Slater v Slater
[2018] NZHC 1766
•17 July 2018
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2017-419-0361
[2018] NZHC 1766
BETWEEN KATE JULIA MOLLY SLATER
Plaintiff
AND
BRETT MURRAY SLATER
Defendant
Hearing: 30 May 2018 Appearances:
N Levy for the Plaintiff
D J Taylor for the Defendant
Judgment:
17 July 2018
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 17 July 2018 at 12.30pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Rachael Dewar Law, Wellington N Levy, Wellington
Bogers Scott and Shortland, Hamilton D J Taylor, Hamilton
SLATER v SLATER [2018] NZHC 1766 [17 July 2018]
Introduction
[1] The plaintiff (Ms Slater) is the daughter of the defendant (Mr Slater). She is now 21 years old.
[2] In this proceeding, Ms Slater applied for an order under s 68 of the Trustee Act 1956 (the Act), directing Mr Slater to take all necessary steps to transfer to her a share portfolio, reckoned to be worth approximately $285,000, held (in the name of Mr Slater and his ex-wife, Ms Susan Kenrick) by Craig's Investment Partners (Craig's). Ms Slater contended that the share portfolio was held on trust for her, and that, having reached the age of majority, she was entitled to call for the shares to be transferred to her, thus bringing the trust to an end. Ms Kenrick agreed to transfer the shares, but Mr Slater did not agree.
[3] Because she believed that Mr Slater had no defence to the claim, Ms Slater applied for summary judgment on her claim, and the summary judgment application came before me for a defended hearing on 30 May 2018. After hearing argument from counsel I reserved my decision, but counsel have since advised that the parties have reached a settlement under which Mr Slater has agreed to transfer the share portfolio to Ms Slater, subject to a sum of money being retained to cover his costs to date. The parties have not been able to agree on costs, however, and the Court is asked to give judgment on costs. I now give judgment on the parties' respective costs claims.
[4] An important issue in determining Mr Slater's costs claim will be whether he has acted reasonably in the dispute. For that reason, it is necessary to set out the nature of the dispute and the positions taken by the parties.
[5] Ms Slater says that at various times in her childhood Mr Slater and her mother, Ms Kenrick, purchased shares and held those shares for her in a Craig's account styled "Ms Susan Mary Kenrick & Mr Brett Murray Slater (o/a Miss Kate Julia Slater)".
[6] When she came of age in 2017, Ms Slater wanted to have the share portfolio transferred to herself. Mr Slater expressed concerns about the need for further inquiry into what he contended were missing assets of the trust (allegedly misappropriated by Ms Kenrick), and the possibility that there may have been intermingling of the trust
funds held for Ms Slater with funds owned by a similar trust Mr Slater and Ms Kenrick had established for Ms Slater's younger brother.
[7] Ms Slater's counsel was unable to resolve the issue with Mr Slater and, in December 2017, she filed the present proceeding.
Mr Slater's opposition
[8] It will be convenient to summarise Mr Slater's opposition to the summary judgment application before describing Ms Slater's evidence.
[9] Mr Slater did not deny that the Craig's share portfolio was held by Craig's on a trust for Ms Slater, or that the trustees of the trust were his ex-wife Ms Kenrick and himself. It is also common ground that the trust was a bare trust – there was no trust deed or other document setting out the specific terms of the trust.
[10] Nor did Mr Slater contend that Ms Slater was not entitled to have the trust fund transferred to her, and the trust brought to an end, now that she has come of age – his contention in his notice of opposition was that the trust fund still had to bear the cost of completing necessary financial enquiries to ascertain what funds had been taken, what the trust's losses were as a consequence, and where the misappropriated funds are now. The outcome of that financial enquiry might involve consequential issues such as the removal of a trustee, or the making of orders tracing any misappropriated funds.
[11] Mr Slater explained the background of the trusts established for Ms Slater and her brother as follows:
My intention when Kate and then [Ms Slater's brother] was born was to set aside money regularly for them so that when they were of an age, the money would be available for their education and general advancement in life. I set up the simplest administrative structure that was possible. A bank account was opened with the Westpac Bank, one for Kate and one for [Ms Slater's brother]. Money was paid into the accounts each month, from memory,
$500.00 per month each. Investments were made, interest was accumulated and added to capital so the fund grew by that means as well.
