Martin v Martin
[2024] NZHC 147
•12 February 2024
IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE
CIV-2023-435-10
CIV-2023-435-14 [2024] NZHC 147
UNDER The Trusts Act 2019 and the Inherent Jurisdiction of the High Court IN THE MATTER
of the Dyerville Trust
BETWEEN
JULIA MARIE MARTIN
Applicant
AND
ALISTAIR HENRY MARTIN
Respondent
Hearing: 28 November 2023 Counsel:
S W H Fletcher and L Hansen for Applicant R C Laurenson and C D Batt for Respondent
Judgment:
12 February 2024
JUDGMENT OF ELLIS J
[1] Julia and Alistair Martin are the two remaining trustees of the Dyerville Trust (the Trust). They are husband and wife but have been separated since February 2020. In general terms, it is accepted that property owned by the Trust is relationship property, but there is a dispute about whether the “Otaraia Farm” property is included. Otaraia Farm is a 695 ha beef and sheep farm in Martinborough. It has been in Mr Martin’s family for generations.
MARTIN v MARTIN [2024] NZHC 147 [12 February 2024]
[2] Ms Martin believes the administration of the Trust is at an impasse and has applied for an order replacing her and Mr Martin with independent trustees.1 She also seeks leave under r 19.5 of the High Court Rules 2016 (the HCR) to commence the proceeding as an originating application.
[3] Mr Martin says the daily operation of the Trust is not deadlocked, and that neither the existing trustees nor any replacement trustees are in a position to make decisions about the division of the trust funds until the underlying dispute about the ownership of the Otaraia Farm is resolved. He also objects to the use of the r 19.5 procedure.
[4] Soon after Ms Martin commenced her proceedings (the replacement proceedings), Mr Martin filed proceedings against Ms Martin, the trustees of the Trust and Gibson Sheat (the relationship property proceedings).2 The statement of claim pleads causes of action in equity, contract, tort and under the Property (Relationships) Act 1976 (the PRA). Although this Court has no automatic jurisdiction over PRA matters, Mr Martin has applied to the Family Court to have the proceedings transferred here.
[5] Mr Martin has also applied under s 137 of the Trusts Act 2019 (the Act) for directions that Ms Martin represent the trustees of the Trust in the relationship property proceedings, where there is a conflict with his personal interests.
[6] Justice McQueen directed that Ms Martin’s application for leave to commence proceedings under r 19.5 be heard together with her substantive application for replacement of the Trustees and Mr Martin’s s 137 application.3
Possible settlement
[7] The applications were, accordingly, all heard by me on 28 November 2023. In the course of the hearing, there appeared to be some prospect of the parties resolving
1 Being the -010 proceedings.
2 Being the -014 proceedings.
3 Martin v Martin HC Masterton CIV-2023-435-010, 25 October 2023 (Minute of McQueen J).
matters by agreement. It was agreed that I should defer issuing a judgment until there had been further discussions.
[8] Regrettably, no resolution has been arrived at. At the end of January 2024 counsel for Ms Martin asked that the matter proceed to judgment. This decision is the result of that request.
What happened here?
[9] Mr and Ms Martin were a couple for approximately 23 years, having met in around 1997–1998 and marrying on 24 February 2001. They lived together until 6 February 2020, and so have been separated for four years. According to Ms Martin, the separation was not amicable. Most of the family wealth is held in the Trust.
[10] Between 2005 and 2017 the Martin family lived in a house (the Homestead) that was part of a larger farm property at 1288 Lake Ferry Road, Martinborough (being Otaraia Farm). At that stage, Otaraia Farm was owned by a trust associated with Mr Martin’s father. Prior to that (between 2000 and 2005) the family had lived on a small cottage opposite the Homestead (the Cottage). While living in the Cottage, and later the Homestead, Mr and Ms Martin renovated the properties, spending approximately $170,000 of their own money doing so.
[11] Mr and Ms Martin settled the Trust on 14 April 2008. They were the original trustees along with Gawith Trustees 2008 Ltd (their then lawyer’s trustee company). On 17 July 2019, Gawith Trustees 2008 Ltd was replaced as the independent trustee by LGW Trustees Ltd, a trustee company owned by the law firm Gibson Sheat (and acting through Ms Julie Millar). Mr and Ms Martin, along with their two sons (now young adults), are the beneficiaries of the Trust.
