SR Hamilton Corporate Trustee Ltd v White
[2016] NZHC 1408
•27 June 2016
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV 2014-470-189 [2016] NZHC 1408
BETWEEN S R HAMILTON CORPORATE
TRUSTEE LTD AND LAMB TRUST SERVICES LTD
Plaintiffs
AND
STEPHEN WHITE First Defendant
MAUREEN EDITH PARSONS Second Defendant
JOCELYN ZELPHA CHAMBERS Third Defendant
Hearing: 4, 5, 6, 7 April 2016 Counsel:
E J Hudson and D Reynolds for Plaintiffs
R Connell for First and Second Defendants
T M Braun and R Karalus for Third DefendantJudgment:
27 June 2016
JUDGMENT OF HEATH J
This judgment was delivered by me on 27 June 2016 at 11.00am pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Lamb Bain Laubscher, Te Kuiti Connell & Connell, Auckland Whitehead Braun, Hamilton Counsel:
E J Hudson, Hamilton
S R HAMILTON CORPORATE TRUSTEE LTD AND LAMB TRUST SERVICES LTD v WHITE [2016] NZHC 1408 [27 June 2016]
CONTENTS
The application [1] Background [4] The issues [14] Context
(a) The Memoranda of Guidance [17]
(b) Steps taken by the trustees after Mr Royce White’s death [21] Issue 1: the contractual issue
(a) The 16 June 2014 letter [35]
(b) Analysis [39] Issue 2: The sale issue
(a) Trustees’ applications for directions [56]
(b) The directions sought [62] (c) The competing contentions [65] (d) Analysis [69] Costs [84] Result [86]
The application
[1] SR Hamilton Corporate Ltd and Lamb Trust Services Ltd (the trustees), as trustees of the W H R and Z D White Family Trust (the Trust), apply for directions under s 66 of the Trustee Act 1956.1 The application was brought in the wake of proceedings issued by Mr Stephen White and Ms Maureen Parsons, two of three beneficiaries of the Trust.
[2] In their proceeding, Mr Stephen White and Ms Parsons sought an order removing the trustees on the grounds of misconduct, primarily directed to alleged favouritism towards the other residuary beneficiary, their sister Dr Jocelyn Chambers. The suggested favouritism is said to have resulted in Dr Chambers obtaining an unfair advantage over her siblings, arising out of the price at which she considers that she is entitled to purchase a property, at 4 Grace Avenue, Mt Maunganui (the property), owned by the Trust.
[3] For reasons set out briefly in another judgment that I am delivering today, the proceeding brought by Mr White and Ms Parsons has been dismissed.2 Mr Connell, for Mr Stephen White and Ms Parsons, accepted that the other proceeding could be
dismissed if the scope of the application for directions was enlarged to enable all
1 Set out at para [56] below.
2 White and Parsons v SR Hamilton Corporate Trustee Ltd and Lamb Trust Services Ltd [2016] NZHC 1409.
contentious issues among the parties to be resolved satisfactorily, and in a binding fashion. That is possible because there are no (material) disputed facts to determine, all three beneficiaries have been joined as defendants, and each has been fully heard.3
Background
[4] The property, of which the trustees are now the legal owners, has been held by interests associated with the White family since some time in the late 1920s. It is located in close proximity to Mt Maunganui, on the strip of land between Ocean Beach Road and Pilot Bay.
[5] When the Trust was settled in 2003, the trustees were Mr Royce White, his wife Zelpha, Lamb Trust Services Ltd and S R Hamilton Corporate Ltd. The two corporate trustees were linked respectively to Mr White’s long-time solicitor, Mr Lamb, and his accountant, Mr Wallace, who was then a partner in Staples Rodway. Messrs Lamb and Wallace were the directors of each of the companies that have stewardship of the Trust. Following Mr Wallace’s retirement from active practice, Ms Bell assumed his role.
[6] The final beneficiaries of the Trust are Mr Royce and Mrs Zelpha White’s three children, Mr Stephen White, Ms Maureen Parsons and Dr Jocelyn Chambers. They live in Auckland, Canada and Te Kuiti respectively.
[7] Mrs Zelpha White died on 29 April 2006. After her death, Mr Royce White executed three Memoranda of Guidance to provide some direction to the remaining trustees about the manner in which they should deal with Trust assets after his death. The three Memoranda were dated 13 August 2006, 8 February 2010 and 10 February
2010, respectively. Specific provisions of each dealt with realisation of the
property.4
3 See para [58] below.
4 The relevant terms of each are set out at paras [19]–[21] below.
[8] Mr Royce White died on 9 July 2012, aged about 90 years. The way in which events have unfolded demonstrates the problems inherent in an attempt to direct from the grave the mode of disposal of a significant item of family property.
[9] In broad terms, the late Mr Royce White’s laudable intention was that the property be sold promptly to one of his three children. That was to be done by the trustees obtaining a registered valuation and providing a copy to each of the children. Each would have an opportunity to purchase at valuation. In the event that more than one was prepared to purchase at that value, the trustees were given a discretion to determine which of them should be allowed to buy.5
[10] The trustees’ ability to achieve a prompt sale was thwarted by external events which Mr Royce White could not have been expected to foresee, and over which they had no control. It became clear that the property had significant problems with water ingress. Expensive remediation was needed. It took some time for the trustees to obtain advice about the way in which they should deal with the property. Eventually, on 16 June 2014, Mr Lamb wrote, on behalf of the trustees, to all three
residuary beneficiaries, in an endeavour to give effect to Mr Royce White’s wishes.6
Dr Chambers responded in a way that, she contends, gave her an enforceable right to purchase the property at an agreed price.
[11] Mr Stephen White and Ms Parsons have a closer relationship with each other than with their sister. The litigation has exacerbated an already strained relationship. A state of acrimony now exists. There is a particularly heightened level of distrust between Mr Stephen White and Dr Chambers.
[12] By their letter of 16 June 2014, the trustees asked all three beneficiaries whether they wished to exercise an “option”7 to purchase the property. The “offer” was put on the basis that the trustees required indemnification in respect of the way in which they proposed to deal with the weathertightness problems. Neither
Mr Stephen White nor Ms Parsons was prepared to give an indemnity. Dr Chambers
5 See paras [20] and [78] below.
6 Relevant parts of the letter are set out at para [35] below.
7 I am putting the concepts of “options”, “offers” and “acceptance” in inverted commas because the meaning to be attributed to those terms assumes significance in my analysis of an issue involving the nature of the legal relationship that followed from the 16 June 2014 letter.
did. She “accepted” the “offer” to purchase the property at the valuation on which the letter of 16 June 2014 was premised, $945,000. The valuation was based on a report dated 26 November 2013.
