Powell v Powell
[2015] NZCA 133
•24 April 2015 at 3.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA546/2014 [2015] NZCA 133 |
| BETWEEN | JOHN WILLIAM POWELL |
| AND | DANIEL JOHN POWELL CHARLOTTE TERESA GAVIN |
| Hearing: | 26 November 2014 |
Court: | Stevens, White and Cooper JJ |
Counsel: | J V Ormsby and J P Bell-Connell for Appellant |
Judgment: | 24 April 2015 at 3.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must pay the first respondent’s costs calculated for a standard appeal on a band A basis. We certify for two counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Cooper J)
Table of Contents
Para No
Introduction [1]
Background facts [7]
The High Court judgments [24]
The first judgment [25]
The second judgment [36]
The appeal [43]
The law [45]
The issues [57]
The settlor’s intentions [58]
Minimum intervention [70]
Reliance on an independent trustee [80]
Daniel’s attack on John [91]
Cumulative evidence as to Daniel’s unsuitability [97]
Result and costs [99]
Introduction
This is an appeal against a judgment of Dunningham J in which she declined to remove the respondent, Daniel Powell, as a trustee of the Daniel Powell Family Trust (DPF Trust), but ordered the removal of the appellant, John Powell, and directed that he be replaced by an independent professional trustee (the second judgment).[1] Where appropriate and to avoid confusion, we will refer to parties by their first names in this judgment.
[1]Powell v Powell [2014] NZHC 2096 [second judgment].
John is Daniel’s father. He commenced the proceeding in the High Court, seeking the removal of Daniel as a trustee of the DPF Trust, and the appointment of an independent trustee in his stead. The application was made on the basis that John would also step down as trustee. Daniel counterclaimed, seeking that John be removed as a trustee while Daniel himself remained in that role, either alone or together with an independent trustee.
The second judgment confirmed orders Dunningham J had made in an earlier judgment (the first judgment),[2] which was itself the subject of an appeal to this Court. The position was explained in this Court’s minute of 24 June 2014:[3]
[2] By way of brief background, this appeal was set down for hearing at 10 am tomorrow. The main issue was whether Dunningham J erred by ordering the removal of John Powell as trustee and his replacement by an independent trustee. In making that order the Judge proceeded on what is now conceded to be an error of law – namely, that the trust deed required a minimum of two continuing trustees. However, s 48 of the Trustee Act 1956 allows the appointment of a single trustee corporation regardless of the provisions of the trust deed.
[2]Powell v Powell [2014] NZHC 476 [first judgment].
[3]Powell v Powell CA192/2014, 24 June 2014.
The Court was satisfied that this error was directly material to the Judge’s decision. The appeal was allowed and remitted to the High Court for reconsideration.
In the second judgment, issued after a further hearing in the High Court, the Judge acknowledged that a single independent trustee could be appointed, but said she did not consider that to be necessary to secure the proper administration of the trust.[4] Proper administration of the trust could be ensured by confirming the orders she had previously made: replacing John with an independent trustee and allowing Daniel to remain a trustee.
[4]Second judgment, above n 1, at [35].
John now appeals, claiming that the Judge should have removed both himself and Daniel, appointing a single independent professional trustee to administer the DPF Trust.
Background facts
The DPF Trust was a trust established to provide for the children and grandchildren of John and his wife Lynda (Lyn). The settlor was Stephen Rennie, a solicitor who acted for John and Lyn. It was one of two family trusts established in late 1998, the other being the Charlotte Powell Family Trust (the CPF Trust). Charlotte is John and Lyn’s daughter. Lyn was the settlor of the CPF Trust.
Both trusts had similar terms. In each case the discretionary beneficiaries included Charlotte and Daniel and their children, grandchildren and spouses.[5] It was common ground in the High Court that the terms of the trusts enable each sibling’s family to benefit if the other sibling dies leaving no surviving children, and that each sibling and his or her family could have recourse to the other’s trust if his or her trust for any reason failed.[6] The Judge found that Daniel and Charlotte accepted that settlement of the trusts “was effectively their inheritance from their father”.[7]
[5]Each trust provided for both Daniel and Charlotte’s children, but the reference to “spouse” was limited to the married spouse of the child for whom the trust was named.
[6]First judgment, above n 2, at [12].
[7]First judgment, above n 2, at [14].
John developed substantial business interests owning commercial cool stores. The Judge found that by the time the trusts were established in late 1998 for his then adult children he had amassed significant wealth through hard work and business acumen.[8]
[8]First judgment, above n 2, at [10].
The main asset of each trust was a shareholding in companies John had established. In the case of the DPF Trust the company was Kensal Investments Ltd (Kensal), which owned a commercial cold store in Christchurch. The CPF Trust owned the shares in Investment Southland Ltd (Southland). Southland owned a cold store in Bluff, as well as various property interests in the Devondale Estate in Belfast, including the property where Charlotte resides with her family.
Daniel was appointed to be a director of Kensal in 2002. In 2007, John resigned as a director and was replaced by Mark Rountree. Mr Rountree, a qualified lawyer and accountant, worked for John between October 1991 and December 2012 when he was made redundant. He was the sole employee of John’s various businesses, attending to their legal and accounting requirements and also acting as a property manager. He also gave advice in relation to the affairs of both the DPF and CPF Trusts and in the case of the latter, implemented decisions made by John and Charlotte in their role as trustees, until Charlotte took responsibility for those tasks in May 2012. He was closely familiar with the family’s business interests over many years. He gave evidence in support of Daniel in the High Court.
In 2005, Daniel’s wife Hayley began working for another company owned by John, Latimer Holdings Ltd (Latimer). She ceased doing so in April 2008 soon before her first child was born. On 4 August 2008 Hayley began receiving a salary from Kensal. John claimed that he only found out about this from a review of Kensal’s annual accounts just before Christmas 2011.
