Queenin v Queenin
[2024] NZHC 1035
•2 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-451
[2024] NZHC 1035
UNDER Part 18 of the High Court Rules 2016, and the Trusts Act 2019, section 107(3), section
109(1), section 126, and section 127 and the Court’s inherent jurisdictionIN THE MATTER OF
The Queenin Family Trust
BETWEEN
AARON MARC QUEENIN
Plaintiff
AND
BERTRAM ERIC QUEENIN
First Defendant
DIANA RUTH QUEENIN
Second Defendant
Hearing: 2 October 2023 Appearances:
Further submissions completed:
A W Johnson and K Kennedy for the Plaintiff N P Tetzlaff for the Defendant
24 October 2023
Judgment:
2 May 2024
JUDGMENT OF POWELL J
This judgment was delivered by me on 2 May 2024 at 4.00 pm pursuant to
r 11.5 of the High Court Rules
…………………..
Registrar/Deputy Registrar
Solicitors:
Martelli McKegg Smith and Partners
AARON MARC QUEENIN v BERTRAM ERIC QUEENIN [2024] NZHC 1035 [2 May 2024]
Introduction [1]
Trusts Act 2019 [7]
The Queenin Family Trust [10]
How the present dispute arose [14]
Discussion [52]
Decision [78]
Introduction
[1] The present case concerns the operation of the Queenin Family Trust (“the trust”). The trust was established by the defendants Bertram and Diana Queenin (“Bert and Diana”) in late 2007. At that time, Bert and Diana settled three properties into the trust: their home in Titirangi, their bach at Clarks Beach and a rental property in Kelston (“the trust properties”).
[2] As well as appointing themselves as trustees, they also appointed one of their three sons, the plaintiff Aaron Queenin (“Aaron”), as a trustee.
[3] As is commonly the case, there was little in the way of formal decision making undertaken by the trust. Day-to-day maintenance of the trust properties appears to have been carried out by Bert and Diana for which they appeared to have been informally remunerated by the trust from time-to-time, albeit in the absence of any formal decision taken by the trustees. Indeed, the only written decisions that appear to have been made by the trustees related to the formal gifting of the properties to the trust, a process completed in 2012.
[4] Things changed in 2022. Following the enactment of the Trusts Act 2019 (“Trusts Act”), Bert and Diana had noted higher compliance costs and started thinking as to whether the trust was still necessary. As a result, they sought advice from their firm of accountants, Wyse & Auger, regarding the tax implications of winding up the trust, and decided sometime in early 2022 that this was a sensible course to pursue.
[5] Unfortunately for the family, their decision to follow through on this approach has led directly to the present proceedings. When Aaron did not appear to support winding up the trust, Bert and Diana took steps to remove him as a trustee and have purported to appoint a newly incorporated corporate trustee controlled by their accountant in his place. In attempting to prevent his removal, Aaron has alleged that Bert and Diana have breached their own obligations as trustees and seeks their replacement by an independent trustee company.1
1 Prior to the hearing Aaron obtained a consent from Perpetual Trust Limited to act as the sole trustee of the trust should the Court so order.
[6] At issue between the parties’ therefore is whether, pursuant to the trust deed and/or the relevant provisions of the Trusts Act, Bert and Diana were able to remove Aaron as a trustee and/or whether they themselves should also be removed and replaced by an independent trustee company. In that regard, Aaron pleads three causes of action:
(a)a claim that it was not open to Bert and Diana to remove him as a trustee;2
(b)a review of the exercise of powers by Bert and Diana as appointers and removers to remove Aaron and appoint a new trustee;3 and
(c)a review of the exercise of powers by Bert and Diana as trustees.4
Trusts Act 2019
[7] There is no dispute as to the relevant and applicable provisions of the Trusts Act. Section 92(1)(a) provides that the person nominated by the terms of a trust has the power to remove a trustee for the purposes of s 103. The power to do so must be exercised:5
(a)honestly and in good faith; and
(b)for a proper purpose.
[8] Section 103 sets up different procedures for removal of a trustee depending on whether the removal is made pursuant to a power in the terms of the trust (i.e. the trust deed) or is a removal under compulsory grounds under s 104, or for one or more of the optional grounds set out in s 105.
[9] In the event that the criteria for either ss 104 or 105 are met, it is open for the person exercising the power to elect ss 104 or 105 as appropriate. If the power to remove is exercised pursuant to either s 104 or s 105, the procedure to be followed is
2 Pursuant to s 109(1) of the Trusts Act.
3 Pursuant to s 95 of the Trusts Act.
4 Pursuant to ss 126 and 127 of the Trusts Act.
5 Section 94.
as set out in ss 106–111. This includes s 109 which enables a trustee to apply to the Court for an order preventing his or her removal. Although ss 106–111 do not apply if the removal is exercised pursuant to the terms of the trust, a beneficiary can apply for a review of the exercise of the power to remove the trustee pursuant to s 95(1) of the Trusts Act. In which case, ss 126 and 127 apply with all necessary modifications.6
The Queenin Family Trust
[10] The trust was established upon excecution of a trust deed on 4 October 2007 (“the trust deed”). Clause 2 of the trust deed provides:
(a)Bert and Diana are "the settlor”;
(b)Bert and Diana, together with Aaron and his brothers, Gareth Queenin (“Gareth”) and Jay Queenin (“Jay”) are discretionary beneficiaries, along with:
(i)grandchildren of the settlor born before the date of distribution;
(ii)any trust in which the settlor or the discretionary beneficiaries have a beneficial interest, discretionary or otherwise; and
(iii)such other person or persons or charities as the settlor shall before the date of distribution either revocably or irrevocably appoint but shall not include any ineligible beneficiaries.
