Stratford v Moses
[2022] NZHC 1463
•22 June 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-476-40
[2022] NZHC 1463
UNDER the Trusts Act 2019 IN THE MATTER
of the Stratford Investment Trust
BETWEEN
BRIAN GEORGE STRATFORD
Plaintiff
AND
JULIET MOSES, DAVID VANCE AND LYNN STRATFORD, AS TRUSTEES OF THE STRATFORD INVESTMENT TRUST
First Defendants
JULIET MOSES
Second DefendantLYNN STRATFORD
Third Defendant
Hearing:
Final Memorandum Received:
8 – 9 February 2022
1 April 2022
Appearances:
D A T Chambers QC and M M S Gray for Plaintiff D P Turnbull for First-named First Defendant and Second Defendant
J W A Johnson, J I Taylor and R M Petch for Third-Named First Defendant and Third Defendant – Lynn Stratford
J P Bell-Connell for David Vance
I T K T R F Hikaka for Haidee Stratford and Amanda Johnston Andrea Sutherland – Self RepresentedJudgment:
22 June 2022
JUDGMENT OF EATON J
STRATFORD v MOSES [2022] NZHC 1463 [22 June 2022]
This judgment was delivered by me on 22 June 2022 at 9.30 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Table of Contents
Para No
Introduction [1] The creation of the Stratford Investment Trust
[5]
Brian’s health/background
[12]
Why Brian says interim relief is necessary
[21]
Lynn says orders are unnecessary
[23]
The harvest of the New Year 2022
[27]
Brian trespassed from the farms
[31]
Legal principles relating to the removal of trustees
[36]
Circumstances warranting the removal of a trustee
[43]
Conflict of interest
[47]
Incompatibility
[48]
Removal of trustees following separation
[51]
Discussion of the grounds relied on by the plaintiff
[53]
Conclusion
[90]
Costs
[91]
Orders
[92]
Obiter
[94]
Introduction
[1] This proceeding is the result of the separation of Brian and Lynn Stratford after 44 years of marriage and of running farming operations together. Brian and Lynn have not yet divided the assets they built up over that time. A complicating factor in achieving a division of their assets is that in 2015 Brian and Lynn transferred their farming assets to the trustees of the Stratford Investment Trust (the Trust). When the Trust was established, Brian and Lynn, along with a solicitor, Ms Moses, the second defendant, were the trustees. The circumstances of the establishment of that Trust and how the Trust Deed came to confer the sole power to remove and appoint trustees on Lynn are disputed.
[2]Brian seeks interim relief in the following terms:
(a)Removing Lynn as trustee of the Stratford Investment Trust or suspending or restricting her powers to make any trustee decisions.
(b)Appointing Trevor Thornton as trustee of the Stratford Investment Trust.
(c)Preventing Lynn from exercising her power to appoint and remove trustees of the Stratford Investment Trust without the Court’s consent.
(d)Directing the trustees of the Stratford Investment Trust to exercise their power to remove Lynn and Mark Darrow as directors of BG & LM Stratford Limited, Tiverton Farm 2002 Limited, Stratford Dairies Limited, and Riverton Farms Limited, or making declarations to that effect.
[3] The companies referred to above conduct the farming operation built up by Lynn and Brian. The shares in those companies are predominantly owned by the Trust, with both Brian and Lynn holding one share in each of the four farming companies.
[4] The above orders are as set out in Brian’s counsel’s submissions and differ from the orders sought in the amended interlocutory application dated
10 December 2021. The orders as framed in counsel’s submissions are those sought by Brian.
The creation of the Stratford Investment Trust
[5] It is common ground that for nearly half a century, Brian and Lynn developed two large farming operations in South and Mid-Canterbury. The farming operations were transferred to the trustees of the Trust in 2015.
[6] Prior to the Trust being established, Brian and Lynn had separated but Lynn says they had reconciled when the Trust was settled. Whether or not that is the case is not material to the outcome of this application. The extent to which Brian was involved in and understood the implications in the establishment of the Trust is a key area of dispute.
[7] Ms Chambers QC, counsel for Brian, says Brian and Lynn’s daughter, Amanda, encouraged them to put the farming enterprise into a trust. The trust documents were prepared by Ms Moses.
