Solomon-Rehe v Hokotehi Moriori Trust
[2015] NZHC 46
•6 March 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2014-485-10740 [2015] NZHC 46
UNDER the Trustee Act 1956 and the Charitable
Trusts Act 1957
IN THE MATTER OF
an application to remove trustees and direct fresh elections
BETWEEN
CHARLES LOUIS SOLOMON-REHE, ERIC THOMAS SOLOMON, ROSALIE MARY ANDERSON, ELAINE GOOMES, JULIA ANNE SCRIMGEOUR, ALFRED HENRY RETIMANA, THOMAS HENRY
LANAUZE, MARGARET JUNE SWAIN, AARON GRAEME DONALDSON, JAMES ALEXANDER EUGENE MATENGA
Plaintiffs
AND
HOKOTEHI MORIORI TRUST First Defendant
SHIRLEY JOYCE KING Second Defendant
AMANDA JUANITA KING Third Defendant
BRIAN JAMES SOLOMON Fourth Defendant
DENNIS GRAEME SOLOMON Fifth Defendant
LINDA-MAE SARAH ENTWISTLE Sixth Defendant
SOLOMON-REHE v HOKOTEHI MORIORI TRUST [2015] NZHC 46 [6 March 2015]
Hearing: 26-28 January 2015 Counsel:
P B Churchman QC and T H Bennion for plaintiffs
J P Ferguson and H K Irwin-Easthope for second to sixth defendants
C Linkhorn and H Carrad for Attorney-General
R Schmidt-McCleave and S Karipa for Te Ohu Kai Moana
Trustee LimitedJudgment:
6 March 2015
JUDGMENT (NO 2) OF BROWN J
Table of Contents
Paragraph No.
Overview [1] Issues [13] Was the 2010 amendment to the 2005 Trust Deed
validly made? [14]
Should the Court exercise jurisdiction to give effect
to the 2010 amendment? [28]
Was the August 2012 trustee election conducted in
accordance with the requirements of the 2005 Trust Deed? [36] The factual context [36] Analysis [41]
Was the cancellation of the August 2012 trustee election
by the defendant trustees justified? [53] The factual context [53] Analysis [66]
Were the trustees entitled to decline to hold further elections? [71] The factual context [71] Analysis [78]
Should the Court exercise its jurisdiction to remove
the trustees? [93] Orders [101] Costs [102]
Overview
[1] Hokotehi is the Moriori term for unity. The word was chosen as the name for a new united trust, Hokotehi Moriori Trust (the Trust), as an amalgamation of two previous coexistent Moriori organisations.1 The Trust was registered as a charitable trust in 2003 to manage the taonga of the Moriori people.
[2] Regrettably the trustees are now anything but united. It is common ground that there is an impasse between the defendant trustees (Shirley King, Amanda King, Brian Solomon, Dennis Solomon and Linda-Mae Entwistle) and three other persons who have been serving as trustees (Aaron Donaldson, James Matenga and Thomas Lanauze) which has been the catalyst for this proceeding seeking an order for the removal of the defendant trustees.
[3] The current state of trustee dysfunction is recognised by the intervention of the Attorney-General. In his role of protector of charities he seeks an immediate order for the removal of all those acting as trustees and the appointment of independent persons as interim trustees pending the holding of elections for new trustees.
[4] The outcomes sought by the plaintiffs and the defendant trustees reflect their inevitably partisan approaches. The plaintiffs apply to have the defendant trustees removed immediately on the grounds of their alleged unlawful and obstructive actions while seeking an order that Messrs Donaldson, Matenga and Lanauze should remain in place pending trustee elections. The defendant trustees take the position that all eight trustees should remain as interim trustees to work alongside any court-appointed trustees pending fresh elections. Their alternative position is that all
eight trustees should be removed.
1 Te Iwi Moriori Trust Board and Moriori Tchakat Henu Association of Rēkohu.
[5] In 2005 the Trust was recognised as a mandated iwi organisation pursuant to the Maori Fisheries Act 2004 (MFA) and received substantial settlement assets on behalf of Moriori imi. For that purpose amendments were made in 2005 to the Trust Deed (the 2005 Trust Deed). The commencement of this proceeding has prompted Te Ohu Kai Moana Trustee Ltd to also participate in the litigation because of its obligations to beneficiaries of the fisheries settlement with the Trust to ensure that the MFA provisions, including with respect to the actions of the trustees, are complied with.
[6] The genesis of the impasse appears to have been the purported cancellation by the defendant trustees of the trustee election held in August 2012 for one of the Rēkohu trustee positions after the votes were counted. At that election Thomas Lanauze secured a greater number of votes than the incumbent trustee, Shirley King. As a consequence of a resolution passed at the November 2012
Annual General Meeting the defendant trustees, Mr Donaldson and Mr Matenga have continued to act as trustees (together with Mr Lanauze) notwithstanding that (save for Mr Lanauze) their terms of office as trustees have since expired. Since that time no elections have been conducted.
[7] An issue central to the legitimacy of the 2012 election is whether a purported amendment in 2010 to the 2005 Trust Deed was validly made, it having been undertaken only by means of a postal vote.
[8] Clauses 5.1 and 5.2 of the 2005 Trust Deed provide:
5.1The Trust Board shall consist of no more than ten (10) nor fewer than eight (8) Trustees.
5.2Half (50%) of the Trustees shall be ordinarily resident on the Chatham Islands (including Rekohu and Rangiauria) and half shall ordinarily be resident on mainland New Zealand.
[9] Yet, of the 670 Moriori eligible to vote,2 the geographical spread is as follows: the largest number reside in the South Island, followed by those in the North Island and then those overseas. The smallest number of members3 live on Rēkohu (Chatham Islands) and Rangiauria (Pitt Island).
[10] In the postal vote conducted in 2010 more than 75 per cent4 of eligible voters favoured an amendment to reduce the number of trustees to seven, with three to be elected from Rēkohu/Rangiauria, three from the South Island and two from the North Island. However, that amendment will not have been validly made if, as is contended in this case, it was necessary for the amendment to have been considered at a properly convened Annual Hui (AGM) or a Hui a Moriori with the requisite quorum.
[11] The proceeding was granted urgency by Mallon J in a Minute dated
14 October 2014 and a two day hearing was allocated for 26–27 January 2015. The hearing occupied a third day consequent upon the time consumed in the cross-examination of Shirley King and Messrs Donaldson, Lanauze, Brian Solomon and Maui Solomon (the general manager of the Trust).
[12] In my Judgment (No 1) dated 30 January 2015 I made the following interim orders:
[3] An order removing:
(a) Shirley Joyce King
(b) Amanda Juanita King
(c) Brian James Solomon
(d) Dennis Graeme Solomon
(e) Linda-Mae Sarah Entwistle
(f) Aaron Graeme Donaldson
2 Being 18 years of age or over, as required by cl 13.1. There are another 400 members under the age of 18.
3 About 60.
4 The percentage threshold required by cl 21.1 of the Trust Deed.
(g) James Matenga
(h) Thomas Henry Lanauze
as trustees of the Hokotehi Moriori Trust (the Trust).
[4] An order appointing Roger Bruce Douglas Drummond, barrister and solicitor of Wellington and Graeme Robertson Mitchell, chartered accountant of Lower Hutt as interim trustees of the Trust (the interim trustees).
[5] Direction to the interim trustees:
(a) As soon as possible after their appointment, the interim trustees shall arrange for the holding of a Hui a Moriori under cl 21.1 of the 2005 Trust Deed for the purpose of providing Adult Moriori with the opportunity to vote either by postal vote or by attendance at the Hui:
(i) on the following amendments to cl 5 of the 2005
Trust Deed:
5.1The Trust Board shall consist of no more than eight (8) nor fewer than six (6) Trustees
5.2Up to three (3) Trustees to be elected from Rekohu/Rangiauria, up to three (3) Trustees to be elected from the South Island and up to two (2) Trustees to be elected from the North Island.
