ch) at 922–924.
15 Re Honoris Trust, above n 12 at [54].
(c)Third, is the opinion vitiated by any conflict of interest under which any of the trustees might have been labouring?
…
[58] The authors of Underhill and Hayton Law of Trusts and Trustees usefully summarise the position as follows:
The task of the court [in a category-two type application] is not to say how it would itself exercise the discretion, but merely to ensure (via an inquisitorial process) that the proposed exercise is lawful in the sense that the trustees can properly form the view which they have.
(Footnotes omitted)
[20] This approach has been adopted in a number of subsequent cases where trustees have made applications for directions.16
[21] There are further guiding principles, identified in other jurisdictions which, it has been held, apply in this country. They were noted by Gendall J in Turvey v Vance as follows:17
…
(a)The Court is not a rubber stamp and it must be satisfied that the trustees are indeed justified in proceeding in accordance with their decision. But the Court should not place insurmountable hurdles in the way of trustees.
(b)The Court may disagree with a trustee's decision, but if it is within the range of reasonable decisions the trustee could make, the Court should not hesitate to bless it.
(c)The lengths to which the Court must go in examining the process by which the trustee arrived at the decision must depend upon the particular decision. In some cases, the decision may be a difficult and doubtful one, requiring fine judgment in the face of competing considerations, in others it may be obvious.
(d)Deciding whether the decision is one at which a reasonable trustee properly could have arrived requires “scrupulous consideration of the evidence” but does not “require second guessing or a line by line micro analysis” by the Court.
16 See, e.g. Re Darlow, above n 7, at [33]–[34]; Holland v Jonkers, above n 7 at [94]–[95]; Turvey v Vance [2022] NZHC 1167 at [24]–[25]; Miller v Cregten [2020] NZHC 1262; Church Property Trustees v Carrell [2021] NZHC 1130.
17 Turvey v Vance, above n 17 at [25].
(e)The Court will sometimes engage in a dialogue with the trustees as a result of which the trustee's decision is modified; but, properly analysed, that is no more than a process by which the Court identifies the circumstances in which it will be satisfied that the proposed exercise of the power is within the proper range of such an exercise.
(Footnotes omitted)
[22] I adopt the approach discussed in Re Honoris Trust and the further guiding principles succinctly summarised in Turvey v Vance.
The application
[23] There has been a history of dispute in this proceeding. Mr Macnamara in particular has been difficult and uncooperative. He has instigated a number of proceedings and, amongst other things, accused the trustees of bias.
[24] No doubt as a result of Mr Macnamara’s attitude, the trustees applied for directions as follows:
(a)approving their determination of the amount of rent payable by Mr Macnamara and/or Oneheat to the Home Trust in respect of their use of the Karaka property;
(b)approving their reconciliation of the accounts of Oneheat and their determination of the liability of Mr Macnamara to Oneheat;
(c)approving their decision that the costs of defending the claim for defamation brought by Mr Macnamara and his new company, 1 Heat Ltd, against Ms Macnamara and Oneheat are properly costs of Oneheat;
(d)approving their determination as to the proportion of their costs that is attributable to Mr Macnamara’s conduct;
(e)approving their determination of the amounts that are to be distributed to new trusts for each of Mr Macnamara and Ms Macnamara, subject
to a retention of $200,000 pending finalisation of the tax positions of Oneheat and the Trusts;
(f)authorising them to settle a new trust for the benefit of Mr Macnamara with the costs of that exercise being met from Mr Macnamara’s share of the assets of the Trusts;
(g)in the alternative to order (f), authorising them to distribute Mr Macnamara’s share of the assets of the Trusts to Mr Macnamara personally or as he directs; and
(h)granting leave for them to apply for further directions in relation to the implementation of any orders made and/or the consent order made by Moore J on 27 August 2020 (noted at [7]).
[25] The application was supported by various affidavits which have been filed in the course of the various hearings between Mr and Ms Macnamara, as well as by more recent affidavits, in particular an affidavit sworn by one of the trustees, Mr Patterson, on 28 November 2022, an affidavit sworn by Benedict Tauber on 30 November 2022, and a further affidavit from Mr Patterson sworn on 27 February 2023.
[26]I turn to consider each of the directions sought.