The Trust Deed
[12] The Trust Deed (the Deed) is a fairly orthodox one. The power to appoint new trustees is vested in the “Appointer”, being Mr Martin and Ms Martin jointly (cls 1.2.1 and 13–14). Clause 14.2 provides that if an incorporated company is appointed to be a Trustee that company may be the sole Trustee.
[13] The trustees’ powers are generally matters of absolute discretion (cl 11). However, a sole trustee may not use any power to benefit themselves if they are a beneficiary. Similarly, cl 16 restricts any trustee-beneficiary from participating in a decision which may benefit them personally.
[14] Central to the present dispute is cl 24, which addresses what is to occur on the separation of the Mr and Ms Martin. It provides as follows:4
24 Separation
(a)In the event of separation between Alistair Henry Martin and Julia Marie Martin the Trustees shall, unless the Trustees resolve by unanimous agreement, resettle assets of the Trust Fund equivalent in value to one half of the Trust Fund upon another Trust (“the resettlement trust”) to be established by Julia Marie Martin or her personal representatives of which the beneficiaries shall be determined by Julia Marie Martin or her personal representatives but in any event shall include the beneficiaries referred to in clause 1.2 but excluding Alistair Henry Martin with power under the resettlement trust for Julia Marie Martin by deed revocable or irrevocable to declare further beneficiaries thereof. For the purposes of the resettlement aforesaid the Trustees shall determine the value of the assets comprising the Trust Fund and shall appropriate assets of the Trust Fund to the resettlement trust.
(b)Upon any resettlement pursuant to this clause Julia Marie Martin shall cease to be a Trustee and a beneficiary under this Deed and the power of appointment of Trustees contained herein and the power of appointment and removal of beneficiaries contained herein shall be vested in Alistair Henry Martin and he shall have the power of appointment of Trustees and the power of appointment and removal of beneficiaries under the resettlement trust.
…
(d)In the event that the Trustees cannot agree upon any matter in relation to the said resettlement, the matter is to be referred to an independent person to be agreed upon and in default of agreement nominated for that purpose by the President for the time being of the New Zealand Law Society and the decision of such independent person in relation to the matter in question shall be final and binding on all of the Trustees who shall be bound to implement such decision.
[15] So, cl 24(a) provides for a partial winding up of the Trust in the event of separation, with half the trust fund being resettled on a new trust established by Ms Martin. Clause 24(b) makes clear that once the 50:50 division occurs, Ms Martin
4 Emphases in original.
ceases to be beneficiary of the Trust. The terms of cl 24(a) make it clear that it operates automatically upon separation, save unanimous agreement to the contrary.
The Trust’s purchase of Otaraia Farm
[16] At an early stage, two rental properties on Kitchener Street, Martinborough were transferred into the Trust. These properties were sold in 2013. On 22 July 2019 the Trust was nominated as purchaser of Otaraia Farm and three days later the purchase settled. The purchase price was $9,500,000 (GST exclusive). The settlement funds comprised:
(a)$2,692,000, which Mr Martin says was a gift to him from his family and his separate property; and
(b)$6,600,000 provided by way of a revolving credit facility from Rabobank.
[17] The Rabobank loan was secured against the assets of the Trust and also by personal guarantees from Mr and Ms Martin (in their capacity as directors of companies they each owned). Rabobank also required that Otaraia Farm be subdivided and part of it on-sold.
[18] According to Mr Martin, the intention was that Otaraia Farm would be solely owned by him through a company called Otaraia 2019 Ltd. Only the Homestead (comprising 7 ha) was to be relationship property. Mr Martin says the farm was meant to be owned by the Trust only temporarily. He says the farm is held by the Trust on constructive trust for him.
[19] That this was at least Mr Martin’s intention seems plain from Ms Martin’s account. She says that at around the time of the Trust’s purchase of the farm she was asked to sign a relationship property agreement (RPA) which was presented to her in draft at a meeting between her, her husband and Gibson Sheat. The draft RPA provided that Otaraia Homestead was to be relationship property, but the remaining farmland was to be Mr Martin’s separate property.