[13] There has been a significant increase in the market value of the property since
26 November 2013. Using the same methodology as the November 2013 report, a report prepared by the same valuer, dated 30 March 2016, assesses the present value of the property at $1,725,000.
The issues
[14] Two issues require resolution. They are:
(a) Have the trustees entered into an enforceable contract with Dr Chambers, as a result of which she is entitled to purchase the property for $945,000? (The contractual issue)
(b)If I were to hold that Dr Chambers did not have an enforceable right to purchase the property, what steps should the trustees now take to sell? (The sale issue)
[15] So far as the second issue is concerned, a number of options exist. They range from sale to Dr Chambers at $945,000 (at one end of the spectrum) to placing the property on the market for sale by auction (at the other), perhaps using the March
2016 valuation of $1,725,000 as a reserve.
[16] Although questions of trustee misconduct have been raised, I do not need to deal with them. The two questions can be resolved on the basis of a legal analysis, so far as the contractual point is concerned, and, in relation to the sale issue, an assessment of what prudent trustees ought now to do, having regard to their unavoidable inability to give effect to the wishes of the late Mr Royce White for a prompt sale of the property to one of his children.
Context
(a) The Memoranda of Guidance
[17] My starting point is the guidance provided by the late Mr Royce White, as settlor, to the trustees of the Trust about the way in which they should dispose of the property after his death. It is important to focus on the nature of the Memoranda of Guidance. They were precisely that: guidance for the trustees to follow as they thought fit, in light of prevailing circumstances. They did not constitute terms of the
trust deed that the trustees were obliged, as a matter of law, to follow.8
[18] Clause 6 of the Memorandum of Guidance of 13 August 2006 provides:
You should consider the winding up of the Trust as soon as practicable after my death. At that time I request that you distribute to each of our grandchildren alive at that time, the sum of $20,000.00 free of all costs and duties.
At that time, please obtain an up-to-date registered valuation of the Trust’s property at Mount Maunganui. When the valuation is to hand, please forward copies to my three children. They will then have one month from the date they receive the valuation within which to exercise an option to purchase the property at an amount equal to the valuation. If more than one wish to purchase, then subject to any agreement they may reach between or among themselves, they can acquire the property in equal shares. If none of them wish to purchase the property then it is to be sold on the open market in such a manner as you, after consultation with my three children decides.
If the option to purchase is exercised by one or more of my children then settlement of that sale and purchase is to take place, one calendar month after you have received written notice to the exercise of the option.
The children of Zelpha and me are to be treated equally. You should consider as an alternative to the winding up of the Trust, resettling the Trust fund remaining upon Trust to our children and their families accordingly.
[19] The structure and content of cl 6 the initial Memorandum of Guidance was changed in the document executed on 8 February 2010. The revised version stated:
(a) Subject to the provisions of (b) below, you should consider the winding up of the Trust as soon as practicable after my death. At that time I request that you distribute to each of our grandchildren alive at that time, the sum of $20,000.00 free of all costs and duties.
8 For a more detailed discussion of this aspect of the case, see paras [71]–[76] below.
(b) As soon as practicable after my death, please obtain an up to date registered valuation of the Trust’s property at Mt Maunganui. When the valuation is to hand please forward copies to my three children. Please give to my daughter [Dr Chambers] the option to purchase the property at a purchase price equal to the valuation. Please give [Dr Chambers] a reasonable time, say a month from the date she receives the valuation, within which to exercise the option. If she exercises the option then the settlement of the sale and purchase is to take place on such day as you on the one hand and [Dr Chambers] agree, but failing agreement one calendar month after the date upon which you receive written notice from [Dr Chambers] that she exercises the option. If [Dr Chambers] nominates a Trust or Trusts to be the purchaser, please proceed on the basis of that nomination.
If [Dr Chambers] does not wish to exercise the option, please give [Ms Parsons] and [Mr Stephen White], equally, an option to purchase on the same basis as set out above.
If none of my children wish to purchase the property, then I request that you arrange a sale of the property on the best terms that you are able but please keep my children informed with respect to the sale process.
(c) My three children are to be treated equally. Subject to the provisions of (a) above, please distribute the assets of the Trust equally among my three children or such Trust or Trusts as any one or more of them may nominate. As an alternative to the winding up of the Trust, you may consider resettling the trust fund remaining upon Trust for our children and their families accordingly.
[20] The third Memorandum of Guidance was signed just over three months later, on 10 May 2010. It amended cl 6(b) of the 8 February 2010 document. In its new form, cl 6(b) provided:
6.(b) As soon as practicable after my death please obtain an up to date registered valuation of the Trust property at Mount Maunganui. When the valuation is to hand, please forward copies to my three children. My children shall each have the option to purchase the property at a purchase price equal to the valuation. They will have one calendar month from the date upon which they receive the valuation within which to exercise the option by giving notice to you in writing. If the option is exercised then settlement of the sale and purchase is to take place on such day as you on the one hand, and whoever exercise the option, agree, failing agreement then to be one calendar month after the date on which you receive written notice to the exercise of the option. I confirm that the purchaser may nominate a Trust or Trusts to be the purchaser, and I request that you proceed on the basis of that nomination.
If more than one of my children wish to exercise the option then please exercise your discretion and powers in such manner as you think appropriate in order to decide which of my children receives the first option to purchase.
If none of my children wish to purchase the property then I request that you arrange the sale of the property on the best terms that you are able as soon as practicable. However please keep my children informed with respect to the sale process.
(b) Steps taken by the trustees after Mr Royce White’s death
[21] Mr Lamb gave evidence9 about the steps taken to sell the property after Mr Royce White died. Mr Lamb has personal knowledge of the late Mr White’s reasons for making and changing the terms of the original Memorandum. Mr Lamb attended upon him (as his solicitor) on each occasion and drafted the various documents for him to sign. It is not necessary to discuss the instructions given by the late Mr White, nor the advice tendered by Mr Lamb. Both the contractual and sale issues can be determined without reference to the evidence on that topic.
[22] When Mr Royce White died on 9 July 2012, Mr Wallace was out of New Zealand. When he returned, probate of the will was obtained. Mr Lamb and Mr Wallace were the executors and trustees in whose favour probate was granted.
[23] To carry out the late Mr White’s wishes, Mr Lamb and Mr Wallace instructed Telfer Young, registered valuers of Tauranga, to undertake a valuation of the property. The valuation report was prepared by Mr Paul Higson, and was dated 2
October 2012. Mr Higson used “the market value” methodology, as at the date of inspection. The property was inspected on 20 September 2012. Mr Higson, in a report dated 2 October 2012, assessed market value at $1,150,000 (including GST, if any).
