McKay v Beattie

[2016] NZHC 1332

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2016-409-455 [2016] NZHC 1332

UNDER

the Trustee Act 1956

IN THE MATTER

of the JC Beattie Family Trust

BETWEEN

ALAN BEVIN MCKAY AND SUZANNE ISOBEL GORDON

Plaintiffs

AND

ALAN COLVIN BEATTIE Defendant

Appearances:	G Clarke for the Plaintiffs
Judgment:	20 June 2016
(Determined on the papers)

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

as to vesting orders and service

Introduction

[1]      The plaintiffs, Alan McKay and Suzanne Gordon, as current trustees of the JC Beattie Family Trust (the Trust) seek an order vesting the following trust property currently held by Alan Beattie, the defendant:

(a)      title  to  a  half  share  in  the  property  at  2/135  Johnson  Road, Christchurch (the property) jointly held by Mr McKay and the defendant; and

(b)4,499 shares in Beatties Service Station Ltd (the shares) held jointly by Mr McKay and Mr Beattie.

MCKAY v BEATTIE [2016] NZHC 1332 [20 June 2016]

[2]      These orders are sought because Mr Beattie, a retired trustee of the Trust and in  whose  name  the  property  and  the  shares  are  currently  jointly  registered,  is mentally incapable of exercising his powers and duties as a trustee.

Background

[3]      On 21 January 2002 Janice Beattie, the wife of Mr Beattie, settled the Trust.1

Mr Beattie and Mr McKay were named as trustees.   The named discretionary beneficiaries of the Trust are Mr Beattie, the three children of Mrs and Mrs Beattie and any grandchild or more remote issue of the settlor.  On the same date a second trust was created named the AC Beattie Family Trust whereby Mr Beattie was the settlor and appointer and the trustees where Mrs Beattie and Mr McKay.  However, given Mrs Beattie’s passing in 2012, Mr McKay is now the sole trustee of that trust.

[4]      The trustees of each trust were joint legal owners of the following trust property:

(a)      the property; and

(b)      the shares.

[5]      Upon the death of Mrs Beattie, the half share in the property jointly held by her and Mr McKay transferred to Mr McKay as the sole remaining trustee, as did her interest in the shares. The other half share of the property remained jointly owned by Mr Beattie and Mr McKay as trustees of the Trust, as did the 4,499 shares.

[6]      Mr Beattie continued living in the property after Mrs Beattie’s passing.  Sadly however, due to his deteriorating mental and physical health it became apparent that he was no longer able to care for himself and in or around January 2015 he moved into the Ballarat Care Home.

[7]      Dr Nigel Gilchrist, a specialist in internal medicine, assessed Mr Beattie on 1

April 2016 and concluded:

(a)      Mr Beattie lacks mental capacity to  carry out  the role of Trustee including decision making relating to property and to instruct others including solicitors in regard to his Trust property.

(b)      Mr Beattie is an incapacitated person as defined under r 4.29 High

Court Rules.

(c)      Mr Beattie would not have the ability to understand High Court proceedings for the vesting of Trust property into the new Trustee if he was served with them and there would be no purpose in serving the proceedings on him.

[8]      Due  to  Mr  Beattie  no  longer  having  mental  capacity  to  carry  out  his obligations as a trustee he was removed as a trustee and replaced by his niece, Suzanne Gordon, pursuant to s 43 of the Trustee Act 1956 (the Act).  The reason for Mr Beattie’s removal as a trustee was that it became apparent to his three children that the property, which was now empty but continued to accrue rates and insurance costs, needed to be sold and the money reinvested with a view to the income being used to meet any of Mr Beattie’s needs and also the needs of the other discretionary beneficiaries.   In order to achieve this, the half share in the property which Mr

Beattie still holds needs to be vested in Ms Gordon.2

[9]      In order for the plaintiffs to deal with the property, they require a vesting order under s 52 of the Act, transferring the title into the name of Ms Gordon, so that the registered proprietors as to the one half share owned by the Trust will be Mr McKay and Ms Gordon. An order is also sought under s 59 of the Act vesting in Mr McKay the right to transfer Mr Beattie’s interest in 4,499 shares in Beatties Service Station Ltd to Ms Gordon.

[10]     Before dealing with the matter of the vesting orders themselves, there are some administrative matters I must first deal with.

Administrative matters

The relevant rule

[11]     Rule 18.4 High Court Rules provides that a proceeding commenced under pt

18 must be:

(a)      commenced by statement of claim; and

(b)accompanied by an application for directions as to service and representation under r 18.7

[12]     The plaintiffs have commenced under this part as opposed to pt 19, and as such have filed the appropriate application. The plaintiffs apply for orders that:

(a)      the defendant not be served with these proceedings;

(b)the defendant does not need to be represented by a litigation guardian or other representative;

(c)      the notice of proceeding be dispensed with;

(d)      no other person need be served with the proceedings; (e)        evidence be by way of affidavit; and

(f)       the proceeding be dealt with on the papers.