[20] Ms Martin sought independent legal advice about it from Mr Graeme Reeves on 23 July 2019. Nothing further was done; neither Gibson Sheat nor Mr Martin followed up on the RPA, and so it was never finalised or executed.
[21]The Martins separated about six months later.
[22] Mr Martin lives now lives in the Otaraia Farm Homestead with the couple’s younger son. Ms Martin lives in a property in New York Street, Martinborough, also owned by the Trust.
The trustees encounter problems
[23] In accordance with Rabobank’s requirements, subdivision of the farm commenced. This culminated in December 2021 when two neighbouring farmers purchased 481 ha (69 per cent) of the land for $4,190,000, which was then used to pay down the revolving credit facility. These two farmers currently also lease the remaining farmland.
[24] Ms Martin’s lawyer (Mr Reeves) raised concerns about the subdivision process, saying Mr Martin assumed on behalf of the Trust a number of obligations without discussing them with his co-trustees.
[25] In June 2022, Ms Martin and Ms Millar (for the independent trustee) attempted to organise a trustee meeting. On the day of the meeting (23 June 2022), Mr Martin’s solicitor (Ms Batt) wrote to Ms Martin’s solicitor advising that Mr Martin would not be attending the meeting because she (Ms Batt) had a court fixture to attend. Ms Batt stated that there was “little point addressing most of the agenda matters at this time” given the disagreements between the parties, and that “proceedings will be inevitable” unless settlement could be negotiated between the parties on a without prejudice basis. Ms Martin and Ms Millar went ahead with the meeting, but given the unanimity requirement, nothing could be resolved in Mr Martin’s absence.
[26]Among the issues raised during the meeting were that:
(a)the Trust’s accountant had distributed $79,000 to Mr Martin, without any resolution authorising distribution;
(b)the Cottage on the Otaraia Farm appeared to be tenanted but no rent was being received by the Trust; and
(c)a rent review could not be progressed without Mr Martin.
[27] On 7 July 2022, Ms Batt wrote to Ms Millar and Ms Martin’s solicitor. She advised Mr Martin wanted to raise the rent for Otaraia Farm, but because it was his land and only held by the Trust by mistake, he would deal with rental matters himself and only revert to the Trust if the lessee suggested a lower rental rate (an approach Ms Batt submits is in line with his duties as a trustee). Unsurprisingly, Ms Millar responded that the title to the land remained with the Trust and so any decision was required to be unanimous.5
[28] Since that time, Ms Martin has attempted to initiate the process under cl 24 of the Trust Deed. Ms Millar agreed to this process, but Mr Martin refused to participate. He says the constructive trust issue needs to be determined first. “Deadlock” is the word that springs to mind.
[29]LGW Trustees Ltd resigned as independent trustee on 13 April 2023.
[30] Mr Martin and Ms Martin are not now on speaking terms. It seems Mr Martin believes that Ms Martin is depriving him of his inheritance by claiming Otaraia Farm is a Trust asset. He says the day-to-day administration of the Trust is being managed responsibly and transparently. Ms Batt says that Ms Martin has not been able to point to an instance where a unanimous decision was needed but not taken, and that any issues raised with the Trust accounts, financial positions or rental incomes were clarified by Mr Martin by providing access to bank statements. In essence, Mr Martin
5 According to Ms Martin, it took 10 months for a decision to be reached as to the appropriate rent. Mr Martin disputes this.
maintains that any hostility between the parties has not affected the operation of the Trust beyond the issue with Otaraia Farm.
[31] It is against this background that the various applications need to be considered.
What orders should be made?
[32] The central underlying dispute is undoubtedly whether what remains of Otaraia Farm (minus the Homestead) is Trust property or whether it is property held by the Trust on constructive trust for Mr Martin. That will presumably be resolved in the relationship property proceedings, in due course. The Trust plainly has an interest in those proceedings and, arguably in preserving what is, on the face of it, Trust property (the Farm).6
[33] To that rather simplistic extent, I accept Mr Martin’s submission that the Trust’s interests could be seen as aligning with Ms Martin’s in those proceedings. But there are other matters that are far from clear (and not addressed by Mr Martin) including:
(a)how the Trust will be able to make decisions relating to the relationship property proceedings unanimously, given that Mr Martin is unlikely to agree with Ms Martin; and
(b)whether the Trust’s (and possibly, by inference, Ms Martin’s) legal expenses in those proceedings will be paid from Trust funds.
