Sellers v Sellers

[2019] NZHC 1372

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-420

[2019] NZHC 1372

UNDER

Part 18 of the High Court Rules, section 51 of the Trustee Act 1956 and the inherent

jurisdiction of the High Court to supervise trusts

IN THE MATTER OF

The SELLERS FAMILY TRUST

BETWEEN

GUY EDWARDS STUART SELLERS

Plaintiff

AND

CORINNE SELLERS

Defendant

Hearing:	17 June 2019
Appearances:	A A M Newfield for the Plaintiff No appearance for the Defendant
Judgment:	17 June 2019

REASONS FOR JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

Preliminary

At the close of the hearing of the plaintiff’s application for summary judgment, the Court entered judgment in terms of paragraph 1(a) to  (d) of  the application dated  11 March 2019. The reasons for this judgment follow, with further orders.

SELLERS v SELLERS [2019] NZHC 1372 [17 June 2019].

Introduction

[1]    The  plaintiff  (Mr Sellers)  and  the  defendant  (Mrs  Sellers)  married  on  20 November 2006. On 12 January 2009 they settled the Sellers Family Trust (“the Trust”).  In August 2012  the   Trust   bought   a   property   at   Oratia   in   which Mr and Mrs Sellers lived until they separated on 24 June 2017.  Since  that time,  Mrs Sellers has lived in the property. The relationship between Mr and Mrs Sellers is acrimonious, is the subject of proceedings in the Family Court, and is the basis of the current application.

[2]Mr Sellers applies for the following orders by way of summary judgment:

(a)an order removing the plaintiff and the defendant as trustees of the Sellers Family Trust;

(b)an order appointing Sellers Family Independent Trustee Company Ltd as trustee of the Trust;

(c)an order vesting the property at 507 West Coast Rd, Oratia comprised within Certificate of Title NA32D/975 in Sellers Family Independent Trustee Company Ltd as trustee of the Trust;

(d)an order that Sellers Family Independent Trustee Company Ltd’s reasonable fees be met from the Trust fund;

(e)costs.

[3]    Further orders are sought in the substantive proceeding in relation to Trust funds said to have been taken by Mrs Sellers in breach of her duties, an enquiry into damages, and orders in relation to whether Mrs Sellers is entitled to an indemnity for costs from Trust assets. These issues are not the subject of Mr Sellers’ application  for summary judgment.

Mrs Sellers involvement in this proceeding

[4]    Mr Sellers’ application for summary judgment and supporting documents were served on Mrs Sellers on 27 March 2019. Mrs Sellers did not file a notice of opposition but appeared in person when the case was called on its allocated first call day. She informed the presiding Judge that she would like to file a notice of opposition and could do so within a week. The Judge made timetabling directions requiring her to take these steps by 14 May 2019.  The Judge  set  the case down for hearing on   17 June 2019.1

[5]    Mrs Sellers did not comply with the deadline, but instead requested an extension  of  time.     This   was  served  on  Mr Sellers  and  his   solicitor  filed     a memorandum opposing the granting of any extension of time. The Court extended time for Mrs Sellers to file and serve any notice of opposition and affidavit to Monday 20 May 2019.2

[6]    Again,  Mrs Sellers failed to  comply with this deadline, and has not  filed     a notice of opposition to Mr Sellers’ application.

Principles to be applied

[7]    Rule 12.2 provides that the Court may give judgment against a defendant if   a plaintiff satisfies the Court that the defendant does not have a defence to a cause of action in a proceeding.

[8]    The onus is on the plaintiff to satisfy the Court that this position has been established.

[9]    In Broadbent v Broadbent,3 the plaintiff wife applied for orders to remove herself and her estranged husband as trustees of their family trust, replacing them with an independent corporate trustee. As with Mr and Mrs Sellers, Mr and Mrs Broadbent were engaged in Family Court litigation relating to relationship property and domestic

1      Minute dated 7 May 2019.

2      Minute dated 15 May 2019.

3      Broadbent v Broadbent [2014] NZHC 254.

violence.     The Court granted the application, replacing both trustees with an independent corporate trustee.