[12]Mr Slater said that in 2005 or 2006 some properties were sold for a total of
$1.2 million, and approximately $500,000-$600,000 from the proceeds was applied equally to the trusts for Ms Slater and her brother.
[13] Mr Slater and Ms Kenrick separated in December 2011, and proceedings under the Property (Relationships) Act 1976 (the property proceedings) were subsequently filed in this Court.
[14] Mr Slater said that Ms Kenrick is a qualified accountant, and that during their marriage she had complete control over the investment of the trust funds and their management. The investments were discussed, but Ms Kenrick had signing authority on the bank accounts, and "managed everything".
[15] Mr Slater said that, a little over two years after the separation, Ms Kenrick filed in bankruptcy. He expressed the belief that she had already "helped herself to trust moneys because it was a very simple thing for her to do". He said that he asked for financial records and accounts, but Ms Kenrick never provided them. In September 2014 he gave up on the efforts he and Ms Kenrick had been making to restructure the trusts for the children, as everything had become very difficult.
[16] The property proceedings were eventually resolved in September 2014. It appears that the last unresolved matter was a counterclaim by Mr Slater relating to the children's share portfolio. In the counterclaim, Mr Slater had alleged that Ms Kenrick wrongfully utilised funds from the children's share portfolio for her own purposes. Remedies were sought requiring her to account to the children for the use of funds held on their behalf.
[17] Mr Slater did not pursue this counterclaim, and on 3 September 2014 Duffy J made an order striking it out for want of prosecution.
[18] Mr Slater said that Ms Kenrick was not reliable at producing financial statements, and in the end he prepared financial statements for the 2008 financial year (the last year for which accounts for the trust were produced) himself. He said that the separation was acrimonious and that after the separation Ms Kenrick retained all
records relating to the trusts (bank statements, financial statements and electronic records, as well as the children's tax returns). Mr Slater said he has asked for the financial records and accounts for the trusts, but Ms Kenrick has never provided them.
[19] Mr Slater said that without access to the financial records for the trust he could not say what the trust funds should have amounted to. He acknowledged that some of the investments may have made capital losses, but expressed the view that, prudently managed, the trust funds should have been worth in the range of $440,000 each.
[20] In addition to the Craig's share portfolio, the trusts for Ms Slater and her brother also held investments with Limerick Consultants. Shortly after the separation Mr Slater wrote to both Craig's and Limerick advising them not to act on instructions from Ms Kenrick to withdraw any investments, without his authority. Craig's retained the investments held by them, but the Limerick investments were realised, with the proceeds paid into a Westpac bank account in the names of Ms Kenrick and Ms Slater on or about 1 March 2016. Dividends and interest from the trust investments for Ms Slater had been paid into this account by Craig's and Limerick over the years, and payments were made from the account for Ms Slater's school fees and other expenses.
[21] One of the principal concerns expressed by Mr Slater was that neither Ms Kenrick nor Ms Slater were prepared to provide him with copies of the Westpac account, so that he could see where the various dividends and interest payments, and the realisation of the Limerick investment, had gone.
[22] In his notice of opposition, Mr Slater contended that it was not appropriate to transfer the share portfolio to Ms Slater at the present time, because the administration of the trust was incomplete. He alleged that Ms Kendrick had misappropriated trust funds and paid or applied them for her own benefit, with the apparent knowledge and consent of Ms Slater. Ms Kendrick and Ms Slater were alleged to have refused to account to him for the application of the trust funds, other than the balance of the funds held in the share portfolio. Given that all of the money passed through a Westpac account and the trust income would have to have been returned as part of the annual tax returns for Ms Slater and her brother, it would have been quite a simple matter to provide the information Mr Slater has requested, at no great cost.
[23] Ms Slater provided copies of statements for the Westpac account, going back to February 2012, with her reply affidavit. Mr Slater then filed a further affidavit. He said that he still considered that there appeared to be money unaccounted for, and he questioned some of the payments made from the account to Ms Kenrick's personal account (even though they purported to be for some educational purpose). Nevertheless, he accepted that if Ms Slater was prepared to give an appropriate indemnity he would agree to transfer the Craig's portfolio to her, less his costs.
Ms Slater's evidence
[24] Ms Slater provided the usual affidavit in support, deposing to the truth of the matters set out in her statement of claim, and as to her belief that Mr Slater had no defence to the claim. She also attached certain correspondence passing between counsel, and also extracts from documents filed in the property proceedings.