[8] Brian asserts the trust documents were drafted before he ever met or even knew of Ms Moses. Brian says he never dealt directly with Ms Moses. Brian did not get independent advice before signing the Trust Deed and related documents, notwithstanding, as will be developed below, that Ms Moses and Lynn say Brian was suffering from mental health issues. Ms Chambers submits that “Lynn instructed [Ms Moses] to make her the sole appointor of the [Trust], to her personal advantage”.
[9] Mr Johnson, counsel for Lynn, submits the evidence shows that Brian was involved in discussions around the establishment of the Trust and its structure and that Amanda had been tasked with helping her parents with that issue. Lynn says at the time Amanda was an adviser to both of her parents. Mr Johnson submits there are clear documentary references to Brian being involved in discussions around the Trust. Ms Chambers refers to handwritten changes on the Trust Deed that required there to be an independent trustee at all times. Ms Moses says Brian required this because Lynn had the sole power to appoint and remove trustees.
[10] As to the claim that the trust documents were sprung on Brian, this is rejected by Lynn. Mr Johnson submits that the evidence shows that Brian had seen the Trust documents before signing them and had the structure explained to him.
[11] The tenor of Brian’s case is that Lynn took advantage of him in establishing the Trust and the structure directed by Lynn was part of her preparations for the parties’ eventual separation. Lynn says the creation of the Trust was in part influenced by routine estate planning factors but also that one of the main reasons for the structure was to ensure protection of the family business assets during Brian’s manic periods.
Brian’s health/background
[12] It is not possible to explain the parties’ respective positions without an explanation of Brian’s mental health issues.
[13] Brian accepts he has bipolar disorder but it is suggested Lynn has used his condition as a pretext for removing him as trustee. Mr Johnson says that it was a manic episode during a meeting with the Trust bankers that was the catalyst for their final separation and for Lynn using her powers under the Trust Deed to remove Brian as trustee
[14]Just what happened at the meeting with the bankers on 9 July 2020 is in dispute.
[15] Lynn says Brian acted aggressively at this meeting, which took place at Brian and Lynn’s home. The day after the bank meeting, Lynn applied for and obtained a police safety order against Brian. Brian was removed as trustee of the Trust on 13 July 2020. He was also removed as a director of the companies set out at [2(d)] above on that same day. Lynn applied for a protection order on 20 July 2020. A temporary protection order was made final on 2 March 2021. Lynn says her decision to end her marriage with Brian was reached on 20 July 2020 when she applied for the protection order. On 13 April 2021, a trespass notice was issued to Brian.
[16] Unfortunately, the dispute between Brian and Lynn has caused a rift between the parties’ daughters with Haidee and Amanda siding with Lynn and Andrea with Brian.
[17] Notwithstanding the removal of Brian as a trustee in July 2020 and the issue of the trespass notice in April 2021, these proceedings were not issued until 15 October 2021.
[18] Lynn appointed Mr David Vance as a new independent trustee on 15 November 2021.
[19] On 23 November 2021, Ms Chambers filed an interlocutory application seeking the appointment of a receiver to the Trust or the appointment of an interim court appointed trustee. At the time the proceedings were issued, Ms Moses remained a trustee with Lynn. On 1 December 2021, Ms Chambers sought by memorandum that the interlocutory application be set down for an urgent hearing. That application was declined.
[20] Ms Moses retired as trustee of the Trust on 2 December 2021. Mr Vance was added as a party to the proceeding on 7 December.
Why Brian says interim relief is necessary
[21] Ms Chambers says the parties’ failure to settle their dispute is predominantly because Lynn uses her position as trustee to her personal advantage and as leverage in the division of property between herself and Brian. Just how she uses her position as trustee to her personal advantage and as leverage is not detailed.
[22] Ms Chambers says the orders are necessary to allow neutral management of the Trust and companies until the two warring spouses can agree on division. She submits that Lynn cannot act fairly, impartially, and even-handedly towards the two divided camps of their daughters. She also submits the orders are necessary for the protection of the Trust fund and to prevent Lynn from being able to frustrate any Court order or arrangement through the use of her power to appoint and remove trustees.