5.3 Deleted.
(ii) on the issue whether the amendments in (i) are for the collective benefit of all members of the Moriori imi.
(b) The Hui a Moriori in (a) is to be held on the mainland.
Notice of the meeting must be provided in accordance with the Trust Deed and s 17(3) of the Maori Fisheries Act 2004.
(c) If an amendment is approved in accordance with clause 21.1, the interim trustees shall promptly seek the approval of Te Ohu Kai Moana Trustee Limited under s 17(2) of the Maori Fisheries Act 2004 that the change complies with the requirements of the Maori Fisheries Act 2004.
(d) As soon as possible after the outcome of the vote on the amendments in (a)(i) above is known and any consequential amendments are made to the Trust Deed, the interim trustees shall appoint an independent body to organise elections for all trustee positions. The elections shall be conducted by the holding of a Hui a Moriori and a postal ballot. The Hui a
Moriori is to be held on Rekohu. Notice of the meeting must be provided in accordance with the Trust Deed.
(e) Once the outcome of the elections is known, the interim trustees are to call a meeting of the elected trustees (the first meeting of trustees). The interim trustees are to attend such meeting and provide any information which the elected trustees may require at the meeting, but the interim trustees shall not vote on any matter at the meeting.
(f) At the first meeting of trustees, the elected trustees shall resolve under cl 5.13 of the Trust Deed the sequence in which trustee positions will become vacant consistent with cls 5.8-5.14 of the Trust Deed.
(g) Subsequent to the meeting, the interim trustees shall report to the Court on the outcome of the elections and the meeting and advise the Court whether there is any further task or responsibility which the interim trustees consider they should be directed to undertake.
(h) Subject to any further direction of the Court, the interim trustees shall continue in office for a period of six months following the first meeting of trustees, but only in an advisory capacity. In that capacity the interim trustees may attend any meeting of the elected trustees. Subject to any further direction of the Court, the tenure of the interim trustees shall expire six months following the first meeting of trustees.
(i) In the period until the first meeting of trustees, the interim trustees shall take such steps as they consider are necessary to secure and preserve the Trust assets.
(j) The interim trustees may apply to the Court for further directions either with reference to the matters in (a) to (i) above, or in respect of any other matter, including any perceived need to take steps to place the operation of the Trust on a sound financial footing.
Issues
[13] The primary issues which arise for determination are:
(a) Was the 2010 amendment to the 2005 Trust Deed validly made?
(b)If not, should the Court’s inherent jurisdiction or the power in s 64 of the Trustee Act 1956 be exercised to uphold/enforce the amendment as valid in any case?
(c) Was the August 2012 trustee election conducted in accordance with the requirements of the 2005 Trust Deed?
(d)Was the cancellation of the August 2012 trustee election by the defendant trustees justified?
(e) Were the trustees entitled to decline to hold further elections?
(f) Should the Court exercise its jurisdiction to remove the trustees?
Was the 2010 amendment to the 2005 Trust Deed validly made?
[14] The statement of claim seeks an order that the governing deed of trust is the
2005 Trust Deed as amended in 2010 to reduce the number of trustees.5 The order was resisted both by the defendant trustees and the Attorney-General. They contended that the 2010 amendment was not valid because it was not considered at an AGM or a Hui a Moriori at which there was a quorum of 30 members. As the plaintiffs’ submissions identify, the key question is whether the 2005 Trust Deed permits changes of that nature by postal vote alone and without the holding of a Hui a Moriori or an AGM.
[15] The Attorney-General first refers to cl 21.1 which provides:
21.1The power to alter or amend the substance of the constitution shall reside in the voting members at a Hui a Moriori or Annual Hui, acting in accordance with clause 13 (voting procedures) and clause 17 (notification procedures). No amendments shall be made without at least 75% of all votes validly cast (including postal votes) being in favour of such amendments and provided that:
a) no amendment may be inconsistent with the Act;
b)no amendment may be made earlier than two years after the date on which the Trust is recognised by Te Ohu Kai Moana Trustee Limited as the Mandated Iwi Organisation for Moriori;
5 As described in [10] above.
c)notwithstanding the terms of this Deed, no amendment to this Deed shall be made, and if purported to be made shall be of no legal effect, if the consequence of that amendment is to prejudice in a material manner the Trust’s entitlement to charitable status under the law of New Zealand, or its entitlement to an income tax exemption under the Income Tax Act 1994 in respect of income derived by it.
[16] Clause 13 includes the following provisions:
13 VOTING PROCEDURES
13.1All Adult Moriori aged 18 years and older are entitled to vote at Annual Hui, Hui a Moriori (including general and special general meetings) and Trustee elections …
13.2 The quorum required for an Annual Hui and Hui a Moriori shall be
30 Adult Moriori.
…
13.5If a vote is taken, on which postal votes have been taken, the Chairperson must include the postal votes in determining the result of the voting.
13.6Voting by those present at the Hui will be by a show of Hands other than for instances whereby this Deed or the Trustees stipulate that the method of voting shall be different.
Voting at Trustee Elections
13.7The following provisions shall apply to voting at trustee elections, but are applicable where postal votes are required for other purposes, and shall include, where relevant, reference to clause 17 relating to notification procedures.
13.8Voting at Trustee elections shall be by secret ballot. Adult Moriori may cast one vote for each Trustee position up for election.
13.9Adult Moriori may cast their vote by postal ballot or attendance at the Annual Hui or Hui a Moriori. The provisions of the Electoral Act shall apply to those Moriori who are disabled to ensure that they can record their vote.
…
13.15The voting papers shall be either posted or lodged with the Returning Officer in a sealed envelope so they are received by the Returning Officer no later than 5:00pm on the day before the voting date. Voting papers may also be delivered to the trustee election or Hui on the day of the voting date.
[17] Attention was also drawn to the requirements of cl 17.2 in relation to the prior notice of meeting to be forwarded to all Adult Moriori providing:
(a) the date, time, venue and agenda of the meeting;
(b)where applicable advice that a vote is to be taken to amend the constitutional documents of the mandated iwi organisation; and
(c) advice on the method by which the vote will be counted.
[18] In consequence it was submitted that for a valid amendment it was necessary to hold a Hui a Moriori at which the quorum requirement was satisfied, whether or not a postal vote was also held. In fact no Hui a Moriori was convened to consider the 2010 amendment. Accordingly it was said that the procedure required by the
2005 Trust Deed had not been followed.
[19] The evidence disclosed that the procedure adopted for the 2010 amendment process was as follows. Regional Hui were held at which the subject of a reduction in the number of trustees was included in the presentation. In 2010 a survey of members was held proposing a reduction to a maximum of seven trustees (three from Rēkohu, two from the South Island and two from the North Island) and a minimum of five trustees. Although the degree of participation was not in evidence, the survey result was 90 per cent in support of the proposed change.
[20] An AGM was convened on 23 October 2010 at which the proposed amendment was discussed. No vote was taken at the meeting. In any event no resolution could have been passed because the meeting did not have a quorum. A postal vote was then held on the proposed amendments with the final results available on 18 November 2010 disclosing 80 per cent support for the proposed changes. Those results were reported in the December 2010 the Trust newsletter.
[21] The plaintiffs first submitted that the provisions of the 2005 Trust Deed are to be interpreted objectively and in the context of the Deed as a whole, the relevant statutory background and the factual matrix. They noted the statutory context of the MFA and the consequent changes to the Deed required in 2005, citing Pryor v Bulley for the proposition that the existence of a statutory background can be relevant in
contrast to a purely private deed.6
[22] They then contended that in combination the clauses referred to above, together with cl 16.4,7 contemplated that a resolution to change the constitution can be undertaken by postal vote without the need to have a vote of persons in attendance at a Hui a Moriori or an AGM.
