O'Dea v Rutten

[2021] NZHC 2407

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-58

[2021] NZHC 2407

IN THE MATTER

of the FC & CA Rutten Family Trusts No. 1 and No. 2

BETWEEN

GAVIN RICHARD O’DEA

Applicant

AND

VICTORIA SHARON RUTTEN, MARIE KATHERINE RUTTEN, CHRISTOPHER JAMES RUTTEN, NICOLA CATHERINE RUTTEN, MATTHEW JOHN RUTTEN, ALISON KRISTINE RUTTEN, JEFFEREY GERARD RUTTEN, ZACHARY FRANCISCUS RUTTEN, BRETT MICHAEL RUTTEN and AMY RENEE RUTTEN

First Respondents

GERALD MARINUS RUTTEN, RENE FRANK RUTTEN and ERIC JOHN RUTTEN

Second Respondents

Hearing:

On the papers

Appearances:

A Butler for applicant

P Gascoigne for second respondents

Judgment:

14 September 2021

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1]    Mr Franciscus Cornelis Rutten and Mrs Catharina Adriana Cornelia Rutten were a married couple who farmed a property at Manutahi in Taranaki. They had three sons, Gerald, Rene and Eric. In April 2000 Mr and Mrs Rutten arranged for the

O’DEA v RUTTEN, [2021] NZHC 2407 [14 September 2021]

settlement of two trusts, the FC and CA Rutten Family Trusts Numbers 1 and 2. They were what are usually known as mirror trusts. The settlor in each case was a family friend by the name of Pieter Jacob Roodbeen. The original trustees were Mr and  Mrs Rutten and an accountant by the name of  Mr Peter Jones.   In August 2006     Mr Jones retired as a trustee and the applicant, Mr Gavin O’Dea, who is another accountant was appointed in his stead. Mr and Mrs Rutten’s oldest son, Gerald, later purchased the family farm and Mr and Mrs Rutter retired.

[2]    Mr Rutten died in April 2015 and Mrs Rutten died in January 2020. Following their deaths, Mr O’Dea became, and he remains, the sole trustee of the trusts.

[3]    I am informed that in slightly different configurations the Rutten’s three sons are the executors of both of the deceased’s estates. The precise configuration in the case of each estate is not important.

[4]    Following Mr and Mrs Rutten’s deaths, a dispute emerged between their sons in their capacities as the executors of their estates on the one hand and Mr O’Dea in his capacity as the sole trustee of the two trusts on the other hand.

[5]    As Mr O’Dea, the applicant in this proceeding, describes the dispute, it is not complicated. The executors apparently took the position, through their solicitors, Magill Earl & Co, Matamata, that the trusts should be wound up and the trust funds paid to the estates, which, having regard to the terms of Mr and Mrs Rutten’s wills, would mean that the net family wealth would be divided between the three sons.    Mr O’Dea on the other hand — first himself and subsequently through solicitors engaged by him, Greg Kelly Law, Wellington, took the opposite view of things. His position was that the residue of the estates should be split between the two trusts and that the trusts should then be administered in accordance their terms.

[6]    This fundamental difference of view between  the  executors  of  Mr  and  Mrs Rutten’s estates and Mr O’Dea was the subject of correspondence between April 2020 and February of this year.

[7]    Let me deal with the core issue straight away. I do not understand how the executors could ever have reached the view that they apparently did. The terms of Mr and Mrs Rutten’s wills are quite clear. The residue of their estates was to be paid to the trustees of the trusts and the trusts were to be administered in accordance with their terms for the benefit of their three sons and their grandchildren. There is just no serious argument to the contrary.

[8]    Eventually, the executors appear to have been persuaded by the solicitors acting for Mr O’Dea of the obvious; that the position being taken by the executors was untenable.

[9]    However, by that stage, the executors had paid out the funds held in the estates to themselves.

[10]   That, very broadly speaking, was the position at the time that Mr O’Dea commenced this proceeding by originating application seeking orders which I will describe shortly.

[11]   Mr O’Dea is a practical man of business. With the assistance of his solicitors, he has been looking for a way of dealing with a difficult situation without expending vast amounts of the estate funds on litigation. That, in my view, is only sensible.