The Directions Sought
(a)The rental payable by Mr Macnamara and/or Oneheat to the Trusts in respect of their use of the Karaka property
[27] Following the parties’ separation, Mr Macnamara continued to reside in the Karaka property. He also ran the Oneheat business from the property. Paragraph 4.3 of the consent order (set out above at [7]) required the trustees to establish the rental payable by Mr Macnamara and/or Oneheat for their use of the Karaka property. The trustees had to consult with Ms Macnamara and Mr Macnamara in so doing.
[28] Mr Patterson has deposed that the trustees obtained a report from Bayleys Real Estate Ltd. It appraised the rent for the whole property at between $950 and $1,100
per week. The trustees wrote to the solicitors for both Mr Macnamara and Ms Macnamara on 29 January 2021 proposing that the rental be assessed at $950 per week for the period from the date of separation to 31 March 2020, at $1,050 for the year ended 31 March 2021 and at $1,100 for the year commencing 1 April 2021.
[29] Ms Macnamara agreed to this proposal. No reply was received from Mr Macnamara or his solicitors. On 12 February 2021, the trustees wrote again to Mr Macnamara’s solicitors seeking a response and also advising that, in their view, the appropriate percentage of the rental attributable to Oneheat was 28 per cent.
[30] On 22 February 2021, Mr Macnamara’s solicitors responded, stating that Mr Macnamara did not accept any liability for rental for the period of 1 April 2019 to 30 November 2020, because his spousal maintenance liability to Ms Macnamara had been assessed on the basis that there was to be no cost for his ongoing occupancy of the Karaka property and that any backdated rental would in effect be double counting to his detriment. He agreed to pay rental from 1 December 2020 to 31 March 2021 at
$1,050 per week and from 1 April 2021 at $1,100 per week.
[31] Ms Macnamara’s counsel responded to Mr Macnamara’s assertions. She asserted that spousal maintenance had been paid to meet her reasonable needs and that it had nothing to do with the occupation rental paid by Mr Macnamara and/or Oneheat.
[32] Mr Patterson has deposed that, as the issue was covered by the consent order, the trustees determined that rental should be fixed at the amounts they initially proposed. Mr Macnamara was so advised in a letter dated 18 May 2021 sent to his solicitors. Mr Patterson has also said that Oneheat ceased trading at the end of April 2021, but that Mr Macnamara continued to occupy the property until 23 July 2021 when it was sold. The trustees have undertaken the requisite calculations and determined that the amount of rental payable to the Home Trust by Mr Macnamara is
$132,917.71 and by Oneheat, $46,618.
[33] Before me, Mr Macnamara objected to the rental determination and the direction sought. He again asserted that the spousal maintenance order made in the
Family Court was based on him occupying the Karaka property free of rent, along with Oneheat.
[34] This assertion was considered and rejected by me in my judgment of 23 March 2022. I referred to the order made by the Family Court and recorded that there was nothing in the Judge’s decision to suggest that the fact that Mr Macnamara was residing rent free at the Karaka property at the time factored into the spousal maintenance order made. I recorded my view that Mr Macnamara’s opposition to the trustees’ determination of the rental payable was misconceived.18 As I have already noted, this judgment was not appealed. Mr Macnamara is bound by it. The matter is res judicata.
[35] Mr Macnamara also complained about the split in the rental payable as between him and Oneheat. As noted, the trustees fixed the split at 72/28 per cent. The trustees, on 12 February 2021, advised Mr Macnamara’s solicitors that they had adopted these percentages because this percentage split had been used historically. Mr Macnamara’s solicitor responded on 22 February 2021 asking for copies of any documentation evidencing a 72/28 per cent split. It does not appear that the trustees responded to this letter. Rather, on 18 May 2021, they recorded their decision regarding the rental payable, including that 72 per cent was payable by Mr Macnamara and 28 per cent by Oneheat.
[36] Mr Macnamara and his solicitors did not respond to the trustees’ letter of 18 May 2021. No application under s 126 of the Act has been made by Mr Macnamara.
[37] The trustees were required to determine the rental payable by Mr Macnamara and Oneheat for the Karaka property, after consultation with the parties. They took independent expert advice. They have relied on that advice. They consulted with the parties as required by the consent order. They have identified for the parties the basis on which they have assessed the rent payable. They have complied with the consent order and they have determined the rental payable by Mr Macnamara and Oneheat.