Daniel and Mr Rountree disputed John’s claim that he did not know of Hayley’s salary. Their evidence was that Hayley’s salary had been discussed with John in July 2008, when it was agreed that Hayley would be employed by the DPF Trust or Kensal after her period of maternity leave from Latimer came to an end. The Judge found that the issue had been discussed with John, and concluded that an email sent by Mr Rountree to Daniel and Hayley on 24 July 2008 accurately recorded a discussion between Mr Rountree and John.[9] The email was in the following terms:
[John] and I now believe Hayley should be remunerated from Kensal not the [DPF Trust].
The [DPF Trust] annual mgt fee to Kensal to cover both your salaries from the [DPF Trust] could be a “red flag” at $175,000.
I suggest Kensal employ Hayley with first payment 4/8/08.
[9]First judgment, above n 2, at [60].
The Judge also held, however, that John could not recall the discussions and was genuinely surprised when he realised that wages listed in the financial statements for Kensal were being paid to Hayley.[10]
[10]First judgment, above n 2, at [62].
John’s relationship with Daniel and Hayley deteriorated. The Judge referred to an email Hayley sent to John on 21 December 2011 in which she expressed her anger at being accused of being “fraudulent”, complaining that John had known about the payments for three years, and stating that Daniel, she and their children would not be joining the rest of the family at Christmas. From then on, John engaged in what the Judge described as a “particularly close review of the affairs of Kensal and the Trust”.[11]
[11]First judgment, above n 2, at [27].
A number of letters were sent by John’s solicitors Wynn Williams to the directors of Kensal. One sent to Daniel dated 23 August 2012, raised various concerns about delay in the provision of Kensal’s financial statements for the year ended 31 March 2012, and about the fact Kensal had paid no dividend for the previous financial year, and a low dividend for the 2012 financial year. The letter added:
Your father also has concerns about the payment of substantial wages to your wife and substantial management fees to the [DPF] Trust which are then paid from the Trust to you personally. This of course includes the recent unilateral payment of $132,000 on 30 March 2012. As you know, your father, as trustee, does not agree with the payment of those amounts. This is because these payments reduce the money available to the Company to pay to the trustees. This in turn reduces the money the trustees have to invest or apply for the benefit of the beneficiaries of the Trust.
As you will appreciate, this is unsatisfactory. As a trustee you are under a duty to act for the benefit of the Trust. This, in turn, for a trust of this type, means you must look to maximise the Trust’s return from the Company’s shares. Your actions are clearly inconsistent with that.
The letter concluded by saying that the trust payments to Daniel should be reviewed, and asked Daniel to ensure that those payments were not made from the trust bank account until the matter was resolved.
The Judge found that the letter prompted a significant argument between Daniel and Hayley. She referred to Daniel’s evidence that it had prompted a “battle that I felt to be the last straw of our marriage. John’s repeated attacks on me had simply worn Hayley and me down.”[12]
[12]First judgment, above n 2, at [29].
What happened next can be conveniently recounted by quoting the Judge’s findings in the first judgment:
[30] Daniel accepts that he then took a kitchen knife and drove to his parent’s place, initially leaving the knife outside. He banged on the front door and his mother let him in. When his father came out, Daniel ran at him and, although John tried to shut himself in his bedroom, Daniel hit the door before John could close it and the door came off the frame. Daniel exited the house again and returned with the knife saying “What are you doing to my family”? Daniel pinned his father for about 10 to 20 seconds, then let him go and left through the front door. Daniel went to the police later that night and was subsequently charged with intentional damage and assault on a person with intent to use a weapon.
Daniel was subsequently diagnosed as suffering from acute anxiety and depression. He underwent counselling sessions with a psychologist so that, by the time of the hearing, there was evidence that he had overcome any mental health issues. On the charge brought by the police he was discharged without conviction.
John later refused a request for either a distribution or loan of $700,000 to assist with Hayley and Daniel’s intended purchase of a new house, after their house had been damaged in the Christchurch earthquakes. In addition, John refused distribution requests for medical treatment for Hayley and for the children’s school fees although he had, prior to December 2011, approved distributions of $36,337 for those expenses. John gave as his reason that, with Hayley’s salary, the family had ample resources to meet those costs themselves.
Also, from December 2011, John resisted signing trust PAYE and ACC cheques. The Judge found that Mr Rountree acted as a “go between” between John and Daniel as they were no longer on speaking terms.[13]
[13]First judgment, above n 2, at [34].
Attempts at mediation were unsuccessful. By the time the matter was heard in the High Court, both parties accepted that the trustees were in a “situation of deadlock”.[14]
The High Court judgments
[14]First judgment, above n 2, at [35].
We summarise here the effects of both the first and second judgments, as both resulted in the same outcome and the first judgment discusses some relevant considerations more fully than the second. As has already been explained, however, the second judgment dealt specifically with the issue of whether the appropriate course to follow would be to appoint an independent trustee as the sole trustee in lieu of both John and Daniel.
The first judgment
In the first judgment, the Judge recorded John’s concerns about:[15]
(a)the payment of the salary from Kensal to Hayley;
(b)the low level of dividends paid by Kensal to the DPF Trust;
(c)the fact that the management fee paid by Kensal to the DPF Trust did not meet or exceed the $150,000 salary paid by the trust to Daniel for managing the trust’s assets;
(d)Daniel’s withholding of information about the trust’s assets;
(e)Daniel’s physical assault on John;
(f)the request by Daniel for a $700,000 loan or distribution to fund the purchase of a new home; and
(g)whether Daniel had done enough to maintain and increase the trust’s assets.
[15]At [49].
The Judge found that although relationships within the family had become strained, the trust was still functioning and school fees and medical fees were paid until December 2011. John’s discovery that Hayley was being paid a salary from Kensal in addition to Daniel receiving a salary from the trust then precipitated a breakdown between the trustees.[16] John regarded that as a serious breach of trust, viewing the payment as not for work done but essentially in the nature of a distribution. However, as discussed above, the Judge was satisfied that the payment of a salary had been discussed with John and she was not satisfied that the payment from Kensal demonstrated misconduct by Daniel in his duties as a trustee.[17]
[16]At [58].