[24] Mr Higson qualified his report by reference to likely remediation costs.10 He said:
11.0 Conditions of Valuation
Our valuation and mortgage recommendation are subject to obtaining a detailed building inspection report from a suitably qualified professional showing that the building is free from issues such as leaky building
9 All parties agreed to proceed on the basis of the briefs of evidence served before the hearing, without cross-examination.
10 Although Mr Higson’s qualification referred also to a “mortgage recommendation”, he later stated that no “formal mortgage recommendation” had been provided “as the purpose of [the] valuation [was] not for mortgage lending purposes”.
syndrome. If such a report shows otherwise, we reserve the right to alter our assessment.
[25] By 12 October 2012, although Mr Wallace remained an executor and trustee of the estate, Ms Bell was dealing with the property issue on behalf of S R Hamilton Corporate Trustee Ltd. On 12 October 2012, Mr Lamb sent a letter to Ms Bell to brief her on the issues they had to consider. He referred specifically to the Memoranda of Guidance and to the valuation report.
[26] Mr Lamb’s letter provides contemporary evidence of the trustees’ intentions.
Relevantly, he wrote:11
…
We confirm that SR Hamilton Corporate Trustee Limited and Lamb Trust Services Limited are the Trustees of the WHR & ZD White Family Trust, the owner of the Mount Maunganui property. We also confirm that there are three children, Maureen who lives in California, Jocelyn who lives on a farm near Te Kuiti, and Stephen who is a Real Estate Agent on the North Shore.
You will note the provisions of paragraph 6(b) of the Memorandum of Wishes, contained in the 10 May 2010 Addendum. The three Memoranda signed by Royce from 2006 all refer to a registered valuation of the property. Stephen has requested an appraisal by a Real Estate Agent. We, as Trustees, have to decide if we will follow Royce’s wishes, or if we accede to Stephen’s request.
Secondly, you will note the comments of the Valuer with respect to the construction style of the dwelling which may make it susceptible to problems associated with Leaky Building Syndrome in the future. The Valuer is also concerned at the cracks present in the interior linings. The valuation therefore is conditional upon obtaining a detailed Building Inspection Report from a suitably qualified professional showing that the building is free from such issues. If such a report shows otherwise, the Valuer reserves the right to alter his assessment.
At present the property is occupied by Royce’s caregiver and partner. They pay the power and utilities but no rent. Jocelyn made these arrangements. We gather Maureen is happy, but Stephen is not. The Trustees will have to decide what to do from now on, given there may be some delay in obtaining a final Valuation Report.
…
[27] In a separate letter, also dated 12 October 2012, Mr Lamb wrote to all beneficiaries of the estate of the late Mr White and the Trust. After advising that “a
11 The use of the word “we” in the letter is explained by the fact that it was written on his firm’s
letterhead.
comprehensive Valuation Report” had been obtained but the assessment was conditional (because of the potential for remediation work being done) Mr Lamb pointed out the need for a detailed building inspection report before the valuer was asked to reconsider the valuation. Mr Lamb also made it clear that his firm was representing the executors of the late Mr White’s estate and the trustees of the Trust. He made it plain that his firm did not (and could not) represent any beneficiary.
[28] The trustees instructed Building Surveying Services (BOP) Ltd to undertake a detailed building inspection report. A report was received on 7 November 2012. On 9 November 2012, that report was sent to Telfer Young with a request to reconsider the valuation of the property. On the same day the beneficiaries were advised of the course the trustees were taking.
[29] The possibility of obtaining a further building report was mooted. After consultation, the beneficiaries expressed conflicting views as to the wisdom of that approach. The trustees decided to obtain a further building inspect report, so that Mr Higson would be able to provide an unconditional valuation.
[30] On 25 February 2013, Mr Higson put forward three options to consider. Differing responses from the three beneficiaries were received. Subsequently, the trustees took legal advice on whether losses could be sought from parties associated with the cause of the weathertightness problems. That step also met with some dissention.
[31] Towards the end of March 2013, the trustees decided to obtain an opinion from counsel as to the options open to them. Counsel gave an opinion on 3 April
2013. On 12 April 2013 advice was given by a firm of solicitors who had been asked to advise on the weathertightness issue. Later, a report was obtained from the Ministry of Business Innovation and Employment. The trustees received advice from their solicitors on 1 August 2013 that the Ministry had determined the property was eligible for a claim under the Weathertight Homes Resolution Services Act
2008.
[32] Further correspondence ensued. Disagreements began to emerge about the appropriateness of the valuation undertaken. On 26 November 2013, Mr Higson provided a further market valuation report which assessed value at $945,000, as at 13
November 2013. That valuation took into account issues arising out of the need to remediate.
[33] In the course of further correspondence, the solicitors for Mr Stephen White forwarded a separate valuation obtained by him. The trustees referred that to Mr Higson for comment. Mr Higson did not consider the two reports were comparable. They were dated 13 November 2013 and 20 February 2014 respectively.
[34] By May 2014, the trustees had received advice from counsel about their duties as trustees, and from a solicitor on weathertight issues. Decisions were then taken. Mr Lamb deposed that, after considering that advice and the Memoranda of Guidance, he and Ms Bell:
… determined not to pursue either of the options open to us in respect of the watertight issues and to offer the property to all three beneficiaries at the price of $945,000 being the first unconditional valuation received by us after the date of death of [the late Mr White].
Issue 1: the contractual issue
(a) The 16 June 2014 letter
[35] On 16 June 2014, the trustees wrote to Mr Stephen White, Ms Parsons and Dr Chambers to advise of their decisions in respect of the property. The letter dealt with both the weathertightness issue and sale of the property. The letter is lengthy. However, to determine the issues before me, relevant extracts must be set out at some length:
To: The Beneficiaries
We refer to the Addendum to the Memorandum of Guidance signed by Royce White on 10 May 2010. The Trustees were unable to obtain an unconditional valuation of the property at 4 Grace Avenue, Mt Maunganui (the property) until full reports had been obtained with respect to the weathertightness issues which were signalled in the original Telfer Young valuation.
As a result of the issues relating to the weathertightness problems, and also issues raised by beneficiaries, particularly Stephen and Maureen, the Trustees have obtained advice from Counsel (David Nielsen of Hamilton) with respect to the weathertightness issues, and (Elliot Hudson of Hamilton) with respect to the provisions of the Memorandum of Guidance and Addendum – particularly paragraph 6(b).