18 Macnamara v Macnamara, above n 1, at [51]–[55].
[38] The trustees have made their determination. There is no basis on which it can responsibly be suggested that the trustees have not properly reached their determination. It is a determination which reasonable trustees could properly have made. There are unsubstantiated assertions by Mr Macnamara that the trustees are biased against him. I have already commented on such assertions.19 Notably, Mr Macnamara has taken no steps to advance them. There is nothing in the evidence before me to suggest that the trustees’ determination as to the rental payable by Mr Macnamara and Oneheat is vitiated by any conflict of interest.
[39] Accordingly, I make a direction approving the trustees’ determination as to the rental payable by Mr Macnamara and Oneheat to the Home Trust in respect of the use of the Karaka property by Mr Macnamara and Oneheat.
(b)Reconciliation of Oneheat’s accounts and Mr Macnamara’s liability to Oneheat
[40] Mr and Mrs Macnamara were both directors of Oneheat. Its day to day business was largely carried out by Mr Macnamara although Ms Macnamara did considerable work in the background. Paragraph 4.4 of the consent order (above at [7]) required the trustees to reconcile the accounts of Oneheat and determine any liability of the parties or the Trusts to the company.
[41] To comply with the consent order, the trustees employed the services of Mr Tauber. Mr Tauber is a chartered accountant. He had assisted with the preparation of Oneheat’s accounts prior to Mr and Ms Macnamara’s separation. He prepared a report setting out his analysis of Oneheat’s accounts. The report is dated 21 May 2021. Amongst other things, Mr Tauber recorded that Mr Macnamara had decided unilaterally halfway through the 2021 financial year to retrospectively increase his salary. Further, he had taken various unauthorised drawings from Oneheat’s accounts. Mr Tauber recommended that Mr Macnamara’s unauthorised drawings and salary should be repaid without delay so that Oneheat could meet its obligations. His report included draft financial statements for Oneheat for the financial years ending 31 March 2020 and 31 March 2021.
19 Macnamara v Macnamara, above n 1, at [91].
[42] A copy of Mr Tauber’s report and all relevant annexures was provided to both Mr and Ms Macnamara on 26 May 2021. The trustees advised Mr Macnamara’s solicitors that, based on Mr Tauber’s draft financial statements, Mr Macnamara had a liability to Oneheat for unauthorised drawings to 31 March 2021 of $311,957.71 and that he had overpaid himself unauthorised salary to 31 March 2021 of $97,711.81. The trustees requested Mr Macnamara’s response.
[43] The trustees made an interim determination that Mr Tauber’s draft financial statements be accepted as accurately recording the financial position of Oneheat for the financial years ended 31 March 2020 and 31 March 2021. The trustees were aware that there were further unauthorised drawings by Mr Macnamara after 1 April 2021 which also needed to be recovered and that financial statements for the 2022 financial year were also needed to bring Oneheat’s rental liability into account.
[44] Mr Macnamara’s response to the trustees’ interim determination was to assert that any overpayments to him had to be revised to take into account what he claimed was his personal goodwill over the 2020 and 2021 financial years. He asserted that the earnings of Oneheat were almost entirely attributable to his goodwill, skill and labour, and that therefore he should have been entitled to almost all of Oneheat’s earnings following the parties’ separation. He said that that trustees’ interim determination that he owed Oneheat in excess of $400,000 was wrong. He obtained a report from an accountant, Marnus Beylefeld to support his assertions.
[45] In response, Ms Macnamara obtained a report from Joshna Mistry, a chartered accountant. She disputed Mr Beylefeld’s analysis.
[46] In my decision of 23 March 2022, I varied the consent orders to require the trustees to implement Mr Tauber’s recommendations in his report of 21 May 2021. I also recorded that further reconciliation of Oneheat’s accounts was required. I recorded the Court’s expectation that the trustees would take into account what Mr Beylefeld and Ms Mistry had said before finalising their reconciliation of Oneheat’s accounts, but observed that the final reconciliation of Oneheat’s accounts was for the trustees.20
20 Macnamara v Macnamara, above n 1, at [64].
[47] As a result, the trustees asked Mr Tauber to prepare draft accounts for the year ended 31 March 2022. He did so. He also updated his calculation of Mr Macnamara’s liabilities to Oneheat. The revised amounts are as follows:
(a)$369,205.52 in respect of unauthorised drawings;
(b)$111,515,57 in respect of unauthorised overpayments of salary (which reduces to $74,715.43 when adjusted for tax); and
(c)$4,773.19 in respect of penalties and interest payable to the IRD.