Lynn says orders are unnecessary
[23] At the telephone conference at which the application for urgency was addressed, Ms Chambers confirmed that she did not impugn Mr Vance’s integrity.
Mr Vance’s qualifications and experience as both a receiver and an independent trustee, often in situations where family relationships have deteriorated, was not in dispute.
[24] Mr Johnson notes that in addition to the appointment of Mr Vance, Lynn took the following steps:
(a)As trustee Lynn undertook not to make any distributions, loan, or dispose of Trust assets or exercise any power to re-settle the Trust or devolve her power of appointment without giving Brian 14 days’ notice and those undertakings remain in place.
(b)Brian was offered rental accommodation at a high quality apartment, a farm cottage and scheduled access to a holiday home owned in another trust of which Lynn and Brian are trustees.
(c)Brian and Lynn were offered equal drawings from one of the party’s companies, BG & LM Stratford Ltd. Additionally, this company paid for professional costs associated with the separation, with Brian incurring higher fees than Lynn.
[25] Mr Johnson notes that Brian has received more from BG & LM Stratford Ltd in repayment of his current account, than Lynn has.
[26] Lynn also arranged for Mark Darrow to be appointed as an independent director of the companies so that Lynn was not the sole director. Mr Darrow has significant governance experience in the rural industry.
The harvest of the New Year 2022
[27] An issue relied on by Brian, when in December 2021 he sought urgency, was that the Mid-Canterbury cropping farm was due to begin its harvest in February 2022. A crop of substantial value needed to be harvested within a four week period.
[28] Ms Chambers submitted that due to the acrimony between the parties, there was a risk there would not be enough staff to complete the harvest. Brian wanted to be involved in the harvest. The independent director’s enquiries showed arrangements were in place to complete the harvest successfully.
[29] Brian’s view is that no one understands the farming business like he does. He is concerned at being excluded from the management of the farming operations he helped build up.
[30] Brian is critical of Lynn engaging consultants to do what had been Brian’s job. Ms Chambers notes that up until the service of the trespass notice on Brian in April 2021, he had continued in his day-to-day role of operating the farms despite being removed as trustee. Ms Chambers submits that Brian finds himself in the difficult position of seeing consultants and others making decisions that he disagrees with about the farms he has built up over years.
Brian trespassed from the farms
[31] In April 2021, Brian went to see the manager of the run-off block and became upset when he heard that cattle would be sold, this being a decision he would not have made. Notwithstanding this, Brian says he helped the manager round up the cattle. Lynn’s evidence is that Brian became aggressive and threatened a farm worker. Mr Darrow conducted an investigation.
[32] Two days later Brian was served with a trespass notice signed by Lynn and Mr Darrow in their capacity as directors of the farming companies, barring Brian going onto particularised properties including the family farms.
[33] Ms Chambers submits this exclusion from the properties was not only inappropriate “but a real risk to the farming assets”. Brian and Lynn’s former solicitor said that Brian played “an absolutely crucial role” in the farming operation.
[34] Notwithstanding these submissions, there is, in my view, no concrete evidence of the value of the Trust assets being harmed through any action or inaction by the companies or the Trust.
[35] While the application for urgency was declined in early December 2021,1 the application for interim relief was brought on for hearing on 8 February 2022. At that time, Ms Chambers submitted there were skilled staff shortages for the upcoming harvest. Evidence filed since the hearing confirms the harvest was completed satisfactorily.
Legal principles relating to the removal of trustees
[36] Before addressing the considerations that apply in an application to remove trustees, it is necessary to keep in mind that this is an interlocutory application.
[37] Ms Chambers submits that removal of Lynn as a trustee should happen promptly to protect the Trust assets and the welfare of the beneficiaries. With reference to authority, she says the Court has the power to remove trustees summarily or on an interlocutory rather than a substantive application.2
[38] I am satisfied the orders sought are injunctive in nature. Brian has provided an undertaking as to damages.
[39] Mr Johnson examined the principles that inform whether interim orders will be made. He submits Brian’s application was akin to a mandatory interim injunction and a summary judgment application. That the application has the flavour of a summary judgment application is in part because while the orders are said to be interim, they partially mirror the orders sought in the substantive proceeding.
