STEVEN YIP LIM and SUEY YIP WONG s SELINA YIP LIM AND MING LIM-YIP and JOSEPH DA HONG LIM-YIP s
[2024] NZHC 3012
•16 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-920
[2024] NZHC 3012
BETWEEN STEVEN YIP LIM and SUEY YIP WONG
First Plaintiffs
SELINA YIP LIM
Second PlaintiffAND
MING LIM-YIP and JOSEPH DA HONG LIM-YIP
Defendants
Hearing: 30 September – 3 October 2024 Appearances:
M C Harris and D M Scholes for the Plaintiffs V Bruton KC and P A Brown for the Defendants
Judgment:
16 October 2024
JUDGMENT OF BLANCHARD J
This judgment was delivered by me on Wednesday, 16 October 2024 at 2.30 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
Solicitors: Gilbert Walker (Z A Brentnall), Auckland
Russell McVeagh (P Brown), Auckland
Counsel:V Bruton KC, Auckland M C Harris, Auckland
LIM v LIM-YIP [2024] NZHC 3012 [16 October 2024]
[1] This proceeding concerns the trusteeship of a family trust called the Shue Wah Lim Trust (SWLT).1 The first plaintiffs, Steven and Suey, were trustees of the trust until they, and an independent solicitor trustee company, were removed by the defendants, their brothers Ming and Hong, who purported to appoint themselves as trustees under a power of appointment conferred by a 2015 will of their late mother, Shue Wah Lim.
[2] The parties now agree that the Court should appoint Comac Trustees Ltd, an independent trustee company, as trustee of the trust, as do I. However, they continue to disagree on whether the defendants’ appointment of themselves as trustees was a valid exercise of their power of appointment.
[3]The following matters also continue to be at issue:
(a)Should there be co-trustees or special trust advisors?
(b)On what terms should the new trustee(s) be appointed?
The parties
[4] The parties’ father, Cheok Narn Lim, and mother, Mrs Lim, migrated from China in the early 1950s. In 1962 they moved to Whenuapai where they set up a family business in market gardening. The couple had eight children: Mary, Hong, Ming, Suey, Sumy, Steven, Susanne and Selina.
[5] Mr Narn settled the Cheok Narn Lim Trust (CNLT) in 1981 for the benefit of his wife and his eight children. He passed away in 1981.
[6] Mrs Lim settled the SWLT in 2003 to benefit herself and seven of her eight children. The child not included as a beneficiary, Sumy, was estranged from her mother. The defendants say that Mrs Lim added Sumy as a beneficiary in 2015. The trust has assets of roughly $2 million, including a residential property.
1 Where surnames are common, for convenience, and meaning no disrespect, I refer to the parties by their given names.
[7] The eight siblings have divided into two groups. Suey, Steven and Selina are on one side and, Ming, Hong, Mary, Sumy and Susanne are on the other.
[8] Mary, Sumy and Susanne support Ming and Hong’s decision to replace Suey and Steven with themselves as trustees. They support Ming and Hong’s defence in these proceedings. They also supported Ming and Hong in the probate proceedings referred to below.
[9] Unfortunately, these proceedings and the probate proceedings have not been the only court proceedings between the siblings. There have been proceedings in the High Court and Family Court regarding the CNLT and various matters relating to Mrs Lim and her estate. The proceedings relating to the CNLT have ended but some of the other proceedings are ongoing.
[10] There has been one change to the groups. Initially Hong sided with Suey, Steven and Selina. In 2016, he joined with them in applying to the Family Court for orders in relation to Mrs Lim under the Protection of Personal and Property Rights Act 1988. However, he later broke with them and joined the other group.
$450,000 loan
[11] In 2006, Ming sought a loan from the SWLT to assist him in purchasing a business at Bristol Road. Mrs Lim, Suey and an independent solicitor trustee company were the trustees at the time.
[12] They agreed to make a loan of $450,000. The loan was made to Ming’s family trust, the MY-BT Family Trust, in September 2006. Formal loan documentation was prepared by the parties’ solicitors. The borrowers executed an agreement to mortgage and a caveat was lodged against the title to the property.
[13] The loan was repayable on not less than six months’ notice of demand. No interest was payable unless the lenders gave notice requiring interest to be paid in a particular year, in which case interest was payable in that year at a rate not exceeding 10 per cent. Until 2019 (in circumstances described below), the trustees did not purport to give notice requiring interest to be paid, so the loan was interest free.