[48] Mr Tauber has filed an affidavit dated 25 November 2022 which explains his calculations. He recorded that the unauthorised overpayments of salary should be reduced to $74,715.43 to acknowledge that Mr Macnamara has been (or should have been) paying income tax on the overpaid salary. He explained that he treated the residual IRD penalties as an item that requirement adjustment against Mr Macnamara because he failed to pay the tax as it fell due. Annexed to his affidavit were draft balance sheets and profit and loss statements for Oneheat for each of the financial years ending 31 March 2020, 31 March 2021 and 31 March 2022, a balance sheet for the then current year, a calculation setting out Mr Macnamara’s liabilities to Oneheat, a ledger of unauthorised drawings by Mr Macnamara from Oneheat and IRD statements showing the PAYE and GST penalties.
[49] Mr Patterson has deposed that the trustees have accepted Mr Tauber’s recommendations and determined that the amounts identified by Mr Tauber, totalling
$448,694.14, are owing by Mr Macnamara to Oneheat. The trustees, in determining Mr Macnamara’s liability to Oneheat, took into account Mr Beylefeld’s and Ms Mistry’s views. They considered that Mr Beylefeld’s affidavit was irrelevant to their determination. Mr Beylefeld’s view was based on Mr Macnamara’s assertion that the goodwill belonged to Mr Macnamara personally. The trustees preferred Ms Mistry’s view that the consent order contemplated the sale of Oneheat and directed that the proceeds, including any goodwill, were to be distributed equally between the parties. They did not consider that Mr Macnamara was entitled to continue working for Oneheat, to increase his salary without the agreement of Ms Macnamara, or to
divert Oneheat’s income into another account for his personal use. The trustees were satisfied that the unauthorised salary that Mr Macnamara unilaterally paid to himself and the unauthorised drawings that he took, were liabilities that he owed to Oneheat.
[50] The trustees view that the goodwill belonged to Oneheat and not Mr Macnamara personally accords with my own view expressed in my judgment of 23 March 2022.21 Mr Macnamara did not seek to dispute this before me afresh.
[51] Mr Macnamara, in his initial memorandum, asserted that he had not received a final set of accounts to review. I do not accept this assertion. Mr Tauber’s draft accounts were annexed to his affidavit of 25 November 2022. I assume this affidavit was served on Mr Macnamara. In any event, Mr Macnamara was sent electronic copies of the accounts by counsel for the trustees by email on 20 December 2022. Mr Patterson has annexed the email as an exhibit to his affidavit of 27 February 2023.
[52] Mr Macnamara also said that an independent accountant needs to be appointed to complete Oneheat’s accounts. Again, I do not accept this assertion. The trustees retained Mr Tauber to reconcile Oneheat’s accounts. He is independent of the parties. Moreover, this Court has already twice considered and declined applications by Mr Macnamara for the appointment of further expert accountants.22 It is not open to Mr Macnamara to now seek to undermine those decisions.
[53] Mr Macnamara took issue with a number of the figures used by Mr Tauber in his reconciliation accounts. He said that some of the figures used by Mr Tauber are wrong and that some expenses Mr Tauber treated as unauthorised expenditure for his benefit should be shared jointly between himself and Ms Macnamara, for example, expenses he said were incurred for the benefit of his and Ms Macnamara’s children. Other expenses he said were incurred by him for the benefit of Oneheat, or for his and Ms Macnamara’s joint benefit. He criticised the delays and what he asserted are inaccuracies in the final accounts. He said that the final accounts are “very one sided” and that costs had been allocated against him in a biased manner. He asserts that some
21 At [65].
22 Macnamara v Macnamara HC Auckland CIV-2020-404-404, 16 December 2020 (Minute of Associate Judge Gardiner); Macnamara v Macnamara [2021] NZHC 173.
of the figures used by Mr Tauber were “so obviously out of line that it did not take a professional to determine their apparent inaccuracy”.