[17]At [59]–[60] and [65].
The Judge rejected John’s criticisms of the dividend paid by Kensal, accepting explanations advanced by Daniel and Mr Rountree for the approach they had adopted.[18]
[18]At [67].
The Judge further rejected the criticism of the management fee charged by the trust to Kensal for Daniel’s management of Kensal. She accepted the evidence of Daniel and Mr Rountree that the management fee had been set to minimise tax liability to the benefit of both the trust and Kensal. In doing so, the directors had implemented a policy approved and followed by John himself prior to his raising an issue about it in early 2012.[19] She also rejected John’s claims that Daniel and Mr Rountree had withheld information about financial statements and information relating to Kensal’s investment proposals.[20]
[19]At [69].
[20]At [72]–[76].
Turning to Daniel’s physical confrontation of John on 26 August 2012, she described Daniel’s conduct as “reprehensible and destructive”. She concluded:[21]
… The ill will and animosity between the parties which led to this event, and a lack of reconciliation after it, make it clear that it is impossible for John and Daniel to work effectively as trustees together.
[21]At [77].
However, she considered the real issue was whether the confrontation was likely to be repeated with another trustee if Daniel were allowed to remain as a trustee.[22] She accepted the evidence of Paul Neilson, a clinical psychologist, that the main source of potential stresses in the coming months would be likely to be linked to the relationship of Daniel and John and in particular the legal proceedings John had commenced. There were no “mental health based reasons” that would prevent Daniel functioning effectively in relation to the affairs of the trust.[23] She referred to Mr Rountree’s evidence describing the professionalism with which Daniel conducted himself.[24] She concluded that while the physical confrontation established that Daniel and John could not continue to work together as trustees, it did not constitute evidence that it would be unwise to contemplate Daniel working with another professional trustee to manage the affairs of the trust. The Judge thought that there would be a “minimal risk of future deadlocks” if an independent trustee were to be appointed.[25]
[22]At [78].
[23]At [79].
[24]At [81].
[25]At [83]–[84].
The request that Daniel had made for a loan or distribution of $700,000 was not inappropriate or a potential breach of trust.[26] The Judge rejected John’s criticism that Daniel had not properly managed the assets of the trust for the benefit of the beneficiaries, and had failed to grow and diversify Kensal’s investments.[27] The Judge recorded that Kensal’s net assets had grown from $6,989,387 in 2006 to an estimated $11,225,000 in 2014. Over the same period, the trust’s net assets had almost doubled.[28]
[26]At [88].
[27]At [90]–[97].
[28]At [91].
Overall, the Judge considered there was no evidence that Daniel could not make appropriate decisions in relation to managing the trust assets. While both he and John had demonstrated some lack of knowledge of the trust deed’s terms in making various decisions, with an independent professional trustee either of them would be more diligent about ensuring that decisions were made in strict accordance with the terms of the trust deed.[29]
[29]At [108].
The Judge continued:
[109] In considering whether it is appropriate to leave Daniel as a trustee, alongside an independent trustee, I have also had regard to [the] perceived intention of the settlor, which is to allow the family of the child after whom the Trust is named to have some responsibility in managing and growing the Trust assets. This is evidenced by Daniel being invited early on to be a trustee of his Trust and similarly Charlotte to be a trustee of her Trust. The Trust Deed, too, anticipates that Daniel would be a trustee through the provisions of cl 12.
[110] I have also had regard to the principle that the Court should intervene to the minimum extent necessary to ensure the Trust is properly executed.
She concluded that with the independence and rigour resulting from a professional trustee working alongside Daniel, there would be sufficient oversight of the trust to ensure the welfare of the beneficiaries, including Charlotte and her family.[30]
[30]At [112].
As a result of these various considerations she ordered the removal of John as a trustee, to be replaced by an independent professional trustee. She declined to order the removal and replacement of Daniel.
The second judgment
In the second judgment the Judge considered whether a single corporate trustee should be appointed under s 48 of the Trustee Act 1956 in place of both Daniel and John. The Judge referred to Clifton v Clifton, in which it was said that:[31]
[35] Courts are reluctant to remove trustees if other avenues can be found to remedy the perceived risk. This is particularly so in the case of a father where the beneficiaries of his trust are his infant children, both present and future. …
[31]Clifton v Clifton HC Auckland CIV-2004-404-4185, 5 November 2004.
Although accepting that the present case involved facts different to those in Clifton, the Judge recorded her view that as in that case, if removal of one trustee were sufficient to discharge the Court’s supervisory jurisdiction to ensure the proper administration of the trust, that is all that should be done.[32] However, she also expressed the view that the issue was not relevant to the question before her, namely, whether the alternative option allowed by s 48 of the Trustee Act should be taken. She said:[33]
As already stated, if both trustees had needed to be removed to discharge the obligation to ensure the trust was properly administered, then that would have been done. All that s 48 does is allow an alternative option to the option of appointing two independent trustees, if both trustees were discharged, and that is the appointment of a single corporate trustee.
[32]At [11].
[33]At [12].
The Judge next rejected a submission made by Mr Ormsby for John that she had adopted the wrong starting point that two trustees needed to be in office in accordance with the trust deed, with the result that since the two current trustees should not remain in office together one would have to be replaced. The Judge noted that the option of removing both trustees had been considered and she accepted that if thought necessary both John and Daniel could have been replaced with two independent trustees (whether individuals or corporate trustees).[34]
[34]At [14].
The Judge repeated her conclusion that many of the accusations of conflict and mismanagement by Daniel in his capacity as a trustee could not be sustained on the evidence. Thus it was “unsurprising, given the accusations made, that the two trustees were in a state of deadlock”.[35] She expressed the view that past errors in administration of the trust should not be determinative of the outcome of the application for removal. The Court needed to be forward-looking and assess the likelihood of concerns continuing into the future, which was what she had had done in the first judgment.