(c)The minimum number of Trustees shall be three.
[11] At any time before the date of distribution, the trustees were relevantly entitled in their sole and uncontrolled discretion to:
(a)pay or apply the whole or any part of the income arising from the Trust Fund in any one year during or within six months of the expiry of that
6 Section 95(2).
year in or towards the support, benefit, education or advancement of any one or more of the discretionary beneficiaries;7 and
(b)pay or apply the whole or any part of the Trust Fund for or towards the support, benefit, or advancement of any one or more of the discretionary beneficiaries.8
[12] Clause 7 requires decisions of the trustees be unanimous while, with regard to the appointment, removal and replacement of trustees, cl 8 provides:
(a) The power of appointment of new trustees or removal of existing trustees shall be vested jointly in the said Bertram Eric Queenin and Diana Ruth Queenin and on the death of either of the said Bertram Eric Queenin and Diana Ruth Queenin shall be vested jointly in the surviving settlor and the one person that the deceased settlor may by Deed (revocable or irrevocable) or by will nominate for the purpose and upon the death of the surviving settlor jointly between the one person appointed by the first deceased settlor and the one person the second deceased settlor may by Deed (revocable or irrevocable) or by will nominate for the purpose and if there is no such person capable of or willing to exercise such power then in the administrator or the executors or trustees for the time being of the second deceased settlor provided that if there is no administrator, executor or trustee able or willing to act then the statutory provisions of the Trustee Act 1956 for the appointment or removal of trustees shall apply.
(b) The person or persons in whom the said statutory power of appointment is vested shall have the following additional powers:
(i)To appoint an additional trustee or trustees whether or not occasion shall have arisen for such appointment.
(ii)To appoint any person (including the person holding the power of appointment or a retiring or retired Trustee) as advisory trustee of the trusts hereof.
(iii)To appoint a new or additional trustee or trustees outside the jurisdiction of the New Zealand Courts.
(iv)After the deaths of the Settlor to appoint himself, herself or themselves to be a trustee or trustees of all or any of the trusts hereof.
(v)To remove any Trustee or advisory trustee from all or any of the trusts hereof without assigning any reason therefore.
7 Trust deed, cl 3(b).
8 Trust deed, cl 4(a).
(vi)To nominate the maximum period of time any individual Trustee or any advisory trustee can hold office.
(vii)Without limiting the power to remove any Trustee in terms of the preceding provisions in this clause to nominate a compulsory retirement age for all Trustees.
(c) The number of Trustees at any point of time shall not be less than the minimum number of trustees.
(emphasis added)
[13]Finally, with regard to services provided by the trustees, cl 9(b) provides:
If any Trustee shall render services in the administration of the trusts hereof which cannot be adequately charged under the preceding clause such Trustee shall be entitled to charge therefore such sum as the Trustee other than the Trustee rendering such services shall consider just and reasonable having regard to the circumstances set out in Section 72(1A)(a) to (g) inclusive of the Trustee Act 1956. Nothing herein contained shall entitle the Settlor to receive any payment for such services.
How the present dispute arose
[14] As noted, it appears that no formal decisions were taken by the Trustees following the final gifting in 2012 up until the events that unfolded in 2022. Although financial statements were prepared on behalf of the trust in that period, no signed and dated copies have been disclosed.
[15] At around the time that Bert and Diana were starting to think about winding up the trust, Aaron emailed Bert on 29 January 2022 as follows:
Hi dad,
I have a couple of question regarding the trust.
Do you both have a living will as this is needed to keep the trust running smoothly and to make sure your well-being is taken care off.
Secondly are you able to tell me the big picture moving forward with what your wishes are regarding the trust and how you wish it to be run in the future.
Thanks Aq
[16] Although the communication seems unexceptional and indeed appropriate, no written response at least appears to have been provided.
[17] Instead, after getting advice from their accountant, Bert and Diana appear to have discussed the concept of dissolving the trust with their sons. As at this stage no documentation existed selling out exactly what was proposed, the discussions that took place could not have been detailed. There was, however, no indication of any opposition to what Bert and Diana were contemplating, and indeed it appears both Gareth and Jay explicitly supported the proposal as it was explained to them. There is equally no suggestion that Aaron indicated any opposition at this time. Even in his evidence, Aaron only went so far as to indicate that he was surprised but “responded in a professional manner as a trustee and to consider the terms of the Trust Deed”.
[18] At this stage the relationships between Bert, Diana and Aaron appeared to be unremarkable. Around the same time as the initial discussion about the dissolution of the trust, the BNZ requested information about Aaron for anti-money laundering purposes. Bert requested this information from Aaron on 1 May 2022 and this was provided by Aaron on 10 May 2022. Likewise, following the initial discussions with regard to dissolution, Bert emailed Aaron providing a copy of the Trust Deed on 15 May 2022, and recorded “[a]s I advised we hope to meet lawyer this week to close the Trust”.
[19]The next day, Aaron emailed Shakil Naidu at Wyse & Auger:
Hi Shakil,
Could you please send me all account information for the family trust ( queenin family trust) dated from inception to present time. And update me monthly moving forward.
As i am a trustee i understand im am requred to keep up to date account information
Please send hard copys or im happy to collect. [Address inserted]
Many thankz Aq
[20] It does not appear that anyone at Wyse & Auger took any steps in relation to Aaron’s email. There is no indication that Aaron’s request was forwarded to Bert and
Diana, nor is there any suggestion that Aaron followed up his request for further information either with Wyse & Auger or with Bert and Diana directly.