A. Weathertightness Issues
[A detailed summary of advice received on weathertightness issues, including whether application should be made for financial assistance under the Weathertight Homes Resolution Services 2008 followed]
…
We confirm that we have been advised to act prudently. At present the Trust can recover an amount equal to the registered valuation on a sale of the property as at presently stands, without the expenditure referred to above, or exposing the Trust to the liability of a mortgage.
The advice we have received is that it would not be prudent for the Trustees to pursue a claim under the [Financial Assistance Package] Scheme. The recovery would be less than that which the Trust could recover by a sale of the property at the present point in time.
Accordingly we have resolved to accept this advice. However we will not enter into a sale of the property unless and until the beneficiaries give to us an indemnity with respect to this decision and the reasons for it. We have been advised that if any one or more of the beneficiaries do not agree to give the appropriate and necessary indemnity, then we should seek directions from the High Court pursuant to the provisions of Section 66 of the Trustee Act 1956.
It goes without saying that an application for directions would increase the already substantial costs and expenses incurred in administering the estate and the Trust to date.
B. Sale of the Property
We refer to the provisions of paragraph 6(b) of the Memorandum of
Guidance as amended on 10 May 2010.
The Trustees obtained an unconditional registered valuation from Telfer Young on 13 November 2013. They valued the property at $945,000.00. Subsequently Stephen obtained a valuation of the property from Hills Haden as at 25 January 2014 which valuation was reviewed by Telfer Young.
The delay in our implementing Mr White’s wishes was occasioned by the issues with respect to the weathertightness problem and the necessity of our obtaining expert advice as to the issues and the valuation. Having given careful consideration to the reports and advice received, we consider the registered valuation which was obtained on 13 November 2013 is the valuation upon which we should proceed in implementing Mr White’s wishes.
Accordingly we give notice to you of the option to purchase the property for
$945,000.00. We should be pleased to learn if any one or more of you wish to exercise the option, such notice to be received within one month and three
days from the date of this letter.
We confirm the option is conditional upon receiving from all three adult beneficiaries, the indemnity with respect to the weathertightness issues set out in this letter.
If and when the property is sold, it will be necessary for you as beneficiaries to ensure that the property is vacant. We as Trustees will have to arrange for [the existing tenants] to vacate, and it will be necessary for you to arrange for the uplifting of all furniture and other effects.
(emphasis added)
[36] On 17 June 2014, solicitors for Mr Stephen White and Ms Parsons gave notice to Mr Lamb’s firm of their intention to bring proceedings for removal in this Court. It is implicit from the correspondence that Mr Stephen White and Ms Parsons were not prepared to give the indemnities requested. Nor did they purport to exercise the “option”.
[37] On the other hand, Dr Chambers wished to “exercise the option”. On 19 June
2014 she wrote to the trustees:
Re: 4, Grace Avenue, Mt Maunganui (“the property”)
Thank you for your letter of 16th Instant, which I received yesterday, and for the notice of the option to purchase the property for $945,000.00.
I confirm that I wish to exercise the option to purchase the property for
$945,000.00 and I further confirm that I have sufficient cash resources to complete the transaction.
I also confirm that I will provide such indemnity as the Trustees require with respect to the weather-tightness issues set out in your letter of 16th Instant.
With regard to the property being vacant upon transfer, if my option is accepted such that I am able to purchase the property, then it is my wish that [the existing tenants] remain in residence as caretakers of the property. If this can be achieved without the necessity for [the current tenants] to move out, I will provide whatever waiver may be required by the Trustees and/or by Maureen and/or Stephen, to enable this to happen.
(emphasis added)
[38] Did the correspondence exchanged between the trustees and Dr Chambers on
16 and 19 June 2014 amount to a legally binding contract that Dr Chambers could enforce by a claim for specific performance?
(b) Analysis
[39] Although Mr Hudson, for the trustees, made some submissions on the effect of their letter of 16 June 2014,12 argument on this issue was primarily conducted in an adversary manner by Mr Connell, on behalf of Mr White and Ms Parsons, and Mr Braun, for Dr Chambers.
[40] The contractual issue falls for determination against bedrock principles of contract law. In my view, the critical issue is whether the trustees and Dr Chambers ever reached a true consensus about a sale on “sufficiently certain terms”.13
[41] There are three issues with which I need to deal under this head:
(a) The first is to determine the legal characterisation of the “option” that
the beneficiaries were asked to exercise.
(b) The second is whether the trustees made an “offer” capable of being
accepted by one or more of the persons to whom it was directed.
(c) The third, having regard to the conclusions on those two points, is whether it can be said that the parties had “an intention to create legally binding relations”. As to this point, as Professor McMorland states, “such an intention does not follow just from an agreement on sufficiently certain terms; it is a separate element and the parties may
not intend to become bound in contract until a later time”.14
[42] The first possibility is that the trustees, in purporting to implement the late
Mr Royce White’s wishes, gave an option to each beneficiary to purchase the
12 Relevant parts of the letter are set out at para [35] above.
13 McMorland, Sale of Land (3rd ed, Cathcart Trust 2011) at para 3.11.
14 Ibid, citing Mackay v Wilson (1947) 47 SR (NSW) 315 (FC) and Woodroffe v Box (1954) 92
CLR 245 (HCA).
property for $945,000, subject to the conditions set out in the letter. On settled principles, the option could only be exercised validly if accepted on exactly the same terms as the property was offered for sale.15 If the option were not exercised on the exact (or possibly material) terms proposed, the parties could not be of like mind for the purpose of entering into a valid contract.16
[43] The second is whether the trustees made an “offer” capable of acceptance and was sufficiently certain to identify the terms on which an offeree would be bound. As the learned authors of Law of Contract in New Zealand say:17
An offer, capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound provided that certain specified terms are accepted. The offeror must have completed his or her share in the formation of a contract by finally declaring a readiness to undertake an obligation upon certain conditions, leaving to the offeree the option of acceptance of refusal. The offeror must not merely have been feeling the way towards an agreement, not merely initiating negotiations from which an agreement might or might not in time result. He or she must be prepared to implement the promise, if such is the wish of the other party. …
[44] That basic rule was explained in Carlill v Carbolic Smoke Ball Co.18 The issue in that case involved an advertisement for a medical preparation known as “The Carbolic Smoke Ball”. The proprietors placed the advertisement and offered to pay £100 to any person who contracted influenza having used one of the smoke balls in a specified manner and for a specified period. Ms Carlill bought one of the smoke balls, and used it as directed, but nevertheless contracted influenza. Did she have a
contractual right to sue for £100? At first instance, Hawkins J found that she did.19
[45] The Court of Appeal of England and Wales upheld Hawkins J’s decision. In doing so, members of the Court discussed various approaches taken in argument by Carbolic Smoke Ball Co in an endeavour to establish that it was not obliged to pay
the sum of £100 to Ms Carlill. One of the points discussed was whether it was
15 See Reporoa Stores Limited v Treloar [1958] NZLR 177 (CA), Buckland v Bay of Islands Electric Power Board (1980) 1 NZCPR 217 (CA) and Gulf Corporation Ltd v Gulf Harbour Investments Ltd [2006] 1 NZLR 21 (CA).