[35]At [17].
The Judge next considered and rejected the contention that a single corporate trustee should be appointed to resolve issues of conflict and prevent future deadlock. She then referred to submissions made by counsel acting for Charlotte that any request to Daniel as a trustee or any decision made by him as trustee concerning Charlotte and her children and grandchildren as beneficiaries would “revive the inter-family conflict”.[36] The Judge rejected those submissions. She was satisfied that Daniel was aware of his obligations as a trustee towards Charlotte as a beneficiary.[37]
[36]At [30].
[37]At [30].
This meant that it was only necessary to remove John to ensure the proper administration of the trust, as concluded in the first judgment. The Judge continued:
[34] It matters not whether the replacement trustee is an independent professional individual or a corporate trustee, although I acknowledge that corporate trustees such as the Public Trust will only normally accept a sole appointment. I do not see that as an issue bearing on my decision. A professional solicitor or accountant, with experience as a trustee, is envisaged to replace John by the terms of the Trust Deed, and such an appointment would achieve the purpose of ensuring the proper administration of the trust.[38]
[38]Clause 13.5 of the [Daniel Powell Family] Trust Deed.
The Judge therefore confirmed the orders that she had made in the first judgment.
The appeal
The appellant advances five grounds of appeal. He claims the Judge erred by:
(a)Finding that the settlor’s subjective intention was for the DPF Trust to be the “inheritance” of Daniel, with the result that he should be permitted to continue as trustee.
(b)Having regard to the principle that the Court should intervene to the minimum extent necessary to ensure the trust is properly executed.
(c)Determining that it was appropriate to retain Daniel when he would not have been retained but for the reliance on an independent trustee to cure his inability to fulfil his trustee duties.
(d)Failing to properly consider Daniel’s attack on John and the relevant principle that in cases of such “egregious conduct”, trustees ought to be removed, regardless of “prospective considerations”.
(e)Failing to exercise her discretion to remove Daniel as a trustee having regard to the cumulative evidence as to his unsuitability.
Before dealing with these issues we address the legal principles to be applied.
The law
Section 51(1) of the Trustee Act 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.
…
In addition, s 51(2)(a) provides that, without prejudice to the generality of s 51(1), the court may make an order appointing a new trustee in substitution for a trustee who has been held by the court to have “misconducted him-[or her-] self in the administration of the trust.” These powers are inherently discretionary with the consequence that in order to succeed on appeal to this Court it is necessary to show that the High Court judgment has been affected by some error of law or principle, as further discussed below.[39]
[39]Kain v Hutton [2007] NZCA 199 at [267] (authorities omitted). There was an appeal to the Supreme Court, but that Court’s decision did not affect this part of the Court of Appeal’s judgment: Kain v Hutton [2008] NZSC 61.
As noted by the Judge, s 51 of the Trustee Act coexists with the High Court’s inherent jurisdiction to remove and appoint trustees. In this case, however, the trust deed specifically adopted the powers to appoint and remove trustees set out in s 51.[40] Ms Grieve submitted, and Mr Ormsby accepted, that the proper approach in a proceeding seeking the removal of a trustee remains as described by this Court in Hunter v Hunter.[41] In that case, Myers CJ observed:[42]
The principle to be applied in a proceeding for the removal of trustees is laid down by their Lordships of the Privy Council in Letterstedt v Broers. It is said that the jurisdiction is merely ancillary to the principal duty of the Court to see that the trusts are properly executed, and that, therefore, though it should appear that the charges of misconduct are either not made out, or are greatly exaggerated, so that the trustees are justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied that the continuance of the trustees would prevent the trusts being properly executed, the trustees may be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.
[40]Clause 12.
[41]Hunter v Hunter [1938] NZLR 520 (CA).
[42]At 529 (footnotes omitted).
As was pointed out in that case, removal of a trustee does not depend on whether or not the impugned conduct of the trustee amounts to a breach of trust.[43]
[43]At 529.
Further, in Mendelssohn v Centrepoint Community Growth Trust, Tipping J, delivering the judgment of this Court, said:[44]
In the Tempest case, Turner LJ stated certain principles in relation to the appointment of new trustees by the Court. In short they are: consideration of settlor’s intentions; neutrality between beneficiaries; and promotion of the purposes of the trust.[[45]] As to the first, Turner LJ was considering cases in which either expressly or implicitly the Court could discern that the intention of the author of the trust was that a person or persons of a certain description should not be appointed trustees. If, conversely, it can be seen that either expressly or implicitly the author intends the trustees to be of a certain description, the Court will give considerable weight to that expression of the author’s wishes. But, as stated earlier, the Court is not bound by those wishes and is entitled to depart from them if good cause is shown.
[44]Mendlssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA) at 97.
[45]Re Tempest (1866) LR 1 Ch App 485.
Dunningham J was aware of these authorities, and referred to them in the course of both judgments. She also referred to the extract from the decision of the High Court in Clifton v Clifton quoted earlier.[46] Although Mr Ormsby submitted the quoted passage was incorrect, we note that it is consistent with observations made by this Court in Kain v Hutton in which the Court said:[47]
To allow trustees to be removed for relatively inconsequential mistakes would be to usurp the settlor’s wishes in entrusting the assets to the trustees. In the same way, mere incompatibility between trustees and beneficiaries is not enough … Any incompatibility must be at such a level that the proper administration of the trust is seriously adversely affected and it has become difficult for a trustee to act in the interests of the beneficiary … .
[46]Above at [36].
[47]Kain v Hutton, above n 39.
In relation to the nature of the s 51 powers, in the preceding paragraph the Court observed:
[266] The next hurdle that the Kain children have to overcome is that the decision to remove a trustee is a discretionary one where the decision of a first instance judge is entitled to special weight. Such decisions will be based on a large and varied number of considerations which must, when combined, show that it is detrimental to the welfare of beneficiaries for the trustee to continue in office – see Miller v Cameron.[[48]]
[48]Miller v Cameron (1936) 54 CLR 572 at 580–581 per Dixon J.