[23] In support the plaintiffs relied on the decision of Judge S Te A Milroy in Taipari v Hauraki Maori Trust Board8 concerning the interpretation of s 17(2)(b)(i) of the MFA which states:
17 Constitutional documents
…
(2) The constitutional documents referred to in subsection (1) are of no effect under this Act until—
…
(b) they are ratified,—
(i) in the case of a mandated iwi organisation, by not less than 75% of the adult members of the iwi who vote—
(A) in person at a general meeting called for the purpose of adopting a constitution; or
(B) by postal ballot; and
…
6 Pryor v Bulley [2013] NZCA 559 at [12]; Gailey v Gordon [2003] 2 NZLR 192 (HC) was also cited for the proposition that the principles of contractual interpretation in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) apply to trust deeds.
7 Clause 16.4 concerns the requirements for a resolution at a Hui a Moriori.
8 Taipari and others v Hauraki Maori Trust Board (2008) 114 Hauraki MB 34 (114 H 34).
[24] The competing interpretations advanced in Taipari and the Judge’s
conclusion are apparent from the following paragraphs:
[119] I am strongly persuaded by the arguments of Te Ohu and the Board that section 17(2)(b)(i) is to be read in conjunction with section 12(1)(a). It is clear that the intention of the statute is that all members of the iwi must be able to take part in the decision-making relating to the fisheries assets in the ways provided by the MFA. Many Maori no longer live within their tribal rohe and find it difficult to travel back to hui for a variety of reasons including time, cost, other family responsibilities and the like. A postal ballot is a way of ensuring that such iwi members can participate if they wish to. Indeed, the elected reps had no difficulty with the Board’s decision to hold a postal ballot in conjunction with the ratification hui.
[120] I also think it was open to the Board to choose to hold only a postal ballot in order to achieve the mandate required. In that respect the “or” between section 17(2)(b)(i)(A) and 17(2)(b)(i)(B) means “either/or/and”, not just “and”. Nor did I understand Mr Majurey, on behalf of the elected reps, to be seriously arguing that the statute required both a general meeting and a postal ballot.
[121] Rather Mr Majurey’s interpretation of the section was that the Board could hold a hui and/or hold a postal ballot but that in each type of vote the Board would have to obtain a 75% majority in favour of ratification. This was in effect the interpretation put to the Board’s representatives at the hui held on 6 May 2006 at Ngahutoitoi Marae by Mr Majurey. A similar question was asked at the 1 June Board meeting and again at the 5 July Board meeting, and the CEO of the Board confirmed that 75% approval would be required for both votes.
…
[123] In my view the question as to the interpretation of the statute per se is quite straightforward. I am persuaded by the argument put forward by Te Ohu and the Trust Board that section 12(1)(a) and the Kaupapa 4(2) of Schedule 7 of the MFA require that there be a postal ballot. If an organisation chose to use a postal ballot alone then, clearly, the ballot would need to obtain 75% approval in favour of the constitutional documents. If the organisation chose to have a general meeting for the purpose of adopting the constitution, then a postal ballot is inevitably included as part of the voting process, but there is also included an in-person vote at the meeting. This strongly suggests that a postal ballot plus a hui vote is considered a single ballot and that therefore 75% is required of the total votes. That is supported by the fact that in the layout of the section the figure of 75% is immediately associated with that phrasing, “the adult members of the iwi who vote” in section 17(2)(b)(i). In my view the 75% is therefore intended to affect “the adult members of the iwi who vote”. I therefore find it a stronger argument that the 75% approval refers to the total vote rather than to each ballot opportunity.
(emphasis added)
[25] While not questioning the Judge’s interpretation on the 75 per cent issue, the Attorney-General and the defendant trustees did not endorse the Judge’s observation, arguably obiter, that it is open to an organisation to choose the use of a postal ballot alone. They were supported on that issue by Te Ohu Kai Moana Trustee Ltd who submitted that it was apparent from the MFA, in particular s 18(1)(b)(ii), that there is a statutory requirement for a general meeting of a mandated iwi organisation to consider changes to the organisation’s constitutional documents.
[26] In my view the interpretation advocated by the Attorney-General, the defendant trustees and Te Ohu Kai Moana Trustee Ltd is correct, namely that the process for a valid amendment to the Trust Deed necessitates the holding of an AGM or a Hui a Moriori with the requisite cl 13.2 quorum of 30 Adult Moriori, whether or not (as would usually be the case) a postal vote is also held. A proposed amendment will be successful if 75 per cent of the total of the postal votes and the votes at the Hui are in favour of the amendment. It is not a requirement that 75 per cent of the votes cast at the Hui are supportive of the amendment.
[27] Consequently, I hold that the 2010 amendment to the 2005 Trust Deed was of no legal effect because the process stipulated in the Deed was not followed. The plaintiffs’ request for an order that any fresh elections should be conducted in accordance with the Deed as amended in 2010 is declined.
Should the Court exercise jurisdiction to give effect to the 2010 amendment?
[28] If their contention on the validity of the 2010 amendment was rejected, the plaintiffs then suggested that the Court could nevertheless uphold the amendment as having been made with reasonable and sufficient compliance with the spirit and intent of the Deed. They prayed in aid the following observation of Judge Milroy in
The Elected Representatives v Hauraki Maori Trust Board:9
[25] … It may be that after litigation the Court determines that although certain technical or process requirements were not met, that in fact there was no detriment to the beneficiaries and/or what the trustees did was reasonable and of sufficient compliance with the spirit of the legislation or Trust Deed.
9 The Elected Representatives v Hauraki Maori Trust Board (2007) 127 Waikato MB 163 (127 W 163).
[29] The plaintiffs’ submission then proceeded in this way:
That is the case here. If an in-person resolution of Moriori was required by the deed, then the evidence is that an in-person vote could not possibly have made a difference to the more than 75% support from the postal votes of all members for the changes. The 2012 AGM, even though held in Wellington, struggled to get a quorum of 30 members. The absence of just 1 person meant that the discussion about the amendments did not end with a resolution. From the minutes of that meeting, there was general support for the amendment, including support from Ms King. There has been reasonable and sufficient compliance with the spirit and intent of the Deed. This is at most a technical oversight. In addition, the only prejudice was to Ms King herself.
[30] Resisting that approach, the Attorney-General first noted that Judge Milroy’s observation was made in the context of considering whether the plaintiffs had an arguable case sufficient to enable proceedings regarding the meaning of s 17 of the MFA to proceed. The submission was made that that case does not support interpreting the Trust Deed as permitting amendment without a vote at a properly convened Hui a Moriori or AGM.
[31] The Attorney-General then addressed the question whether the Court has the power to order that the 2010 amendment should apply. Reference was made to the Court’s inherent jurisdiction to direct amendment of a power to appoint a trustee following a Court-ordered removal or replacement of a trustee10 and to modify or approve a departure from the terms of a trust.11 The Attorney-General’s argument, which I accept, is that the present circumstances differ significantly from those
where the Courts have felt compelled to exercise the inherent jurisdiction either to amend appointment powers or to authorise particular transactions.
[32] The present case does not involve a transaction in respect of which there would be no other means of achieving the appropriate outcome in the absence of Court approval under the inherent jurisdiction. The 2005 Trust Deed provides the mechanism for securing a valid amendment to its terms, namely by a properly
convened meeting with a quorum at which postal votes may also be counted.
10 Clifton v Clifton HC Auckland CIV 2004-404-4185, 5 November 2004; Nysse v Nysse [2014] NZHC 2833.
11 In Re New [1901] 2 Ch 534 (CA), [1900-03] All ER 763; Chapman v Chapman [1954] AC 429 (HL); Re Ebbett [1974] 1 NZLR 392 (SC).
[33] With reference to the power of the Court under s 64 of the Trustee Act 1956 to authorise dealings with trust property, the Attorney-General noted the explanation of its purpose in In re Gray (deceased), the headnote of which states:12
The object of [s 64(1) of the Trustee Act 1956] is to secure that trust property should be managed as advantageously as possible in the interests of the beneficiaries, and, with that object in view, to authorise specific dealings with the property which the Court might have felt itself unable to sanction under the inherent jurisdiction, either because no actual “emergency” had arisen or because of inability to show that the position which called for intervention was one which the creator of the trust could not reasonably have foreseen; but it was no part of the legislative aim to disturb the rule that the Court will not rewrite a trust, or to add to such exceptions to that rule as had already found their way into the inherent jurisdiction.