[25] In her reply affidavit, she said that, from her perspective, there were no suspicious transactions shown in the bank statements, and that she saw no need for a financial enquiry into the management of the trust of the Craig's share portfolio and the Westpac bank account.
The correspondence between the parties in 2017
[26] Ms Slater's solicitors wrote to Mr Slater as early as 24 May 2017 asking him to contact Craig's to arrange the transfer. Mr Slater replied on 31 May 2017, contending that he had been prevented from accessing details of the funds for several years, and had concerns as to what had happened to the funds and their income, and what was then available. He asked for copies of statements recording all transactions dealing with the funds and their income since 1 April 2009.
[27] Ms Slater's solicitors responded on 2 June 2017, providing Mr Slater with the most recent report from Craig's, which they considered would provide Mr Slater with all the information he needed.
[28] Mr Slater replied on 27 June 2017, saying that Ms Slater's solicitors had not provided the information he requested, and the "missing funds" had not been
accounted for. He suggested that it would be negligent for a trustee to make a decision without facts, and that costs for actions against a trustee would be met from the trust. He expressed the view that the Court was the only way to uncover the transactions for the last six years.
[29] Counsel was then instructed, and Ms Levy wrote to Mr Slater on 2 August 2017 asking for his consent to the transfer of the share portfolio.
[30] Mr Slater replied by email the following day, saying that he was concerned about his liability as trustee. He said that, to protect his position, Ms Slater would either need to get a Court order (which would require her to disclose the information he had requested) or provide him with a "suitable indemnity". In a further email, dated 4 August 2017, Mr Slater said he would require "a full and wide indemnity from [Ms Slater]". He also wanted an indemnity from Ms Kenrick. He asked Ms Levy to send a draft form of indemnity in a format that he could edit.
[31] Mr Taylor was later instructed. He wrote to Ms Levy on 26 October 2017, advising that Mr Slater remained willing to transfer the trust property to Ms Slater (and, in time, transfer to her brother the assets of his trust when he came of age). However, Mr Slater required an indemnity which recorded adequately the background and history, and which gave him a full indemnity so that neither Ms Slater nor her brother could say that they were unaware of the issues. If Ms Slater was prepared to do that, Mr Slater would "leave the decision to [Ms Slater]".
[32] Ms Levy replied on 1 November 2017, advising that she was not sure exactly what sort of indemnity Mr Slater required. She said Ms Slater was happy to acknowledge receipt of Mr Taylor's letter containing his advice about what he understood the accounts would contain.
[33] There was no substantive reply to Ms Levy's letter of 1 November 2017, and this proceeding was filed on 14 December 2017.
Ms Slater's claim is settled, apart from costs
[34] By memorandum dated 12 June 2018, counsel confirmed that a settlement has been achieved, under which the Craig's share portfolio has been transferred to Ms Slater, subject to the retention of $20,000 to secure Mr Slater's claim for his costs as trustee.
[35] Counsel advised that Ms Slater has not agreed that the sum of $20,000 is an appropriate amount for the defendant's costs, or specifically that he has incurred costs in that sum, or if he has, whether that sum is reasonable. Before the hearing Ms Slater had offered $3,000 for Mr Slater's costs. Mr Slater says that that was after he had served his first affidavit, when his costs were said to be just over $10,800. Ms Slater does not accept that $10,800 would then have been appropriate; scale costs would have been significantly less.
Two trusts or one?
[36] Mr Slater's position was that there was only one relevant trust established for Ms Slater and it was the trust into which half of the $500,000-$600,000 proceeds of the sale of the property was paid in 2005 or 2006. He contended that money must have gone missing from this trust.
[37] Ms Slater says there were two trusts, the first being the bare trust of the Craig's share portfolio with which her present proceedings is concerned and the second being the family trust called the Kate Slater Family Trust. In support of her belief that two trusts existed, she noted an entry in the Westpac account on 30 November 2011 showing a bill payment to a payee described as the "K S Family Trust". She also referred to an affidavit sworn in the property proceedings by Ms Kenrick, on 21 August 2014, that referred to the execution of trusts for the Kate Slater Family Trust in December 2010. Ms Slater believed that if substantial payments were made from the property sale proceeds as stated by Mr Slater, they may have been paid into the Kate Slater Family Trust.
[38] Mr Slater disagreed with that in his sur-reply affidavit. He denied that he had been talking about a different trust in his affidavit.