Effectively decisions on whether or not to remove a trustee are aligned with the approach explained in May v May, in which it was said that an appeal from the exercise of a discretion requires the appellant to show an error of law or principle, that irrelevant considerations were taken into account or relevant considerations ignored or that the decision was plainly wrong.[49] That was also the approach taken by this Court in Naera v Fenwick in which it was sought to remove a trustee who had entered into joint ventures to develop Maori freehold land as a geothermal tourism park against the wishes of some of the beneficial owners of the trust property.[50] The case concerned s 240 of the Te Ture Whenua Maori Act 1993, which governs the court’s powers to remove a trustee under that Act. This Court observed:
[117] Ultimately, to succeed in a removal of trustees the appellants must establish that Judge Harvey erred in principle or that his decision was plainly wrong. We are satisfied that the Judge made no error of principle in the manner in which he conducted the s 240 analysis. Judge Harvey’s conclusion was that the behaviour of the trustees fell well short of the standard required for removal. Therefore, even if our different conclusions on conflicts of interest were to be taken into account, we do not consider that this is a proper case for removal. We are not satisfied that the Judge’s conclusion was plainly wrong.
[49]May v May (1982) 1 NZFLR 165 (CA) at 169–170.
[50]Naera v Fenwick [2013] NZCA 353. The Supreme Court granted leave to appeal this decision: Naera v Fenwick [2014] NZSC 58. Judgment is currently reserved.
Moreover, in ascertaining the settlor’s intentions, the Court is guided by the words of the trust deed and the context in which the trust was created. This Court’s decision in Boat Park Ltd v Hutchinson, adopting what was said by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society, emphasised the necessity of a contextual approach to the interpretation of contractual provisions.[51] Such an approach has also been applied to the construction of trust deeds in Manukau City Council v Lawson and Gailey v Gordon.[52] In the former, having referred to Boat Park Ltd v Hutchinson, Paterson J said:[53]
The meaning to be ascertained is that which the trust deed would convey to a reasonable man having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time the trust deed was entered into.
[51]Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81–82 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912–913.
[52]Maukau City Council v Lawson [2001] 1 NZLR 599 (HC) and Gailey v Gordon [2003] 2 NZLR 192 (HC).
[53]At [13].
O’Regan J adopted that approach in Gailey v Gordon,[54] but it does not appear to have been previously endorsed in this Court in relation to the construction of deeds of trust. We consider that it should be applied to such deeds. The adoption of a contextual approach to interpretation in the present context may be seen as part of a wider recognition of the relevance of context to the construction of documents. This is reflected in cases such as Marley v Rawlings, in which the United Kingdom Supreme Court held that the same approach to construction should be taken with wills as would apply in a commercial contract, notwithstanding the fact that a will is made by a single party.[55] Having referred to the principles for construction of contracts, Lord Neuberger observed:
[20] When it comes to interpreting wills, it seems to me that the approach should be the same. Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context. …
[54]At [51].
[55]Marley v Rawlings [2014] UKSC 2, [2015] AC 129.
This Court applied Marley v Rawlings in Bethell v Bethell a case about the interpretation of a deed of family arrangement entered into by beneficiaries under a will.[56]
[56]Bethell v Bethell [2014] NZCA 442 at [38]. The Supreme Court declined leave to appeal this decision: Bethell v Bethell [2014] NZSC 177.
These considerations are not decisive in the present case, but are relevant to the discussion that follows. Contextually, the High Court needed to ascertain the settlor’s intentions in the case of a trust that was one of two established to provide for the members of John’s family.
The issues
We turn now to the grounds of appeal which we have earlier set out.
The settlor’s intentions
Mr Ormsby submitted that the High Court incorrectly relied on a perceived subjective intention of John as the effective settlor, which was contrary to the provisions of the trust and the purposes of trust law. He claimed that the Court’s erroneous view of the settlor’s intention meant it failed properly to consider the position of Charlotte and her children as beneficiaries entitled to be considered in the exercise of discretionary powers. Further, because of Daniel’s egregious conduct, any intention by the settlor for Daniel to be appointed as a trustee was “implicitly revoked”.
In the circumstances, the High Court was wrong to treat the DPF Trust as the “inheritance” of Daniel, with the result that he should be permitted to continue as trustee.
Mr Ormsby argued that the Court should have simply construed the words used in the trust deed and given them their plain, ordinary meaning. Since there was no ambiguity as to the words used, there was no need to consider the settlor’s subjective intent.
The focus of these complaints is on the following passages in the first judgment:
[12] The terms of each trust mirrored the other, with Charlotte’s Trust including Daniel’s family as beneficiaries, and Daniel’s Trust including Charlotte’s family as beneficiaries. It was accepted that this allowed:
(a)each sibling’s family to benefit if the other sibling died and had no surviving children; and
(b)each sibling and his or her families to have recourse to the other’s trust if his or her trust should fail for any reason.
[13] It was also suggested this was to enable an “evening up” of trust assets should a disparity in value ensue. I am not convinced of this for two reasons. First, there is nothing in the terms of the Trust Deed which indicates this was intended. Second, John explained it was his intention that Daniel and Charlotte would each be responsible for growing the investment portfolios of the trust which was in their name, for the benefit of the beneficiaries, with John’s oversight and guidance. I think it unlikely that he intended their individual efforts would then have to be split with the less successful sibling as of right.
[14] It seems that Daniel and Charlotte accepted that the settlement of the trusts was effectively their inheritance from their father, with Daniel saying “John made it very clear from the inception of the trusts that this was all that my family was to receive from his estate and that I was to make the best I could from the company resources. Charlotte was to do the same with Southland. The rest of John’s estate was to go to charity and, as part of this, John later set up the Belfast Community Trust and the Taylors Mistake Rescue Trust”.