[40] A party seeking the summary removal of trustees must meet a high threshold.3 Here, there is little agreement around the key events, that is, the circumstances leading to the creation of the Trust and Brian’s involvement in that process, the events that led to Brian’s removal as trustee and the events that led to Brian being trespassed.
[41] While Ms Chambers submits Lynn lacks credibility, the circumstances here are anything but straightforward. No cross-examination occurred.
1 Stratford v Moses [2012] NZHC 3337.
2 Citing Niak v Macdonald [2001] 3 NZLR 334 (CA); Kain v Hutton CA23/01, 25 July 2002 at [19]; and Thaller v Trotter [2016] NZHC 1508.
3 Lunt v Brown [2021] NZHC 1899 at [59].
[42] Mr Johnson submits that before an interlocutory order can be made removing a trustee, an applicant must demonstrate a clear need to protect the Trust property in the interests of the beneficiaries. Keeping in mind that this is an interlocutory application, I now turn to principles that apply when the Court considers whether to remove a trustee.
Circumstances warranting the removal of a trustee
[43] Brian’s application relies on both s 112 of the Trusts Act 2019 (the Act), and the inherent jurisdiction of the Court. Section 112 of the Act provides:
Whenever it is necessary or desirable to remove a trustee and it is difficult or impracticable to do so without the assistance of the court, the court may make an order removing a trustee.
[44] In making a decision as to whether it is necessary or desirable to remove a trustee, Ms Chambers emphasised that the Court’s principal consideration is always the welfare of the beneficiaries.4 She identified other guiding principles as the security of trust property and the satisfactory execution of the Trust.5 Ms Chambers set out the following passage from Miller v Cameron, as per Dixon J:6
The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.
[45] Ms Chambers notes that the removal of a trustee does not require the trustee to have committed a breach of trust.7 Nor will a breach of trust necessarily be sufficient to justify removal of a trustee. Each case depends on its own facts.8
[46] Ms Chambers submits removal of Lynn as a trustee is justified here due to a conflict of interest, and incompatibility between Lynn as a trustee and certain
4 Letterstedt v Broers (1884) 9 App Cas 371 (PC) at 387.
5 Green v Green [2015] NZHC 1218 at [602].
6 Miller v Cameron (1936) 54 CLR 572 at 580.
7 Hunter v Hunter [1938] NZLR 520 (CA) at 529.
8 Kain v Hutton [2007] NZCA 199, [2007] 3 NZLR 349 at [267].
beneficiaries. Related to this, Ms Chambers submits the removal of trustees following separation is commonplace. There is overlap between the three factors relied upon.
Conflict of interest
[47] Quoting Garrow and Kelly Law of Trusts and Trustees, Ms Chambers submits that “a conflict between personal interest and one’s duty as trustee” is “usually enough in itself for a trustee to be removed”.9
Incompatibility
[48] Ms Chambers submits the incompatibility between Lynn as a trustee and certain beneficiaries is at such a level that “the proper administration of the Trust is seriously adversely affected and it has become difficult for a trustee to act in the interests of the beneficiary”.10
[49] There is clear jurisdiction for the Court to remove a trustee in circumstances where, while there may have been no misconduct, the “friction of personalities or honest differences of opinion make it difficult for a trustee to act in the interests of the beneficiary”.11
[50]Ms Chambers also relies on the following passage of Panckhurst J from
Kain v Hutton:12
In broad terms trustees may be removed for cause or, equally, on account of hostility between the beneficiaries and the trustees such as to make removal necessary. This latter situation has been defined as one where continuation of the trustee in office would be likely to be detrimental to the trust because the trustee is out of sympathy with the beneficiaries.
(emphasis added by Ms Chambers)
9 Greg Kelly and Chris Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at [17.60].
10 Kain v Hutton, above n 8, at [267].
11 Plumley v Plumley (1979) 3 MPC 139 (SC) at 141.
12 Kain v Hutton (2004) 1 NZLR 14-022 (HC) at [249].
Removal of trustees following separation
[51] Ms Chambers also submits that here, given the relationship property dispute, Lynn should not continue as trustee because she has a degree of control that Brian does not. Ms Chambers submits that almost invariably the Courts have held that where there is a breakdown over a family trust following a separation, it is appropriate to replace both spouses with independent trustees.