16 The possibility that the principle of de minimis might apply so that only material terms required acceptance was postulated by judgments given in the Court of Appeal in Buckland v Bay of Islands Electric Power Board (1980) 1 NZCPR 217 (CA).
17 Burrows et al, Law of Contract in New Zealand (5th ed 2016) at para 3.2.3 (p 41).
18 Carlill v Carbolic Smoke Ball Co [1892] 1 QB 256 (CA).
19 Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484.
legally possible to make a contract “with all the world”. That point is analogous to the present case, in which an “offer” was directed to the three beneficiaries, not just one.
[46] Discussing the form of the offer made in Carlill v Carbolic Smoke Ball Co, Bowen LJ said:20
… [The advertisement constitutes] an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to any one who, before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate – offers to receive offers – offers to chaffer, as, I think, some learned judge in one of the cases has said. If this is an offer to be bound, then it is a contract the moment the person fulfils the condition.
[47] In Attorney-General v Barker Bros Ltd,21 the Court of Appeal held that even where the parties appear not to have entered into a binding agreement until certain unsettled terms are agreed between them, a contract may exist as long as the Court is satisfied that the parties intended to enter into an immediate and binding agreement.22 In this case, the question whether the parties intended to enter into legally binding arrangements. The answer to that question depends on the interpretation to be given to the two letters in issue,23 and the principles that apply to “options” and “offers” of the type to which I have referred.
[48] More recently, the Court of Appeal has considered the extent to which there is a need for certainty in essential terms. Delivering the judgment of a plurality24 in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd,25 the
Court of Appeal, Blanchard J said:26
20 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA), at 268.
21 Attorney-General v Barker Bros Ltd [1976] 2 NZLR 495 (CA).
22 Ibid, at 498 per Richmond P, with whom Woodhouse and Cooke JJ agreed.
23 See paras [35] and [37] above.
24 Consisting of Richardson P, Keith, Blanchard and McGrath JJ.
25 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR
433 (CA), at paras [53]–[67].
26 Ibid, at paras [62] and [63].
[62] We agree with Professor McLauchlan (“Rethinking Agreements to Agree” (1998) 18 NZULR 77 at p 85) that “an agreement to agree will not be held void for uncertainty if the parties have provided a workable formula or objective standard, or a machinery (such as arbitration) for determining the matter which has been left open”. We also agree with him that the Court can step in and apply the formula or standard if the parties fail to agree or can substitute other machinery if the designated machinery breaks down. This is generally the approach taken by this Court in Attorney-General v Barker Bros Ltd.
[63] However, if essential matters (ie legally essential or regarded as essential by the parties) have not been agreed upon and are not determinable by recourse to a mechanism or to a formula or agreed standard, it may be beyond the ability of the Court to fill the gap in the express terms, even with the assistance of expert evidence. In Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at p 20, Kirby P remarked:
Courts are not well equipped, drawing on their own experience, to fill out the detail of such contracts where the parties leave gaps in their own agreement. The fact that this may result in wasted time and money is a risk which parties to negotiation must always weigh up. Courts cannot enforce such agreements because they are incapable of judging where the negotiation on particular points would have taken the parties, acting bona fide but legitimately in their own interests.
It will be a matter of fact and degree in each case whether the gap left by the parties is simply too wide to be filled. The Court can supplement, enlarge or clarify the express terms but it cannot properly engage in an exercise of effectively making the contract for the parties by imposing terms which they have not themselves agreed to and for which there are no reliable objective criteria.
(Emphasis added)
[49] Whichever analytical route is taken, the question is whether Dr Chambers agreed to exercise the option on all material terms on which it was offered so as to give rise to an enforceable contract. That question falls to be decided in the context of an option directed to three different people, all of whom might have exercised it. Unlike the situation in Carlill v Carbolic Smoke Ball Co,27 it was not an offer that could be accepted and enforced by each of the offerees. In contrast to the present case, any member of the public could have accepted Carbolic Smoke Ball Co’s offer to pay £100 if influenza had been contracted contrary to its advertisement.
[50] The essential elements of the letter of 16 June 2014 are:28
(a) No sale of the property would be entered into “unless and until the beneficiaries” provided an indemnity to the trustees in respect of their decision not to pursue an application under the financial assistance package.
(b) The trustees said they “should be pleased to learn if any one or more”
of the beneficiaries “wished to exercise the option [at a price of
$945,000], such notice to be received within one month and three
days” from 16 June 2014.
(c) The “option [was] conditional upon receiving from all three … beneficiaries” the indemnity in relation to the weathertightness issues that the trustees had required.
[51] The responses received on behalf of the three beneficiaries indicated:
(a) Mr Stephen White and Ms Parsons were not prepared to give the indemnities requested. Nor did they wish to exercise an option to purchase the property for $945,000.29
(b)Dr Chambers wished to exercise the option and promised to provide “such indemnity as the Trustees require” with respect to the weathertightness concerns.30
[52] It is clear that the trustees wanted to follow the wishes expressed by the late Mr Royce White in his Memoranda of Guidance. Indeed, the letter of 16 June 2014 makes express reference to cl 6(b) of the last of them.31 That is why the trustees gave to each of the children an option to purchase the property at an amount equal to
valuation.
28 Set out at para [35] above.
29 See para [36] above.
30 See para [38] above.
31 See para [35] above.
[53] The terms of the Memorandum of Guidance, as at the date of the late Mr Royce White’s death, contemplated that a copy of the valuation would be given to each of the children who would have one calendar month in which to decide whether to purchase the property at valuation. The deceased gave the trustees a discretion to decide to whom the property should be sold in the event that more than one of the children wished to exercise the option. Only if none of the children wished to do so were the trustees to sell the property “on the best terms” possible.
[54] In my view, it was not open to the trustees to sell the property to Dr Chambers if all three beneficiaries had not provided the relevant indemnities. That was a material term. It was not open to either the trustees or Dr Chambers to waive that requirement.