[54] There is nothing but Mr Macnamara’s unsupported assertions to justify these assertions. They were denied by Ms Macnamara. There is no evidence suggesting that she knew or approved of any of the expenditure incurred by Mr Macnamara which he now says was for their children or for their joint benefit. Mr Tauber was entrusted with the task of untangling the accounts. The Court is not required to second guess his analysis on a line by line basis. Mr Macnamara has had ample opportunity to take issue with Mr Tauber’s calculations and the trustees’ subsequent determinations. He has been aware of the trustees’ preliminary determination of his liability to Oneheat since 28 May 2021. He has been aware of my judgment of 23 March 2022 since it was released and of my direction requiring the trustees to implement the recommendations made by Mr Tauber in his report dated 21 May 2021. He has been aware of Mr Tauber’s final report and his final reconciliation of Oneheat’s accounts since November/December 2022. He has not raised any substantive opposition to the reconciliation of the accounts prepared by Mr Tauber or to the trustees’ determination of his liability to Oneheat.
[55] The trustees were required to reconcile Oneheat’s accounts and determine Mr Macnamara’s liability to Oneheat. They have taken expert advice from Mr Tauber in this regard. They have adopted Mr Tauber’s reconciliation of Oneheat’s accounts and they have determined Mr Macnamara’s liability to Oneheat. They have complied with the consent order and they have made determinations which I am asked to bless. Again, there is no basis on which it can responsibly be suggested that the trustees have not properly reached their determinations. They are determinations which reasonable trustees could properly have made. Again, there are unsubstantiated assertions by Mr Macnamara that the trustees (and Mr Tauber) are biased against him but Mr Macnamara has taken no steps to advance that assertion. There is nothing in the evidence to suggest bias or that the trustees’ determinations are vitiated by any conflict of interest.
[56] Accordingly, I make a direction approving the trustees’ determination to adopt Mr Tauber’s reconciliation of the Oneheat accounts and their determination of the liability of Mr Macnamara to Oneheat.
(c)Costs of defending defamation claim
[57] On 27 September 2021, Mr Macnamara and his new company 1 Heat Ltd, issued a defamation claim against Ms Macnamara and Oneheat. It related to emails sent by Ms Macnamara from her Oneheat email account to former clients of Oneheat. The claim was ultimately settled. Mr Macnamara and 1 Heat Ltd discontinued the proceeding and made a costs contribution of $10,000 to Ms Macnamara and Oneheat.
[58] In April 2022, Ms Macnamara asked the trustees to meet the costs incurred in defending the defamation claim. The trustees responded by indicating their intention to seek directions from the Court in relation to the defence costs. In the interim, they agreed to make an on demand loan of $18,998.75 to Ms Macnamara, being the amount she required to meet the defence costs at that stage. Ms Macnamara has since advised the trustees that the total costs incurred in defending the defamation claim were
$37,323.75. She has provided the trustees with copies of the relevant invoices.
[59] The trustees have since determined that the costs of defending the defamation claim were properly costs of Oneheat. They have paid Ms Macnamara $8,325 (being the total defence costs, less the on demand loan, less the amount she received from Mr Macnamara). The trustees have resolved to treat the total amount of $27,323.75 paid to Ms Macnamara (being the initial loan of $18,998.75 and the payment of
$8,325) as an unsecured advance to Oneheat from the Trusts.
[60] The trustees advised that they have made this determination having regard to the following:
(a)Ms Macnamara sent the emails at issue in the defamation proceeding in her capacity as the sole remaining director of Oneheat;
(b)Oneheat was a defendant in the proceeding, but was unable to meet the costs of the defence because of its financial position (which was a result
of the unauthorised drawings by, and the unauthorised salary overpayment to, Mr Macnamara);
(c)Ms Macnamara effectively met the defence costs as agent for Oneheat; and
(d)the claim appears to have been without merit. Mr Macnamara discontinued it before trial and paid an agreed contribution to costs.
[61] In his memorandum, Mr Macnamara accepted that the defamation proceeding had been discontinued and noted that he had made a settlement payment (of $10,000) to Ms Macnamara. He did not directly address me on this issue at the hearing.
[62] The trustees are seeking a direction approving their determination that the costs of defending the defamation claim were properly costs of Oneheat and to pay to Ms Macnamara the balance of the defence costs she incurred, treating the reimbursement as an advance from the Trusts to Oneheat.
[63] I am satisfied, on the basis of Mr Patterson’s affidavits, that the trustees have acted properly in determining that the total amount of $27,323.75 paid to Ms Macnamara should be treated as an unsecured advance to Oneheat from the Trusts. I am also satisfied that this determination is one which reasonable trustees, properly instructed and properly informed as to their obligations, could have arrived at. There is nothing to suggest that the trustees’ determination is vitiated by any conflict of interest.