[34] Reference was also made to the observation of Fisher J in Winter v Attorney-General that s 64 is essentially administrative in nature, empowering the Court to sanction specific transactions where they would be in the best interests of beneficiaries and there would otherwise be difficulties in effecting the transaction.13
While the Courts have interpreted s 64 liberally in approving a wide variety of
transactions,14 the present case involves a trust deed with specific provisions for amendment. There is here no vacuum arising from either the absence of a deed or the absence of a provision in the deed empowering amendment.
[35] I agree with the Attorney-General’s submission that s 64 does not authorise the course which the plaintiffs here propose. Indeed I note the Attorney-General’s further point that, being a charitable trust, if amendment by the Court was ultimately required, then s 33 of the Charitable Trusts Act 1957 might be resorted to. However, that course would involve the preparation of a report to the Attorney-General and the
advertising of the application giving particulars of the scheme of variation proposed.
12 In re Gray (deceased) [1956] NZLR 764 (HC).
13 Winter v Attorney-General HC Auckland M333-IM01, 21 December 2001 at [26].
14 In Baker v Waimakuku Whanau Trust Board [2013] NZHC 2530, Dobson J held that an application for approval of a trust deed would fall within the term “transaction” in order to fill a vacuum left by the absence of a trust deed.
Was the August 2012 trustee election conducted in accordance with the requirements of the 2005 Trust Deed?
The factual context
[36] In accordance with the cycle of trustee elections required by the 2005 Trust Deed15 trustee elections were to be held in August 2012. At that time three trustee positions were in contest, two in the South Island region and one in the Rēkohu region.
[37] The official voting paper listed the candidates as follows:
SOUTH ISLAND REGION (2 Trustee positions available – please tick two boxes only) RĒK OH U REGIO N
(1 Trustee position available –
please tick one box only)
ENTWISTLE, Lin
[Christchurch]
KING, Shirley
[Rēkohu]
EYLES, Barrie
[Picton]
LANAUZE, Thomas (Tom)
[Rēkohu]
KEREHOMA, Amber
[Blenheim]
WHAITIRI, Loretta
[Rēkohu]
PREECE, Greg
[Dunedin]
[38] The instructions for voting on the reverse side of the voting paper stated:
STEP #1
Tick one of the boxes overleaf to show which Trustees you wish to vote for in the South Island (you may vote for up to 2 candidates) and for Rēkohu (you may vote for only 1 candidate)
STEP #2
Fold your voting paper into the self-addressed envelope which has been provided.
15 Discussed below at [84] in the context of the issue whether the trustees were entitled to decline to hold further elections.
STEP #3
Post your voting paper in the enclosed stamped addressed envelope to:
The Returning Officer
P.O. Box 188
Chatham Islands
Note:
You can submit your voting
paper by fax to 03-3050454 or scan and email it to [email protected], but your original voting paper must still follow in the post.
Your vote must be received by the Independent Returning Officer on the
Chatham Islands by 5pm Friday 17 August 2012.
[39] No Hui a Moriori was to be held. The outcome of the election was to be determined from the count of the postal vote to be undertaken on Saturday
18 August 2012, the day after the closing date for receipt of votes recorded on the voting paper.
[40] There was a late withdrawal by one of the candidates for the South Island trustee positions which prompted the trustees to cancel the election so far as the two South Island positions were concerned. Consequently the August 2012 election was limited to a single trustee position in the Rēkohu region which Shirley King had held for the previous three years.
Analysis
[41] This issue primarily concerns the question whether Mr Lanauze was validly elected as a trustee although the point is also material to the fourth primary issue below.
[42] As noted at [4] the plaintiffs propose that Messrs Donaldson, Matenga and Lanauze should remain in place as interim trustees pending the holding of fresh elections. In fact the terms of all the trustees (save for Mr Lanauze) have expired. The following chart (adapted from the plaintiff’s submissions) was contained in the Attorney-General’s submissions:
Trustee Elected/
appointed
End of Term
Shirley King
2009
July 2012
Lin Entwistle
2009
July 2012 (plaintiffs or 2013 (defendants)
Amanda King
2009
2012
Brian Solomon
December 2010
December 2013
Dennis Solomon
December 2010
December 2013
James Matenga
December 2010
December 2013
Aaron Solomon
December 2010
December 2013
Tom Lanauze
August 2012
August 2015
[43] Indeed it was the Attorney’s-General’s submission that the Court should declare that the terms of office of all trustees, apart from Mr Lanauze, have expired and that those trustees no longer hold office. So far as Mr Lanauze is concerned, the Attorney-General submitted that he should also be removed as the sole remaining trustee for the reason that it was said to be important for elections to signal a fresh start for the Trust given the dissent between the two groups.
[44] The issue concerning the 2012 trustee election is essentially similar to the first issue concerning the 2010 amendment in that it turns on whether it is necessary for the election of a trustee to be considered at a Hui a Moriori.
[45] The procedure for voting at trustee elections is the subject of specific attention in cl 13 as indicated in the extract at [16] above. Mr Churchman’s argument for the plaintiffs on this point placed particular reliance on the first sentence of cl 13.9 which for convenience is set out again:
13.9 Adult Moriori may cast their vote by postal ballot or attendance at
the Annual Hui or Hui a Moriori….
[46] The argument in support of the validity of Mr Lanauze’s election was that cl 13.9 is to be read as providing for an election either by postal ballot or at a Hui a Moriori or indeed by the two processes in combination. Mr Churchman argued that it was implicit in cl 13.9 that the trustees had the power to determine which of those three processes should be adopted for an election.
[47] Although the written submissions for neither the Attorney-General nor the defendants had addressed this particular issue, because it was not essential to the bases of their respective cases, in oral argument in response to Mr Churchman both Mr Linkhorn and Mr Ferguson favoured the same interpretation as they had advanced in relation to the 2010 amendment, namely that, whether or not a postal vote is also held, it is necessary for an AGM or a Hui a Moriori to be convened with the requisite quorum to vote on a trustee election.
[48] They were supported in that contention by Ms Schmidt-McCleave who observed that the conduct of a trustee election merely by a postal vote would not be in accord with Kaupapa 4 of sch 7 of the MFA which relevantly states:
Kaupapa 4
(1) A general meeting of a mandated iwi organisation must be notified by a public notice that must include–
(a) the date and time of the meeting and its venue; and
(b) the agenda for the meeting; and
(c) where any relevant explanatory documents may be viewed or obtained; and
(d) any other information specified by or under this Act.
…
(3) In the case of a general meeting of mandated iwi organisation required by kaupapa 2 (which relates to elections), section 18 (which relates to changing a constitutional document), section 70 (which relates to the disposal of income shares), or by sections 159 or 162 (which relate to the conversion and disposal of settlement quota), the mandated iwi organisation–
(a) must give a public notice that includes–
(i) the information required under subclause (1)(a); and
(ii) the matter or issues on which the vote is to be taken; and
…
[49] Kaupapa 2 relevantly states:
Kaupapa 2
All adult members of an iwi–
(a) have voting rights–
(i) in elections for the appointment of directors, trustees, or other officeholders of the mandated iwi organisation; and
…
[50] In my view the correct interpretation of cl 13 is that a Hui a Moriori is required to be held in order for a valid trustee election to take place. I consider that that interpretation is apparent from cls 13.11(b), 13.15 and 13.18. In my view cl 13.9 simply makes clear that Adult Moriori may cast their vote by either postal vote (if, as is invariably the case currently, a postal ballot is held) or by attending the AGM or a Hui a Moriori. However, the clause is not to be read disjunctively as stating that an election can be conducted exclusively by postal vote with the power residing in the trustees to decide to dispense with the holding of an AGM or a Hui a Moriori in respect of any election.