[55] The “tie-break” option available under cl 6(b) of the Memoranda of Guidance of 10 May 2010 had no contractual effect.32 Therefore, it was not possible for any purported exercise of the “option” given in the letter of 16 June 2014 to have been enforceable. As a result, there is no enforceable contract in existence between Dr Chambers and the trustees for the purchase of the property.
Issue 2: The sale issue
(a) Trustees’ applications for directions
[56] The trustees apply for directions under s 66 of the Trustee Act 1956:
66 Right of trustee to apply to court for directions
(1) Any trustee may apply to the court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee.
(2) Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the court thinks expedient.
[57] All persons interested in the application are before the Court, in the form of the three residual beneficiaries. Each has had an opportunity to make submissions
on the nature and appropriateness of the directions sought. Parties to an application for directions will be bound by the directions given.33
[58] The scope of a trustee’s application for directions was considered by
Paterson J in Neagle v Rimmington:34
[23] The scope of s 66 and equivalent Australian sections is to give to the trustee a right to seek the opinion, advice or direction of the Court on any question respecting the management or administration of the trust property. Provided that the trustee acts in accordance with the advice or directions and that the relevant facts are substantially as submitted upon the application, the trustee is deemed to have discharged his or her duty as trustee in the subject- matter of the application (s 69 of the Act). Parties represented on the application are bound by the judicial advice and directions given. The jurisdiction is intended essentially for private advice by the Court to trustees and, in Australia, is usually made on an ex parte application. The Court advises trustees as to what course of action they should follow, where they are in doubt as to the propriety of the action contemplated. The procedure should not be used to determine substantive issues, such as issues of interpretation of the trust document which involved the question of breach of trust by any of the trustees; for the purposes of securing additional powers for the trustees; or for resolving a contest between the trustees; see Dal Pont and Chalmers, Equity and Trusts in Australia and New Zealand (2nd ed), pp
667 – 669.
[24] The operation of s 66 was recently considered by Wild J in Melville v NRMA Insurance NZ Ltd (High Court, Wellington, CP 70/01, 17 April 2002). His Honour referred to various authorities on the application of s 66 and comparable sections in Australian jurisdiction and drew the following principles from those authorities:
(a) Section 66 is an inexpensive procedure which allows trustees to obtain the Court’s assistance “on points of minor importance arising in the management of the trust”;
(b) Questions of substance or importance, in particular involving matters of controversy or contest between trustees do not lend themselves to an application under s 66. Allegations of breach of trust, whether made expressly or implicitly are inappropriate for application under the section; and
(c) An application under s 66 must be made upon stated, that is, agreed facts, such facts “cannot be inquired into, and if not agreed should be established in the normal manner.”
….
33 Neagle v Rimmington [2002] 3 NZLR 826 (HC) at paras [23] and [24], set out at para [58]
below.
34 Ibid.
[59] In the analogous context of an application for directions by a liquidator,35 the Court of Appeal concluded that directions must be followed by the applicant. In Re Securitibank Ltd36 delivering the principal judgment of the Court (with which both Richardson and Quilliam JJ) agreed, Woodhouse J said:37
... I think that when a Court-appointed liquidator in the case of a winding up by the Court seeks directions under s 241(3) of the Companies Act he is obliged to act precisely in accordance with the directions that then may be given to him by the Court. He is not merely authorised, but obliged, to act on those directions. In other words I think a winding up by the Court means what those words suggest. And if the Court explicitly directs that the winding up shall proceed in a particular fashion then in so far as the steps to be taken by the liquidator are concerned that appears to me to be an end of the matter.
[60] In approaching a trustee’s application for directions, the Court must be mindful that its role is to determine what is in the best interests of the beneficiaries of the trust. This was explained by Lord Oliver of Aylmerton, delivering the advice of the Privy Council in Marley v Mutual Security Merchant Bank and Trust Co Ltd.38
His Lordship said:39
... By way of introduction, however, it is appropriate to state two general propositions. In the first place, there has always to be borne in mind the position and duties of a trustee who applies to the court for directions. A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court. If, however, he seeks the approval of the court to an exercise of his discretion and thus surrenders his discretion to the court, he has always to bear in mind that it is of the highest importance that the court should be put into possession of all the material necessary to enable that discretion to be exercised. It follows that, if the discretion which the court is now called upon to exercise in place of the trustee is one which involves for its proper execution the obtaining of expert advice or valuation, it is the trustee's duty to obtain that advice and place it fully and fairly before the court, for it cannot be right to ask the judge in effect to assume the burdens of a trustee without the information which the trustee himself either has or ought to have to enable him to carry out his duties personally. The court ought not to be asked to act upon incomplete information and, if it is so asked, the proper course is either to dismiss the application or adjourn it until full and proper information is provided.
35 In respect of the then operative s 241(3) of the Companies Act 1955.
36 Re Securitibank Ltd [1978] 2 NZLR 133 (CA).
37 Ibid, at 134.
38 Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 (PC).
39 Ibid, at 201.
Secondly, it should be borne in mind that in exercising its jurisdiction to give directions on a trustee's application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties. That is not always easy, particularly where, as in this case, the application has been conducted as if it were hostile litigation; but it is essential that the primary purpose of the application—indeed, its only legitimate purpose—be not lost sight of in academic discussion regarding the discharge of burdens of proof. Where beneficiaries oppose a proposal of a trustee with a host of objections of more or less weight, the court is, of course, inevitably concerned to see whether these objections are or are not well founded, but that must not be permitted to obscure the real questions at issue which are what directions ought to be given in the interests of the beneficiaries and whether the court has before it all the material appropriate to enable it to give those directions.
(Emphasis added)
[61] I am satisfied that this is an appropriate case for the Court to give directions to the trustees. It falls within the first of the categories identified by Lord Oliver in Marley. The trustees are faced with the need to make decisions affecting beneficiaries who are hostile to each other. As a result, they wish to surrender their discretion to the Court. I am satisfied that the trustees and other parties have provided me with sufficient information on which to determine the directions to be
made. I focus on “the best interests of the trust estate”.40
(b) The directions sought
[62] During the course of the hearing, I gave leave to the trustees to amend their statement of claim in order to ensure that all options promoted by the various parties could be considered by me. The third amended statement of claim seeks:
1. A direction pursuant to s 66 of the Trustee Act 1956.
1.1Whether as a matter of law the trustees are obliged to settle the sale of the property situated at 4 Grace Avenue, Mount Maunganui with Dr Chambers for a consideration of
$945,000.00 in accordance with the arrangements entered into in June 2014.
1.2That the home situated at 4 Grace Avenue, Mount Maunganui be sold to Jocelyn Chambers for a consideration of $945,000.