[64]Accordingly, I make a direction:
(a)approving the trustees’ determination that the costs of defending the claim for defamation brought by Mr Macnamara and his new company, 1 Heat Ltd, against Ms Macnamara and Oneheat are properly costs of Oneheat;
(b)approving the payment to Ms Macnamara of $27,323.75; and
(c)approving the trustees’ determination to treat this payment as an unsecured advance to Oneheat from the Trusts.
(d)Costs attributable to Mr Macnamara
[65] As noted above at [10], in my judgment of 23 March 2022, I varied the consent order to require that the trustees determine what proportion of the costs incurred by them (including disbursements) in implementing the consent order was caused by Mr Macnamara’s unreasonable conduct.
[66] The trustees prepared a report, which is annexed to Mr Patterson’s affidavit of 15 November 2021. They there set out the various difficulties they had encountered in giving effect to the consent order, noting the various obstructive steps which were taken by Mr Macnamara at almost every turn. I discussed the trustees’ report in my judgment.23 When the report was prepared, the costs the trustees had incurred (excluding GST) were $78,600 for counsel, $302,050 for the trustees and $9,410 for conveyancing costs. The trustees’ view was that all of counsel’s cost were attributable to Mr Macnamara’s conduct, as were $150,000 of the trustees’ costs and $5,000 of the conveyancing costs.
[67] On 10 November 2022, the trustees, through their counsel, wrote to Mr Macnamara and the solicitors for Ms Macnamara setting out their preliminary determination that these costs were attributable to Mr Macnamara’s unreasonable conduct. They also recorded that in the period since the report of 15 November 2021, they had incurred further costs (excluding GST) of $37,100 for counsel and $49,095 for the trustees. They considered that $24,200 of counsel’s further costs and $5,000 of their further costs (both excluding GST) were attributable to Mr Macnamara’s conduct. They recorded their preliminary determination that a total of $302,220 (being
$262,800 plus GST) should be attributed to Mr Macnamara’s unreasonable conduct and paid out of his share of the net assets of the Trusts. They invited both Mr Macnamara and Ms Macnamara to comment on their preliminary determination by 17 November 2022, before they made their final decision.
23 Macnamara v Macnamara, above n 1, at [85]–[86].
[68]The trustees received no reply from Mr Macnamara.
[69] Ms Macnamara requested that the trustees should reconsider the quantum of their costs incurred in the period between November 2021 and April 2022 attributable to Mr Macnamara.
[70] Given Ms Macnamara’s request, the trustees reviewed their time records. They concluded that some further costs were properly attributable to Mr Macnamara. They revised their preliminary estimate of $5,000 to $10,920. The trustees then reached a final determination, concluding that a total of $309,028 (being $268,720 plus GST) should be attributed to Mr Macnamara’s unreasonable conduct and paid out of his share of the net assets of the Trusts.
[71] Mr Macnamara did not deal with this topic in his memorandum. At the hearing, he contended that only Court costs ordered against him should be deducted from his share of the net assets of the Trusts. He asserted that if this was not accepted, the trustees should be instructed to provide full documentation of all costs incurred, so that a precise breakdown of the costs attributable to him could be ascertained.
[72]I do not accept Mr Macnamara’s arguments.
(a)My judgment of 23 March 2022 directed the trustees to apportion their costs to take account of the costs properly attributable to Mr Macnamara’s unreasonable conduct. There was no appeal against my decision and it is now res judicata between the parties.
(b)It is clear from email correspondence that the trustees have provided copies of all invoices to Mr Macnamara. This occurred on 1 February 2023. The only exception was time narrations on counsel for the trustees’ invoices, because it was considered that those narrations were privileged. Mr Macnamara has not challenged the claim to privilege.
[73] The consent order, as varied by me, required the trustees to determine what proportion of the costs incurred by them (including disbursements) in implementing
the consent order was caused by Mr Macnamara’s unreasonable conduct. The trustees have undertaken that exercise and made the determination noted in [70]. In doing so, they consulted with the parties. They have complied with the consent order. Again, there is no basis on which it can be responsibly suggested that the trustees have not properly reached their determination. It is a determination which reasonable trustees could have made. There is nothing to suggest that the trustees’ determination is vitiated by any conflict of interest.