[51] In view of the fact that only a postal vote was held for the August 2012 election, it follows from my interpretation that Mr Lanauze was not validly elected as a trustee in that election because the election was not conducted in accordance with the requirements of the 2005 Trust Deed. Indeed the evidence suggests that a number of prior elections were also conducted solely on the basis of a postal vote and hence they would similarly be invalid.16
[52] So far as the other seven trustees are concerned, I agree with the
Attorney-General’s submission that their respective terms of office have expired and
I declare accordingly.
16 However it was Mr Donaldson’s evidence that in the 2007, 2009 and 2010 elections for trustees for the Rēkohu region, elections were not necessary for those positions because there were only sufficient nominees for the positions available.
Was the cancellation of the August 2012 trustee election by the defendant trustees justified?
The factual context
[53] Shortly after midday on Saturday, 18 August 2012 the Trust’s general manager sent an email to the trustees advising of the receipt of the official results for the Rēkohu election and stating that Mr Lanauze was declared elected. This was the trigger for a sequence of emails, letters and meetings concerning the election and its purported cancellation. It is necessary to recite some aspects of that sequence of events.
[54] Mr Donaldson responded to Maui Solomon’s email first acknowledging Shirley King’s contribution as trustee and chairperson and then stating that as vice chairperson he would accept the role of acting chair. This provoked emails from Brian Solomon and Amanda King asserting that Shirley King remained as chairperson at least until the next trustees’ meeting. Maui Solomon responded stating that, as Mr Lanauze had received 128 votes and Shirley King 74, Mr Lanauze was the new trustee for Rēkohu and consequently Shirley King was no longer a trustee or the chairperson effective as from Saturday, 18 August 2012.
[55] A meeting of trustees was convened on Tuesday, 21 August 2012, the minutes of which suggest that it ran from 8.30 am to 5.00 pm. Present at the meeting were Shirley King, Amanda King and Brian Solomon. The minutes, which were taken by Lorraine Norris, stated that Lin Entwistle was contactable by phone and email and that Dennis Solomon was contactable by phone, email and fax. It was further stated that Mr Donaldson and Mr Matenga had not responded to calls or emails regarding the discussions. It would seem that Mr Lanauze was not invited to the meeting.
[56] The minutes recite a number of concerns about the way in which the elections were conducted including criticism of the conduct of the general manager and his partner. There was reference to inflammatory information being posted on Facebook and to there being clear evidence of tampering with votes. With reference to the status of the Trust Deed the minutes stated:
Legality of Trust Deed and Status Quo of the Trust Board
Trustees discussed the legal options as outlined in the response by Amy Shakespeare Young Hunter. All trustees present in the conversations agreed that the existing Trust Deed was their ‘bible’ and was the Trust Deed they used. That the last 2 AGMs did not have a quorum of 30 members, therefore no resolutions could be passed. This means that despite some member approval of the changes put forward none of them could be ratified. Also, the document registered with Societies NZ is the existing 2005 Trust Deed.
Therefore section 5.2 which states that half (50%) of the Trustee (sic) shall be ordinarily resident on the Chatham Islands and half shall ordinarily be resident on mainland New Zealand is still valid.
Trustees voted in the majority plus 1 for the correct application of this clause requiring 4 trustees from Rēkohu and 4 from NZ.
[57] So far as the propriety of the voting process was concerned, the minutes stated:
Complications of Election
General discussion was around the complications and flaws in the election process. The ballot was officially declared closed at 5:00pm Friday 17th and Official results publicised on Facebook by Maui Solomon on Saturday 18th. Trustees discussed that Paul Gurney, the returning officer, upon Maui’s instruction extended the dates for postal votes to today (21 August) and the date for receiving the hard copies of faxed and emailed votes to tomorrow (22 August) – without Trust Board authority or even discussing it with Trustees.
The Trustees agreed that they had never approved voting by email or fax as this contravenes Section 13.8 of Trust Deed which states that “Voting at Trustee elections shall be by secret ballot”. They were concerned that the GM an the Trust employee and managing the election process, was expected to operate impartially but they had clear evidence that he lobbied to influence the election process and its outcomes. Shirley had requested of the Returning Officer not to count SI votes but he did, and then he provided the results to Maui Solomon.
The Trustees had already discussed with Maui, that the South Island election will go ahead at a later date.
[58] The minutes concluded by recording the following resolutions and steps taken:
Executive Chair Shirley King sent letters at midday by email to all Trustees requesting a for or against to stop the elections. James Matenga and Aaron Donaldson did not respond. All other trustees responded in the affirmative by phone and email.
Trustees agreed that Shirley King should continue to consult with
Young Hunter regarding the legalities.
The majority of Trustees unanimously agreed to instruct Shirley King as the Exec Chair to stop the election proceeding and inform the RO Paul Gurney to hold all documentation relating to the election until further notice and he is not to provide details to any other person or organisation.
Executive Chair Shirley King rang Paul Gurney (RO) at 4:50pm and told him to “stop the election to hold all documentation until further notice and not provide details to any other person or organisation”(sic) This was followed up with an email confirming the conversation.
[59] Although the minutes described Shirley King’s midday email as “requesting a for or against to stop the elections”, the email in evidence did not make reference to stopping the election but rather recognised Mr Lanauze as having been elected as a new trustee. The email stated:
21 August 2012 12:00 noon the Trust Trustees
Lin Entwistle Aaron Donaldson James Matenga Dennis Solomon Brian Solomon Amanda King
Tena ko’tou Trustees
I have taken legal advice on this matter.
As you know the election results become final by 5.00pm today which is why Tom Lanauze is not included on this correspondence.
Regarding Section 5.2 the Trust Deed 2005 – this clause states that half (50%) of the Trustee shall be ordinarily resident on the Chatham Islands and half shall ordinarily be resident on mainland New Zealand. You will know there have been no amendments to the Trust Deed since 2003 so this clause still stands.
This means that we have been operating in breach of Clause 5.2.
As of today (right now) we will honour the correct application of this clause to have 4 trustees from Rekohu and 4 from NZ.
Therefore, I remain a trustee, with Amanda King, Brian Solomon and new trustee Tom Lanauze as elected (but confirmed after 5pm).
As agreed by you already, the South Island election will go ahead at a later date.
Please respond for or against this letter urgently by email.
[60] That email and the vote of five trustees, referred to in the minutes at [56] above, for the “correct application” of clause 5.2 of the 2005 Trust Deed requiring four trustees from Rēkohu were consistent with the election of Mr Lanauze being recognised, albeit as a fourth Rēkohu trustee and not in substitution for Shirley King. Apparently consistent with that was an email sent by Shirley King to the trustees at
4.00 pm on 21 August 2012:
21 August 2012 4:00pm the Trust Trustees
Lin Entwistle
Aaron DonaldsonJames Matenga Dennis Solomon Brian Solomon Amanda King
Tena ko’tou Trustees
As a result of your majority support (50% plus 1) of section 5.2 the Trust
Deed 2005 the Trust will now have 4 trustees from Rekohu and 4 from NZ.
I also confirm that a new the Trust election will be held, and governed by an external independent election body.
I hereby notify you of a special meeting 7 days from now 28th of
August 2012 at 6:00 (NZ time), 6:45 (CI time).
Agenda – Re-election
[61] However the agreement by those “present” at the 21 August 2012 meeting to stop the election proceeding is reflected in a letter of that date sent by Shirley King to the general manager in the following terms:
PO Box 187
Rekohu 8942
21 August 2012
Tena ko Maui
This is to inform you that as a result of majority support (50% plus 1) the Trustees have agreed that the election process was flawed and a new the Trust election will be held and governed by an external independent election body.
This is also to advise you that with the support of the majority of the Trust Board I have cancelled the Trust August 2012 election and have advised Paul Gurney accordingly. Therefore the status quo remains.
I have called a special meeting 7 days from now with Trustees regarding the re-election process.
The “status quo” appears to have meant the composition of the Board prior to the
2012 election.