The Judge referred to those paragraphs in the second judgment observing:[57]
… Each trust was that child’s inheritance, and they were entrusted with responsibility for management of that trust’s assets to allow them to provide for their respective families both now and in the future.
[57]At [32].
We do not accept the premise of the appellant’s argument. As we read the two judgments the Judge did not endeavour to apply the settlor’s subjective intent. Rather, she looked to the words used in the trust deeds and construed those words in the context in which each trust was created. That context included the contemporaneous establishment of the DPF and CPF trusts, the fact that they were mirror trusts, that John’s children and grandchildren were discretionary beneficiaries under both trusts and that cl 12 of the DPF trust contemplated Daniel becoming a trustee just as Charlotte was a trustee of the CPF Trust.[58]
[58]Set out below at [65].
As part of the context, it was legitimate for the Judge to refer to Daniel’s evidence about John’s communicated intention in setting up the trusts, and also to discuss John’s evidence that the arrangements contemplated an “evening up” of trust assets should a disparity in value ensue. Significantly however, she rejected John’s evidence on that issue, because it was not supported by the wording of the trust deed. Further, John’s evidence was that he intended Daniel and Charlotte each to be responsible for growing the income of the respective trusts: the Judge cannot be criticised for relying on that evidence to reject the suggestion, not itself based on the wording of the trust deeds, that equality should prevail.
We have already quoted what the Judge said at [109] of the first judgment.[59] We accept Ms Grieve’s submission for Daniel that this represents the real basis for the Judge’s conclusions about the intention of the settlor. The reference to the “perceived intention of the settler” is not apparently based on matters extrinsic to the trust deeds, but rather on the fact that both trust deeds contemplated that John’s children Daniel and Charlotte should become trustees of the DPF and CPF trusts respectively. Although when the trusts were established the trustees were John and Lyn, cl 12 of DPF Trust deed provided:
The statutory provisions of the Trustee Act 1956 for the appointment or removal of Trustees shall apply provided however that the said John William Powell may while living, and afterwards by Will, nominate a Solicitor holding a current practising certificate in New Zealand or a practising Chartered Accountant to replace him as a trustee upon his vacation of office for any reason whatsoever and provided further however that if Daniel John Powell shall be or become a trustee of this Trust, the said Daniel John Powell may while living, and afterwards by Will, nominate his successor to replace him as a trustee upon his vacation of office for any reason whatsoever.
[59]Above at [33].
Lyn retired as a trustee in 2007, and John appointed Daniel in her stead. John’s evidence was that when the DPF Trust was set up it was anticipated that he and Daniel would be the trustees; Lyn was a trustee at the beginning only because Daniel was living overseas at the time and it was desirable to have someone on hand to execute any necessary documents. We consider that evidence relevant to John’s intentions in settling the trusts. It is consistent with cl 12. The other point that can be made about cl 12 is that it envisages that Daniel, once appointed as a trustee, could nominate his successor.
We do not consider that the Judge erred in having regard to the settlor’s intention, which she described as allowing the family of the child after whom the trust was named to have some responsibility in managing and growing the trust’s assets. That was a conclusion able to be reached on the basis of the provisions of the deed as a whole and the context in which the trust was settled.
Nor do we accept John’s contention that Daniel’s conduct was such that any intention on the part of the settlor that he should be a trustee has been “impliedly revoked”. The submission is inherently problematic, because it suggests that the conduct of a person who has been appointed to act as a trustee can affect the settlor’s intention formed and acted on earlier in time. No authority was offered in support of this surprising proposition and we reject it. It would add nothing other than difficulty to the normal rules applying to the removal of trustees. Further, as has been seen, cl 12 provides that the provisions of the Trustee Act for the appointment and removal of trustees apply, subject to the provisos set out in that clause. The proper consequence of Daniel’s conduct in assaulting John can be considered under the fourth ground of appeal.
We accordingly reject this first ground of appeal.
Minimum intervention
The appellant contends that when deciding not to remove both Daniel and John as trustees the High Court wrongly had regard to a principle that the Court should not intervene by removing trustees except to the extent necessary to ensure the proper administration of the trust for the benefit of the beneficiaries.
The starting point for this argument was the statement in the second judgment, to which we have already referred above at [37], that:[60]
… if removal of one trustee is sufficient to discharge the Court’s supervisory jurisdiction to ensure trusts are properly administered, then that is all that should be done.
[60]At [11].
Mr Ormsby submitted this statement was incorrect as a matter of law and claimed in addition that the Judge had restricted her consideration to issues concerning the security of the trust fund, without having regard to the interests of the beneficiaries as a whole. He accepted that the Court will not exercise its discretion to remove a trustee lightly and that not every mistake or neglect of duty will justify removal. However, he was critical of the passage in Clifton v Clifton on which the Judge relied, claiming it was wrong in principle.[61] He submitted that once the High Court’s supervisory jurisdiction is invoked it should take a rigorous approach to questions of the administration of the trust and the removal or otherwise of trustees.
[61]Clifton v Clifton, above n 31, at [35], quoted above at [36].
He claimed the Court should not be reluctant to remove a trustee where it is in the best interests of the beneficiaries as a whole, and a minimum intervention approach would be inconsistent with s 51 of the Trustee Act. The course best ensuring the welfare of the beneficiaries as a whole was removal of both trustees and the appointment of a single independent corporate trustee.
Ms Grieve noted that the Court did not refer to a “principle of minimum intervention”, that being the appellant’s phrase. He submitted that the statement in Clifton about reluctance to remove trustees if other avenues can be found to remedy the perceived risk was an unexceptional reflection of the general principles to be applied: namely, ensuring that trusts are properly executed, not removing trustees lightly and exercising a wide discretion so as to ensure the welfare of the beneficiaries.
We accept Ms Grieve’s submissions. The Court’s duty is to ensure the proper execution or administration of the trust, the main “guide” to the exercise of the jurisdiction to remove trustees being the welfare of the beneficiaries.[62] Here the Judge made factual findings rejecting John’s criticisms about Daniel’s conduct as a trustee, and held that his removal was not necessary to ensure the proper administration of the trust.[63] We do not consider that any error in the Judge’s approach has been shown.
