Nysse v Nysse

[2014] NZHC 2833

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-1558 [2014] NZHC 2833

IN THE MATTER OF

The SG NYSSE No2 TRUST and the

TRUSTEE ACT 1956 and the inherent powers of the Court

BETWEEN

KIRSTY JANE NYSSE Plaintiff

AND

STEVEN GEORGE NYSSE also known as STEVEN NIJSSE

Defendant

Hearing:	13 November 2014
Counsel:	C R Pidgeon QC for the Plaintiff Defendant in person
Judgment:	13 November 2014

JUDGMENT OF BROWN J

This judgment was delivered by me on 13 November 2014 at 4.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      Pidgeon Law, Auckland Counsel:           C R Pidgeon QC, Auckland Copy to:       Defendant

NYSSE v NYSSE [2014] NZHC 2833 [13 November 2014]

[1]      By Deed dated 6 June 2000 the defendant settled a trust called the SG Nysse No 2 Trust (“the Trust”).  The Trust owns all 10,000 shares in Nyco Chocolates Ltd (“NCL”), a trading company, and all 220,000 shares in Nyco Holdings Limited (“NHL”) a property owning company which leases its Raumati premises to NCL. The defendant is the sole director of both NCL and NHL.

[2]      The plaintiff and  the defendant  are co-trustees  of the Trust.   They were previously married but are now divorced and living apart.   There is dissent and breakdown between them.  The discretionary beneficiaries of the Trust include the plaintiff, the defendant, their daughter Elise and the plaintiff’s son from a previous relationship. The final beneficiaries are the plaintiff, Elise and the plaintiff ’s son.

[3]      The defendant has the sole power under the Trust to appoint replacement or additional beneficiaries and to appoint or remove trustees.  However, in response to an interlocutory application filed in June 2014, the defendant gave an undertaking to the Court dated 1 July 2014 that he would not exercise the power under the Trust to appoint a new trustee or trustees or change, remove or add to the beneficiaries except in accordance with any agreement with the plaintiff or until the order of the Court.

[4]      In the present proceeding the plaintiff seeks an order for removal of the defendant as a trustee of the Trust and an order prohibiting the defendant from exercising his power to appoint a new trustee or trustees or to remove a trustee or trustees or change, remove or add to the beneficiaries.

[5]      The defendant did not file a statement of defence.  Consequently the matter was set down for hearing today for formal proof under r 15.9.  The plaintiff had filed in advance written submissions, a chronology, a bundle of documents and a bundle of authorities.

[6]      The defendant attended at court this morning.   He was not represented.   I explained to him the nature of the formal proof hearing and I arranged for the Registrar to provide to the defendant a copy of the plaintiff’s written submissions. At the conclusion of Mr Pidgeon QC’s submissions I afforded the defendant an opportunity to be heard.

The jurisdiction to remove trustees

[7]      The dual source of the jurisdiction of the High Court in the field of trusts is usefully summarised in Clarke v Karaitiana:1

The jurisdiction of the High Court in the field of trusts is both statutory and inherent.   The inherent jurisdiction is derived from the Court’s general supervisory powers in equity relating to the supervision of trusts for the welfare of beneficiaries.2   The inherent jurisdiction of the Court includes the power to enable it to act effectively within its jurisdiction.3   The Court may exercise  its  inherent  jurisdiction  even  in  respect  of  matters  which  are regulated  by  statute,  so  long  as  it  can  do  so  without  contravening  any statutory provision.4

[8]        The present application invokes both s 51 of the Trustee Act 1956 and the inherent jurisdiction of the Court.  Section 51 relevantly provides:

51       Power of Court to appoint new trustees

(1)       The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult, or impracticable so  to  do  without  the  assistance  of  the  Court,  make  an  order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

(2)       In particular and without prejudice to the generality of the foregoing provision, the Court may make an order appointing a new trustee in substitution for a trustee who—

(a)      Has been held by the Court to have misconducted himself in the administration of the trust; or

…

[9]      The importance of the objective of the welfare of beneficiaries is recognised in well-known cases such as Letterstedt v Broers.5   In that case Lord Blackburn said:

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 ... 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 dependant on the details of great nicety.