[12]   The solution that Mr O’Dea has come up with, and which is captured in his originating application, is to abandon the claim that he clearly has against Mr and Mrs Rutten’s sons on the basis that the balance of the funds held by him in his capacity as the sole trustee of the two trusts is split amongst Mr and Mrs Rutten’s 10 adult grandchildren.

[13]The numbers look like this:

(a)A total of $509,000 has  been  paid  from  the  estates  to  Mr  and  Mrs Rutten’s three sons, so they have received approximately $170,000 each. There is nothing left in the estates.

(b)In the trusts Mr O’Dea holds approximately $390,000. If this were paid out to the 10 grandchildren, they would receive approximately $39,000 each.

[14]   This application seeks orders effectively implementing that arrangement. Any such order may be made by consent because there is evidence supporting Mr O’Dea’s contention that both the first respondents, the three sons, and the second respondents, the grandchildren, have all given fully informed consent to the arrangement.

[15]   Insofar as the grandchildren are concerned Mr O’Dea, with the assistance of Greg Kelly Law, has engaged an experienced estate solicitor, Ms Catherine Atchison of Martelli McKegg, Auckland, to give each of the grandchildren independent advice as to their rights and a practical assessment of the merits of the proposal. I have reviewed Ms Atchison’s advice, and it strikes me as eminently sensible. I am satisfied that the grandchildren have given fully informed consent to the proposal.

[16]   There is of course evidence of each of the three sons and each of the grandchildren giving their written consent.

[17]   It may I suppose have been possible for Mr O’Dea, the three sons and the grandchildren to give effect to the settlement they have all agreed to without the Court’s intervention. However, Mr O’Dea has wisely sought the Court’s approval.

[18]   In their joint memorandum, counsel refer to the decision as ‘momentous’. It certainly involves the winding up of the Trusts.

[19]   There is a sense in which the agreement between the parties and the arrangement that the Court is being asked to approve effectively sanctions a breach of trust or equitable fraud on the part of the Rutten’s three sons. I do not say that they constitute deceit as there is insufficient evidence before the Court at this stage to attribute any particular knowledge or intention to them.

[20]Instinctively the Court should be wary of sanctioning any such arrangement.

[21]   However, it is elementary that if all the beneficiaries of a trust are sui juris and of a mind to wind up the trust, they have an absolute entitlement to direct the trustees so to do.1 It appears to me that in the end that is precisely what is happening here. The Rutten’s children and grandchildren are the beneficiaries of the trusts. Mr O’Dea, as the trustee, is entitled to call for payment of the net proceeds of the estate to be paid to him. He would be entitled to pursue and would unquestionably be successful in pursuing a claim against the sons (and possibly others) for the recovery of the monies unlawfully paid to them from the estates. However, all the beneficiaries, who form a closed group, all of whom are sui juris, have given fully informed consent to a different arrangement.

[22]   In my judgement, concerned as I am about what has taken place, the Court should not stand in the way of a sensible outcome that avoids the dissipation of the family’s wealth in litigation and which all beneficiaries wish to implement. Accordingly, I make the order sought in Mr O’Dea’s originating application dated  15 February 2021, with the minor alteration described in the joint memorandum of counsel at [8]:

(a)the Court approves the decisions of the applicant (the Trustee) to:

(i)not take steps to recover the payments made to the second respondents by the executors of the estate of their late mother, totalling $509,008.33;

(ii)distribute the remaining funds in the Trusts equally to the first respondents;

(iii)not make the distributions from the Trusts referred to in paragraph (a)(ii) above until after directions have been obtained from the Court; and

1      Saunders v Vautier (1841) 4 Beav 115, 49 ER 282.

(b)that the Trustee’s costs of and incidental to this application be met from funds of the Trusts.2

Associate Judge Johnston

Solicitors:

Greg Kelly Law, Wellington for applicant

Magill Earl & Co, Matamata for second respondents

2      These include the costs of the applicant personally, his counsel and solicitor, and the costs of   Ms Atchison.