[21] As it turned out, no steps appear to have taken place with regard to the dissolution of the trust until August 2022. On 5 August 2022, Bert emailed the trust’s solicitor, David Jury, with some information about the trust assets, including valuations of the trust properties and tax information. Six days later Mr Jury confirmed by email to Bert he had “now prepared documentation to dissolve the family trust and transfer properties into yours and Diana’s joint names.” Mr Jury requested Bert make an appointment for Bert, Diana and Aaron to come and sign the documentation prepared. Significantly, Mr Jury did not see fit to provide the documentation in draft for the trustees to consider prior to execution.
[22] An appointment to sign the documents appears to have been arranged for 17 August 2022. To what extent Aaron may or may not have been notified of the appointment is unclear from the evidence before the Court. Bert’s evidence is that Aaron was working and not able to come, whereas Aaron’s evidence is that he was not advised of any such appointment. In any event Bert and Diana attended Mr Jury’s office and proceeded to sign the two documents Mr Jury had prepared; a Deed of Distribution and Dissolution of Trust (“the Deed of Dissolution”) and a document entitled Minutes of Trustees Meeting of Queenin Family Trust. The introduction of the Deed of Dissolution recorded the background to what was intended in the following terms:
A. By a deed dated the 4th day of October 2007 (“the Trust Deed”) Bertram Eric Queenin and Diana Ruth Queenin as settlors, established a trust called Queenin Family Trust (“the Trust”).
B. The Trustees are the present trustees of the Trust.
C. The Trust Deed provides that during the trust period the trustees may use as much of the capital of the trust fund as the trustees think fit for the maintenance, education, advancement or benefit of the Primary beneficiaries.
D. The Trust Deed provides that Bertram Eric Queenin and Diana Ruth Queenin are primary beneficiaries and their needs are expected to come first.
E. The Trust Deed provides that during the trust period the trustees may use as much of the capital of the trust fund as the trustees thinks fit for the
maintenance, education, advancement or benefit of the primary beneficiaries.
F. The Settlors have requested that the Trust Fund be fully distributed.
[23] An error in the introduction is immediately apparent: there was, of course nothing in the trust deed that identified Bert and Diana as the “primary beneficiaries” of the trust. Rather, as the trust deed makes clear, they were simply two of the identified discretionary beneficiaries.9
[24] The Deed of Dissolution nonetheless continued to use the term “primary beneficiary” to describe Bert and Diana in the resolutions that followed, with the first two providing:
1. That the Trustees have considered the needs of Bertram Eric Queenin and Diana Ruth Queenin and they direct that the Trust Fund of Queenin Family Trust to be paid to the primary beneficiaries Bertram Eric Queenin and Diana Ruth Queenin in its entirety and the Trust shall cease from the date of such distribution.
2. Distribution
Having considered the interests of all beneficiaries of the Trust, the Trustees hereby agree to distribute the Trust Fund to the primary beneficiaries Bertram Eric Queenin and Diana Ruth Queenin (“the Distribution”).
[25]The Minutes prepared by Mr Jury in turn recorded:
1. That the trustee executes Deed of Distribution and Dissolution of Trust.
2. That on execution of the Deed of Distribution and Dissolution of Trust that the Trust pay by way of final distribution the Trust Fund to Bertram Eric Queenin and Diana Ruth Queenin or as directed by them.
3. That the trustees execute Authority and Instruction forms, Land Transfer Tax Statements and Overseas Investment Office Residential Land Statements to transfer the properties at [addresses inserted] to Bertram Eric Queenin and Diana Ruth Queenin.
4. That on settlement the Trust fund be fully distributed, and the Trust shall cease on final distribution.
[26] Following the signing of the documents, it was not until 8 September 2022 that Bert provided Mr Jury with Aaron’s email address so the documents signed by Bert
9 See above at [10].
and Diana could be sent to Aaron. For reasons that are not clear, it then took another three weeks for Mr Jury’s office to forward the documents and instructions for completion to Aaron on 28 September 2022. No timeframe for execution was specified by Mr Jury and Aaron was advised “[p]lease feel free to contact our offices should you have any queries.” The belated provision of the documents appears to have been prompted by an email from Aaron to Mr Jury the day before, requesting to arrange a time to discuss the “Queenin Family Trust closure”, and noting that he got home around 5 pm.
[27] Mr Jury did not reply to Aaron’s request for a meeting. Two weeks later, on 16 October 2022 Aaron emailed Mr Jury and Bert as follows:
Dad and David,
I am aware that there has been an application made to dissolve the Queenin Family Trust.
As you know I am a trustee and I take this role very seriously.
I must bring to your attention that this decision affects the entire family. I insist we have a family meeting about the dissolution of the trust. I believe it is important that the family is informed and everyone is able to voice how they feel about this moving forward.
And I will need to have a road map as to how the dissolution affects the Queenin Family moving forward. I have not been given any clear information to date.
I am happy to move forward with the dissolution once a road map has been provided so that every member of the Queenin family has been fairly and justly accounted for.
As it stands it appears to be a rash decision without any thought given to every member of the Family Trust.
My objective is to transition smoothly so every member of the Trust is accounted for in a fair and just manner.
I must apologise as I have been working very long hours and weekends too, so I have only had time to communicate the following information.
I tTrust [sic] it will be a smooth sailing from here on in. Yours Sincerely
Aq
[28] The same night Aaron sounded out his brothers by email on the proposal to dissolve the trust. Gareth and Jay responded quickly, confirming by email to Aaron they were happy for the trust to be dissolved.
[29] Neither Bert nor Mr Jury responded to Aaron’s 16 October email with a “roadmap”, nor the requested information. However, two days later Mr Jury’s secretary, Paula Nautu, advised Aaron that Mr Jury is “unable to see you outside of his working hours”. Instead, she advised:
…
He has suggested however that if you do have any concerns regarding the trust dissolution, you could discuss this in the first instance with Bert.
