McCallum v McCallum
[2017] NZHC 1218
•5 December 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-2970 [2017] NZHC 1218
IN THE MATTER of an application by WILLIAM FRASER
McCALLUM as settlor of the W F McCallum Trust
BETWEEN
WILLIAM FRASER MCCALLUM First Plaintiff
WILLIAM FRASER MCCALLUM and CARRICK ROBERT ZACHARY MCCALLUM and CALLUM FRASER MCCALLUM as trustees of the W F McCallum Trust
Second Plaintiffs
AND
WILLIAM FRASER MCCALLUM JUNIOR
Defendant
Hearing: 5 December 2016 Appearances:
K G Davenport QC for the Plaintiffs
No appearance by or for the DefendantJudgment:
5 December 2016
Reasons:
6 June 2017
REASONS JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 6 June 2017 at 2:30 p.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
Solicitors:
Ms K Davenport QC, Barrister, Auckland
Mr A van Schalkwyk (plaintiffs’ instructing solicitor), ASCO Legal, Solicitors, Auckland
MCCALLUM v MCCALLUM [2017] NZHC 1218 [6 June 2017]
[1] By originating application the plaintiffs sought four orders, as follows:
(a) An order removing the defendant as a trustee of the W F McCallum
Trust (the trust).
(b)An order, following removal of the defendant as a trustee, vesting title to two properties in the names of the remaining trustees.
(c) A declaration that the trust deed includes a power to remove trustees or, if it does not, an order varying the trust to include such a power.
(d) An order that the costs of all parties be met from the trust.
[2] In an earlier judgment, without reasons, I made the first, second and fourth of those orders, with reasons to follow. I now provide reasons for making those orders.
[3] The application for the third order, in sub-paragraph (c), was adjourned for further consideration and that application is now considered.
Background
[4] The parties to this proceeding all have the surname ‘McCallum’. For that reason it will be convenient to refer to them by their given names. In addition, the first plaintiff and the defendant, who are father and son, have identical names. I will refer to the first plaintiff as ‘William senior’ and to the defendant as ‘William junior’.
[5] William senior was the settlor of the trust and one of the trustees.
[6] The trustees of the trust, at the time the earlier orders were made, in addition to William senior, were his brother Robert, his son William junior, and his nephew Callum. The trustees named as second plaintiffs do not include William junior for reasons I will come to. The beneficiaries are William senior’s wife, his daughter and William junior.
[7] All parties required to be served were served, being the beneficiaries and all trustees. At the substantive hearing, in respect of which appropriate notice had been given to all parties required to be served, there was no appearance for any party other than the first and second plaintiffs through their counsel, Ms Davenport QC.
The order for removal of William junior as a trustee
[8] There were detailed affidavits from William senior and from Robert setting out the facts relating to William junior which had persuaded them that it was necessary to apply to the Court for an order that William junior be removed as a trustee.
[9] It is unnecessary to record the circumstances in detail. The background to the difficulties which William senior and Robert say they encountered with William junior was a proposal by William senior. He had been diagnosed with a terminal illness and wanted to make changes to the trust’s assets to make better financial provision for his wife and two children as beneficiaries of the trust. The essence of the proposal was that one asset of the trust, a one-third interest in a property known as Lismore, be exchanged for other assets of equivalent value. Lismore produced no income and required significant expenditure for maintenance (part of which had been met personally by William senior over the years). The assets proposed to be acquired by the trust in exchange were income producing and more readily realisable than the one-third interest in Lismore.
[10] The trustees at the time William senior put his proposal, in addition to William senior, were Robert and William junior. Callum was not appointed until November 2016. Robert agreed with William senior that the proposal was in the best interests of the beneficiaries.
[11] The unchallenged evidence establishes that, when William senior endeavoured to discuss the proposal with William junior, William junior simply refused to discuss it. The evidence of William senior in this regard is confirmed in material respects by the evidence of Robert. Some of Robert’s evidence relating to his discussions with William junior is noted below when considering the grounds for removing William junior as a trustee.
[12] The trust deed makes provision for majority decisions of trustees. In the end William senior and Robert reluctantly decided that they would need to use that provision and they resolved, as the majority, to implement the proposal. They then used the majority power to sign documents, including conveyancing documents, because William junior declined to sign them. However, it was not possible to register instruments against land titles without the relevant documents being executed by all three trustees.