[62]Hunter v Hunter, above n 41, at 529.
[63]We will deal separately with the assault on John.
Once that point is reached there is no proper basis on which the Court could order removal of Daniel. To do so would defeat the settlor’s intention that Daniel should be responsible for the ongoing management of the trust’s affairs. In the context of arrangements made for the administration of family trusts we see no warrant for the Court taking a different view to that of the settlor as to the importance of family connections. That is especially so in a setting such as the present where there are mirror trusts. The removal of Daniel, leaving Charlotte as a trustee of the CPF trust, would have disturbed the symmetry obviously intended by the settlor.
The Judge was satisfied that Daniel would have proper regard for the welfare of all the beneficiaries including Charlotte’s children. She noted and rejected a submission made by Charlotte’s counsel that decisions made by Daniel as trustee concerning Charlotte and her children would revive family conflict. She said:[64]
I do not agree. While the relationship between Daniel and Charlotte will never be warm, I am satisfied that Daniel appreciates his obligations towards her as beneficiary. More importantly there is no evidence that there is any animosity held by him towards her children. Indeed I am satisfied that the reverse is true, and if the children were in circumstances where it was appropriate for the Daniel Powell Family Trust to make a distribution to meet their needs, then that would be done.
[64]Second judgment, above n 1, at [30].
As discussed below, the appointment of a new independent trustee will mean that Daniel will not be acting on his own, and make it even more unlikely that the obligations the trustees owe to Charlotte and her children will be overlooked. If they are, Charlotte will have remedies available to her.
We see no basis for disturbing the Judge’s findings. The second ground of appeal also fails.
Reliance on an independent trustee
Another argument advanced by the appellant is that the Judge found that Daniel could continue as a trustee and was capable of acting in the interests of all the beneficiaries only on the basis that an independent professional trustee would be added as a trustee to work alongside him. Mr Ormsby submitted this was an incorrect approach: the beneficiaries of the trust were entitled to both trustees being able to fulfil their obligations, not just one of them. He referred to Rodney Aero Club Inc v Moore in which Hammond J observed that as trustees cannot delegate “they must all perform the duties attendant upon execution of the trust”.[65]Mr Ormsby argued this means that the trustees must be able to carry out their duties independently of each other, and it would be wrong to allow Daniel to continue when his ability to perform effectively depended on the presence of another independent trustee.
[65]Rodney Aero Club Inc v Moore [1998] 2 NZLR 192 (HC) at 195.
It is of course correct that each trustee must comply with and fulfil his or her obligations under the trust, and generally trustees may not delegate their duties or powers. The general rule against delegation extends to a prohibition against delegation to a co-trustee.[66] One of the consequences of this is that unless the trust deed provides to the contrary, trustees must act unanimously.[67] Here, the trust deed conforms with the rule. Clause 21.1 is headed “Unanimous Decisions” and provides:
All matters or decisions to be taken or exercised by the Trustees in relation to the Trust Fund or otherwise in relation to the Trust must be taken or exercised by the Trustees acting unanimously.
[66]Commissioner of Inland Revenue v Newmarket Trustees Ltd [2012] NZCA 351, [2012] 3 NZLR 207 at [49]. While there are exceptions to that rule, none is relevant here.
[67]Commissioner of Inland Revenue v Newmarket Trustees Ltd, above n 66, at [51].
As a consequence, the appointment of an independent trustee to act together with Daniel would be likely to ensure Daniel acted appropriately in his role as trustee.
Mr Ormsby relied on findings by the Judge that Daniel lacked knowledge of the trust deed and had acted improperly, while real reconciliation with Charlotte was impossible because of the tensions created by the litigation. However, we do not consider the facts found in the High Court justify the propositions advanced.
Mr Ormsby has overstated the first of the alleged findings. The Judge referred to both John and Daniel having demonstrated some lack of knowledge of the trust deed’s terms, a “culpability” shared equally. The context of this finding was an observation in the first judgment that from time to time both John and Daniel had not maintained a proper distinction between the affairs of the trust and those of Kensal.[68] She considered that “with an independent professional trustee, either of them would be more diligent about ensuring decisions were made in strict accordance with the terms of the Trust Deed.”[69] We do not see this as a statement that Daniel would be incapable of acting in accordance with the terms of the deed in the absence of an independent professional trustee.
[68]At [64].
[69]At [108].
As to impropriety, Mr Ormsby emphasised the issue concerning Kensal’s payment of a salary to Hayley. While the Judge thought this was “questionable” given her minimal involvement in running the company, she rejected the claim that there was any intention to hide the payments from John, and also rejected the argument that the payments established misconduct by Daniel in his role as a trustee.[70] She concluded that the payment reflected a more relaxed approach taken at a time when Daniel and John were working together to manage the affairs of Kensal and the trust. She went on to state that if the payment to Hayley were to continue it would need to be put on a more robust and defensible footing.[71] While she observed that “more rigour will inevitably be introduced to the management of those entities if an independent trustee is brought on board”, we do not see this as a finding that Daniel would be incapable of ensuring a more rigorous approach if such a person were not appointed.[72]
[70]At [63].
[71]At [65].
[72]At [65].
Nor was there a finding of impropriety. In the second judgment the Judge summarised her conclusions in the first judgment as being that many of the accusations of conflict and mismanagement levelled at Daniel in his capacity as trustee were not able to be sustained on the evidence, conclusions from which she did not resile.[73]
[73]Second judgment, above n 1, at [17] and [21].
As to Daniel’s relationship with Charlotte, Mr Ormsby pointed to observations made by the Judge that Daniel:[74]
… with a moderating influence of an independent Trustee, would be perfectly able to consider the needs of Charlotte and her family fairly, if they required, or requested, financial assistance or support.