Alternatively you can call our offices to speak to David on the phone, during David’s working hours.
Otherwise, Patience at our office can see you to sign any documents for the dissolution of trust, at 4.30pm, on a day when you are available (Fridays are usually reserved for our property settlements – so Mon-Thurs are preferable).
Please feel free to telephone to make an appointment with our Reception when you require.
…
[30] On 21 October 2022 Bert emailed Aaron’s email and suggested in the light of Aaron’s new work commitments, the easiest option would be for Aaron to resign as trustee.
[31]Aaron responded on 24 October 2022:
Hi Mum and Dad,
I hope you are well, I would like to go back to the beginning.
When the trust was formed in 2007 and as a family you advised us the purpose of the trust was in place for the benefit of the entire family, until your passing.
You both asked me to be a trustee alongside you in collectively making the right decision for the trust, and I have always acted in good faith and will continue to do so.
For example when you needed me to sign for remedial work on the clarks beach property you provided me with in depth quotes and documentation on cost and any other aspect for the work to go ahead.
What concerns me is you have done no such thing with the trust dissolution, I have repeatedly asked for a road map as to why you had made this decision and to understand how this impacts every beneficiary member of the trust.
I am simply asking for a road map on how a dissolution will benefit every member in the family in a fair and just manner.
We have always worked extremely well as co trustees and I will continue to do so.
I will continue to act in good faith as a Trustee, and I have no need to resign.
I hope this brings clarity to you and we can move forward in a productive and fair manner for the benefit of every member of the family.
Your loving son Aaron
[32] There appears to have been no direct response to this email. It was not until 11 November 2022 that Ms Nautu relevantly advised:
…
I have spoken to Bert in this matter, and I understand you have some concerns about why the Trust is being dissolved.
The Trust was initially set up to protect the assets of your parents, and estate planning purposes.
Trusts generally served as an excellent vehicle for managing personal assets and protecting personal assets from the likes of say creditors, or inland revenue, under the right circumstances.
However, in January 2021, the new “Trusts Act 2019” came into force, and with it, came greater compliance duties for trustees, beneficiaries and owners of the Trust and it now does not provide the level of asset protection that was available, when the Trust was originally established. This was a major reason why your parents are choosing to now close the Trust.
There are now legal consequences for failing to adhere to the provisions of the new Act - and administering and managing the Trust to comply with the new Act, would naturally increase the time and costs involved, negating the reasons behind why the Trust was implemented in the first place.
More work and care must now be undertaken when managing trusts, and there is also a heightened level of risk. The Trust no longer serves its desired purpose for your parents and for that reason (as well as the other main reasons as advised above), they now wish to dissolve the Trust and return the Trust’s assets into their own individual names, as they were/would be, before the Trust was created.
The move to now dissolve family trusts, has become increasingly common with our clients since the new Acts’ incorporation, and we have already done many dissolutions of Trusts, at the request of our clients, this year.
David Jury is now retired, and Patience Ngara, our new Solicitor is now handling all our current files. Patience would be happy to attend on you for the signing of the Dissolution of Trust papers. We would be pleased if you could urgently telephone our Reception by Monday the 14th of November 2022 to arrange an appointment to sign the documents at a time convenient to you, to dissolve the trust. Alternatively, please contact us by Monday the 14th of November 2022 to advise your resignation as a trustee and we will send you the resignation documents for your signature and return.
Should we not receive advice of an appointment made by you, or your resignation by Monday the 14th of November 2022, we have instructions to prepare documents to remove you as a trustee of the trust.
We also have instructions that your parents will only accept liability in regard to payment of our legal fees to remove you as a trustee of the trust, or to dissolve the trust, and should you require any further legal advice in regards to this matter you will need to seek your own independent legal advice in respect of the same.
…
[33] It is not clear who was running Mr Jury’s firm following his retirement and who might have authorised this letter. Although clearly attempting to provide some context to the reason for dissolving the trust, it is difficult to see on what basis it could ever be considered appropriate to allow a legal secretary to write a letter like this threatening legal action against Aaron. Unsurprisingly, Ms Nautu’s letter appears to have simply escalated matters. On 13 November 2022, Aaron responded:
Hi Paula,
I take my position as a Trustee very seriously, I have and will always act in good faith to adhere to the Trust Act Laws in place.
The purpose of the Trust was set up to benefit all beneficiaries and it is my duty as a Trustee to ensure that this is done in good faith in a fair and just manner.
I am happy to discuss further how to settle the trust in a fair and just manner, my request is reasonable. I am asking as a Trustee to resolve this in a fair and just manner for a third time.
May I remind you my co-Trustees do not have grounds to remove me as a Trustee, as I have acted in good faith and all Trustees have to agree on dissolution of a trust.
It is clear that Bert and Dianna [sic], my co Trustees, are acting in bad faith and have improper motivation as the Trust Act Laws states.
Trust Law States, the power to remove a Trustee must be exercise honestly and in good faith and for a proper purpose (section 94)
I have always acted in good faith, as the Trust Act Law states, the Trustee must act honestly in good faith for proper purpose AND FOR THE BENEFIT OF ALL BENEFICIARIES
Bert and Dianna [sic] have failed to do so, by stating that all assets must revert back to them, and by demanding I resign, and then going on to advise me they will have me forcable removed as a Trustee if i do not capitulate to their demands, in an unreasonable time frame.
I am happy for the trust to be dissolved, as long as the assets are distributed fairly to all beneficiaries within the family trust.
Please be advised that the time frame you have provided me to find an independent council is unreasonable as I received this email from you on Friday and you demanded a response by Monday. You effectively gave me a weekend to find an independent legal council.