1      Clarke v Karaitiana [2011] NZCA 154, [2011] NZAR 370 at [38].

2      Kain v Hutton CA23/01, 25 July 2002.

3      R v Connelly [1964] AC 1254 at 1301 (HL).

4      Taylor v Attorney-General [1975] 2 NZLR 675 (CA) at 680; Donselaar v Mosen [1976] 2 NZLR

191 (CA) at 192; Schier v Removal Review Authority [1999] 1 NZLR 703 (CA).

5      Letterstedt v Broers (1884) 9 App Cas 371, 387 (PC).

The factual basis for the application

[10]     The evidence in support of the claim comprises affidavits of the plaintiff, Mr R  N Kennerley,  a chartered  accountant,  and  Mr P D Lane,  a chartered  and forensic accountant.

[11]     The plaintiff explains that the principal place of manufacture of chocolates by NCL was Wellington.   However, after the plaintiff and defendant separated, the defendant formed new companies and the plaintiff discovered that the defendant had diverted much of NCL’s business in Australia and elsewhere to himself, primarily through  the  incorporation  of  Kapiti  Chocolates  Ltd  (“KCL”)  and  Chocolates Australia Pty Ltd (“CAPL”).  The plaintiff then arranged for an investigation to be carried out by Mr Kennerley.

[12]     The plaintiff deposes that the Nyco companies have from 13 October 2001 purported to pass unanimous shareholders’ resolutions by the Trust relating to the Nyco companies’ non-appointment of auditor and adoption of financial statements, which resolutions have been made without her knowledge or consent.  As a trustee she has never been informed of any AGM being held after her separation from the defendant.

[13]     Mr Kennerley was retained by the plaintiff, in connection with proceedings against the defendant in the Family Court held at Waitakere relating to relationship property and maintenance, to review various accounting and other records of NCL and NHL.  Mr Kennerley had the opportunity to read various documentary records of the Nyco companies and to review various financial statements from 1999 to

2011.  I set out below an extract from his detailed affidavit dated 18 June 2014:

8.In summary, it is my opinion having reviewed the material referred to … that:

(a)      The Nyco group of companies have, since the parties’ separation, increased debts significantly.  These debts do not appear to be for legitimate business purposes or because of changes  in  trading  or  profitability,  but  to  enable  the Defendant to maintain excessively high drawings and personal expenses, to the detriment of the shareholders and beneficiaries.

(b)       The  Defendant  has  received  in  addition  to  his  salary, significant money from NCL by way of drawings and as at

30  June  2011  was  in  debt  to  NCL  in  an  amount  of approximately $333,609.

(c)       The Defendant has run up significant expenditure by using the NCL Amex card.  This has not been charged to him as drawings and totals approximately $301,000 as at 30 June

2011.  He has also, it appears charged legal and accounting fees to NCL which were incurred for his personal benefit.

(d)       It appears that the Defendant has also caused NCL to pay a “salary” of about $1,920.00 per month to his ex-partner Lillian Cruickshank while they were living together despite her not being an employee of NCL nor even living in New Zealand.    This  appears  to  cover  a  period  from  at  least

1 November 2003 to probably 31 December 2006 and has cost NCL probably $70,000 over that period.

(e)      The Defendant’s mother Lenora has received wages of approximately $30,000 per year from NCL for the last three years since retirement. …

(f)       It  appears  that  there  has  been  a  significant  diversion  of income that should have been received in NCL that was for over five years being received by CAPL. …

(g)      NHL has not been receiving any rent from NCL and consequently  NCL is  indebted  to  NHL in  an  amount  of almost $1,120,349 as at 30 June 2011.