[62] Mr Donaldson forwarded Shirley King’s email17 to Buddle Findlay who had been the Trust’s solicitors for a number of years. He did not forward the legal advice which Shirley King had referred to because she had not and has never released that advice to anyone but the defendant trustees. In her affirmation she explained that, given the fact that a personal grievance was on foot against the Trust by Maui Solomon, she decided not to seek the permission of the trustees to waive privilege and that was the reason why the legal advice was not exhibited to her affirmation in this current proceeding. She qualified that position in cross-examination by stating that the decision not to waive privilege was a decision of all the defendant trustees, all of whom had seen the legal advice.
[63] Having received advice from Buddle Findlay, Mr Donaldson forwarded that advice to the other trustees, reiterated that as vice chair he would assume the role of acting chair and stated that a special meeting which Shirley King had called for
28 August 201218 was no longer valid. This appears to have prompted the defendant
trustees to send a letter to Buddle Findlay on 28 August 2012, signed by all five defendant trustees, which stated:
17 At [59] above.
18 Referred to in the email at [60] above.
The majority of Trustees are resolute that 5.2 of the Trust Deed as registered in 2003 is legal and binding.
Please refer to attachments:
1. Letter to Maui Solomon 21/08/2012
2. Email to Returning Officer Paul Gurney 21/08/2012
At the time the correspondence was sent I was, and still am the Executive
Chair as confirmed by the majority of Trustees.
Therefore we the majority are instructing and advising you that neither the General Manager Maui Solomon nor the Vice Chair Aaron Donaldson may take instruction or seek further advice from you or anyone else on behalf of Hokotehi Moriori Trust.
Hamish, we realise this course of action may seem to be extreme, but in fact we have a General Manager who refuses to take directives from the majority of Trustees and a Vice Chair who is overstepping his role. He is not an Executive Vice Chair.
[64]
A special meeting of trustees was held by telephone conference
on
28 August 2012 which ran from 7.55 pm to 10.45 pm. In attendance were the defendant trustees and a minute taker, Ms Wills. The minutes, apparently verbatim, comprise 18 pages. A number of resolutions were passed unanimously including:
(a) to declare that “the recent election is null in-void (sic) as agreed to by the majority of trustees” on 21 August 2012;
(b) a full new election be declared that will incorporate Rēkohu and the
South Island;
(c) to remove Maui Solomon and Aaron Donaldson as signatories of the
Trust’s bank accounts.
The defendant trustees also explored the possibility of dismissing the general manager for misconduct.
[65] A further special meeting was held in the evening of 30 August 2012 (which at the time Shirley King stated was a continuation of the meetings on 21 and
28 August 2012) when a unanimous resolution was passed that if the trustees had not
heard from Maui Solomon’s lawyers by midday Friday, 30 August 201219 they would have no choice but to suspend him as general manager.
Analysis
[66] The issue whether the August 2012 election was justifiably cancelled was the primary focus of the arguments presented by the plaintiffs and the defendant trustees. Indeed the plaintiffs’ submissions stated that the actions of the defendant trustees in cancelling the elections and the consequences were at the heart of the proceeding. The issue as framed assumes that the trustees had the power to cancel an election. The existence of such a power was implicit in the submissions of the plaintiffs and the defendant trustees, their focus being on the existence of grounds for the exercise of the power.
[67] My finding that the 2012 election was not valid renders the issue of the justification for its cancellation moot so far as the status of Mr Lanauze as a trustee is concerned. However the issue of the reasons for their action in purporting to cancel the election may prove to be relevant to issues of costs and indemnity of the trustees, a matter which is not resolved in this judgment but awaits further submissions.
[68] I consider that if the trustees had recognised that the election was invalid by reason of only a postal vote having been taken, it would have been appropriate for them to announce that conclusion and to proceed to hold the election again in accordance with the requirements of the 2005 Trust Deed. If there had been any challenge to their taking that course, then the appropriate process would be an application to the High Court for a declaration that the election had not been validly conducted.
[69] However it appears from the minutes of the meeting of 21 August 201220
that, while the defendant trustees held the view that the 2010 amendment had not been validly made, they did not appreciate that, by the same process of reasoning,
19 That date must have been erroneous because the special meeting was held on the evening of that day.
the trustee elections conducted solely by a postal vote were not in compliance with the 2005 Trust Deed’s requirements. The criticism at that meeting of the voting process was confined to the use of email and fax which, it was said, contravened the secret ballot requirement in cl 3.8.21
[70] If the 2012 elections had been conducted in accordance with what I have held is the procedure required by the 2005 Trust Deed, I consider that the defendant trustees would not have had the power to simply cancel the election on the grounds of what they perceived to be electoral irregularities. It would have been necessary for them to apply to the High Court for a declaration that the election had been improperly conducted. Consequently I hold that the purported cancellation of the
2012 trustee election for reasons other than the invalidity of the election (on account of the failure to hold a Hui a Moriori) was not within the power of the defendant trustees. Hence it was not justified.
Were the trustees entitled to decline to hold further elections?
The factual context
[71] An AGM was held at Kopinga Marae on Rēkohu on the weekend of
24-25 November 2012. Minutes of the AGM were taken which comprise 66 pages. Seventy-eight members were in attendance and the AGM was chaired by an independent chairman, Pieri Munro. In the affidavits and affirmations and in the cross-examination there was a significant amount of evidence, which I need not traverse, directed to the circumstances concerning the financing of the travel and accommodation of a number of attendees from the mainland.
[72] Eighteen proposed resolutions were received by the secretary of the Trust prior to 12 October 2012 and an additional 12 proposed resolutions were received on the first day of the meeting. At the end of that first day prior to the meeting adjourning at 7.00 pm the following resolution was passed by 76 of those present with one abstention:
To have an independent investigation into the election process which would provide a facility for that investigation to look into the results of the election the findings of which would come to the Board who would be duty bound to act upon it and be shared with all members.
[73] The tone of the second day of the meeting was such that after the lunch break Mr Munro was moved to address the meeting about their behaviour. After a somewhat ineffectual debate about the proposed independent investigation, Mr Munro made a recommendation in the following form:
Want to propose something for entire floor and would like you to vote on this. Resolution I am putting to floor is about finding a way to move forward is that the Board as it comprised before the election should continue with the addition of Tom as part of that. The investigation will bring a change to that construct. The problem regarding remuneration I will leave to the Board to consider but my sense is not so much about what might need to be reclaimed back.
There was a unanimous vote in favour by the 70 persons present in the room.
[74] At all times subsequent to the 2012 AGM the composition of the Board has been in accordance with Mr Munro’s resolution passed at the AGM.
[75] Shirley King described the steps taken subsequent to the AGM in this way:
48.Immediately following the 2012 AGM we began work on the terms of reference for independent person to facilitate the investigation as planned. Mr Pieri Munro was tasked with completing a first draft of the terms and did so by January 2013 … Mr Donaldson and I were tasked, with the other trustees, to confirm those terms of reference. Initially, matters progressed positively. I sent an amended version of the terms of reference back to Mr Munro on 28 January 2013 …
49.However, matters then stalled largely due to allegations made against me by Mr Donaldson regarding amendments I had made to the draft terms of reference … I made it clear at the time to all trustees that my amendments were based on what I thought to be their instructions following a trustee meeting and that I did not mean to cause such offence to Mr Donaldson by confirming the amendments … We moved on for a little while … but then things stalled again. Mr Donaldson was keen to ensure that we spend as little money as possible on the independent investigation. I agreed however I was not prepared to short-change our members on the scope of the investigation because the resolution passed at the AGM was clear that the investigation was to cover the entire election process, not just its cancellation. We did not appoint the independent investigator we had intended to and, as a result, we have not progressed the investigation. I simply cannot accept that
responsibility for this falls solely on my shoulders, or those of the other Defendant Trustees. All interim trustees were involved in this process and, although we were all working with the best of intentions, we all failed, collectively, to appoint an independent investigator.