[39] As it happens, I do not think it matters whether there was one trust or two. In the end it was common ground that the Craig's share portfolio was held by Ms Kenrick and Mr Slater subject to a bare trust in favour of Ms Slater, and that (subject to costs issues being resolved) she was entitled to call for the transfer of that asset.
Relevant provisions of the Act
[40]Section 15(1)(l) of the Act provides:
15 Miscellaneous powers in respect of property
(1)Every trustee may exercise the following powers in respect of any property for the time being vested in him:
…
(l) do or omit all acts and things, and execute all instruments necessary to carry into effect the powers and authorities given by this Act or by or under the instrument creating the trust.
[41]Section 68 of the Act provides:
68 Applications to court to review acts and decisions of trustee
(1)Any person who is beneficially interested in any trust property, and who is aggrieved by any act or omission or decision of a trustee in the exercise of any power conferred by this Act, or who has reasonable grounds to anticipate any such act or omission or decision of a trustee by which he will be aggrieved, may apply to the court to review the act or omission or decision or to give directions in respect of the anticipated act or omission or decision; and the court may require the trustee to appear before it, and to substantiate and uphold the grounds of the act or omission or decision that is being reviewed, and may make such order in the premises as the circumstances of the case may require: provided that no such order shall—
(a)disturb any distribution of the trust property made without breach of trust before the trustee became aware of the making of the application to the court:
(b)affect any right acquired by any person in good faith and for valuable consideration.
(2)Where any such application is made, the court may,—
(a)if any question of fact is involved, direct how the question shall be determined:
(b)if the court is being asked to make an order that may prejudicially affect the rights of any person who is not a party
to the proceedings, direct that any such person shall be made a party to the proceedings.
[42] Sections 38(2) and 71 of the Act are concerned with costs. Section 38(2) provides:
38 Implied indemnity of trustees
…
(2) A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; but, except as provided in this Act or any other Act or as agreed by the persons beneficially interested under the trust, no trustee shall be allowed the costs of any professional services performed by him in the execution of the trusts or powers unless the contrary is expressly declared by the instrument creating the trust:
provided that the court may on the application of the trustee allow such costs as in the circumstances seem just.
[43]Section 71 provides:
71 Power of court to charge costs on trust estate
The court may order the costs and expenses of and incidental to any application for any order under this Act, or of and incidental to any such order, or any conveyance or assignment in pursuance thereof, to be raised and paid out of the property in respect whereof the same is made, or out of the income thereof, or to be borne and paid in such manner and by such persons as to the court may seem just.
Counsel's submissions
Ms Levy
[44] In support, Ms Levy submitted that Mr Slater has acted unreasonably, given that his duty under the principle in Saunders v Vautier 1 was to hand over the trust fund to the beneficiary when she requested it. Mr Slater created his own problem as a reason for not doing what he was obliged to do as a trustee.
[45] Mr Slater's claims of misappropriation of the trust fund by Ms Kenrick were dealt with when his counterclaim in the property proceedings was struck out in September 2014, and he cannot raise them in this proceeding.
1 Saunders v Vautier (1841) 4 Beav. 115; 49 ER 282.
[46] Ms Levy submitted that the proceeding is concerned only with the share portfolio, which the parties agreed in the course of the property proceedings was held on a bare trust for Ms Slater.
[47] Only properly incurred expenses can be recovered by Mr Slater from the trust funds, and his defence to the summary judgment application has been unreasonable and unnecessary.
Mr Taylor
[48] Mr Taylor acknowledged that, since the bank statements were received with the reply affidavit from Ms Slater, there was nothing standing in the way of payment out to Ms Slater of the Craig's share portfolio (subject to costs issues). He said that it had always been Mr Slater's intention that, if he had the information he was seeking, the money could be transferred. However, costs have remained an issue. While Ms Slater has agreed to provide an indemnity to Mr Slater, she has not been prepared to agree to him deducting legal costs (except the $3,000 offered after Mr Slater's affidavit was served).
[49] Mr Taylor submitted that the Court did not have jurisdiction under s 68 of the Act to make the orders sought by Ms Slater. The court's power to review under s 68 is not exercisable unless there is actually a power conferred by the Act itself that has been invoked. He relied on re Havill (deceased) 2 and Craddock v Crowthall 3 in support.