[10]   Similarly, Khanna v Khanna,4 the High Court made orders by way of replacing both Mr and Mrs Khanna as trustees of their two family trusts. Again, an independent replacement trustee was appointed.

The facts in support of Mr Sellers’ claim

[11]Mr Sellers relies on the following facts in support of his application.

The relationship between Mr and Mrs Sellars

[12]   As noted, Mr and Mrs Sellers are not on good terms. Although they agreed to the sale of a different property which was owned by a company of which they personally owned the shares, and to use of part of the proceeds of sale of that property to pay overdue mortgage interest on the Trust’s property at Oratia, no further agreement has been reached to pay further sums to the mortgagee of the Oratia property, the ANZ Bank, or in relation to division of the funds held by them personally, which are relationship property, or in relation to sale of the Oratia property.

[13]   As I will relate below, Mrs Sellers lives in the Oratia property against the wishes of Mr Sellers, she refuses to either move from it or to sell it, and she has at various times sublet rooms in the property without Mr Sellers’ consent as co-trustee, contrary to his express wishes in that capacity, and without accounting to the Trust for any rent received. There is evidence linking Mrs Sellers to the use, if not also the manufacture, of methamphetamine at the property. Mr and Mrs Sellers have two children now aged 12 and 11. According to Mr Sellers, Mrs Sellers has not seen either child since August 2018.

[14]   It is plain from this evidence that Mr and Mrs Sellers are unable to make joint decisions on issues relating to Trust property. Clause 8.3 of the Trust Deed requires that decisions of the trustees must be unanimous. Clause 26 provides that a corporate trustee may act as the sole trustee or as one of the trustees, and that unless

4      Khanna v Khanna [2014] NZHC 1715.

a corporate trustee is appointed as sole trustee there must always be at least two trustees.

The Trust’s financial position

[15]   The Oratia property is the only asset of the Trust. A registered valuation obtained  in  January 2017  assesses  its  value  at  $1,085,000.  This  was  based  on a resource consent then held, for subdivision of the property, which expires in 2021. The 2019/2020 capital value of the property is $820,000. Late in 2018 facts came to light which may reflect adversely on these assessments of value.

[16]   As at April 2019 the mortgagee, ANZ Bank, was owed $519,063.58. The sum required to repay the mortgage will be greater now, as interest is not being paid.

[17]   The Trust has not received any rent  from  the  Oratia  property  since  January 2018 when Mrs Sellers moved into the property without Mr Sellers’ consent. She has told Mr Sellers that she received rental of $700 per week, as at May 2018, for rooms she lets. She does not pay interest to the ANZ Bank. Mr Sellers is unable to meet mortgage repayments from his income as he is paying for rental accommodation for himself and the children and paying all their living costs.

[18]   Interest has therefore fallen well into arrears on the mortgage. In October 2018 the ANZ Bank issued a final demand requiring repayment of arrears of $22,690.02. A further demand was served on 19 November 2018 requiring payment of $22,877.58 including costs. Default notices have been issued under the Property Law Act. By February 2019 arrears and costs were $36,717.33. The Bank has evidently agreed to wait until the end of June 2019 before taking further action.

Methamphetamine

[19]   Late in 2017, Mr and Mrs Sellers agreed as trustees that the Oratia property should be sold. To that end Mr Sellers inspected it early in December 2017 and found it to be in a tidy state, generally in good condition, and not requiring much work to prepare it for sale. Photographs for marketing purposes were to  be  taken  in  January 2018. Before that occurred, Mrs Sellers moved into the property, evidently

with a new partner. That month Mr Sellers re-inspected the property. He describes it as being in a terrible state. He says there were clothes, general belongings and rubbish throughout the house,  and  the bathroom  and kitchen  were messy and unclean. As  a result he cancelled the photographer and decided that the Trust should market the property using older external photos only because of the state of the house, and the fact that he could no longer gain access to it to tidy it and take new photographs. A firm of real estate agents had been engaged but in February 2018 the firm cancelled its agency due to the state of the property.