[52] Ms Chambers refers to Oldfield v Oldfield.13 In that case, a wife applied to remove her husband as trustee of their trust. Their relationship had broken down. It was a typical family trust owning the family home, holiday home and the family businesses. The wife claimed the husband could not be impartial. The husband argued that he should not be removed because there was no threat to trust funds and the future of the trust should be addressed at the substantive hearing. Van Bohemen J was not convinced about the husband’s assurances. His Honour considered the reality was that the husband was unlikely to be impartial towards his wife and other beneficiaries. The Court considered the husband was frustrating the purposes of the trust and failing in his responsibilities to the beneficiaries. The Court ordered his removal as a trustee and the removal of the wife as a trustee and they were replaced with an independent trustee.
Discussion of the grounds relied on by the plaintiff
[53] Given the overlap and the facts relied on for each of the above grounds, I do not address each of the grounds separately but discuss the facts generally.
[54] Ms Chambers submits that Lynn has demonstrated that she cannot treat Brian and those aligned with him impartially or even-handedly. Ms Chambers asserts the decision to remove Brian as a director of the farming companies was not made honestly and in good faith, meaning Lynn was in breach of her obligations under s 25 of the Act. Ms Chambers submits that Lynn removed Brian as a director to gain an advantage over him.
13 Oldfield v Oldfield [2019] NZHC 492, (2019) 5 NZTR 29-105.
[55] Ms Chambers relies on a failure by Lynn to provide Brian with Trust information and the fact that the directors have refused Brian’s request for information about the farming companies. Ms Chambers submits that given Brian’s role as a settlor of the Trust and his longstanding connection to the Trust property, and the dispute between the parties, there is no reasonable basis for the failure to supply information.
[56] There is also reference to Lynn unilaterally reducing Brian’s drawings while Lynn’s drawings reduced at the same time. Ms Chambers says this indicates Lynn’s “misguided understanding of the trustee role”.
[57] Ms Chambers submits Brian is entitled to have trust and confidence in Lynn as a trustee, but that trust and confidence is no longer possible here. She submits:
Brian is apprehensive about the risk of Lynn continuing to breach her trustee duties, including by continuing to withhold Trust information from him or by preventing him from having any role in the Trust assets, which he built up for decades.
[58] Ms Chambers says Lynn is fighting her removal as trustee as hard as she can “ultimately to the detriment of the beneficiaries”. Just what that detriment is, Ms Chambers does not develop.
[59] Ms Chambers refers to the hostility between the parties as indicating that the incompatibility ground is satisfied. Again, Ms Chambers asserts that “[t]he incompatibility between Lynn as a trustee and Brian is at a level where the proper administration of the Trust is seriously affected and no longer functional”. It is not in dispute that their relationship is unworkable. Whether that means the proper administration of the Trust is seriously affected is another matter.
[60] Another way of posing Ms Chambers’ submission is to ask whether Lynn has to have a healthy relationship with Brian to preserve Trust assets and ensure the welfare of beneficiaries. The fact that Brian and Lynn’s relationship is acrimonious certainly raises an issue as to impartiality, but in itself, is not determinative. The status quo, that is, Brian not being a trustee, has been in place since July 2020. Mr Vance has been an independent trustee since late 2021. The evidence does not point to a
finding of unequal treatment beyond the entirely standard consequences of a separation and the drawings issue which I refer to separately.
[61] The flavour of Brian’s application is summed up in the submission that Lynn is exploiting her role as trustee for leverage and is content with the Trust being in a state of deadlock. It is submitted that Lynn cannot be relied on to act impartially and for the benefit of all beneficiaries.
[62] If Ms Chambers’ submission that Lynn deliberately structured the Trust as a ploy to disadvantage Brian in the event of a separation were established, then that would be a factor strongly in favour of removal. However, the real question in the interim application is, how can that issue be resolved on untested and strongly contested evidence? This is just one of a number of questions that raise serious issues but on which the evidence does not permit findings.
[63] What I consider is missing from Ms Chambers’ analysis is the identification of concrete ways in which Lynn’s actions have put the Trust assets at risk or there has been a serious adverse impact on the interests of beneficiaries.