[50] If the rule in Saunders v Vautier applied, creating a duty on the trustees to convey the trust property to the beneficiary when called upon by her to do so, it only operated from the time copies of the Westpac bank statements were provided to Mr Slater, and he had sufficient information to properly assess whether his duties as trustee to get in trust assets and pay trust liabilities had been discharged.
[51] Mr Taylor submitted that the striking out of Mr Slater's counterclaim in the property proceedings did not prevent him from raising the misappropriation claims in
2 re Havill (deceased) [1968] NZLR 116.
3 Craddock v Crowthall HC Christchurch, M425/92, 10 February 1995.
this proceeding. Those claims were not resolved in the property proceedings: the counterclaim was set down for a one day hearing, and at the time Mr Slater simply elected not to pursue it. Mr Taylor submitted that those circumstances did not create any issue estoppel, or make the raising of the misappropriation claims in this proceeding an abuse of process.
[52] On the question of Mr Slater's conduct generally, Mr Taylor submitted that a trustee defendant must be found to have been acting quite unreasonably to be deprived of his costs. He accepted that Mr Slater should have done a better job in pursuing the misappropriation claims in the property proceedings, and it is not clear why he did not then seek and obtain discovery of relevant documents (he submitted that the likely explanation is that Mr Slater gave up, "after years of battling with his former wife"). However, those matters do not reach the "unreasonable conduct" threshold which would be necessary to deprive Mr Slater of his ordinary entitlement as a trustee to have his costs reimbursed.
[53] Mr Slater is also a trustee of the trust for Ms Slater's younger brother, and Mr Slater had to have regard to both trusts – the trust for Ms Slater could not be viewed in isolation.
[54] Mr Taylor acknowledged that the bank statements did not appear to indicate any mixing of moneys from Ms Slater's brother's trust with moneys from her trust – as Mr Taylor put it, there is no obvious reason to suspect that money from the brother's trust has been paid to Ms Slater, or into the Westpac account and out to Ms Kenrick. The only evidence of intermingling related to the funds paid out by Limerick – they were paid into the Westpac account, and then half was paid out into another account, presumably that of Ms Slater's brother.
[55] Mr Taylor submitted that Mr Slater is entitled to an indemnity from the trust both in respect of claims by any third parties who might have some claim on the trust assets, and also in respect of his own costs in this litigation.4 He acknowledged that it appeared there would be no third party claims – the manager of the trust fund would deduct its fees from the trust fund before making payment, and the only other potential
4 Referring to Hardoon v Belilios [901] AC 118 (PC) at 123 and 124.
claimants would have been the trustees of Ms Slater's brother's trust, if there had been any wrongful intermingling of funds between the two trusts. The Westpac statements do not show any such intermingling.
[56] On his claim to have Mr Slater's litigation costs paid by the trust, Mr Taylor relied on McDonald v Horn 5 for the proposition that a trustee of a fund is entitled to litigation costs from the fund on an indemnity basis if he or she has not acted unreasonably, or in substance for the trustee's own benefit rather than that of the fund.
[57] Mr Taylor summed up his submissions on this point by submitting: "it must be the rarest of cases in which the court would decline to order indemnity to a trustee for legal costs the trustee incurred in an effort to secure minimal financial information of irregularities and possible malfeasance by a co-trustee with whom the defendant is jointly liable".
Ms Levy's submissions in reply
[58] Ms Levy submitted that Ms Slater had no obligation to provide the bank statements, or take any other step with regard to the trust. She did have access to the bank statements, but that does not affect the position. Any requests Mr Slater may have wished to make for further information should have been made to Ms Kenrick.
[59] Ms Slater did offer an indemnity to Mr Slater in respect of costs he might incur as trustee if he transferred the trust assets to her, but that did not result in Mr Slater agreeing to transfer the assets.
