RMY Trustees (2007) Ltd v Harrop HC New Plymouth CIV 2011-443-477

[2011] NZHC 1039

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV 2011-443-477

IN THE MATTER OF     THE TRUSTEE ACT 1956

AND IN THE MATTER OF of an Application to appoint a new trustee

BETWEEN  RMY TRUSTEES (2007) LTD AND GINA MAREE HARROP

Applicants

ANDPAUL JAMES HARROP Defendant

Hearing:         22 September 2011 (by telephone) Counsel:     S W Hughes QC for Applicants

C Quin for Defendant

Judgment:      22 September 2011

JUDGMENT OF HEATH J

This judgment was delivered by me on 22 September 2011 at 3.00pm pursuant to Rule 11.5 of the

High Court Rules

Registrar/Deputy Registrar

Solicitors:
Reeves Middleton Young, Private Bag 2031, New Plymouth
Quin Law, PO Box 3119, New Plymouth
Counsel:

S W Hughes QC, PO Box 8213, New Plymouth

RMY TRUSTEES (2007) LTD AND HARROP V HARROP HC NWP CIV 2011-443-477 22 September 2011

Introduction

[1]      RMY Trustees (2007) Ltd (RMY), Mrs Gina Harrop and Mr Paul Harrop are each trustees of the P & G Harrop Family Trust.  RMY and Mrs Harrop seek an order removing Mr Harrop as a trustee on grounds of misconduct.  This morning, I set the substantive proceeding down for hearing at 10am on 4 October 2011.

[2]      Ms   Hughes   QC,   for   the   applicants,   seeks   interim   relief,   pending determination of the substantive claim.  In short, in reliance on evidence provided by Messrs Lagan and Evetts, she submits that Mr Harrop has so conducted himself as to demonstrate no real understanding of the role, functions and responsibilities of a trustee.   In particular, reliance is placed on various transactions involving trust property into which Mr Harrop has entered without authority from co-trustees and for personal benefit.  At this morning’s telephone conference, when this application was heard, Ms Quin, for Mr Harrop, opposed the making of any orders.

The law

[3]      The interim relief application turns on s 51 of the Trustee Act 1956.  While dealing generally with the Court’s jurisdiction to remove trustees and appoint others, it has been  held that the jurisdiction extends to removal of an  existing trustee, pending determination of the substantive dispute.[1]   There is also jurisdiction for the Court to appoint interim trustees to hold office during the interregnum.

[1] See Attorney-General v Ngati Karewa and Ngati Tahinga Trust HC Auckland M2073/99, 5

November 2001 (Randerson J) at para [118]; special leave to appeal out of time to the Court of Appeal refused: Ngati Tahinga and Ngati Karewa Trust v Attorney-General CA73/02, 27 June 2007, in which the power to make such an order was confirmed: at para [16].

[4]      Section 51(1), (2)(a) and (5) provide:

Power of Court to appoint new trustees

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

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

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

...

(5)       Every trustee appointed by the Court shall, as well before as after the trust property becomes by law, or by assurance, or otherwise, vested in him, have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust.

[5]      I am satisfied, in this case, that the problems raised by the applicants cannot be addressed appropriately without intervention by the Court.   The question is whether the evidence goes  far enough  to  justify an  interim  order removing Mr Harrop and substituting Mr Larmer, (a registered valuer and farm adviser) as an interim trustee in his place.  Mr Larmer has signed a memorandum indicating that he would   accept   appointment   as   an   interim   trustee,   subject   to   his   fees   and disbursements being met from trust funds.

Has misconduct been established?

[6]      The trustees of the P & G Harrop Family Trust operate a farm property. Cattle are on the property and a sharemilker is employed.  A supply arrangement is in place with Fonterra in relation to milk but difficulties have arisen in relationships due, at least in part, to Mr Harrop’s past conduct.

[7]      The evidence of Mr Lagan and Mr Evatts reveal more recent difficulties caused by Mr Harrop’s conduct.   While there has been no opportunity for either witness to be cross-examined, I am satisfied that the points they raise are sufficiently corroborated by documentary evidence for reliance to be placed on them, for present purposes.

[8]      In particular, unauthorised purchases from RD 1 (a business unit of Fonterra) and the use of trust cheques for personal benefit have been identified as having occurred at the instigation of Mr Harrop.  In addition, it appears that Mr Harrop has

purported to appoint a man by the name of Wayne Rimene as an interim trustee.  It is the lack of power and the absence of understanding of what Mr Harrop has done that brings this particular point into consideration.

[9]      Trustees owe fiduciary duties to all beneficiaries of a trust.  In the context of this case Mr Harrop cannot as a matter of law, seek to exercise a function as a trustee without consulting with and gaining approval from co-trustees.  Nor can he use his office for personal benefit. There is no doubt, as a matter of law, those actions would amount, if proved at trial, to be misconduct.  A sufficiently arguable case exists to justify  some  form  of  interim  relief  to  protect  trust  assets  from  being  used  for improper purposes.

[10]     The balance of convenience also  favours interim  relief so  that  the other trustees  can  operate  the  business  in  a  manner  contemplated  by  the  trust  deed, pending determination of the substantive proceeding.  Relief should be restricted to that necessary to remedy the wrong on an interim basis.   To do so, I propose to appoint Mr Larmer as an independent interim trustee to ensure that Mr Harrop’s genuine interests are protected meantime.

Result

[11]     I make an order removing Mr Harrop as a trustee of the P & G Harrop Family Trust, pending further order of the Court.   Mr John Larmer of New Plymouth, registered valuer, is appointed as an interim trustee with power to charge reasonable fees  and  disbursements  against  trust  assets,  pending  further  order of  the Court. Those orders implicitly authorise RMY, Mrs Harrop and Mr Larmer to attend to all of the trust’s business until the Court rules on the substantive application.   In particular, they authorise those trustees to attend to sale of heifers by auction on 23

September 2011 and to deposit the proceeds of sale into the trust account of Reeves

Middleton Young, solicitors, New Plymouth, in the name of the trustees.

[12]     The orders I have made exclude Mr Harrop from any role in the management of the trust’s affairs.  For the avoidance of doubt I make orders, pending further order of the Court:

(a)      restraining Mr Harrop from taking any step that might affect the value of trust assets, and

(b)taking any step that purports to hold himself out as capable of binding the trust to any commitment, including the payment of money to him from trust assets.

[13]     In relation to the substantive proceeding, I direct:

(a)      Notices requiring any deponent to be present for cross-examination at the hearing on 4 October 2011 shall be filed and served on or before

26 September 2011.

(b)Each party shall prepare a synopsis of argument in support and in opposition to the substantive claims.  Each shall be filed and served on or before 30 September 2011.

(c)      By midday on 3 October 2011, the applicants shall file and exchange a paginated bundle of documents to which they wish to refer at the hearing.    That  bundle  shall  include  any documents  that  Ms  Quin requires to be incorporated into them.  Any issues of admissibility are reserved.

[14]     Costs reserved.

P R Heath J

Delivered at 3.00pm on 22 September 2011.