That comment immediately followed the Judge’s observation that tensions created by the litigation had made real reconciliation impossible.
[74]First judgment, above n 2, at [101].
Again, we do not consider the Judge found that Daniel would be unable to fulfil his duties as a trustee without the presence of an independent trustee, or, as Mr Ormsby put it, that a “moderating influence would be required”. We consider the Judge was simply acknowledging that the presence of an independent person would assist. That is a common sense conclusion which we would not disturb. It does not follow that it was inappropriate for Daniel to continue as a trustee. In our view, the Judge’s reference to the adverse effect of the litigation on reconciliation was essentially backward-looking, and not intended as a statement about the position once the litigation was resolved. The Judge’s overall conclusion that Daniel would, in future, be able to act in the interests of all the beneficiaries shows that to be the case.
Mr Ormsby raised other issues, apparently intended to advance Charlotte’s interests and concerns, including those relating to her children as beneficiaries of the trust. However, although Charlotte was represented by counsel in the High Court, she has not taken any steps in relation to the appeal. Nor have her children been represented. In the circumstances, it is sufficient to observe that we see the facts of this case as far removed from those of Kain v Hutton, on which Mr Ormsby relied, where it was found that a trustee was so out of sympathy with the beneficiaries of the trusts as to make his continuation in office “untenable”.[75] The Judge’s finding quoted above shows the present case is very different.[76]
[75]Kain v Hutton, HC Christchurch M198/00, 3 December 2004 at [259].
[76]Second judgment, above n 1, at [30], quoted above at [77].
We do not consider the appellant has established any relevant error on the Judge’s part and we reject this third ground of appeal.
Daniel’s attack on John
Daniel’s attack on John was, as the Judge found, “a reprehensible and destructive action”.[77] Mr Ormsby submitted that the assault had materially contributed to the “deadlock” in the administration of the trust. He claimed the High Court had not properly considered the implications of this violent attack on a co-trustee; in exercising its supervisory jurisdiction the Court must have regard to ensuring that trustees are free to express dissent, and the attack was an egregious response to the suggestion by John’s solicitor that there be a “pause and review” of key trust decisions. In effect Mr Ormsby claimed that the attack was so inimical to the proper carrying out of their duties by the trustees that it ought to have resulted in Daniel’s removal. As he put it, the attack on his fellow trustee, even in a family context, was disqualifying, and demonstrated that Daniel was unable to stand back and impartially perform his duties as a trustee.
[77]First judgment, above n 2, at [77].
While we accept that the assault would have marked the end of any realistic prospect that Daniel and John would have been able to continue as trustees together, we do not accept that it precipitated the deadlock. The Judge chose her words carefully when she said, in the first judgment, that ill will and animosity between the parties led to the assault: it was that ill will, and the lack of reconciliation after it which meant it was impossible for John and Daniel to work together as trustees.[78]
[78]First judgment, above n 2, at [77].
The Judge’s conclusion that it was not the cause of the deadlock but reflected rising tensions between John and Daniel over the preceding months was one available to her on the evidence. The tensions overflowed into Daniel’s relationship with Hayley, increasing the pressure on him, and developed into very strong feelings when unjustified allegations of wrongdoing in relation to the affairs of the trust emanated from John through his lawyer’s letter of 23 August 2008. The diagnosis of Daniel as at the time suffering from acute anxiety and depression may go some way to explaining, although not excusing, the violence of his reaction. There is no doubt that the episode was one in which he lost his self-control and his human frailties were laid bare. But it is necessary to take the context into account.
There cannot be a general rule that a physical assault by one trustee against another must inevitably disqualify the former as a trustee. Mr Ormsby did not refer to any authority justifying such an approach. In reply he apparently accepted that there could not be automatic removal. We consider a rule to that effect would be inimical to the inherently discretionary nature of the Court’s supervisory jurisdiction under the Trustee Act and at common law. Here the Judge was satisfied that the assault should not have that consequence, examined in the context in which it occurred and taking into account Daniel’s improved health by the time of the hearing.
What mattered was any implication of the assault for the proper administration of the trust in future, if Daniel remained a trustee, in circumstances where John already accepted that he should not remain in that office. The Judge defined the issue as being whether there was any risk a similar confrontation would occur with another trustee appointed in John’s stead. She found there would not be such a risk, referring to considerations including Daniel’s improved mental state, the absence of any similar event in John’s business affairs over the years and Mr Rountree’s evidence that Daniel acted professionally in his dealings with him and third parties. In these circumstances the Judge found the assault did not mean Daniel should not be allowed to continue as a trustee. There would be “minimal risk” of future deadlocks between Daniel and an independent trustee.
We do not consider the decision was affected by any relevant error, and we reject this fourth ground of appeal.
Cumulative evidence as to Daniel’s unsuitability
The final ground of appeal rests on the proposition that the Judge failed to give proper weight to the cumulative evidence of Daniel’s unsuitability as a trustee. The complaints made however are those that have already been considered and rejected: Mr Ormsby emphasised the lack of sympathy between Daniel and Charlotte; submitted that the High Court had inappropriately concluded that Daniel could continue on the basis that an independent professional trustee would be appointed as a necessary moderating influence; and argued that the Court had given insufficient weight to Daniel’s misconduct as a trustee and in assaulting John.
We have already examined these issues. They are not more significant considered “cumulatively” than they were individually. This ground of appeal does not establish any relevant error on the Judge’s part and we reject it.
Result and costs
For the reasons given we are satisfied that the appellant has shown no error of the type required to disturb the Judge’s exercise of discretion to remove John and replace him with an independent trustee to serve with Daniel who would continue as a trustee.
All grounds of appeal have failed. Accordingly, the appeal is dismissed.
The appellant must pay the first respondent’s costs calculated for a standard appeal on a band A basis. We certify for two counsel.
Solicitors:
Wynn Williams, Christchurch for Appellant
Duncan Cotterill, Christchurch for First Respondent
23
10
0