Principles
[13] The trust deed does not have any express power for removal of trustees. The application was therefore made to the Court seeking exercise of the Court’s inherent jurisdiction to remove William junior.
[14] The principles pursuant to which the Court may exercise its inherent jurisdiction to remove a trustee are well established. A classic statement of the scope of the jurisdiction is that of the House of Lords in Letterstedt v Broers.1
In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependent on details of great nicety.
[15] In Garrow and Kelly Law of Trusts and Trustees, the authors provide examples of numbers of circumstances in which trustees have been removed, including the following of present relevance:2
(a) Where one trustees refuses to act reasonably with a co-trustee. (b) Where the trustee has refused to carry out the trust.
(c) Where the court is satisfied the trust property would not be safe in the
trustee’s hands and the trust assets would not be properly managed in the interests of the beneficiaries.
1 Letterstedt v Broers (1884) 9 AppCas 371 (HL) at 387.
2 Greg Kelly and Chris Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington 2013) at [17.62].
[16] Section 43(1) of the Trustee Act 1956 prescribes seven broad circumstances in which the power to remove a trustee and appoint a new trustee may be exercised by a person with a power to remove trustees. The circumstances are broadly stated. One is where the existing trustee “is unfit to act therein”. The Court’s inherent jurisdiction undoubtedly extends to that broadly stated circumstance.
William junior’s unfitness to act
[17] The unchallenged evidence of William senior and Robert satisfied me that the Court’s inherent jurisdiction should be exercised to remove William junior because the welfare of the beneficiaries and of the trust property required his removal.
[18] William junior was and is unfit to continue to act as a trustee. The proposal from William senior was a prudent one and plainly in the interests of the beneficiaries. The proposal was accepted as being in the best interests of the trust by Robert as one of William senior’s two co-trustees at the time. I am satisfied that Robert assessed the proposal objectively and independently. And Robert, like William senior, has no interest as a beneficiary.
[19] William junior simply refused to discuss the matter with his father. As his father put it, he was stonewalled by his son. Robert made an effort to discuss the proposal with William junior. The essence of Robert’s evidence, which I accept, is that William junior showed a total lack of understanding of the need for what was proposed – the sale of the one-third interest in Lismore – and the benefits to the beneficiaries in acquiring the exchange assets.
[20] The evidence establishes that William junior is not competent to make sensible decisions relating to management of the trust assets, that he is not able to distinguish between his duties as a trustee and his personal interests, and that he is either unwilling or unable to participate in the necessary decision making of the trustees.
[21] For those reasons I was satisfied that the order for removal of William junior as a trustee was required to be made.
Vesting title to the land in the remaining trustees
[22] The second of the orders earlier made, vesting title to two properties in the names of the remaining trustees, was consequential on the order for removal of William junior and the majority decision earlier described. Further reasons for making that order are not needed.
Is there a power for the settlor to remove trustees?
[23] The trust deed contains an express power for the settlor, William senior, to appoint new trustees, but there is no express power for the settlor, or any other person, to remove trustees. In these circumstances the plaintiffs, considering it was desirable for there to be a clear power to remove trustees, sought a declaration as to whether provisions in the trust deed may be interpreted as providing a power to remove trustees and, if not, a Court order varying the trust deed to provide that power.
[24] The relevant provisions of the deed are the following:
7. THE power of appointment of new Trustees shall during the lifetime of the Settlor be vested in him and after his death in his executors or administrators and if at any time after the death of the Settlor there shall be no such executor or administrator able and willing to act then in the person or persons in whom the statutory power is vested by the Trustee Act.
8. THE person or persons in whom the power of appointment of new trustees is vested shall have power:
(a) To appoint at any time or times an additional trustee or trustees of all or any of the trusts in this deed whether or not occasion shall have arisen for appointment of a new trustee or trustees;
(b) Upon the retirement or removal of a trustee or trustees to appoint a new trustee or trustees;
(c) To appoint himself themselves or a retiring trustee or retired trustee or any other person at any time or times as advisory trustee/s of the trusts in this deed;
(d) Upon the retirement of a trustee or trustees of all or any of the trusts in this deed to appoint a new trustee or trustees outside the jurisdiction of a New Zealand Court;
(e) To appoint himself or themselves or any one of themselves as trustee/s of all or any of the trusts in this deed.