[64] These proceedings were issued 15 months after Brian was removed as trustee and six months after he was trespassed. The application for interim relief was not filed with the proceedings, but followed five weeks thereafter. The catalyst for the interim relief was said to be the risk to the completion of the harvest in the New Year. The evidence of risk factors in that regard was again, not clear cut. There was concern that there was inadequate staff for the harvest, but the reality was the harvest would inevitably be completed prior to this judgment.
[65] The allegation that Lynn is remaining on as trustee to gain advantage in the resolution of the property dispute is unconvincing. If there were two independent trustees, they would not seek to resolve the dispute between Brian and Lynn. Independent trustees would be focused on preserving the Trust property and attending to the interests of beneficiaries. Lynn and Brian will have to come to their own decision as to the division of their relationship property. I am far from convinced that process will be advanced through adding independent trustees. That is not their role.
[66] Brian’s criticisms of Lynn are, by and large, not borne out by her actions. Mr Vance was appointed as an independent trustee and there is no criticism of his independence. Lynn has appointed an independent director of the companies, and while Ms Chambers suggests that the independent director of the farming company is aligned with Lynn, the facts around that issue are not clear cut.
[67] Brian is concerned that Lynn could sell one of the productive assets of the farming operation. There is no evidence of Lynn’s intention to do so. The involvement of the independent trustee and the undertaking provided by Lynn not to dispose of the assets of the Trust without first giving 14 days’ notice to Brian provides appropriate safeguards.
[68] It is said the appointment of independent trustees would permit Brian to have more input in respect of the properties. Indeed Ms Chambers goes further and says independent trustees would allow Brian to work on his own farms. What independent trustees would decide on that issue is speculation. I have no doubt, given Brian’s intimate knowledge of the farm properties, he can contribute advice to the farm management. Whether he would be permitted to have a hands-on role is another matter.
[69] The significance of the involvement of an independent trustee is shown by the facts of Powell v Powell where there was clear evidence of extreme hostility.14 A trustee (son) armed with a knife went to his fellow trustee’s house (his father). The mother let their son into the house. The father tried to shut himself inside his bedroom. The son forced his way into the bedroom, knocking the door off its hinges. Holding the knife, the son pinned his father for about 10 to 20 seconds making some angry comments, and then left. The son was charged with intentional damage and assault with a weapon.
[70] Each trustee applied to remove the other. In the High Court, Dunningham J ordered that the father be removed and replaced by an independent professional trustee, but the son remained as a trustee. The father had set up the trust with majority shares in a successful company he had established. The hostility had arisen because
14 Powell v Powell [2015] NZCA 133, (2015) NZTR 25-020.
the father was unhappy about the son’s management of the company, which the father considered was depleting the assets of the company, meaning little or no dividends were being paid to the trust. A daughter/sister of the trustees was a discretionary beneficiary and sided with her father.
[71] The trust had been set up principally for the benefit of the son and his family. The Court found the father’s concerns were unfounded because the son’s management had built up the assets and the father had agreed to certain measures that he now criticised (for example, the son’s wife receiving salary). Once the father was removed, and with the presence of an independent professional trustee, there was no reason to expect hostility between the trustees. The decision of Dunningham J was upheld on appeal.
[72] Here, the evidence does not support the submission that the Trust assets are at risk. Mr Darrow, the independent director, reports that the farming companies’ relationship with their bankers is positive and that in December 2021 the farms were operating at or about budget levels.
[73] If Lynn can be criticised, it would be in relation to issues of communication. In this regard, I note the reduction of the amounts paid to Lynn and Brian. This was categorised by Ms Chambers as being a unilateral reduction in drawings that Brian receives from the Trust that occurred without first consulting him as to his financial needs. Mr Johnson notes this is not a correct characterisation of the payments made to Brian. The money is not drawn from the Trust but rather it is drawn from one of the companies in repayment of Brian and Lynn’s current account. Mr Darrow says that in May 2021 the farms faced a material cash deficit which led to Lynn and Brian’s monthly drawings being reduced from $35,000 each per month to $10,000 each per month. Be that as it may, in the circumstances Brian should have been told of the change and the reasons behind it. Similarly, Brian as beneficiary is entitled to information from the trustees and, in any event, given the litigation, I agree with Ms Chambers that there is no reasonable basis for Trust information to be withheld from him.