[20]   During Mr Sellers’ visit in  January 2018,  Mrs Sellers’  partner  spoke  to  Mr Sellers about Mrs Sellers’ use of methamphetamine. Mr Sellers arranged for the property to be tested. Both the upstairs and downstairs levels of the house tested positive for the presence of traces of methamphetamine, with the downstairs area being 10 times over the recommended limit for occupation.

[21]   Whilst the test report indicated it was highly unlikely that methamphetamine had been manufactured, doubt was caste on this later. In December 2018 the Police contacted Mr Sellers and advised that when investigating a stolen vehicle which had been found at the Oratia property, they noticed evidence of methamphetamine manufacture, and as  a  result  obtained  a  search  warrant.  The  Police  informed  Mr Sellers that when they executed the search warrant in October 2018 they found devices used to manufacture methamphetamine. They also took swabs, the results of which confirmed that methamphetamine had been manufactured at the property.

[22]   A written report provided by the Police’s National Clandestine Laboratory Response Team records that a number of drug related items were located at the property on 25 October 2018. Levels of methamphetamine in the garage and under the house were so high that the Police advised that the manufacture of methamphetamine had to have taken place in those parts of the property. Both ephedrine and pseudoephedrine were found.

[23]   Mr Sellers sent the report to Mrs Sellers and asked her to vacate the property immediately. She has not done so.

[24]   The Police also contacted the Auckland Council. The Council has taken steps under the Health Act 1956 on the basis that the house is unfit for human habitation due to its unsanitary condition. The Council requires the Trust to employ the services of suitably qualified and experienced person to determine the level of contamination, and if above allowable levels, as the Police report states, employ someone to decontaminate the property.

[25]   Compliance with this notice was required by 24 January 2019. Mr Sellers sent this information to Mrs Sellers, again asking her to vacate the property. She did not do so.

[26]   A closing order was then sent to Mr Sellers by the Council. The Council advised that the order was also going to be sent to Mrs Sellers. The order required that the property be vacated by 1 February 2019. Again, the Council required the property to be tested.

[27]   Mr Sellers asked Mrs Sellers again to move out so that the Trust could comply with the closing order. Mrs Sellers refused. Instead, she filed a notice of appeal in the District Court. The Court has dismissed that appeal.

The proposed corporate trustee

[28]   Evidence from Ms C A Atchison, a partner in Martelli McKegg, solicitors of Auckland, establishes that she is the sole director and shareholder of Sellers Family Independent Trustee Company Ltd (“the company”), the proposed trustee to replace Mr and Mrs Sellers. Ms Atchison advises that the company has been established for the sole purpose of accepting appointment. As part of her practice in the area of trusts and estates, Ms Atchison often accepts appointments as an independent executor and trustee, and regularly acts in this capacity. She is also appointed by the Court to such roles on a regular basis, and currently holds four such appointments.

[29]   Ms Atchison advises that she does not personally know either of the current trustees or either of the other beneficiaries, Mr and Mrs Sellers’ two sons. This confirms Mr Sellers’ evidence to the same effect. Ms Atchison says she is not aware of any conflict which would prevent the company from taking on its role. It is prepared

to do so on the removal of both Mr and Mrs Sellers as trustees. Ms Atchison advises that she is aware that there are current relationship property issues between Mr and Mrs Sellers which need to be resolved. She confirms that if the company is appointed she will neither resign or otherwise alter her role as the sole director and shareholder of the company, without consent of the Court.

[30]   Ms Atchison says that if appointed, the property will be vested in the name of the company as the new trustee. This will not affect the position of the mortgagee. After vesting, and if agreement can still not be reached with Mr and Mrs Sellers on what should be done, the company will sell the property, pay selling fees and costs, and repay the Trust’s debts. The company will charge an hourly rate for its services.