I urge you to act according to the Trust Act Law and in good faith that this can be resoled [sic] in a fair and peaceful manner and not have a division in our family this close to Christmas, I do not wish for this to go court, how ever I am bound by law to act in the best interest for all beneficiaries.
…
[34] There was no immediate response to Aaron’s email from anyone at the firm, but at this point Bert and Diana closed the trust’s bank account with the BNZ. As at 11 November 2022, this account had contained $59,708.03. In its place Bert and Diana opened a personal joint account on 17 November 2022 which, following numerous transactions — including a $45,000 deposit on 1 December — reached a balance of
$51,320.25 as at 17 December 2022.
[35] Bert explained, the trust’s bank account was closed because, despite his requests, Aaron had failed to comply with “additional requests for information from BNZ in November 2022”. What the “additional information” sought by the BNZ might have been has not been identified. According to Bert:
…
I tried to contact Aaron several times, by phone (leaving voicemails) and by text, to have him sign the paperwork the BNZ required. He ignored my calls and I wasn’t able to get in touch with him. Because the BNZ didn’t have the information they required from Aaron as trustee, they froze the account.
…
[36] There was no indication given by Bert as to what “paperwork” was required to be signed, or whether it was ever sent to Aaron for perusal or execution. No copy has
been provided. It is also noted that at no time has any failure on the part of Aaron to provide further information or signed documents for the BNZ been used as a reason for purporting to remove him as a trustee, whether on 10 February 2023 or subsequently. I also observe that the trust bank account could not have been frozen by the BNZ as Bert and Diana were able to simply withdraw the funds and close the account. Instead, it is clear that the account was closed without any decision of the trustees having been made, and no explanation for the difference in funds between the closing and opening balances has ever been provided.
[37] After the trust bank account had been closed, Ms Nautu finally responded to Aaron’s email of 13 November. On 28 November 2022 she appeared to take a slightly more conciliatory tone:
Hi Aaron,
We have instructions from Bert that he is prepared to cover the cost of one consultation between you and a lawyer to address your concerns in regards to the Trust.
Patience, our Solicitor has advised that she is happy to see you to discuss trust matters should you want to make an appointment to see her - or alternatively, you may care to obtain your own independent legal advice in the matter.
Should you wish to discuss this matter with Patience, please feel free to contact our offices, to make an appointment.
…
[38] Any conciliatory effect of the email was, however, undone when Ms Nautu advised Aaron less than an hour later:
Hi Aaron,
Apologies Aaron, there has been a misunderstanding.
We have now been instructed to advise that Bert is only prepared to cover the cost of one consultation between you and Patience, the Solicitor at our offices, to discuss trust matters. You are still welcome to seek your own independent legal advice.
…
[39] At this point, Aaron instructed Mr Lynch of Inder Lynch to act on his behalf. In a letter dated 6 December 2022, Mr Lynch sought confirmation from Ms Nautu that
the trust would provide funding ($700 plus GST and office expenses and disbursements) in order to undertake a review of the trust deed, meet with Aaron and provide advice “on the matters that he is seeking advice on”.
[40] The next day Patience Ngara, the staff solicitor at David Jury Law referred to by Ms Nautu in her emails, rejected the request by Mr Lynch and confirmed that her client had only “offered to pay for your client to meet with a solicitor from David Jury Law and attempt to resolve matters there”, and that any independent advice would have to be paid for by Aaron.
[41]On 12 December 2022, Mr Lynch wrote to Ms Nautu and advised:
…
At the outset, we advise the [sic] Aaron wishes to remain as a Trustee of the Trust and takes his obligation as a Trustee seriously. As a Trustee, he is not in favour of the Trust distributing the entire Trust capital and income to his parents and winding the Trust up; that said however, he is open to a discussion with the Trustees regarding possible alternative scenarios, including partial distribution of assets to the Beneficiaries to ensure that his parents needs are met.
As we discussed matters with Aaron, we are most surprised and concerned at the total lack of procedure and disregard for the Trustee obligations of the Trustee Act by the other Trustees.
…
[42] The letter went on to specify a range of alleged failures on the part of Bert and Diana, questioned whether any trustees meeting occurred on 17 August 2022, and advised that Aaron would challenge any attempt to remove him as a trustee.
[43] The response from this letter came from Smith and Partners on 10 February 2023, who confirmed they were acting for Bert and Diana in their capacity as settlors of the trust. The first part of the letter confirmed that Aaron’s “willingness to engage with the other trustees of the Trust decreased to a point where he indicated he did not want anything to do with the Trust and was leaving it in his parents’ hands” while, however, being aware and approving of the way in which the trust was operating. This included distributions made to both Bert and Diana “in consideration of their management of the rental properties.” The letter also confirmed that “the Trust bank
account was transferred to Kiwibank and continues to be held on trust” before advising:
…
Finally, we are instructed on behalf of our clients to give you notice on behalf of your client that he is removed as a trustee of the Trust pursuant to clause 8(b)(v) of the Trust Deed and pursuant to clauses 92(1)(a) and 103 of the Act. This letter constitutes notices under section 106 of the Act.
…
[44] In response, Mr Lynch noted the purported removal of Aaron as a trustee reduced the number of trustees below the minimum specified in the trust deed, and observed that any exercise of a power to remove Aaron was required to be exercised “honestly and in good faith, and for proper purpose.” Mr Lynch also requested a copy of the trust minutes where the trustees approved closure of the existing bank account and moving those accounts to Kiwibank.
[45] Smith and Partners responded by confirming that a company established by Wyse & Auger, the Queenin Family Trustee Company Limited, was being appointed as a trustee via a separate deed. With regard to removal of Aaron as a trustee, Smith and Partners advised:
…
To be clear, our clients’ decision to remove your client as a trustee of the Trust and replace him with an independent Trustee was made in the interests of family harmony consistent with the objects and purpose of the Trust and with the best interests of all the beneficiaries in mind. That decision is one reasonably open to them and is specifically authorised under the terms of the Trust.