(h)       The NCL wage bill suddenly increased from $340,966 for the year ended 30 June 2007 to $445,908 for the year ended

30 June 2008 and has remained at that level for the year

30 June 2011, which shows $445,874.

…

(k)       The detriment to both NHL and NCL (and consequently to the trust) as a consequence of the Defendant’s actions is significant.   NCL is very probably insolvent “on paper” as explained later and NCL may not recover what it is owed. Current Assets  (Receivables  of  NCL  were  $231,044  and current liabilities were $256,667 as at 30 June 2011, which clearly shows that the company was insolvent.

[14]     Mr Kennerley’s analysis was prepared and used in Family Court proceedings in 2011 and his evidence did not extend beyond that date.  However Mr Lane was instructed on behalf of the plaintiff in August 2013 to carry out an investigation into the financial statements of NCL and NHL.  On the basis of his perusal of documents

disclosed  in  the  Family  Court  proceedings  and  the  analysis  of  Mr  Kennerley, Mr Lane deposed:

7.The trading company [NCL] has consistently been unprofitable, with worsening results over the last five years.   The shares in the two Nyco companies are owned by the SG Nysse No.2 Trust and have been treated as one entity for tax purposes. Taken together they have operated at a surplus, which is diminishing year by year.

8.The working capital of [NCL] has consistently deteriorated year by year and has reduced from $209,482 to a deficit of $7,895 over the five year period.  The reduction obviously starts to inhibit the ability of the trading company to continue its business.

9.There is no disclosure within the financial statements as to the remuneration,   if   any,   paid   to   Steven   Nysse,   the   defendant. Substantial travelling expenses have been charged to the trading companies over the five year period and the indebtedness of Steven to Nyco Holdings Limited has been increasing to reach $390,065 as of 30 June 2012.

10.For the first two years [NHL] owed the Trust $359,000 but this debt has diminished over the past three years and is now $289,365.  It is likely the reduction represents further advances to Steven, which have been charged to the Trust.

11.      To complete the picture it is essential that financial statements of the

Trust are prepared. I have no knowledge as to whether they exist.

12.      Any references to Steven’s other company, [CAPL], vanished in the

2010  year  with  a  balance  owing  to  [NCL]  of  $28,000  by  the

Australian company written off as uncollectable and treated as bad customer debt in the Nyco financial statements for that year.

[15]     He concluded that the performance record for NCL indicated that the value of the business was diminishing year by year.

Discussion

[16]     The Trust Deed provides that the number of trustees shall be not less than two or more than five. The provision as to meetings includes the following:

9.1The Trustees shall meet together for the despatch of business adjourn and otherwise regulate their meetings as they shall think fit, subject to the following provisions of this clause 9, PROVIDED THAT all the Trustees shall be given reasonable notice of all meetings.

9.2At  any meeting the  quorum necessary for the transaction of the business of the Trustees shall be two PROVIDED THAT where the

total  number  of  Trustees  for  the  time  being  exceeds  three,  the quorum shall be three.

9.3Resolutions of Trustees shall be carried at any meeting of Trustees by a majority decision PROVIDED THAT during such period in which the Settlor is a Trustee, no resolution may be carried unless the  Settlor  forms  part  of  that  majority  PROVIDED  FURTHER THAT where any security or other interest over any part of the Trust Property has been granted to any person, and the terms of that security or other interest require the consent of the relevant grantee to any proposed exercise of a power by the Trustees, any resolution in support of any such exercise may only be carried with the consent of the grantee and subject to such terms as the grantee may impose.

9.4Each Trustee shall have one vote on any question but any Trustee unable to be present at any meeting of the Trustees shall be entitled to authorise in writing another Trustee to cast a further vote on behalf of the absent Trustee in such manner as the absent Trustee shall direct.

9.5In case of equality of votes the chairman shall not have a casting vote.

[17]     As noted above6 several purportedly unanimous shareholders’ resolutions by the Trust relating to the Nyco companies were made without the knowledge or consent of the plaintiff.  As a trustee, she has not been informed of any AGM being held since her separation from the defendant.   Indeed annexed to the plaintiff’s affidavit is a letter from the New Zealand Companies Office addressed to the director of NCL dated 4 April 2011 raising the issue of the provision of false or incorrect information concerning NCL, NHL and a number of other companies.  Nor has the defendant supplied to the plaintiff financial statements for the Trust.