[76] While the affidavits, affirmations and the cross-examination explored in detail the allegations and counter-allegations made by the two factions, it was quite apparent that a key distinction between them was the defendant trustees’ insistence that a full investigation of the 2012 election should be completed before fresh elections were held. The following extracts from the affirmation of Shirley King and the affidavit of Aaron Donaldson clearly demonstrates this key difference:
Shirley King affirmation dated 26 November 2014 at [51]:
In 2013, the idea of independent trustees was floated. We (the five Defendant Trustees) were in support of this idea on the proviso that an independent investigation into the 2012 elections was conducted fully before any new elections are held. The other interim trustees also supported this option.
Aaron Donaldson affidavit dated 11 December 2014 at [38]:
Ms Shirley King states in her affidavit at paragraph 51, that the defendant trustees supported the appointment of two independent trustees on the proviso that an independent investigation was undertaken into the 2012 elections before any new elections were held. She also states that the plaintiff trustees agreed with this position. This is not correct. At no time have the plaintiff trustees agreed that the fresh elections must await the outcome of the investigation. Nor am I aware that the defendant trustees held this view until I read it in Ms King’s affidavit. It has been my view and that of Mr Lanauze and Mr Matenga that fresh elections should happen as soon as possible and need not await the outcome of the investigation into the
2012 elections.
[77] That the defendant trustees were unanimous in their insistence on the completion of an investigation before any further elections were held was demonstrated, for example, by Amanda King:22
In my view, we need to appoint the independent trustees to assist us. The initial focus of any independents must be to get matters in order for the Trust and to hold an investigation into the 2012 election. A new election cannot be held until we have cleared up the situation with the 2012 election. This is what we agreed to earlier in the year and this is what I am committed to.
Analysis
[78] Plainly in the resolution at the end of the first day of the meeting23 the AGM authorised the conduct of an independent investigation into the 2012 elections. Mr Munro’s resolution on the second day then purported to authorise the trustees in office prior to the election to continue in office, together with Mr Lanauze. I consider that it is apparent that the reason for the trustees continuing in office was to manage the process of the independent investigation. That seems clear from the statement in the resolution that the investigation would “bring a change to that construct”. I also consider that the AGM envisaged that any such investigation would be conducted promptly.
[79] In that connection I note the Attorney-General’s submission with reference to
Mr Munro’s resolution:
17.The resolution …., in effect, purported to continue terms of office beyond those provided in the trust deed for trustees who were either defeated at the 2012 election or whose terms would expire during the proposed investigation. The continuation of office was to apply pending completion of an investigation into the 2012 trustee election.
18.Given it arose from the floor of the meeting, the resolution would not have been notified to trust members prior to the meeting. It reflected a pragmatic approach to resolve an issue causing disharmony and division among trustees and trust membership. However, the trust deed does not contain provision for amending or suspending its provisions in such a way. Resolutions doing so would need to comply with the provisions of the deed governing amendment, including notice (clauses 17 and 21) and remembering that as a charity the Trust differs from private trusts where obtaining support from the persons who are beneficiaries of the trust may mean lack of strict adherence with the trust instrument is more likely to be excused.
19.Even if the resolution were to be treated as being validly made, it envisaged that the trustees would remain on an interim basis and that the investigation would be promptly progressed. This has not happened. Any latitude for any investigation to be implemented by those currently acting as trustees has passed.
[80] The investigation has not eventuated. A number of matters appear to have contributed to this, in particular the differences in view as to the ambit of the investigation and the related issue of cost.
[81] However, notwithstanding that two years have elapsed since the AGM, the defendant trustees resist the holding of elections notwithstanding requests that they do so. As Shirley King stated:24
(e) Calls for fresh elections and SGMs – We, the interim trustees, have received calls for fresh elections and SGMs. However, the resolution passed at the 2012 AGM clearly required a full investigation into the election process and its cancellation to be undertaken. This is particularly important to me and other Defendant Trustees who, despite our support base, have taken a lot of personal criticism over the last two years about the election process. We must have a full independent investigation to ensure that all of the relevant facts are before our members when new elections are conducted.
[82] That position is formally recorded in the statement of defence of the defendant trustees which states:
the trustees continue to hold office on an interim basis pursuant to the resolutions passed at the 2012 AGM and pending an investigation into the
2012 election.
[83] In my view that position is incompatible with the requirements of the 2005
Trust Deed. I agree with the Attorney-General’s submission that the 2005 Trust Deed does not permit a suspension of the requirement to hold elections by a resolution at an AGM. In purporting to do so, by authorising the Board to remain in office, the AGM exceeded its powers. In refusing to hold further elections in reliance on that resolution, the trustees were in breach of the 2005 Trust Deed requirements for elections.
[84] So far as trustee elections are concerned, the 2005 Trust Deed states:
5.8Following the first Trustee Election, Trustee Elections shall be held twice every three (3) years and shall occur in accordance with clauses 5 of this Deed.
…
24 Affirmation of Shirley King, 26 November 2014, at [55(e)].
5.13The trustees whose positions become vacant will be determined by agreement in the first instance, or if trustees are unable to reach agreement, then the names of the trustee or trustees to stand down shall be drawn by lot, as scrutinised by the Secretary, provided that no trustee may remain for longer than a term of three years before being required to make his or her position vacant.
[85] Although the prohibition on a trustee remaining in office for more than three years is contained in the clause which follows the clauses providing for the first, second and third Trustee Elections and hence makes specific provision for the term of those initial appointments, I consider that the prohibition is intended to apply to the terms of office of all trustees. That is clearly demonstrated from the derivation of the election requirements.
[86] As noted above in [5] various amendments were made to the Trust Deed in
2005 as part of the requirements for recognition of the Trust as a mandated iwi organisation. Section 17(1) of the MFA requires every mandated iwi organisation to have constitutional documents that comply with and implement the Kaupapa set out in sch 7 of the MFA. The first of those Kaupapa states:
Kaupapa 1
(1) All adult members of an iwi must have the opportunity, at intervals not exceeding 3 years, to elect the directors, trustees, or officeholders, as the case may be, of the mandated iwi organisation of the iwi.
(2) Elections for individual offices may be held at different times, and for different terms of office. However, no person elected to office may hold office for a period longer than 3 years without facing re-election.
[87] It was the submission of Te Ohu Kai Moana Trustee Ltd that:
Clause 5.8 of the Trust Deed approved by Te Ohu Kaimoana requires that trustee elections be held twice every three years and occur in accordance with clause 5 of the Trust Deed. Te Ohu Kaimoana is concerned that, if the allegations in relation to the 2012 elections are correct and those elections were validly cancelled as being improperly held, then the Trust is in breach of its Trust Deed, and therefore sections 14 and 17 of the MFA.
[88] It noted that breaches of the MFA requirements, if established, would entitle it to apply to the Māori Land Court under s 185 of the MFA to suspend recognition of the Trust as a mandated iwi organisation under the MFA. It emphasised that it
would await the outcome of this proceeding before considering making any application under s 185.
[89] However the fact remains that by their failure to hold the elections which the
2005 Trust Deed and Kaupapa 1 require, the trustees have exposed the Trust to the risk of a suspension of its recognition as an iwi mandated organisation. I consider that such conduct constitutes a serious breach of the trustees’ duties.
[90] Furthermore by failing to hold the required elections I consider that the Board is deprived of the power to act given the number of trustee positions that have become vacant. The 2005 Trust Deed places the following limitation on the Board’s capacity to act:
5.33The Trust Board may continue to act notwithstanding any vacancy in their body if and so long as their number is not reduced below the number fixed by or pursuant to this Trust Deed as the necessary quorum of the Board. The Trust Board may in any case continue to act for the purposes of increasing the number of Trustees to that number but for no other purpose whatsoever.
[91] I consider that the reference to “the necessary quorum of the Board” must mean the minimum number of trustees required by cl 5.1, namely eight.25 It would be inconsistent with the overall scheme of the 2005 Trust Deed for the reference to “the necessary quorum of the Board” to mean the quorum for the transaction of business, namely:
5.48 The quorum necessary for the transaction of the business of the
Board shall be one half of the Trustees plus one.