[34] As well, there are ancillary and ongoing issues about the day-to-day management of the Trust and the alleged exclusion of Ms Martin from recent relevant decision-making. Mr Martin acknowledges that he has not consulted with Ms Martin over certain matters but denies he is required to do so. It is unnecessary—and I am unable—to resolve that dispute in this judgment. I merely observe that it seems at least arguable that Mr Martin is not correct.
6 I nonetheless acknowledge it is possible that after due and objective consideration that the Trustees could agree with Mr Martin’s position.
[35]The almost inexorable conclusions that flows from these observations is that:
(a)the order sought by Mr Martin (that Ms Martin represents the Trust’s interests in the relationship property proceedings) will almost certainly be unworkable and (ultimately) costly; and
(b)the order sought by Ms Martin for removal and replacement of both herself and Mr Martin as Trustees is the fair and sensible way forward.
[36] In my view this latter conclusion is justified in terms of both ss 112 and 114 of the Act, and in terms of the Court’s inherent jurisdiction to supervise trusts for the welfare of beneficiaries.7 In terms of the statutory provisions, I consider it is necessary or desirable to remove and replace both trustees and, given the discord between the parties, it would be difficult or impracticable to do so without the assistance of the Court. It is not a precondition that misconduct, breach of trust, dishonesty, or unfitness by the current trustees be established and I make no such finding. Given the hostility between the parties and Mr Martin’s arguable conflict of interest, removal and replacement is necessary for the proper execution of the trust and in the interests of the beneficiaries as a whole.8
[37] It follows from all this that leave to commence under pt 19 should also be granted. Although Mr Martin says (and I accept) there are underlying factual disputes, it is unnecessary for me to resolve those disputes in order to determine the question of removal and replacement. Indeed, it is the fact of those disputes that favour removal and replacement. That point was, I think, realistically accepted Mr Martin’s counsel.
7 The Court’s inherent jurisdiction is preserved by s 8 of the Trusts Act 2019; Law (as trustee of the C J St George Family Trust) v George [2020] NZHC 3084.
8 It seems relatively commonplace in cases involving trustees of a family trust who are ex-spouses for both to be removed and replaced with independent trustees. For a recent example see Nadan v Sharma [2022] NZHC 2553.
Result
[38]For the reasons I have given:
(a)leave is granted to Ms Martin to commence the replacement/removal proceedings under pt 19 of the HCR;
(b)the applications under ss 112 and 114 of the Act is granted: Mr and Ms Martin are removed as Trustees of the Dyerville Trust and Ms Jessica Kellow and Mr Iain Shepard of BDO are appointed in their stead;
(c)by dint of s 116 of the Act, the orders made at (b) operate as an order vesting the property of the Dyerville Trust in the new trustees; and
(d)the representation application under s 137 of the Act is declined.
[39] Orders (b) and (c) will not take effect until a decision about the identity of the replacement Trustees has been made. Ms Martin has proposed Ms Kellow and Mr Shephard who are insolvency practitioners and partners in BDO. I understand Ms Kellow and Mr Shephard they have consented to such an appointment.
[40] But Mr Martin has expressed concern about the likely cost to the Trust of such an appointment and I have some sympathy with that position. He has suggested that a local (Wairarapa) solicitor may be more appropriate. Counsel are therefore to confer further and advise the Court of the outcome within 10 working days. In the event agreement cannot be reached I will resolve the matter on the papers.
Costs
[41] As things stand, I see no reason why 2B costs should not follow the event (the event being that Ms Martin has succeeded). But at the hearing I agreed to permit costs memoranda to be filed. Any such memoranda (no more than two pages in length) are to be filed and served 10 working days from the date of this judgment.
Rebecca Ellis J
Solicitors:
Maxwell Law Ltd, Wellington for Applicant Batt Law, Masterton for Respondent