40 Ibid, set out at para [60] above.
1.3Alternatively that the home situated at 4 Grace Ave, Mount Maunganui be offered to all beneficiaries for a consideration of $975,000.00.
1.4Alternatively that the home situated at 4 Grace Ave, Mount Maunganui be offered to all beneficiaries for a consideration of $1.2M.
1.5Alternatively that the home situated at 4 Grace Ave, Mount Maunganui be offered to all beneficiaries for a consideration equal to the market value of the property as at 16 June 2014 as determined by a registered valuer, carrying on business at Tauranga.
1.6Alternatively that the home situated at 4 Grace Ave, Mount Maunganui be offered to all beneficiaries for a consideration that is equal to the present market value of the property as determined by a registered valuer, carrying on business at Tauranga.
1.7Alternatively that the home situated at 4 Grace Ave, Mount Maunganui be retained by the trustees pursuant to the provisions of the Deed of Trust dated 7 November 2003.
[63] If I were not prepared to make any of those directions, the trustees ask me to determine “what process [they] should henceforth follow in respect of the retention of or disposal of” the property.
[64] Further directions are sought in respect of the weathertightness issues involving the property. Without any serious opposition from any of the residuary beneficiaries, the trustees seek:
3. A direction pursuant to s 66 of the Trustee Act 1956:
3.1 That the trustees not pursue a claim to the Tribunal under the
Weathertight Homes Resolution Services Act 2006.
3.2 That the trustees not seek compensation under the
Government Financial Assistance Package.
(c) The competing contentions
[65] The trustees, Mr Stephen White and Ms Parsons and Dr Chambers take different positions on the directions that should be made. Mr Hudson, for the trustees, made submissions to reflect their desire to follow the wishes of the late Mr Royce White. The views presented on behalf of each of the residuary
beneficiaries reflected the personal benefits that each might attain should their preferences be adopted.
[66] The trustees prefer the Court to make directions to reflect the relief sought in paras 1.2 or 1.3 of the third amended statement of claim.41 Mr Hudson contended that such directions would give effect to the Memoranda of Guidance.
[67] Mr Stephen White and Ms Parsons ask that the process contemplated by the
8 February 2010 Memorandum of Guidance42 be recommenced, but on the basis that the property is offered at the current market value of $1,725,000.43 Mr Connell submitted that if no party were prepared to purchase at that price, a valuer should fix a reserve and the property should be sold at public auction.
[68] Dr Chambers, supporting the primary position taken by the trustees, contends that the trustees should offer the property to her at the price she previously agreed to pay, $945,000.44
(d) Analysis
[69] I have considered the submissions made in support of each party’s contentions. I do not propose to set out them out in detail. As the trustees have effectively surrendered their discretion to me, I shall explain why I am making particular directions.
[70] My starting point is the Memoranda of Guidance signed by the late Mr Royce White. I use those documents for that purpose because considerable weight is placed on them by the trustees. It is necessary to consider their terms, and to evaluate the weight that should be attached to them in the circumstances that now prevail.
[71] Wishes expressed by a settlor in a memorandum of guidance will usually be given significant weight by a trustee who is seeking to execute a trust in accordance
41 Set out at para [62] above.
42 Set out at para [19] above.
43 Reflecting paras 1.5 and 1.6 of the relief sought in the third amended statement of claim, set out at para [62] above.
44 See para [66] above.
with that person’s intentions. But, they are not binding. The context in which they were expressed and any material changes in circumstances necessarily affects the weight to be placed on them.
[72] This issue was discussed by the Court of Appeal of New South Wales in Hartigan Nominees Pty Ltd v Rydge.45 While it arose on an application by a beneficiary for disclosure of such a memorandum, members of the Court made observations on the legal nature of such a document. Mahoney JA explained the purpose of such documents:46
… The Court may, I think, know that for many years a statement of wishes of this kind has played a significant part in the procedures adopted by those involved in the professional administration of trusts. Discretionary trusts have been common in England for three centuries and more: Clarke v Turner (1694) Freem Chy 198; 22 ER 1158; Warburton v Warburton (1702) 4 Bro PC 1; 2 ER 1. It is not uncommon for trustees holding property upon discretionary trusts to have from the settler or instigator of the trust information as to his or her wishes as to how the discretionary powers are to be exercised. Trustees have, in such cases, taken into account the wishes of the settler or instigator of the trust. And they have done so upon the basis that the wishes are to be treated as confidential and, special cases apart, are not to be communicated to potential beneficiaries of the discretionary trusts. This appeal raises for decision the question whether and to what extent what has been done has been done properly.
[73] Having referred to a number of authorities, Mahoney JA considered what obligations (if any) were cast upon a trustee in a case where a settlor had executed a memorandum of wishes. He said:47
It is, of course, clear that the wishes of a settler, as appearing from the trust instrument, may be take into account. What is in question is the wishes of the settlor, expressed outside the terms of the trust. Those wishes must, of course, not be inconsistent with the purposes of the trust as appear from its terms.
It would, I think, be strange if the trustee could not have regard to such matters. Thus, if the settler were a medical practitioner and had expressed the wish that his son should have the opportunity to qualify as such, it would, in my opinion, be proper for the trustees to take that into account in deciding whether to advance moneys to the son for his education. If the settlor had expressed the wish that his daughter rather than his son have his library or his furniture, there seems no reason in principle why the law
45 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 (CA). The approach taken in
Hartigan was endorsed by the Court of Appeal in Erceg v Erceg [2016] 2 NZLR 622 (CA).
should require that that be ignored. The assumption has been that precatory trusts may be taken into account or put into effect notwithstanding that they impose no obligation upon a trustee; there would appear to be no reason in principle why a non-binding wish expressed in the trust document should be given effect but such a wish outside it must be ignored.
[74] Neither of the other members of the Court, Kirby P and Sheller JA, considered it was necessary to express views on the extent of a trustee’s discretion not to follow guidance given by a settlor. However, in the context of their particular focus on the question whether the trustees should disclose a memorandum of that type to beneficiaries, both Judges made observations that tend to support those of
Mahoney JA to which I have referred.48
[75] Kirby P took the view that disclosure was required to ensure trustees had all relevant information to make a decision. But he did not suggest that it was obligatory for those wishes to be followed.49 Sheller JA took the view that the memorandum would not evidence the reasons for a decision, saying:50
… Because of the nature of the trust, which imposes on the trustees a duty to exercise their own discretion, I do not think Sir Norman Rydge’s memorandum evidences the reasons why the trustees have made their decisions any more than the deed itself does. It stands in contrast to minutes and agenda papers of trustees’ meetings or communications between them.