[92] My conclusion is that the trustees were not entitled to decline to hold further elections, whether such refusal was motivated by a desire to first hold an investigation or for any other reason. Indeed, once the number of trustees fell below eight, as occurred by at least the last quarter of 2012, the trustees’ power to act was confined to the purpose of holding elections and thereby increasing their numbers
and for no other purpose whatsoever.
25 At [8] above.
Should the Court exercise its jurisdiction to remove the trustees?
[93] The Court has both a statutory and an inherent power to remove and appoint trustees. The dual source of the jurisdiction of the High Court in the field of trusts is usefully summarised in Clarke v Karaitiana:26
The jurisdiction of the High Court in the field of trusts is both statutory and inherent. The inherent jurisdiction is derived from the Court’s general supervisory powers in equity relating to the supervision of trusts for the welfare of beneficiaries. The inherent jurisdiction of the Court includes the power to enable it to act effectively within its jurisdiction. The Court may exercise its inherent jurisdiction even in respect of matters which are regulated by statute, so long as it can do so without contravening any statutory provision.
(citations omitted)
[94] The principles which guide the Court’s exercise of its discretion in the decision to appoint replacement trustees as recognised in Re Tempest27 were adopted by the Court of Appeal in Mendelssohn v Centrepoint Community Growth Trust:28
(a) consideration of the settlor’s intentions;
(b) neutrality between beneficiaries;
(c) promotion of the purpose of the trust.
[95] It appears clear from cl 5.19 of the Trust Deed that in order to be eligible for election a person must be Moriori. However it was the Attorney-General’s submission that in the context of the present dispute it was important that any interim trustee, who would have the task of instructing an independent body to run fresh elections, should be seen as neutral. Given the apparent emergence of factions, in the Attorney-General’s submission it was important that any interim trustee was someone who was not seen as associated with one section of the membership compared with another. This favoured the Court appointing an interim trustee who was not Moriori. He submitted that the appointment would be for the purpose of
organising fresh elections and, pending the appointment of new trustees by that
26 Clarke v Karaitiana [2011] NZCA 154, [2011] NZAR 370 at [38].
27 Re Tempest (1866) LR 1 Ch 485.
28 Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA) at 97.
process, the interim trustees would have the task of prudent management of the Trust assets. Neither the plaintiffs nor the defendant trustees took issue with the Attorney-General’s submissions on that issue.
[96] In my view the observations of Randerson J in Attorney-General v Ngati Karewa and Ngati Tahinga Trust are apt for the circumstances of this dispute:29
[66] … the primary question is not whether the impugned trustees have committed breaches of trust. The jurisdiction to remove trustees is merely ancillary to the principal duty of the Court to see that the trusts are properly executed: Letterstedt v Broers (1884) 9 App Cas 371 (PC). While specific grounds enumerated in s 51(2)(a)–(e) plainly form a basis upon which the Court may exercise its discretion, the section makes it clear that those particular grounds are without prejudice to the generality of the Court’s discretion under subs (1).
[67] It is also well established that the Court’s primary concern is for the welfare of the beneficiaries: Hunter v Hunter at 529. While it is not desirable to seek to limit or define the circumstances in which the power may be exercised, it is at least clear that the Court may exercise its power if it is satisfied that the continuance of the trustees would prevent the proper execution of the trust. In that respect, hostility between the trustees and beneficiaries may be a sufficient ground where it is of a sufficient extent and nature as to prevent the proper execution of the trust or could threaten the security of the trust property …
[97] Those principles were adopted by Heath J in Karaka v Ngai Tai Ki Tamaki Tribal Trust where two distinct factions had emerged aligned with the different trustees.30 Heath J considered it was not in the interests of the iwi for two distinct factions running on parallel courses to purport to lead the trust in important negotiations with the Crown and other bodies. Concerning the appointment of an interim trustee he said:
I am satisfied that the appropriate course is to appoint an interim trustee. That person must be both independent of the two factions that have emerged and a person with expertise in the administration of trusts. All relevant parties must repose confidence in that person.
29 Attorney-General v Ngati Karewa and Ngati Tahinga Trust HC Auckland M207/99,
5 November 2001.
30 Karaka v Ngai Tai Ki Tamaki Tribal Trust HC Auckland CIV 2003-404-6164, 9 March 2004.
[98] As I noted at the outset at [2] to [4] there is an impasse between the two factions of trustees such that a state of severe trustee dysfunction has maintained for some time. As the Attorney-General observed, agreed examples of dysfunction are the failure of the trustees to agree terms of reference for and progress the proposed investigation into the 2012 trustee election, to hold proper trustee meetings, pass resolutions, keep minutes and records of trustee meetings, process education grants, respond to petitions of members for a special general meeting and call the 2013
AGM.
[99] However of particular concern is the fact that the defendant trustees have no intention of arranging further trustee elections unless and until an independent investigation into the 2012 election has taken place. In my view that position is untenable. It is essential that the electoral cycle which the 2005 Trust Deed and Kaupapa 1 require is restored without further delay.
[100] In any event the terms of all the persons currently purporting to act as trustees (save for Mr Lanauze) have expired. In the case of Mr Lanauze he was not validly elected for the reasons explained at [51] above. It was those circumstances which caused me to make the interim orders in my Judgment (No 1) at [12] above.
Orders
[101] For the reasons stated above I make the following orders:
(a) A declaration that the purported 2010 amendment to the 2005 Trust Deed was invalid and of no legal effect because the process stipulated in the 2005 Trust Deed was not followed.
(b) A declaration that the terms of office of:
(i) Shirley Joyce King
(ii) Amanda Juanita King
(iii) Brian James Solomon
(iv) Dennis Graeme Solomon
(v) Linda-Mae Sarah Entwistle
(vi) Aaron Graeme Donaldson
(vii) James Matenga have expired.
(c) A declaration that the August 2012 trustee election was invalid and of no legal effect because the process stipulated in the 2005 Trust Deed was not followed.
(d)A declaration that the purported cancellation of the August 2012 trustee election, for reasons other than the invalidity of the election (on account of the failure to hold a Hui a Moriori), was not within the power of the defendant trustees.
(e) A declaration that the trustees were in breach of the 2005 Trust Deed in declining to hold trustee elections.
(f) The interim orders in my Judgment (No 1) are made final orders.
Costs
[102] Unsurprisingly after the events of the past two years the issue of costs is hotly contested. The plaintiffs not only seek costs but also seek an order that the defendants’ costs should be borne by them personally and with no indemnification from the Trust.
[103] The defendant trustees claim that they are entitled to have their costs in defending the proceeding met by the Trust, citing cl 24.1 of the 2005 Trust Deed:
Each Trustee shall not be liable for and shall be indemnified out of the assets of the Trust for any loss or liability which they may incur by reason of the exercise, manner of exercise or non-exercise of any of the powers, authorities or discretions conferred on them by this Trust Deed or by law. This indemnity shall not extend to any loss or liability attributable to dishonesty or to the wilful commission and or omission by the Trustee of an act or omission of the Trustee known to such person to be a breach of trust or duty and such person will be liable for such loss or liability.
[104] The Attorney-General wished to have the opportunity to make a submission on costs once the outcome of the proceeding was known.
[105] I apprehend that a hearing may be necessary to determine issues of costs and indemnification. In the first instance I direct each party to file a memorandum recording the stance taken in light of the findings in this judgment. As the plaintiffs and the defendant trustees have already foreshadowed their positions, I consider that it will be useful for the Attorney-General to state his position first, particularly with reference to the issue of indemnification.
[106] Consequently I direct that memoranda shall be filed as follows: (a) the Attorney-General by 27 March 2015;
(b) the plaintiffs by 10 April 2015;
(c) the defendant trustees by 24 April 2015;
(d) Te Ohu Kai Moana Trustee Ltd by 1 May 2015.
Leave is reserved to apply to vary the timetable for filing memoranda.
Solicitors:
Bennion Law, Wellington for plaintiffs
Kahui Legal, Wellington for second to sixth defendants
Crown Law, Wellington for Attorney-General
Te Ohu Kai Moana Trustee Ltd, Wellington
Brown J
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