Discussion

[31]I find the following to be established by the evidence:

(a)Mr and Mrs Sellers are unable to make decisions unanimously or work co-operatively together in the interests of the beneficiaries of the Trust. Their relationship has broken down. Mrs Sellers is not responding appropriately to the pressing need to deal with the state of the Trust property. Indeed, she is personally responsible for that state, whether directly or indirectly, on the evidence before the Court. There is evidence that persons on the property during the time of her occupation have been engaged in criminal conduct. Rather than complying with the requirements of both  Mr Sellers  and  the  Auckland  Council, Mrs Sellers’ response was to appeal the decision of the Council despite Mr Sellers’ requests. Mr and Mrs Sellers have not been able to reach agreement to use other monies available to them from a company in which they own all the shares, to clear arrears or keep mortgage payments current.

(b)The evidence establishes that the sole asset of the Trust is deteriorating due to the manner in which it is being used. Although there is no assessment before the Court of its present value, it seems a reasonable inference that both its value and its saleability will have been materially

adversely affected by the manufacture of methamphetamine, and use of that drug, on  the  property.  It  is  plainly  seriously  contaminated. Mrs Sellers is not doing anything about this and is blocking Mr Sellers from doing so.

(c)The financial position of the Trust is deteriorating. It is under financial pressure from the mortgagee of its sole asset, which has been tolerant to this point but has plainly reached the end of its tether. The Trust faces a forced sale of its sole asset within a matter of days if appropriate action is not taken to satisfy the trustees’ contractual obligations to the Bank. This is due to the actions and decisions of Mrs Sellers.

(d)Mrs Sellers has been receiving rent from tenants which has not been paid to the Bank in accordance with her obligations as a trustee.

Conclusions

[32]   I have reached the following conclusions, each to the standard required for entry of summary judgment, namely that there is no defence to Mr Sellers’ claim:

(a)Mrs Sellers is in breach of her duties as a trustee in the ways described in para 31 and cannot any longer hold that office.

(b)Mr and Mrs Sellers can no longer unanimously decide issues relating to the Trust, or work together as trustees, as the law requires.

(c)The Trust Deed  requires  that  there  be  two  individual  trustees,  or a corporate trustee. Given the difficulties Mr Sellers has in dealing with Mrs Sellers, it is appropriate that he too be replaced as a trustee.

(d)Sellers Family Independent Trustee Company Ltd is a suitable trustee to be appointed to office by  this  Court  to  replace  both  Mr  and  Mrs Sellers as trustees. Under the terms of the Trust Deed, it can operate as the sole trustee of the Trust.

(e)The steps it proposes to take, and the fees it proposes to charge, as set out in Ms Atchison’s affidavit are appropriate.

(f)A vesting order in respect of the Oratia property in favour of the new trustee should also be made.

Outcome

[33]I make orders by way of summary judgment as set out in [2] of this judgment.

[34]   I further reserve leave to the new trustee to apply to the Court for such further orders as it may require in order to obtain vacant possession of the property and to undertake a sale of the property, or otherwise as it may require.

Costs

[35]   Mr Sellers seeks costs. He is plainly entitled to an order: Mrs Sellers will pay to him costs on a 2B basis, plus disbursements fixed by the Registrar.

Joinder

[36]   This case is brought by Mr Sellers in  his  capacity  as  a  trustee,  against  Mrs Sellers in the same capacity. In the substantive proceeding, declarations are sought that Mrs Sellers is not entitled to an indemnity from the assets of the Trust for this adverse costs award, or for her own costs. Those issues are not presently before the Court on this application. Now Mr Sellers is no longer a trustee, that application should be brought by the new trustee, if it elects to do so. On the face of it, Mr Sellers is now functus officio.

[37]   To  this end, and in order to avoid the costs of  an interlocutory application,    I make an order joining Sellers Family Independent Trustee Company Ltd as second plaintiff, but on the basis that this order will lie in Court until 5pm on 28 June 2019. At that time, it will become a final order unless before then Ms Atchison, director of the company, who is herself a solicitor, advises the Court that the company does not seek this order.

[38]   For the avoidance of doubt, the orders made in [33] of this judgment may be sealed in the meantime.

Associate Judge Matthews

Solicitors:

Morris Legal, Auckland Mrs C Sellers (Defendant)