[25] Ms Davenport submitted that, because clause 8(b) refers to “the retirement or removal of a trustee” it is arguable that the deed does contain as an implied power in the settlor to remove trustees. There is also evidence from William senior, the person who took all steps necessary to establish the trust and get assets transferred to it, that it was his intention, when settling the trust, that he would have a power to remove trustees as well as appoint them. However, William senior’s evidence of his intention could not properly be taken into account on the question of interpretation, and Ms Davenport did not seek to rely on this evidence.
[26] I am not persuaded that the solitary reference to removal of a trustee in clause
8(b) provides grounds to interpret the deed as giving the settlor a power to remove trustees. Clause 8(b) simply defines two circumstances in which the power to appoint a new trustee may be exercised. One of those is where a trustee has been removed. But it does not follow from this that the settlor must have been intended to have the power of removal as well as the power of appointment. A trustee can be removed by order of the Court. The other situation referred to in clause 8(b) is retirement of a trustee. This is an occurrence that would not require any action on the part of the person with the power of appointment of trustees.
[27] The operative provision is clause 7 and it is clear; the settlor, and the settlor’s
successors, have a power of appointment only. There is no ambiguity.
[28] A further, and perhaps significant, difficulty in the argument for the plaintiffs is that, if clause 7 is interpreted as meaning that the settlor has a power to remove trustees as well as to appoint new trustees, that power would pass, on the settlor’s death, in the manner stipulated in clause 7. This would involve a substantial modification of the powers expressly recorded. It would also be a modification which could, in the end, vest a power to remove trustees in the trustees themselves. This would occur if there is no executor or administrator able or willing to exercise the power and the power then devolved on the trustees for the time being. This would be such a substantial modification of what is expressly recorded that it cannot be concluded, as a matter of interpretation, that this was the intention when the deed of trust was executed by the settlor and the three trustees.
[29] For these reasons I am not persuaded that the declaration sought can be made.
[30] There was also reference to clause 13 as possibly providing power for the trustees to vary the trust deed to give the settlor the power to remove trustees. Clause 13 is a conventional provision giving the trustees power “in their absolute discretion … to vary any of the trusts”. This is not a power to vary a power of appointment vested in the settlor.
[31] The alternative, and principal, argument was that the Court’s inherent jurisdiction includes a power to vary a trust deed in order to give a power to the settlor to remove trustees. Ms Davenport referred to a number of considerations which she submitted justified the order as being one which would not adversely affect any beneficiary and which would assist in the administration of the trust.
[32] I am not persuaded that the Court’s inherent jurisdiction enables the order to be made in this case.
[33] The Courts have not sought to closely define and limit the circumstances in which the jurisdiction may be exercised. In broad terms it is to be exercised for the primary purposes of seeking to protect the interests of beneficiaries, to ensure adherence to the objectives of the trust and to preserve trust property.
[34] A power to remove a trustee, as already discussed, is a power that can be exercised by the Court pursuant to its inherent jurisdiction. That power, when it is exercised, is exercised for those primary purposes. But exercise by the Court of a general inherent power in order to give a person power to remove trustees does not seem to me to be exercise of the inherent jurisdiction for the welfare of beneficiaries and protection of trust property, at least without other particular circumstances arising which engage those primary purposes.
[35] It is well established that, except in four circumstances, the Court’s inherent
jurisdiction does not include a power to vary the terms of a trust relating to trust
property or disposition of trust property.3 None of the four exceptions remotely touch on a power to vary a trust deed, on the application of the settlor, to give to the settlor a power to remove trustees.
[36] Ms Davenport submitted that the decision in CP Clifton Children’s Trust supports the present application.4 In that case Paterson J invoked the inherent jurisdiction to vest the power to appoint and remove trustees in a person in whom that power was not vested under the trust deed. The Judge referred to the House of Lords’ decision in Chapman v Chapman and its application in Re Ebbett. He distinguished those cases on the basis that, in the case before him, what was sought was not a variation of a trust but “a variation of an administrative provision and not an alteration of the trust itself”.