[60] Ms Levy objected to Mr Taylor's submission that the Court has no jurisdiction to make the orders sought under s 68 of the Act. The argument was not raised in Mr Slater's notice of opposition, and he should not have been allowed to raise it at the eleventh hour. If the Court was prepared to consider Mr Taylor's s 68 jurisdiction argument, Ms Levy submitted that the authorities referred to by Mr Taylor were distinguishable, as they were not cases where the powers being exercised by the trustees were statutory powers, either because they did not appear in the powers listed
5 McDonald v Horn[1995] 1 All ER 961 at 970. Rule 14.6(4)(c) of the High Court Rules, relating to payment of costs from a relevant fund, is to similar effect.
in the Act at all (Craddock v Crowthall), or because they were powers conferred by a will which were different from and went beyond the powers conferred by the Act (re Havill (deceased)). In this case, the relevant trustees' powers were conferred by s 15(1)(l) of the Act. She referred in support to the decision of Wild J in Marshall v Mason.6
[61] If the Court came to the view that it did not have jurisdiction under s 68, Ms Levy asked in the alternative for leave to amend the statement of claim and application for summary judgment, by adding an alternative claim for an order directing Mr Slater to join in the transfer of the share portfolio to Ms Slater, in the discharge of his duty under the rule in Saunders v Vautier.
[62] Ms Levy submitted that it was neither reasonable nor appropriate for Mr Slater to defer complying with his duty under the rule in Saunders v Vautier until he received the copies of the Westpac bank statements.
Discussion and conclusions
[63]There are two costs applications to address:
(a)Mr Slater's application for reimbursement of all of his costs; and
(b)an application by Ms Slater for costs on a 2B basis.
[64]I address first the claim by Mr Slater for his costs.
[65] The relevant statutory provisions are ss 38(2) and 71 of the Act. The starting point is that a trustee may reimburse himself or herself, or pay or discharge out of the trust property, all expenses reasonably incurred in or about the execution of the trusts or powers.7
6 Marshall v Mason HC Nelson CP17/98, 24 February 2000.
7 Section 38(2) of the Act.
[66] In Triezenberg v Mason,8 Venning J referred to the decision of Hammond J in Re O'Donoghue, where the learned Judge noted that the principle that expenses must be properly incurred necessarily requires a trustee, if called upon, to demonstrate (i) that the expenses arose out of an act falling within the scope of the trusteeship, (ii) whether it was something that his or her obligations required the trustee to undertake, and (iii) whether the expense incurred was, in all the circumstances, reasonable.9
[67] Hammond J considered that the notion that a trustee must act "reasonably" is necessarily qualified in various ways. First, the trustee does not have a limitless ability to resort to the law: the trustee's function is to assert the interest of the beneficiaries only to a point where there is a judicial ruling on something that is properly required, such as the construction of a fairly debateable point in an instrument, or whether the trustee ought to take a certain course. Secondly, a trustee is not entitled to expenses arising out of his own misconduct.10
[68] In Butterfield v Public Trust, 11 the Court of Appeal confirmed that a trustee's right to indemnity for reasonable costs and expenses incurred in the administration of the trust is, in the first instance, against the trust and its assets. Exercising its supervisory jurisdiction, the Court will review costs and expenses incurred to ensure they are both necessarily incurred in the interests of the trust and reasonable in extent. Unnecessary proceedings, or the taking of unnecessary procedural steps needlessly increasing costs, may mitigate (or eliminate) the right of indemnity.12
[69]Applying that approach in this case, a number of matters are clear.
[70] First, Ms Slater had the right to call for the Craig's share portfolio to be transferred to her. Where all beneficiaries of a trust are of full age and capacity, the beneficiaries can call upon the trustees to convey the trust property to them and bring the trust to an end.13 The authors of Equity and Trusts in New Zealand note that the
8 Triezenberg v Mason [2018] NZHC 186 at [7].
9 Re O'Donoghue [1998] 1 NZLR 116 at 121-122.
10 At 122.
11 Butterfield v Public Trust [2017] NZCA 367.
12 At [20]-[21].
13 Andrew Butler, Equity and Trusts in New Zealand (2nd ed Thomson Reuters, 2009), referring to
Saunders v Vautier above n 1.
rule in Saunders v Vautier is subject to some qualifications, including the qualification that, while the trust is in existence, the trustee's duty remains to comply with the terms of the trust (including exercising the trustee's powers under the trust as he or she sees fit, so long as he or she acts in accordance with general principles and the terms of the trust).14
[71] Mr Slater did not contest the general right of Ms Slater to compel the transfer of the share portfolio to her – his position was essentially that there remained steps he needed to perform in his role as trustee. Those steps were (i) investigating and if necessary pursuing a claim against Ms Kenrick for misappropriating trust funds and
(ii) ensuring that the trust had no liabilities that would need to be discharged before the shares were transferred to Ms Slater. Also, he required to have his own costs secured before the shares were transferred. In the end, the possibility of claims against the trust (other than Mr Slater's claim for costs) boiled down to speculation that assets that were properly payable to Ms Slater's brother or to her brother's trust had been paid into the Westpac account and retained by Ms Kenrick or Ms Slater. This concern appears to have evaporated when Mr Slater saw the Westpac bank accounts, but I doubt that it was ever a proper concern in the first place. The Westpac account was not an account of the trust for Ms Slater – it was an account operated by Ms Kenrick and Ms Slater, in their personal capacities. If any assets of the brother's trust were wrongly paid to Ms Slater or Ms Kenrick that would no doubt have been a matter of concern to the trustees of the brother's trust, but I do not think Mr Slater needed to be concerned with it in his capacity as one of the trustees of Ms Slater's trust.