…
[46] Aaron’s response came from Martelli McKegg who appears to have replaced Inder Lynch as Aaron’s solicitors around this time. The Martelli McKegg letter of 7 March 2023 focused on procedural failings of Bert and Diana as trustees and made no mention of their role as settlor in providing all of the trust assets to the trust in the first place. Instead, escalating matters further, Martelli McKegg confirmed Aaron was opposing his removal, threatened High Court proceedings against Bert and Diana, and indicated that Aaron would be seeking costs personally against his parents.
[47] On 23 March 2023, Bert and Diana appointed Queenin Family Trustee Company Limited to be the third trustee of the trust, the company having been incorporated on 27 January 2023.
[48] Further correspondence followed in which details of the trust bank accounts, and trust assets were provided.
[49] Following receipt of this information, Martelli McKegg criticised the closure of the trust’s bank account without the authority of a trustee decision, and noted in particular:
…
We remind you that our client was undisputedly a Trustee at that time and is entitled to a full explanation. In the absence of any supporting documentation that Kiwibank was aware that your clients held such funds as Trustees of the Trust, and the role of our client, it is difficult for us to advise our client to have confidence in your view that at the time the transfer took place, your clients considered themselves to be holding such funds as Trustees.
In any event, there appears to be no dispute that your clients unilaterally transferred assets from an account held in the name of the Trustees of the Trust, to an account held by themselves in their personal names without any clear rationale having been advanced.
…
[50] Smith and Partners replied on 24 April 2023. Mr Tetzlaff confirmed that Bert and Diana now no longer wished to wind up the trust. Instead, Mr Tetzlaff advised:
…
To be very clear, despite earlier initial thoughts, our clients have no intention of dismantling the Trust. To do so would defeat the purpose of the Trust. This is why it was important to appoint the independent trustee.
For further clarity, our clients ongoing wishes/objectives for the trust are:
1.To retain the status quo whereby the Trust is a vehicle to manage and protect the three properties;
2.To remove your client as trustee with the appointment of an independent trustee, already having been made;
3.To continue to instruct the Trust’s accountant to prepare annual accounts;
4.To use the trust’s income (and/or minor cash assets) for the upkeep of the properties, with distribution of any surplus of funds (based on the annual accounts) to be decided annually; and
5.In the intermediate future, to consider and plan for the residential needs of our clients as beneficiaries as they age.
[51] The letter concluded with Mr Tetzlaff’s assertion that a “formal meeting of the trustees is not necessary at this time.”
Discussion
[52] I commence my analysis by observing that, in light of the detailed background set out above, it is not at all clear why Aaron has brought these proceedings. Mr Johnson has argued, on behalf of Aaron, that it is a matter of principle: because Aaron is a trustee the Trusts Act requires him to ensure that the trust is managed in accordance with the Act for all of the beneficiaries of the trust, and not just for Bert and Diana.
[53] Such an approach ignores the undisputed context to these proceedings. The trust assets represent the capital accumulated by Bert and Diana over their lifetimes. As noted, the trust assets include the home in which they live as well as the family bach. It was Bert and Diana that chose to place these assets in a family trust, as many New Zealand couples in their position have done, in order to protect those assets and as a mechanism to ultimately pass their assets to their family once they themselves no longer require them. The fact that Bert and Diana are, in terms of the trust deed, simply discretionary beneficiaries like their sons cannot diminish their contributions to the trust properties. In fact, their contributions and the relevant context may well be sufficient to establish an institutional constructive trust over the trust properties.10
10 Neither of the parties have discussed or pleaded whether there may be an institutional constructive trust over the trust assets in favour of Bert and Diana. Adopting the elements of a constructive trust set out in Lankow v Rose [1995] 1 NZLR (CA), several Court of Appeal decisions have found that institutional constructive trusts can arise over trust property: see Murrell v Hamilton [2014] NZCA 377 and Hawke’s Bay Trustee Company Ltd as trustee of the Richard Hodgkinson Trust v Judd [2016] NZCA 397. In the present case, Bert and Diana directly contributed to the trust property as settlors and indirectly through their efforts in managing the rental properties. The remaining matters to be considered in determining the existence of an institutional constructive trust would be whether Bert and Diana had a reasonable expectation of an interest in the property such that the trustees should reasonably expect to yield them the alleged interest. The overall assessment, falling within the realm of equity, is whether it would be unconscionable for the trustees to deny Bert and Diana this expectation. However, given that the trust is now intended to continue and final distribution and/or dissolution has been postponed, this point may now be moot. Furthermore, as noted above, it was not discussed nor pleaded by either party.
[54] In contrast, there is nothing to suggest that Aaron or indeed any other member of the Queenin family has contributed any wealth whatsoever to the trust. Instead, Aaron was appointed as a trustee by his parents as the settler appointees, presumably to assist them in the management of those trust assets.
[55] Likewise, and as noted at the outset, it is clear that for a long time any management of the trust was, rightly or wrongly, nominal. Certainly, there was no formal management of the trust undertaken by the trustees. Aaron did not appear to have any day-to-day management, nor does it appear that he sought to be involved in the matters of the trust. The present difficulties only arose when Bert and Diana received advice that, as a result of the more onerous compliance obligations of the Trusts Act, it might be appropriate to wind up the trust.
[56] It is clear from the background section that Bert and Diana did discuss what was proposed in principle and did not expect opposition from any of their sons given the nature of the trust and the source of the trust assets.