[76] The context in which the late Mr Royce White’s Memoranda of Guidance fall
to be considered can be summarised as follows:
(a) The first Memorandum of Guidance was executed on 13 August 2006.
The terms of cl 6 of that document are drafted in the language of instruction, rather than guidance.51 It is fair to say that the “guidance” was based on a need to treat his children equally on his death. This memorandum was executed a little over three months after Mrs Zelpha White died, on 29 April 2006.
(b) The 8 February 2010 version of cl 6 of the initial Memorandum of
Guidance represented something of a change of heart. A preference
48 The relevant observations of Mahoney JA are set out at para [73] above.
49 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NZLR 405 (CA), at 420.
was expressed for Dr Chambers to be given an option to purchase at valuation, ahead of her siblings.52
(c) Just over three months later, on 10 May 2010, the relevant part of the Memorandum of Guidance was amended again, to reinstate a desire for the three children to be treated equally, by being given an option to purchase the property on the same terms.53
(d)At the time of execution of the 8 February 2010 document, the late Mr Royce White had no knowledge of weathertightness problems affecting the property. His “guidance” was given in the expectation that a sale of the property could be achieved relatively quickly, once options to purchase had been given to his children, and their responses were known.
[77] The valuation process envisaged by the Memoranda of Guidance was commenced not long after the settlor’s death, with the first report being prepared and dated 2 October 2012. The need for further inquiries was evident from the valuer’s concern about weathertightness problems.54 I have already set out the events that followed between the time at which the report was dated and the “option” letter sent to the three residuary beneficiaries on 16 June 2014.55 Through no fault of the trustees, almost two years had passed between the date of Mr Royce White’s death and the “option” letter of 16 June 2014. On any view, the late Mr White did not expect a delay of that length before a decision was made whether to sell to a particular beneficiary, or on the open market.56
[78] My analysis of the contractual issue demonstrates a flaw in the process that the late Mr Royce White intended the trustees to follow, with regard to sale of the property. The 10 May 2010 version of cl 6 of the Memorandum of Guidance
purported to give a “tie-break” discretion in favour of the trustees designed to allow
52 The 8 February 2010 version of the Memorandum of Guidance is set out at para [19] above.
53 The 8 February 2010 version of cl 6 of the Memorandum of Guidance is set out at para [20]
above.
54 See para [24] above.
55 See paras [25]–[34] above.
56 Compare with the rationale for the proposals for sale in the Memoranda of Guidance, set out at paras [18]–[20] above.
them to determine which of the three children should be permitted to buy the property in the event that two or all took up the option.57 That mechanism lacked contractual force, and could only have worked if all three beneficiaries had agreed to it. Otherwise, contractual acceptance of an offer to all beneficiaries might have resulted in a binding agreement with more than one person. Given the family dynamics involved, that could only have led to litigation.
[79] Given the delay between the date of Mr Royce White’s death (9 July 2012) and the “option” letter of 16 June 2014,58 his inability to foresee problems caused through the weathertightness defects with the property, and the marked increase in value ($780,000) between the dates of the valuation reports of 26 November 2013 ($945,000) and 30 March 2016 ($1,725,000), I must consider whether it is appropriate to follow his guidance. I do so on the basis explained in Marley, by reference to what I consider is in the best interests of the trust estate.59
[80] The controlling principle, which accords with the late Mr Royce White’s wishes, is the need to treat each of the three children equally. They would not be treated equally if only Dr Chambers were given the option to buy at the $945,000 valuation, in circumstances where her original “acceptance” did not give rise to a contractual entitlement to purchase.
[81] There is a need to adopt a contemporary approach. All three beneficiaries would be treated equally if each were given the opportunity to purchase at present market valuation. I do not consider it would be appropriate for such an offer to be made on the basis that, if more than one beneficiary wished to exercise the option, the trustees could choose to whom it should be sold. In my view, it is in the best interests of the trust estate for the trustees to offer the property for sale, on usual
terms for properties of that type,60 to each of the three beneficiaries at a purchase
price of $1,725,000, plus GST if any. The time for payment of the purchase price would need to be specified, as would the time for payment and interest for late
57 See cl 6(b) of the Third Memorandum of Guidance, set out at para [20] above.
58 Relevant parts of which are set out at para [35] above.
59 Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 (PC) at 201, set out at para [60] above.
60 To be determined by the trustees.
settlement. One of the terms of the offer should be that if more than one beneficiary wished to exercise the option no binding contract will have been entered into. That avoids the need for choice on the part of the trustees. All other terms should be determined by the trustees.
[82] In the event that either no beneficiary accepts the offer or more than one does, the trustees shall place the property on the open market for sale by real estate agents that they engage. If the property is not sold by private treaty within a period to be assessed by the trustees as reasonable, instructions shall be given by the trustees to enable the property to be sold at auction, with a reserve price to be fixed by them in light of prevailing market conditions.
[83] In my view, that approach gives effect to the principle of equal treatment that the late Mr Royce White wished to apply. All three children have an opportunity to exercise an option to purchase. In circumstances where more than one of them wishes to exercise the option, or none of them do so, all three will share in the proceeds of sale. None of the beneficiaries will be precluded from either making an offer to purchase while the property is on the market, or to bid if there were an auction.
Costs
[84] Formally, I reserve questions of costs. My provisional view is that reasonable costs and disbursements incurred by all parties to the application for directions shall be paid out of trust funds, so that the net amount available for distribution is adjusted to ensure no beneficiary is out of pocket. I incline to the view that such costs would include those incurred both in the present proceeding and Mr Stephen White’s and Ms Parsons’ separate application to remove the trustees.61
If this approach were adopted by the parties any dispute about the reasonableness of
costs incurred by any of them could be referred to me for determination.
[85] A joint memorandum shall be filed on or before 29 July 2016 advising whether agreement has been reached on costs and, if not, what (in summary form)
61 White and Parsons v S R Hamilton Corporate Trustee Ltd and Lamb Trust Services Ltd [2016] NZHC 1409.
are the positions taken by each. If questions of costs remain live, the Registrar shall allocate a telephone conference before me at 9.00am on the first available date after
5 August 2016 so that further directions can be made for all questions of costs in both proceedings to be resolved.
Result
[86] The trustees shall proceed in accordance with the directions set out in paras [81] and [82] above. Directions are also given, in terms of paras 3.1 and 3.2 of the relief sought in the third amended statement of claim.62 Costs are reserved, on the basis indicated in paras [84] and [85] above.
[87] I thank counsel for their assistance.
P R Heath J
Delivered at 11.00am on 27 June 2016
62 Set out at para [64] above.
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