[18]     The evidence plainly points to the conclusion that the assets of NCL have significantly diminished and that the defendant  has been  the operative cause in diverting business and funds from the companies in which the Trust holds shares to other companies controlled by the defendant.   I am satisfied that the defendant’s actions have been detrimental to the Trust and:7

That the welfare of the beneficiaries is opposed to his continued occupation of the office.

6      At [12] above.

7      Miller v Cameron (1936) 54 CLR 572 (HCA) at 580.

[19]     I provided the defendant with the opportunity to be heard on the contentions advanced in Mr Pidgeon’s submissions.   The defendant indicated that he did not want to be removed from the management of the Trust.  I asked the defendant why he had not filed a statement of defence to the statement of claim dated 26 June 2014. His explanation was that he was engaged in litigation in Australia at the time which was time consuming.   However the defendant was plainly aware of the present proceeding at that time because he executed the undertaking dated 1 July 2014.

[20]     He  professed  to  have  no  knowledge  of  the  content  of  the  plaintiff’s allegations concerning purported unanimous shareholders resolutions by the Trust relating to the Nyco companies, stating that the companies’ financial affairs were managed by Deloittes and that the defendant simply signed the documentation submitted to him.   He said that he was unaware of the letter from the Companies Office referred to above.

[21]     He acknowledged that there had been no meetings of the trustees, claiming that that was as a consequence of an understanding with the plaintiff.  When pressed, he acknowledged that the conduct of the affairs of NCL and NHL had been undertaken without engagement with the Trust through the medium of the joint participation of the trustees.

[22]     In the circumstances outlined above I consider that an order removing the defendant as a trustee is appropriate.

[23]     Although the statement of claim sought an order for removal of the defendant either with or without a replacement by an independent trustee, in view of the requirement of the trust deed that there be a minimum of two trustees, Mr Pidgeon filed a memorandum together with a further affidavit of the plaintiff proposing the appointment of Mark Daniel Backhaus as an independent trustee.

[24]     On the basis of the information in the plaintiff’s affidavit, Mr Backhaus is suitably qualified to be appointed as a trustee.   He has signed a consent to his appointment recording that he undertakes to carry out his duties impartially. Accordingly Mr Backhaus is appointed a trustee in place of the defendant.

[25]     Under  the  trust  deed  the  defendant  has  the  power  to  appoint  additional trustees.    As  Paterson  J  observed  in  Clifton  v  Clifton8   it  is  pointless  to  make alterations to the trustees and not amend the terms of a trust which provides a person to be removed with the absolute power to remove and appoint trustees.  His Honour said:

[43]      The Court’s inherent jurisdiction to alter trusts has been restricted by the House of Lords decision in Chapman v Chapman [1954] AC 429, as applied in Re Ebbett [1974] 1 NZLR 392. 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.

An order was made in that case amending the trust deed to vest in a new trustee the power to appoint and remove trustees.  The same approach was adopted by Ellis J in Mudgway v Slack.9

[26]     I consider that the same approach is appropriate and necessary in this case. Consequently an order is made amending the trust deed to vest in the plaintiff and Mr Backhaus jointly the power to appoint and remove trustees and the power to add or remove beneficiaries.

Decision

[27]     For the reasons stated above, the Court makes the following orders:

(a)       The defendant is removed as a trustee of the SG Nysse No 2 Trust; (b)         Mr Mark Daniel Backhaus is appointed as a replacement trustee;

8      Clifton v Clifton HC Auckland CIV-2004-404-4185, 5 November 2004.

9      Mudgway v Slack HC Auckland CIV-2010-404-2058, 21 July 2010.

(c)      The trust deed is amended to vest in the plaintiff and Mr Backhaus jointly the power to appoint and remove trustees and the power to add or remove beneficiaries;

(d)      The defendant is to pay costs on this application on a 2B basis; and

(e)      The defendant is not to be entitled to an indemnity from the Trust in respect of the costs order in (d).

Brown J