[57] Notwithstanding those comments, I consider the failure to initially engage with Aaron was a mistake. Aaron was a trustee and it was understandable for Aaron to feel somewhat put out when he was not informed about the detail of the proposed winding up. As much as anything, however, this appears to have occurred because there does not appear to have been a detailed proposal until the documents effecting the winding up were finally drafted by Mr Jury. It is also not surprising that Aaron felt that he was being effectively excluded from his role as a trustee when no one was prepared to discuss the detail of the winding up proposal but expected him to agree. It must have been even more of an affront to Aaron when, despite his requests to engage with Mr Jury over the trust’s winding-up proposal, he was threatened with removal as a trustee. There is no doubt that Aaron was not treated well, and these proceedings could well have been avoided had there been better communication between Bert, Diana and Aaron, or if either Mr Jury or Ms Auger had deigned to discuss the detail of the trust’s winding up proposal with Aaron and explain why Bert and Diana considered it was appropriate to wind up the trust.
[58] The consequence of the lack of any meaningful engagement, and the subsequent ill-conceived action to shut down the trust’s bank account, was that it made it comparatively easy for Aaron and his solicitors to poke holes in the actions taken by Bert and Diana as trustees, thereby providing grounds for bringing the present proceedings.
[59] Despite this, it remains difficult to understand what Aaron hoped to achieve by the application or indeed how the application could possibly benefit Aaron, let alone Bert and Diana, or the Queenin family more generally.
[60] First, notwithstanding the failures in formal decision making in the trust to date, including the reimbursement for services11 and the closure of the trust bank account without any formal decision of trustees,12 it is difficult to see that it would ever be fair and equitable to remove Bert and Diana from control of the trust assets, still less to remove them from management of the assets they have accumulated throughout their working lives and to replace them with a professional trustee. That course of action would not only come at a direct cost to Bert and Diana, but would also inevitably diminish the overall wealth of the Queenin family as beneficiaries of the trust. The only real beneficiary of such an approach would be the professional trustee, able to charge for its ongoing administration.
[61] Any appointment of a potential trustee also raises the possibility that Bert and Diana could be excluded from their home and the other properties should that professional trustee decide that that particular asset is more appropriately liquidated and distributed around the various discretionary beneficiaries identified in the trust deed. It is, quite simply, difficult to see any upside other than the type of notional transparency/accountability Mr Johnson appears to advocate for on behalf of Aaron, but again it is difficult to see that this provides any tangible benefit to Aaron.
[62] In light of these comments, I turn to consider Aaron’s specific claims. In my view, each of the causes of action is fundamentally misconceived, having completely failed to recognise the context detailed above.
11 See above at [3] and [42].
12 See above at [48].
[63] As noted, the first order sought by Aaron is a declaration pursuant to s 109(1) of the Trusts Act that it was not open to Bert and Diana to remove him as a trustee. Mr Johnson accepts that if the removal of Aaron was carried out pursuant to a term of the trust deed, specifically cl 8(b)(v), Aaron has no basis to challenge his removal pursuant to s 109(1) of the Trusts Act.
[64] As the correspondence detailed in the background section shows, Bert and Diana clearly considered that they were acting pursuant to ss 92(1)(a) and 103(1)(a)(i) of the Trusts Act13 — that is, pursuant to “a power in terms of the trust”, namely cl 8(b)(iii) and (v).14 As a result, there was in fact no reason to refer to any notice pursuant to s 106 of the Trusts Act, but the fact that Smith and Partners did so did not mean the decision was made under either ss 104 (which was, in any event, not relevant) or 105 (removal for cause).
[65] It follows that I am satisfied Bert and Diana had the power to remove Aaron as a trustee and did so.
[66] The issue therefore turns to the second and third issues raised by Aaron, whether the various decisions made by Bert and Diana, including the decision to remove Aaron as a trustee and replace him with the Queenin Family Trustee Company Limited, were made in good faith when considered in terms of ss 95 or 126 and 127 of the Trusts Act, or whether as Aaron alleges the actions were taken to benefit Bert and Diana alone without regard to the interests of the other discretionary beneficiaries.
[67] On the second and third causes of action I am likewise satisfied that the the power to remove or appoint trustees was exercised appropriately in this case.
[68] As I have observed already, the communication between Bert and Diana and/or their advisors with Aaron left a lot to be desired. It unnecessarily exacerbated matters and led to hardened positions being taken on both sides. It is clear that Bert and Diana could not comprehend why Aaron was not immediately prepared to support them in
13 Although the notice only referred to s 103, their immediately preceding reference to cl 8(b)(v) of the trust deed indicates their intention to exercise their power of removal under the trust deed and, therefore, under s 103(1)(a)(i).
14 See above at [42].
winding up the trust. Clearly it was their expectation that the son whom they had appointed as trustee would support their wishes. As attitudes began to rapidly harden, they interpreted Aaron’s attempt to delay the winding up of the trust as a direct challenge to their ability to manage the trust assets for their own benefit as they always had done. They reached this conclusion having received the support from their other two sons (whose children formed the remainder of the discretionary beneficiaries) for their proposed course of action and did not encounter any opposition from Aaron when the subject was first raised. Although Aaron did eventually object to Bert and Diana’s proposal, these consultations with Aaron and the other discretionary beneficiaries indicate an intention to operate the trust in good faith.
[69] Moreover, as I have observed, Aaron has never explained what he was trying to achieve other than vaguely expressed concerns about informing the family and having a family meeting so “everyone is able to voice how they feel about this moving forward”, and requiring “a road map [to be] provided so that every member of the Queenin family has been fairly and justly accounted for.”15 In the circumstances, it is clear Aaron’s expressed concern for “the benefit of all beneficiaries” simply ignored any recognition of the context of the establishment of the trust and the reality that each of the assets held by the trust was critical to his parents ability to enjoy a comfortable retirement — following which, and upon their passing, the trust assets would presumably pass to Aaron and the other discretionary beneficiaries through the trust and/or testamentary dispositions.