[74] Accordingly, I make a direction approving the trustees’ determination as to the proportion of their costs and disbursements that is attributable to Mr Macnamara’s unreasonable conduct.
(e)Amounts to be distributed
[75]As at 25 November 2022, the net assets of the Trusts were estimated to be
$2,039,360.92. This sum was subject to final adjustments, including in respect of further trustee and legal costs and the finalisation of the tax positions of Oneheat and the Trusts. The trustees considered it appropriate to hold back $200,000 as contemplated by [4.8] of the consent order, being $100,000 for Mr Macnamara and
$100,000 for Ms Macnamara, to allow for the possibility that the IRD might review its position and conclude that some income has been omitted or some expenses overstated. This figure was recommended by Mr Tauber. He expressed the view that it is a prudent approach given that there has been no audit of Oneheat’s accounts and because in preparing the accounts, he accepted the presented transactions at face value.
[76] The consent order contemplates an equal distribution of the net assets of the Trusts to new trusts for Ms Macnamara and Mr Macnamara. The trustees, however, consider that there are some adjustments that need to be taken into account. They are as follows:
(a)the rental payable by Mr Macnamara in respect of his use of the Karaka property—namely, $132,917.71, as determined by the trustees and as approved by me;
(b)Mr Macnamara’s liability to Oneheat—namely, $448,694.14, as determined by the trustees and as approved by me;
(c)the costs attributable to Mr Macnamara’s unreasonable conduct, namely $309,028, as determined by the trustees and as approved be me;
(d)disbursements awarded in various costs orders against Mr Macnamara in favour of the trustees—namely, $1,851.92;
(e)three interim distributions of $10,000, $10,000 and $200,000 made by the trustees to Ms Macnamara; and
(f)two interim distributions of $78,014 and $9,039.50 made by the trustees to Mr Macnamara.
[77] Based on these deductions, the trustees determined that, subject to any final adjustments, the net assets of the Trusts should be distributed to the new trusts, one for Ms Macnamara and the other for Mr Macnamara as follows:
(a)$544,427.58 to Mr Macnamara’s new trust; and
(b)$1,294,933.35 to Ms Macnamara’s new trust.
These figures however do not allow for one of the interim distributions made to Mr Macnamara in the sum of $9,039.50.
[78] It was not clear from Mr Macnamara’s memorandum whether he agreed or disagreed with the trustees’ calculation of the amounts to be distributed. While he disputed the allocation of various sums by Mr Tauber in his draft accounts, he did not expressly take issue with the proposed distributions at the hearing.
[79] The trustees sought a direction approving their determination of the amounts they consider should be distributed to each of the new trusts.
[80] I am not in a position to approve the proposed distributions. Interest will have accrued on the amounts held in trust. As noted, the proposed distributions do not allow for one of the interim distributions to Mr Macnamara. Nor do I know what final adjustments the trustees propose. I cannot be satisfied that the figures set out in an affidavit filed on 25 November 2022 are still accurate.
[81] I can however make a direction approving the adjustments that the trustees will have to take into account in making the distributions.
[82] The trustees have determined that the adjustments noted in [76] should be made before any final distributions of the net assets of the Trusts is undertaken.
[83] I am satisfied that those adjustments are appropriate. Indeed a number of them are covered by this judgment. There is no basis on which it can responsibly be suggested that the trustees have not properly reached their determination that the adjustments in [76] are appropriate. The proposed adjustments are adjustments which reasonable trustees can and should make. There is nothing to suggest that the trustees’ determination of the proposed adjustments is vitiated by any conflict of interest.
[84] Accordingly, I make a direction approving the adjustments set out in [76] to the distributions of the net assets to the new Trusts. Nothing in this direction precludes the trustees from making any further adjustments which can properly be made in terms of [4.8] of the consent order.
(f)Settlement of a new trust for Mr Macnamara/distribution to him personally/distribution as he directs
[85] Paragraph 4.8 of the consent order envisaged that the trustees would distribute the net assets of the Trusts to new trusts for Mr Macnamara and Ms Macnamara in accordance with the resettlement provisions contained in the original trust deeds.
[86] In June 2022, the trustees asked both Mr Macnamara and Ms Macnamara, via their respective solicitors, to advise whether they had established new trusts. Ms Macnamara confirmed that she had. The trustees did not receive a substantive response from Mr Macnamara.