Service

[13]     The primary grounds  upon  which  the orders dispensing with  service  are sought, are:

(a)      there  is  no  purpose  in  serving  Mr  Beattie  with  the  proceedings because he lacks any mental capacity to understand the nature of the proceeding and could not make any decisions with regard to it; and

(b)Mr Beattie has been validly removed as trustee because of his mental incapacity  so  there  can  be  no  basis  to  oppose  his  interest  in  the property as trustee vesting in the replacement trustee.

[14]     Given Dr Gilchrist’s conclusion that Mr Beattie would not have the ability to understand the current proceedings if he was served with them and there would be no  purpose  in  serving  the  proceedings  on  him,  I  am  satisfied  that  this  is  an appropriate case for service to be dispensed with.  Mr Beattie’s mental state is such that he would not be able to rationally understand the nature or purpose of the proceedings or to meaningfully participate in them.  Service would serve “no useful

purpose”.3    In reliance on the inherent jurisdiction of the Court to regulate its own

process and proceedings, an order will be made dispensing with service.4

Litigation guardian

[15]     The primary grounds upon which an order that a litigation guardian for Mr

Beattie need not be appointed, are that:

(a)      to  provide  Mr  Beattie  with  a  litigation  guardian  would  serve  no purpose; and

(b)the orders sought are limited to vesting orders to give effect to the lawful change of trustees and do not otherwise impact on Mr Beattie’s wellbeing or interests which might exist.

[16]     Mr Beattie is an incapacitated person as defined under r 4.29 High Court Rules.   Rule 4.30 provides that an incapacitated person must have a litigation guardian as his or her representative in any proceeding, unless the court otherwise

orders.

3      Docherty v Docherty [2013] NZHC 1885 at [33]; cited with approval in Grazier v Grazier

[2014] NZHC 3058 at [14].

4      See IH Jacob “The Inherent Jurisdiction of the Court” (1970) Current Legal Problems 23 at 32

— 40.

[17]     A similar situation arose in the case of Docherty v Docherty.5   The plaintiffs in that case sought an order vesting trust assets under s 52 of the Act following the removal of the defendant as a trustee of a trust.  The evidence established that the defendant had frontal temporal lobe type dementia and lacked the ability to understand and make decisions.  In deciding to order that a litigation guardian was not necessary, Associate Judge Bell concluded:

[27]      While recognising that the  Court  should  be  cautious  in  ordering otherwise under r 4.30, I accept that this is one of those cases where the Court should do so. On its substantive merits the plaintiffs have a very straightforward case. I find on the basis of the evidence of Dr Boyd that Mr Docherty is quite incapable of acting as a trustee. Any suggestion that he could somehow perform some useful purpose by remaining as trustee can be dismissed out of hand. Given his inability to act as a trustee, the proper response is that he cease to be a trustee. This is an entirely appropriate case for removal.

[28]     Mr Riechelmann, the potential litigation guardian, accepts that there could not be a sensible basis for contending that Mr Docherty could remain as trustee. Once it is accepted that Mr Docherty was properly removed as trustee then the vesting order follows as night follows day. There cannot be any sensible basis for an argument that even though he has been removed as trustee, he should still be shown as a registered proprietor of trust assets.

[18]     I acknowledge that I must proceed cautiously before granting an order that Mr  Beattie  need  not  have  a  litigation  guardian  as  his  representative  in  this proceeding.  That said, I am satisfied that it is appropriate in this case to grant such an order.  Mr Beattie was properly removed as trustee. According to the evidence of Dr Gilchrist, Mr Beattie seemed happy to be removed.   He did not have mental capacity to continue in that role anyway.  Once it is accepted that Mr Beattie was properly removed as a trustee of the Trust then it follows as a matter of course that a vesting order should be granted in favour of the replacement trustee, Ms Gordon.

Notice of proceedings

[19]    In circumstances where I have dispensed with service, the defendant is incapacitated and there is to be an order that no litigation guardian is required, there is no good reason to require a notice of proceedings.  Accordingly I will make an

order pursuant to r 5.24(b)(iii).

5      Docherty v Docherty, above n 3.

Service on any other person

[20]     Mr Beattie has been properly removed as a trustee and Ms Gordon has been properly appointed as his replacement.  It follows as a matter of course that property that Mr Beattie held as a trustee of the Trust should vest in Ms Gordon.