[37] The distinction referred to by Paterson J also applies in this case. But standing alone that distinction on the facts does not mean that the primary purposes for exercise of the inherent jurisdiction have been engaged. In CP Clifton Children’s Trust there were further facts which satisfied the Judge that the inherent jurisdiction was engaged. In that case a power to appoint and remove trustees had been vested in a trustee. The Court had already determined that that trustee should be removed. Paterson J, against that background, explained the reasons for his decision as follows:
[43] The Court’s inherent jurisdiction to alter trusts has been restricted by the House of Lords decision in Chapman v Chapman … as applied in Re Ebbett … However, what is sought here is not, in my view, a variation of the trust. As noted above, it is a variation of an administrative provision and not an alteration of the trust itself. This trust was sanctioned by this Court to protect infant beneficiaries. In my view, the Court must have a supervisory jurisdiction to modify an administrative provision which has been shown can be used in a manner which may be to the detriment of the infant beneficiaries. The Court, in its inherent jurisdiction, should intervene to modify that administrative provision so that the interests of the infant beneficiaries cannot be readily jeopardised. In the circumstances, I intend to use the inherent jurisdiction of this Court to modify this administrative provision.
3 Chapman v Chapman [1954] AC 429, [1954] 1 All ER 798 (HL) at 444-445, 801-802. Applied
Re Ebbett [1974] 1 NZLR 392 (SC) at 395-396.
4 Re The CP Clifton Children’s Trust (2004) 1 NZTR 14–018, (HC).
[38] In Mudgway v Mudgway, CP Clifton Children’s Trust was applied in broadly similar circumstances.5
[39] What is sought in this case is fundamentally different from what the Court ordered in those cases, and the circumstances leading to the orders in those cases are quite different from the circumstances here. In this case the Court is being asked to grant a new power to the settlor pursuant to the Court’s inherent jurisdiction. This is sought notwithstanding the earlier conclusion that, as a matter of interpretation, the parties to the deed did not intend the settlor to have that power.
[40] Vesting a power to remove trustees in the settlor is not in this case a step that needs to be taken in the interests of beneficiaries, to maintain the trust or to protect trust property. It is an order sought because it is considered to be convenient. That is not enough to invoke inherent jurisdiction. In Chapman v Chapman,6 Lord Simonds fulsomely approved the following statement of Farwell J in Re Walker:7
I decline to accept any suggestion that the Court has an inherent jurisdiction to alter a man’s will because it thinks it beneficial. It seems to me that is quite impossible.
[41] William senior, in his affidavit, made clear that the reason he was seeking an order giving him the power to remove trustees was to ensure that the problem that arose with William junior, and which then required the application to this Court, would not arise again. What William senior was seeking was not unreasonable, and the reasons for doing so are understandable. In the particular circumstances of this case, if the order sought was made it might, in the long term, turn out to be for the best and, in particular, not be prejudicial to the interests of beneficiaries. But considerations such as these cannot, in my judgment, justify exercise of the Court’s inherent jurisdiction to make the order.
[42] I note, for completeness, that there is power in s 64A of the Trustee Act 1956 for the Court to authorise variations of a trust. There was no application made in
reliance on s 64A to seek the variation. This would have required, amongst other
5 Mudgway v Slack (2010) 3 NZTR 20-023 (HC) at [38]-[39].
6 Chapman v Chapman above n 3 at 445, 802.
7 Re Walker [1901] 1 Ch 879 (Ch) at 885.
things, prior approval of the arrangement by adult beneficiaries. For reasons that will be apparent from the preceding discussion, it was not possible to get such approval. In addition, s 64A does not appear to apply to the variation sought in this case. Section 64A gives the Court power to approve an arrangement which either varies or revokes “all or any of the trusts”, or enlarges “the powers of the trustees of managing or administering any of the property subject to the trusts”. In CP Clifton Children’s Trust, where reliance was placed on s 64A, Paterson J concluded that it
had no application.8
[43] For these reasons I have concluded that the application for this order should be dismissed.
Costs
[44] The third order earlier made was that the costs of all parties be met from the trust. The reasons for making that order are as follows.
[45] The Court has power to make the order sought. The applications for the order removing William junior, and for the ancillary order for vesting of title, were fully justified. It was appropriate that that application be made by William senior as first plaintiff, in his capacity as settlor, as well as by the second plaintiffs, including William senior, as the trustees.
[46] The application for the third order, relating to the power to remove trustees, has not succeeded, but it was not an unreasonable application to make. Also, the costs in relation to that part of the overall application are likely to be small compared with costs for the applications on which the plaintiffs have succeeded.
[47] For these reasons I am satisfied that the costs of the first and second plaintiffs on all applications are appropriately paid out of the trust.
Woodhouse J
8 Re The CP Clifton Children’s Trust, above n 4, at [40]-[42].
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