[72] On the issue of possible claims by the trust, Ms Slater made it clear to her father from fairly early in the piece that she did not require him to pursue any investigation of the alleged misappropriation of funds by Ms Kenrick. And, in or about August of 2017, Ms Slater's solicitors prepared a form of indemnity for Mr Slater to consider that would have (if Mr Slater had agreed to it) contained the following provisions:
F[Ms Slater] has no claim against [Mr Slater or Ms Kenrick] for any irregularities in the management of the trust shares, the [Limerick investment], or the income account at any time.
14 At 5.4.7.
G[Ms Slater] has no claim against either [Mr Slater or Ms Kenrick] for any breaches of fiduciary duty arising from their management of the trust shares, [the Limerick investment], or the income account at any time.
[73] The authors of Equity and Trusts in New Zealand note that, in general, a beneficiary will not be able to succeed in a claim against the trustee where the beneficiary grants a release to the trustee.15
[74] The correspondence shows that up to October 2017 Mr Slater was prepared to accept an indemnity from Ms Slater, but it appears that he changed his mind about that. In his affidavit sworn on 14 February 2018, he gave a number of reasons for the change of heart, including his lack of knowledge of what money had been taken from which trust, and where it had gone. He added that there was no assurance that money taken from Ms Slater's trust had been applied for her benefit, or that money taken from her brother's trust had been applied for his benefit. He said that he felt that the outstanding financial enquiry concerning these two trusts was a matter that could not be "brushed under the carpet", and that:
I do take my responsibilities as a trustee seriously, I consider that I am entitled to know what has happened to the money and where it is now, if it still exists. I think that sooner or later we will inevitably have to resolve this question of the outstanding financial enquiry and, if that is the case, then the sooner the better.
[75] I do not consider it was reasonable for Mr Slater to adopt that stance once Ms Slater had told him she did not require him to pursue the misappropriation claim, and offered him a release from any liability for not doing so.
[76] I add that a transfer of the Craig's share portfolio to Ms Slater would not have precluded any future claim against Ms Kenrick if Ms Slater had changed her mind on pursuing a claim against her mother, although I think Mr Slater would have been entitled to call upon Ms Slater to fund any such claim (at least if she had given him the indemnities and he had transferred the shares to her).16
15 Equity and Trusts in New Zealand, above n 13, at 5.4.9.
16 In saying that, I do not overlook Ms Levy's submission that any such claim against Ms Kenrick would have been an abuse of process, given that Mr Slater had already made such a claim and it had been struck out for want of prosecution. It is not necessary for this decision to make any finding on that submission, and I made no finding on it. It is enough for present purposes to note
[77] In the end, I think that once Ms Slater made it clear that she would indemnify Mr Slater in respect of any claims relating to irregularities, or breach of fiduciary duty, in the administration of the trust, the only real issue was the question of Mr Slater's costs.
[78] I conclude that, if Mr Slater had approached his daughter's request for a transfer of the shares reasonably, that could have been effected sometime around September or October of 2017, when Ms Slater made it clear that she was prepared to provide Mr Slater with appropriate indemnities. However, I consider that it would have been reasonable for Mr Slater to incur some expenses at that time in taking legal advice on the form of indemnity. I do not think it is possible on the evidence before me to discount entirely Mr Slater's concern as to the extent of the trust assets, and what became of the dividends and other moneys received into the Westpac account. I think it was reasonable for him to have some concerns, given his standing as one of the two trustees, Ms Kenrick's apparent control of all trust records, and her apparent failure to keep him fully advised of all trust receipts and payments. There is also the fact that apparently no financial statements were prepared over a lengthy period, and Ms Kenrick's bankruptcy between February 2014 and February 2017.