[14] In September 2013, the Bristol Road property was sold. Despite the sale of the property, Ming wanted to retain the loan to help finance the purchase of another property at Greenhithe Road.
[15] By this time Steven was a trustee of the SWLT, having been appointed in 2009. Mrs Lim, Suey and Steven agreed to continue the loan. The loan documentation was varied to transfer the security from Bristol Road to Greenhithe Road.
[16] By 2014 whether Ming should repay the $450,000 loan or whether it should be forgiven had become a controversial topic. Suey and Steven wanted the loan repaid. Ming did not want to repay it. The plaintiffs say there was a heated discussion about the question at Mrs Lim’s home in December 2014. The defendants deny that the discussion was heated. Hong said that there was a heated discussion in an affidavit he swore in 2016 in support of the application under the Protection of Personal and Property Rights Act. However, he backtracked from that position in his evidence in these proceedings. In any event, the MY-BT Trust repaid $100,000 of the loan that month.
Mrs Lim’s wills
[17] In 2015, Ming took his mother to a new lawyer, Stella Chan, to make a new will to replace her existing 10 July 2012 will. The new will was executed on 20 May 2015.
[18] The 2015 will made some significant changes. Two are relevant to these proceedings. First, it transferred the power to appoint the trustees of the SWLT after Mrs Lim’s death from Steven and Ming to Ming and Hong. Second, it gifted to Ming all debt owed by SWLT to Mrs Lim personally. At the time of Mrs Lim’s death that debt totalled $340,471, roughly the same amount as the $350,000 that was still owed by the MY-BT Trust under the loan. There is evidence indicating that Mrs Lim gifted this debt to Ming because Ms Chan suggested to her that in practical terms it would have the same effect as forgiving the $350,000 loan but without the need to obtain the consent of Suey and Steven as her co-trustees of the SWLT.
Trustees’ demand for repayment of the loan
[19] Mrs Lim passed away on 20 February 2019. At the time of her death, the plaintiffs knew that Mrs Lim had made a new will, but they had not seen it. They had seen a memorandum filed in the Family Court in 2017 that said that under the 2015 will Ming and Hong had been given the power to appoint trustees of the SWLT, but they did not know that Mrs Lim’s personal debt to the SWLT had been gifted to Ming.
[20] On 26 March 2019, the trustees of the SWLT demanded repayment of the MY- BT Trust loan. By this time the trustees were Suey, Steven and Shue-Wah Lim Trustees Ltd (an independent solicitor trustee company), although Ming and Hong say that the other beneficiaries were not given any information about the latter’s appointment and (as discussed below) they have concerns about its validity.
[21] At the time this demand was made, Suey and Steven still did not know that Mrs Lim’s loans to the SWLT had been gifted to Ming under the will.
[22] The demand was for $450,000, not the correct figure of $350,000. The demand required payment by no later than 30 September 2019 and sought the payment of interest commencing on 1 April 2019. The parties are in dispute over whether the demand was sufficient to trigger the payment of interest.
[23]The MY-BT Trust did not respond to the 26 March 2019 demand.
[24] The plaintiffs found out about the full content of the 2015 will in about June or July 2019. From this time, they knew that Mrs Lim’s loans to the SWLT had been gifted to Ming under the will.
[25] The plaintiffs were unhappy about the 2015 will and challenged it in the probate hearing discussed below. They claimed that Mrs Lim did not have capacity when she executed the will and that she had been subject to undue influence by Ming. They made a claim seeking probate in relation to Mrs Lim’s 2012 will.
[26] In December 2019, the trustees of the SWLT engaged a debt collector to recover the loan. On 13 December 2019, the debt collector wrote to the trustees of the
MY-BT Trust demanding payment of $450,000, plus interest and recovery costs. The letter said that the trustees’ credit rating would be “severely damage[d]” if they did not pay. On 24 January 2020, the debt collector sent a further letter of demand. The defendants did not respond to these demands.
Attempts to obtain information about the SWLT
[27] While all this was going on, Ming, Mary, Sumy and Susanne were seeking to obtain information from the trustees regarding the financial position of the SWLT. The most recent financial statements of the trust that had been provided were for the year ended 31 March 2016. Requests for further financial information had gone unanswered.
[28] As a result, on 29 July 2019, solicitors instructed by them wrote to the Public Trust requesting an audit of the SWLT under s 83B of the Trustee Act 1956. On 3 September 2019, the Public Trust responded setting out terms of engagement for an audit. On 3 September 2019, the solicitors wrote to the Public Trust providing a signed letter of engagement.