[21]     In Wethey v Wethey, Nation J considered the issue of whether any other person need be served with the proceedings in  circumstances where an original trustee had been incapacitated by Alzheimer’s, and the continuing trustees sought vesting orders following his removal and replacement as a trustee.6    Nation J dispensed with service on a beneficiary residing in the United States who had vehemently opposed the appointment of new trustees and sought to be appointed in lieu of one of the new trustees.  His Honour held:7

The orders sought merely give effect to the appointments of trustees which have already been made. The information available does not suggest there is likely to be any challenge to those appointments or that such a challenge would be successful. The vesting of title in the presently appointed trustees will not change any of the beneficiaries’ rights in respect of the appointments which have already been made. Nor will the vesting orders sought affect the obligations which the trustees have to all beneficiaries or the rights or entitlements  which beneficiaries  have  in respect  of the trustees  or Trust property.

[22]     This  proceeding  is  essentially an  administrative  step  to  enable  the  Trust property to be vested in the current trustees.  This step does not in itself adversely impact upon any beneficiaries of the Trust.  In any event, Mr McKay has deposed that the adult discretionary beneficiaries.   (Mr and Mrs Beattie’s three children) agree between them on the appointment of Ms Gordon as a replacement trustee for their father.

[23]     I therefore conclude that there are no other persons who should be issued with the proceedings as persons who are “interested in, or may be adversely affected by, the relief sought” by the plaintiffs.8   This matter may be dealt with on a without

notice basis.

6      Wethey v Wethey [2015] NZHC 493.

7 At [19].

8      High Court Rules, r 18.7(3).

Evidence and relief on the papers

[24]     It is appropriate that the evidence in this proceeding be given by way of affidavit and the relief sought be dealt with on the basis of the papers before the court.

Vesting orders

The property

[25]     Section 52(1)(b)(i) of the Act provides the Court with the power to vest land in any such person that it may direct where a trustee entitled to or possessed of any land or interest therein, either solely or jointly with any other person, is under a disability.  Section 52(3) clarifies that in the circumstances of joint entitlement, the land, interest or right shall be vested in the other person who remains entitled, either alone or with any other person the Court appoints.

[26]     Mr McKay is already the sole registered proprietor over a half share in the property.   The other half share is jointly registered to Mr McKay and Mr Beattie. The current claim is properly supported by evidence.  Given the need to ensure the current trustees can deal with the property in accordance with the trust deed, I am satisfied that the vesting order sought is appropriate.  An order will be made vesting Mr Beattie’s interest in the half share to the property in Ms Gordon.

The shares

[27]     Section 59 of the Act is very similar to s 52.  It provides that where a trustee entitled, alone or jointly with another person to stock or to a thing in action, and the trustee is under a disability, the court may make an order vesting the right to transfer or call for a transfer of stock in any person as the court may appoint.9    Stock is defined in s 2 and includes “shares”.  Similarly to s 52(3), s 59(3) clarifies that where the right is entitled jointly with any other person, the right shall be vested in that person either alone or jointly with any other person whom the court may appoint.

[28]     The 4,499 shares, the subject of the claim, are jointly held be Mr McKay and Mr Beattie.  Again the current claim is properly supported by evidence.  Ms Gordon has already been appointed as a trustee of the Trust.   In order for her, and Mr McKay, to be able to properly perform their roles as trustees of the shares, it is necessary that they have legal ownership.  An order will also be made vesting Mr Beattie’s right to transfer his interest in the shares to Ms Gordon to Mr McKay.

Costs

[29]     The plaintiffs have sought that costs of this proceeding be met from proceeds of sale of the property.  The general rule is that a trustee is entitled to be reimbursed for expenses incurred in carrying out the trust.10    This includes litigation costs.  As such it is appropriate that the trustees recover their expenses out of the trust property.

Orders

[30]     I direct:

(a)      the defendant need not be served with these proceedings;

(b)the defendant does not need to be represented by a litigation guardian or other representative;

(c)      the notice of proceedings be dispensed with;

(d)      no other person need be served with these proceedings;

(e)      title to the defendant’s interest in the property at 2/135 Johnson Road, Christchurch – Lot 7, Deposited Plan 76680, contained in Certificate of Title CB44A/694 – is vested in Suzanne Isobel Gordon as Trustee of the JC Beattie Family Trust;

(f)      the defendant’s right to transfer his interest in the 4,499 shares in Beatties Service Station Limited to Suzanne Isobel Gordon is vested in Alan Bevan McKay; and

(g)the trustees may recover their expenses related to these proceedings out of the trust property of the J C Beattie Family Trust.

Associate Judge Osborne

Solicitors:

Checketts McKay Law Limited, Alexandra