[87] In his memorandum, Mr Macnamara advised that he wanted the trustees to settle his share of the net assets of the Trusts directly on his and Ms Macnamara’s two daughters. He reiterated that stance before me.
[88] Ms Macnamara did not object to Mr Macnamara’s share of the net assets being paid to him personally or to him directing that payment be made to his and her two daughters.
[89]The trustees did not object to Mr Macnamara’s proposals either.
[90] In my view, there are difficulties with the Court making a direction approving a payment direct to either Mr and Ms Macnamara’s daughters or as Mr Macnamara directs. The difficulty arises out of the trust deeds.
(a)The family trust was established on 20 November 2001. It is a discretionary trust. The discretionary beneficiaries are Mr and Ms Macnamara, their two daughters, any child or children or remoter issue of Mr and Ms Macnamara who are born before the vesting date, any trust or other settlement under which any of the persons referred to as discretionary beneficiary is a beneficiary, any company that is under the control of any discretionary beneficiary or combination of discretionary beneficiaries, every charitable purpose which is regarded as charitable by the trustees, and any other persons appointed by the trustees under the deed. The final beneficiaries are the same persons.
(b)The Home Trust was settled on 29 March 2011. The beneficiaries are Mr and Mrs Macnamara, their children, any children of the children, any other trust of which any one or more of the beneficiaries is a beneficiary provided that such trust does not have a later day of distribution and any charity or charities as may be chosen by the trustees from time to time.
[91] Both trust deeds to an extent dictate the terms of any new trusts and both envisage that any resettlement on separation will be to new trusts with the same beneficiaries (except for one or other spouse).
[92] I do not know whether there are any beneficiaries other than Mr and Ms Macnamara and their children. If there are any other beneficiaries, I do not know whether they have consented to Mr Macnamara’s proposal that his share of the net assets of the Trusts should be distributed to his daughters. I do not know whether the daughters consent to this suggestion.
[93] It would not be appropriate for the Court to grant its approval to Mr Macnamara distributing the Trusts’ funds to his daughters or as he directs. This would be inconsistent with the existing Trust deeds. The trust funds once settled on the new trust will belong to the trustees of that trust and they will fall to be determined in accordance with the new trust deed. As I have noted, the new trust deed will in large part have to mirror the existing Trust deeds.
[94] The appropriate course is either for Mr Macnamara to settle a new trust and for his share of the net assets of the Trusts to be paid to the trustees of that new trust, as envisaged in the consent order, or if Mr Macnamara fails to do so, for the trustees to settle a new trust for the benefit of Mr Macnamara and the other beneficiaries of the existing Trusts (other than Ms Macnamara), with the costs of this exercise being met from Mr Macnamara’s share of the net assets of the Trusts.
[95] I decline to make a direction authorising the trustees to pay the net assets of the Trusts to Mr and Mrs Macnamara’s daughters or as Mr Macnamara directs. I do however make a direction authorising the trustees to settle a new trust for the benefit of Mr Macnamara and the other beneficiaries of the existing Trusts (other than Ms Macnamara), with the costs of this exercise being met from Mr Macnamara’s share of the net assets of the Trusts. This direction however is to lie in Court for a period of one month from the date of release of this judgment to give Mr Macnamara a final opportunity to set up a new trust himself.
(g)Leave to apply for further directions
[96] I reserve leave to the trustees to apply for further directions in relation to the implementation of any of the orders made in this judgment and/or the consent order (noted at [7]).
Costs
[97] The trustees sought an order that they be indemnified from the assets of the Trusts for their costs in bringing this application. Neither Mr Macnamara nor Ms Macnamara opposed this application. I consider it appropriate to make the same, but subject to the reservation that the trustees are only entitled to be indemnified for their reasonable costs and disbursements. If there is any dispute in this regard it is to be referred back to the Court. I so order.
[98] Ms Macnamara signalled that she intends to seek costs against Mr Macnamara. In this regard, I direct as follows:
(a)any memorandum seeking costs is to be filed and served within five working days of the date of release of this judgment;
(b)any memorandum in response is to be filed and served within a further five working days; and
(c)memoranda are not to exceed five pages.
I will then deal with the issue of costs and disbursements on the papers, unless I require the assistance of Mr Macnamara and/or counsel for Ms Macnamara.
Wylie J
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