[29] Despite this, the audit never occurred. The Public Trust could not obtain any information to carry out the audit.
[30] On 19 December 2019, Mary emailed Suey (copy to Steven) requesting financial statements for the SWLT for the years ending 31 March 2009 to 31 March 2019, as well as other information regarding the Trust. But no information was provided.
[31] The trustees’ failure to provide the requested information was wrongful. They should have provided the information sought by the beneficiaries and the Public Trust.
Change of trustees
[32] On 21 February 2020, Ming and Hong executed a deed removing the trustees of the SWLT and appointing themselves in their place. On 24 February 2020, their
solicitors notified Suey, Steven and Shue-Wah Lim Trustees Ltd of their removal and called upon them to turn over all trust records.
[33] On 25 February 2020 their solicitors notified ASB Bank of the change of trustees and instructed the bank to cancel any signing authority of the removed trustees and place a hold on SWLT’s bank accounts. The same day they wrote to the debt collector terminating its engagement. Finally, on 25 February 2020, they also wrote to the trustees of the MY-BT Trust advising that Ming and Hong had resolved, as trustees of the SWLT, to revoke the demand for payment of the loan and interest of 26 March 2019.
[34] The letter to the trustees of the MY-BT Trust gave reasons why Ming and Hong had resolved to revoke the demand. These included that the amount outstanding was
$350,000, not $450,000, and that Ming and Hong had concerns about the validity of the appointment of Shue-Wah Lim Trustees Ltd and therefore the validity of the notice of demand and the subsequent instructions to the debt collector. Thus, there was a dispute as to the validity of the demand.
[35] The letter also said that Ming and Hong were expecting that there would be a distribution to Ming from the CNLT and that the funds distributed would be used to repay the loan. The letter did not mention the fact that Mrs Lim’s loans to the SWLT had been gifted to Ming under the 2015 will.
[36] On 18 May 2020, Ming and Hong made an interlocutory application in the probate proceedings for an order appointing Perpetual Trust Ltd as temporary administrator of Mrs Lim’s estate and also as sole trustee of the SWLT. The plaintiffs did not agree to the order appointing Perpetual as trustee of the SWLT and the Court did not make that order because of a concern that it may not have the power to do so.
Probate hearing
[37] On 29 November 2021 a seven-day hearing in the probate proceedings commenced in the High Court. However, on day four of the hearing, part way through Suey’s cross-examination, Suey, Steven and Selina discontinued their claim. As a
result, on 3 December 2021, the Court made an order granting probate to Hong and Ming as executors under the 2015 will. The order was sealed on 6 December 2021.
[38] When Ming and Hong appointed themselves as trustees on 21 February 2020 probate had not yet been obtained. Ming and Hong’s position (which is now accepted by the plaintiffs) was that they did not need to obtain probate before they could exercise the power of appointment given to them under the 2015 will,2 but out of an abundance of caution, on 8 December 2021, two days after grant of probate, they executed a further deed confirming their appointment as trustees.
Law on exercise of a power of appointment
[39] There is no real dispute regarding the relevant legal principles. Under both equity and s 94 of the Trusts Act 2019, the holder of a power of appointment may only exercise the power in good faith, honestly and for a proper purpose.
[40] A party seeking to challenge an appointment must establish that the primary purpose of the appointer, without which the appointment would not have been made, was to benefit the appointer or a third person who is not an object of the power. The Court must consider the instrument under which the appointment is made and extrinsic material in order to determine the purpose of the appointer. If the primary purpose was to benefit the appointer or a third person, the appointment will be invalid. If it was not the primary purpose, and any benefit to the appointer or a third person was merely incidental, it will be valid.3
Was the defendants’ appointment of themselves valid?
[41] The plaintiffs say that Ming had a clear conflict and Hong was supporting him. They say that Ming and Hong appointed themselves in order to stop the calling in of the loan and to revoke the demand for payment. They say that Ming and Hong’s purpose was to delay the obligation to repay the loan and to erase the liability for the interest that was claimed in the demand. Further, they say their purpose was to resolve
2 Christie v Foster [2019] NZCA 623, [2020] 2 NZLR 238 at [65]–[66] citing, Chetty v Chetty
[1916] 1 AC 603 (PC). See also Re Bleeker [2023] NZHC 3511.