[74] However, I do not consider the extent Lynn has fallen short of her obligations in relation to these issues warrant the orders sought. There is criticism from Brian that the farming operation now engages consultants to provide advice that he provided without charge. However, that situation would not necessarily change if two independent trustees were in place, subject to the extent to which they might chose to take advice from Brian.
[75] As Ms Chambers submitted, each case must be considered on its own facts. Brian’s complaints boil down to him being excluded from having input into the farming operations and not being able to work on the farm. Brian also complains that his ability to resolve property issues with Lynn is hindered by Lynn being a trustee when he is not. I have commented on this second point. Whether the parties are both trustees or neither are, at the end of the day, they both have to agree on a resolution for their relationship property issues. Independent trustees will not impose a solution on them. Ms Chambers does not give examples of how Lynn has misused the fact that she is a trustee to scupper settlement, albeit that such negotiations may have been privileged. Whether Lynn is content with an outcome is not dependent on whether she is a trustee.
[76]The significant factual issues in this proceeding include:
(a)the extent of Brian’s mental illness generally and at the time of key events;
(b)the reason for the creation of the Trust and its structure and Brian’s involvement in those decisions;
(c)what occurred at the ANZ Bank meeting;
(d)the reasons and the reasonableness of Brian being removed as trustee and then trespassed from the farm properties; and
(e)whether the financial position of the farm properties has in fact improved since Brian’s removal as trustee.
[77] Many of these issues are difficult to resolve on the evidence before the Court. But the orders sought will have the effect of a final order in relation to Lynn’s role as trustee.
[78] Ms Chambers submits that if Lynn did not see her role as trustee as personally advantaging her then she would have retired as trustee. She says a neutral trustee would retire, given the circumstances, and points to the fact that Ms Moses retired as trustee.
[79] A pragmatic solution to the predicament faced by the wider Stratford family, as will often be the case in relation to a family trust post separation, is for the disputing trustees to step down and a neutral trustee to be appointed as a replacement. Ms Chambers submits that Lynn is obsessed with exercising control of the Trust assets and that in doing so she secures an unfair advantage and uses her position as leverage in the ongoing relationship property settlement discussions. Mr Johnson says Lynn is acting appropriately in her role, that Brian ought to take comfort in Lynn’s appointment of Mr Vance as an independent trustee and that she has not acted to Brian’s disadvantage. Therefore, he says there is no legal nor ethical or moral obligation for Lynn to step down as a trustee.
[80] The plaintiff cannot escape the agreement reached in May 2015 that Lynn was given the power of appointing and removing trustees. Whilst there is an issue raised as to Brian’s comprehension as to the potential consequences of Lynn acting as appointor, and an allegation that this measure was a deliberate ploy intended to permit Lynn to act in the manner that it is alleged has now arisen, I cannot find, on the evidence before me, that what took place in May 2015 was not an informed decision by Brian. In that regard I refer to the court report prepared by Brian’s psychiatrist dated 28 May 2015. This report was written at Brian’s request and reads:
The primary reason for such a report to be in the file is to be confident that in the event of any legal challenges on a future date regarding decisions that Mr Stratford had made in recent times, there is no doubt that he has made these changes willingly and while fully competent in mind.
I am reliably informed that the changes to the structure of his business are complex. Mr Stratford has been integral in making the changes, as he has wanted.
[81] It follows that it was the intention of the settlors that Lynn ought to have the power to remove or appoint trustees, reflecting a consensus view that she was the person best placed to be invested with the discretion to make decisions regarding trustees.
[82] Absent a finding that at the time Brian lacked capacity, or even did not understand the Trust deed, it would be inappropriate and wrong for this Court to ignore the settlors’ intentions.