[70] Instead, Aaron’s communications implied there might be others with greater claim on the assets of the trust than Bert and Diana. By a process of elimination, noting that Jay and Gareth supported their parents plans to wind up the trust and by implication clearly did not think either they or their children had a greater claim than their parents over the assets of the trust, it could only be Aaron who was seeking to benefit personally in some way from maintaining the trust. Accordingly, mirroring Aaron’s allegations against Bert and Diana, Aaron's actions seem to have been taken to benefit himself alone without regard to the interests and wishes of the other discretionary beneficiaries.
15 See above at [28].
[71] Importantly, the discretionary beneficiaries of the trust have no legal or equitable interest in the trust assets, but only a mere expectancy or hope that the trustees’ discretion may be exercised in their benefit.16 Generally, it seems that the trustees’ obligation in such cases is only to “consider responsibly, in individual cases, whether a contemplated beneficiary was within the power and whether, in relation to other possible claimants, a particular grant was appropriate”.17 In other words, a discretionary beneficiary is not guaranteed a distribution. It is also relevant that, in addition to their power to remove and appoint trustees, Bert and Diana were empowered by cl 12(b) of the trust deed to remove all other discretionary beneficiaries. In matters involving relationship property, this has been recognised to give effective control of the trust (tantamount to a property right) to the settlor.18 Although this approach has been considered inappropriate in strictly commercial disputes,19 it is difficult to see why it would not also be relevant in the context of a familial dispute over a family trust. In any case, these wide powers given to Bert and Diana under the trust deed further provide further support that the trust’s purpose was to protect their assets for their own primary enjoyment, despite not being expressly listed as “primary beneficiaries”.
[72] Accordingly, by making distributions to Bert and Diana, with the consent of all but one of the discretionary beneficiaries, and in line with what appears to be the original purpose of the trust as a vehicle to protect Bert and Diana’s assets for their own enjoyment during their life and for their children and grandchildren’s enjoyment after their passing, the trustees would seemingly have exercised their power to make final distributions and wind up the trust responsibly, in good faith and for proper purposes in accordance with their obligations under the Trusts Act. Nonetheless, the trust was not, in fact, wound up and the present issue to be resolved is the removal of Aaron as trustee.
[73] However, given the above position, I am satisfied that Bert and Diana as settlors could no longer expect Aaron to support them to benefit from the trust without
16 Hunt v Muollo [2003] 2 NZLR 322 (CA) at [11].
17 McPhail v Doulton [1970] 2 All ER 228 (HL) at 240.
18 Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293; and Clayton v Clayton (as trustee of the Vaughan Road Property Trust) [2016] NZSC 29, [2016] 1 NZLR 551.
19 White v Brkic [2021] NZHC 919, [2021] 3 NZLR 490 at [16].
interference, and that as communications had completely broken down the removal of Aaron as a trustee and his replacement by a trustee more amenable to their interests was the only logical response. Viewed in this light the removal of Aaron as a trustee was unexceptional. As a result, in the context of this case it is difficult to see why exercising the powers reserved to the settlors to appoint or remove trustees should be seen as somehow made in bad faith or for an improper purpose.
[74] More generally, I do not accept Mr Johnson’s submissions on behalf of Aaron that the Trusts Act has changed the landscape of small family trusts so fundamentally that those who have settled trusts for planning or asset protection purposes can no longer expect to control them for their own benefit. Although clearly the obligations for trustees are more explicit under the Trusts Act than hitherto, I do not think it is reasonable for a trustee appointed by the settlors in a small family trust to ignore the essential context and the very reason the trust was established in the first place in order to argue that the Trusts Act now means that settlors/trustees like Bert and Diana cannot expect to enjoy the fruits of their labours and must instead run the trust as though they are just two of a particular class of beneficiaries, with no greater claim to use of the trust assets than the other beneficiaries.
[75] For the same reason and notwithstanding the individual breaches of the trust’s decision making process that has been identified earlier in this judgment,20 it would be entirely inappropriate and quite unjust to place the management of the trust into the hand of a professional trustee as Aaron seeks.
[76] Instead, taking these various matters together, I conclude that the only just outcome in this case is to confirm the removal of Aaron as a trustee and the appointment of the Queenin Family Trust Company Limited as his replacement. I do, however, consider it appropriate to order that leave of the Court will be required should any amendment to the definition of discretionary beneficiaries be sought, or that the winding up of the trust is once again pursued.
20 Namely, the failure to communicate and engage with Aaron and the unilateral transfer of trust funds: see above at [56]–[57].
[77] The final issue to determine is that of costs. Having considered the circumstances giving rise to the issues, I am satisfied that Aaron should bear his own costs, as must Bert and Diana — albeit I leave open that the trustees, by appropriate resolution of the trust may choose to meet or otherwise contribute to the costs of one or more of the parties.
Decision
[78] For the reasons set out above and pursuant to ss 95, 126 and 127 of the Trusts Act and the Court’s inherent jurisdiction to vary trusts:21
(a)Aaron Queenin’s removal as a trustee from the Queenin Family Trust is confirmed.
(b)Without leave of the Court:
(i)The Queenin family Trust is not to be wound up or dissolved; and
(ii)No change is to be made to the list of discretionary beneficiaries set out in cl 2 of the Queenin Family Trust trust deed.
(c)Costs are to lie where they fall; and
(d)The originating application by Aaron is otherwise dismissed.
Powell J
21 See Re Setter (as trustee Central Hawke’s Bay Consumers Power Trust [2021] NZHC 1603 at [36](b).
0
4
0