3 Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589 at [19]–[21]; and Wong v Burt [2005]
1 NZLR 91 (CA) at [30].
the dispute over the validity of the demand in Ming’s favour. They say that none of these were proper purposes because they benefitted Ming and not the beneficiaries of the SWLT as a whole.
[42] In contrast, Ming and Hong acknowledge that there was theoretically a conflict but they say that their purpose was not to benefit Ming. They say that the reason they appointed themselves as trustees was to obtain the financial information regarding the SWLT that Ming, Mary, Susanne and Sumy had been seeking and which Suey and Steven had failed to provide. They also say that their purpose was merely to “steady the ship”, not to try to resolve matters in Ming’s favour. Ming does not deny the loan has to be repaid, but it must be kept in mind that the $350,000 is roughly the same amount as the debt that Mrs Lim gifted to him under the 2015 will. Ming and Hong are highly critical of the decision to engage a debt collector to recover the $350,000 loan. They point to the fact that the letter of demand was for $450,000, rather than the correct figure of $350,000. They submit that the demand for interest was invalid, and no interest was in fact payable. Finally, they note that only a few months later in May 2020, they applied to the High Court for an order that Perpetual be appointed sole trustee of the SWLT. They say this demonstrates that their purpose was not to benefit Ming.
[43] There is no doubt that Ming and Hong were entitled to remove Suey, Steven and Shue-Wah Lim Trustees Ltd as the trustees. The issue is whether their appointment of themselves as replacements was valid.
[44] Ming plainly did have a conflict. This is not necessarily a problem. Trustees of family trusts often have conflicts, and they are nevertheless entitled to act and exercise all the powers conferred on them. Importantly, however, the conflict here was highly salient because the beneficiaries of the SWLT had divided into two groups and had longstanding and strongly held opposing views about repayment of the loan.
[45] I accept that obtaining information was a consideration, but I do not think it was Ming and Hong’s primary purpose. The timing of the change of trustees does not fit. They gained the power of appointment when Mrs Lim died in February 2019. Even though they had been requesting information for some time and continued to do
so periodically through 2019, they took no steps. It was only when the debt collector made demand in December 2019 and January 2020 that they acted.
[46] Further, their solicitor’s letter of 24 February 2020 notifying Suey, Steven and Shue-Wah Lim Trustees Ltd of their removal did call upon them to promptly deliver all trust documents to the solicitor’s office, but this general request for trust documents was the only demand that Ming and Hong made for information after they appointed themselves. Had their primary purpose been to obtain information, I would have expected them to have made a more expansive demand for information and to have followed up with a further demand when the information was not forthcoming.
[47] I also do not think that Ming and Hong appointed themselves merely to “steady the ship”. They could have achieved that objective by appointing someone other than Ming or an independent corporate trustee.
[48] The defendants submitted that it was not possible for Ming and Hong to appoint an independent corporate trustee because of Suey and Steven’s failure to provide information about the SWLT. They point to the fact that the Public Trust said in a memorandum filed shortly before trial that they had not consented to being appointed as trustee because of the limited information provided in relation to the trust and its past administration. I do not think this is sufficient evidence for me to conclude that it was not possible to appoint an independent corporate trustee and I doubt whether it is correct that it was not possible. Even if an independent corporate trustee could not be appointed, someone other than Ming could have.
[49] The defendants also submitted that appointing an independent trustee would have been completely pointless because Suey and Steven would have said that the appointment was invalid (because the 2012 will applied under which Ming and Steven had the power of appointment) and they would have refused to hand over any trust information. However, I do not agree that appointing an independent trustee would have been pointless. It would not have made matters any worse. It would have steadied the ship.
[50] As explained, immediately after Ming and Hong appointed themselves, they took a series of steps. They advised the former trustees of their removal and ASB Bank of the change of trustees and they terminated the engagement of the debt collector. These steps can be characterised as necessary to “steady the ship”. But they also immediately went further and sent the MY-BT Trust the letter revoking the 26 March 2019 demand for payment of the loan and interest. This was not a step that they needed to take to “steady the ship”.
[51] Neither of the two reasons Ming and Hong gave for disputing the demand could justify a decision to immediately revoke it in full. Ming and Hong’s first issue was that the demand was for the wrong amount. They were correct about this. Suey accepted in cross-examination that the correct amount was $350,000. However, this could not justify revoking the demand in full. Their second issue was that they had concerns about the validity of the appointment of Shue-Wah Lim Trustees Ltd and therefore the validity of the demand. However, their concern about this could not justify revoking the demand immediately without investigating the issue. (Even now it is unclear whether Shue-Wah Lim Trustees Ltd was validly appointed because this was not something that was explored at trial.)