[79] Whether any claim against Ms Kenrick remained a possibility in circumstances where Ms Kenrick was an undisclosed bankrupt at the time Mr Slater's counterclaim was struck out, and no decision was ever made on the merits of the counterclaim, was also a matter on which Mr Slater might reasonably have been uncertain, and on which he would reasonably have wanted either a full indemnity from Ms Slater (if the claim against Ms Kenrick was not to be pursued), or legal advice that the misappropriation claim could not be pursued, before he agreed to transfer the shares.
[80] So I think it was reasonable for him to ask for the indemnities, and once they were proffered by Ms Slater, to take legal advice on them. But I do not consider it was reasonable for Mr Slater to change his mind on transferring the shares if appropriate indemnities were available (as they were by October 2017).
that the abuse of process argument would have been a factor to be weighed in deciding whether a new claim against Ms Kenrick had a reasonable prospect of success.
[81] In my view, it would have been reasonable for Mr Slater to incur expenses of up to say, $5,000 in late 2017 to take advice on the appropriate form of the indemnities Ms Slater would provide. Beyond that sum, it seems to me that the legal expenses incurred by Mr Slater, including his opposition to the summary judgment application, were not reasonably incurred. If Mr Slater had made it clear to his daughter in late 2017 that he needed to spend that sum to take advice on his position, and in particular whether the indemnities offered by Ms Slater afforded him sufficient protection, the matter could almost certainly have been resolved then, without the need for Court proceedings.
[82] Turning to Ms Slater's claim for costs on a 2B basis, I am not sure that the claim under s 68 of the Trustee Act was ever appropriate for a summary judgment application. Section 68 calls for a review by the Court of the trustee's relevant acts or omissions, and the Court "may require the trustee to appear before it, and to substantiate and uphold the grounds of the act or omission or decision that is being reviewed …". It is not easy to see how that jurisdiction fits within the summary judgment jurisdiction, where the plaintiff's task is to establish that the defendant has no reasonably arguable defence.
[83] Nor is it clear that the Court had jurisdiction under s 68. The section confers power on the Court in respect of a trustee's exercise "of any power conferred by this Act", but it is not clear what act or omission of Mr Slater was done or omitted in the exercise of a power conferred by the Act. Ms Levy relies on s 15(1)(l) of the Act, but that subsection itself refers back to "powers and authorities given by this Act", and accordingly does nothing to assist the search for some section or provision within the Act which could be the subject of a s 68 review by the Court.
[84] On the other hand, if it had been necessary I would have been prepared to grant the amendment sought by Ms Levy, to permit Ms Slater to add as an alternative cause of action a claim for the transfer of the share portfolio under the rule in Saunders v Vautier. Mr Taylor had no real answer to the claim based on the rule in Saunders v Vautier, beyond submitting that the obligation to transfer the trust assets to Ms Slater would not have arisen until Mr Slater had the Westpac bank statements. In view of the indemnities Ms Slater offered him in late 2017, I do not accept that submission.
Mr Slater knew enough in late 2017 to conclude that the only likely liability of Ms Slater's trust would be his own claim for costs, and he knew then that Ms Slater did not require the trustees to pursue any claims against Ms Kenrick (and was prepared to release the trustees from any obligation to make such claims).
[85] In the end, I think Ms Slater would ultimately have been entitled to judgment on a Saunders v Vautier claim, but with costs reduced to reflect the issues discussed above in respect of the s 68 claim and the need to amend. In my judgment, a fair award to Ms Slater is the sum of $2,000, together with disbursements as fixed by the Registrar.
Result
[86]I make the following orders:
(a)Of the $20,000 retained in accordance with the parties' agreement, Ms Slater is entitled to $15,000, and that sum is to be paid to her.
(b)Mr Slater is entitled to be reimbursed from the trust fund for reasonable expenses, in the sum of $5,000.
(c)Ms Slater's costs on the Court proceeding are fixed in the sum of
$2,000, together with disbursements as fixed by the Registrar.
(d)It should be possible for the parties to agree on any necessary "netting off" of the foregoing awards. However, I will refrain from dismissing the proceeding at this stage, in case there are further matters on which directions are sought from the Court. Counsel are asked to file a joint memorandum within 10 working days advising whether any further orders or directions are necessary, or whether the proceeding can now be dismissed.
Associate Judge Smith
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