[52] At trial, Ming and Hong emphasised the fact that Mrs Lim had gifted her loans to SWLT to Ming under the 2015 will. However, this was not something that they relied on at the time. It was not referred to in the letter revoking the demand. It must be remembered that at that time the probate proceedings were ongoing. It was unclear which will would be granted probate. Instead, Ming and Hong said in the letter of revocation that the loan would be repaid when funds were distributed to Ming by the CNLT. However, when the expected distribution occurred in June 2020, the loan was not repaid.
[53] Suey accepted in cross-examination that engaging the debt collector was possibly not a “wise move”. However, the trustees were entitled to seek to recover the loan. It was not wrong for them to attempt to do so.
[54] The demand required that the MY-BT Trust repay the loan by 30 September 2019. Thus, on the date of Ming and Hong’s appointment, repayment was overdue.
By revoking the demand, the date for payment was delayed. The loan has still not been repaid.
[55] Revoking the demand also stopped interest from accruing. In closing submissions, it was submitted for Ming and Hong that the demand for interest in the 26 March 2019 letter was invalid because the clause under which interest was payable was not properly invoked. Therefore, interest was not in fact accruing at the time of the revocation. The plaintiffs dispute this. However, what matters is not whether interest was actually accruing but rather whether Ming and Hong thought that it was at the time they revoked the demand, and clearly they did.
[56] I do not think that I can place much weight on Ming and Hong’s May 2020 application to have Perpetual appointed as sole trustee. This was several months after they appointed themselves as trustees. It is possible that they had a change of mind in that time. They did in fact have a later change of mind. In a joint affidavit of 5 April 2023, they said that they were no longer in favour of an independent corporate trustee being appointed until a later stage.
[57] The purpose of the deed of 8 December 2021 was merely to confirm the earlier deed appointing Ming and Hong as trustees. It follows that its purpose was the same as the earlier one.
[58] For the reasons given above, my conclusion is that Ming and Hong’s primary purpose was to benefit Ming by halting the calling in of the loan and revoking the demand for payment. This delayed the obligation to pay, prevented interest from continuing to accrue, and put to an end the dispute concerning the demand. Accordingly, their purpose was improper and their appointment was invalid.
[59] As I have indicated, the dispute in these proceedings is part of a wider conflict between the parties. However, my role is not to judge the rights and wrongs in the wider conflict. I am simply required to determine whether Ming and Hong acted with an improper purpose when they appointed themselves as trustees. In my view, they did.
Should co-trustees or special trust advisers be appointed?
[60] Both sides agree that Comac should be appointed, as do I. The only issues are whether co-trustees or special trust advisers should also be appointed.
[61] The plaintiffs’ amended statement of claim seeks either the appointment of Comac plus a person nominated by each side (with decisions being made by majority) or Comac and Jeff Turner (a family friend) as co-trustees. Alternatively, the plaintiffs are open to Comac being the sole trustee but with a person nominated by each side as a special trust adviser. The defendants are strongly opposed to anything other than appointment of Comac as the sole trustee.
[62] I prefer the defendants’ position. Comac does not need any co-trustees or special trust advisers to do its job. Having co-trustees or special trust advisers comes with some risk. If the persons nominated are siblings, there will be a risk of conflict. If Mr Turner is appointed as the one co-trustee, there would be a risk of deadlock if he and Comac cannot agree.
On what terms should Comac be appointed?
[63] At the end of the hearing, it was agreed that the terms on which Comac is appointed should be addressed once I have released this judgment. It is hoped that the two sides will be able to reach an agreed position. To the extent they are unable to do so, I will determine matters on the papers.
Result
[64] I declare that Ming and Hong’s appointment of themselves as trustees of the SWLT was invalid.
[65] I appoint Comac as sole trustee of the SWLT. This appointment will come into effect once I have determined the terms on which it is appointed.
[66] I direct that the parties are to file within 10 working days of this judgment a joint memorandum that proposes terms on which Comac should be appointed. If they are unable to agree on the terms, the memorandum should propose a timetable for filing memoranda setting out their respective positions. It should also propose a timetable for filing of memoranda on costs.
Blanchard J
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