[83] A court ought to have no hesitation to remove a trustee if that trustee has been dishonest, hopelessly conflicted or seriously incompetent in dealings with the trust. However, in a case where there are multiple allegations of conflict, impartiality and hostility but the evidence does not permit a determinative factual finding, there should be a greater focus on whether the continuation of this trustee would be detrimental to the execution of the trust. That is because the Court’s “main guide must be the welfare of the beneficiaries”.15
[84] If the decision to have Lynn hold the sole power of removal and appointment was reached with genuine knowledge and understanding by Brian, then that is an essential feature of the trust deed that cannot be easily discarded as unconscionable years later, and certainly so absent a finding that Lynn was acting improperly.
[85] Brian’s response is that he did not understand the structure that was set up, but in any event, it could not have been contemplated that the power to remove or appoint trustees be used in the context of the breakup of the marriage. However, if it is held that it was Brian’s decision to require the appointment of an independent trustee, that could only indicate an acceptance that in the future there may well be conflict between him and Lynn and the most obvious scenario that would give rise to that conflict was their separation. A further scenario was conflict arising from Brian suffering a manic episode.
[86] Ultimately, the decisive issue is whether the Trust assets are at risk, that is, whether steps are necessary for the preservation of the assets pending final
15 Letterstedt v Broers, above n 4.
determination of the dispute. As matters stand, there is no evidence to indicate the Trust assets are at risk or at least it is not possible to resolve the conflicts of evidence to find the Trust assets are at risk. At the end of the day, I am persuaded that Lynn has demonstrated her commitment to preserving the assets of the Trust through exercising her personal power to remove or appoint trustees to appoint Mr Vance as an independent trustee. In my view the appointment of Mr Vance ensures the Trust’s assets are protected.
[87] Both in the Court’s approach to declining Brian’s application for urgency16 and in this judgment, the role of Mr Vance is significant. Ms Chambers is correct that what the Court has treated as a practical safeguard in relation to the operation of the Trust would be undermined if Lynn was free to remove Mr Vance and replace him with someone who may not be independent. I am satisfied that to maintain the safeguard represented by the involvement of an experienced and independent trustee, the third order sought by Brian, as set out at [2] above, that is preventing Lynn from exercising her power to remove or appoint trustees without the Court’s consent, is appropriate.
[88] I am not prepared to find that this Court has jurisdiction to direct the trustees to exercise particular powers, namely the removal and appointment of directors of the farming companies. That is a decision for the trustees alone to make.
[89] Nor do I find that Mr Darrow is either conflicted or unable to act impartially. On the evidence available, I find the decision to issue a trespass notice to Brian was made by Mr Darrow, conscious of the likelihood that his decision could lead to a finding of impartiality. The evidence currently available would not permit a finding that he acted improperly or under the undue influence of Lynn.
Conclusion
[90] Save to the extent of an order preventing Lynn from exercising her power to remove or appoint trustees and a consent order in terms of Schedule 1 of the amended application, I decline to make the interim orders sought by Brian.
16 Stratford v Moses, above n 1.
Costs
[91] I reserve the question of costs. If costs cannot be agreed, counsel for the defendants are to file and serve memoranda as to costs (with a five page limit) within 10 working days of the issue of this judgment. Counsel for Brian Stratford is to file and serve memoranda (with a five page limit) within five working days thereafter. The Court will determine costs on the papers.
Orders
[92] By consent and in terms of Schedule One of the amended application dated 10 December 2021 I make the following orders:
(a)Until resolution of the 2021 proceeding has occurred or a court otherwise directs, David Vance and Lynn Stratford as trustees of the Stratford Investment Trust will not, without Brian Stratford’s or the Court’s express written consent:
(i)make (or attempt to make) any payment of any kind (including drawing, advance, dividend, gift, interest expense, distribution) to Lynn Stratford or any person or entity in any way connected with David Vance or Lynn Stratford or any person or entity which she controls or with whom she is in any way connected;
(ii)enter into (or attempt to enter into) any transaction with David Vance or Lynn Stratford or any person or entity in any way connected with David Vance or Lynn Stratford or any person or entity which she controls or with whom she is in any way connected;
(iii)make any payment or gift of any kind to any registered or other charitable entity;
(iv)otherwise use any Trust money (or money derived directly or indirectly from the Trust, whether via distributions or
otherwise) to make any payment of any kind to any other person or entity except where the relevant payment is:
1. a routine expense less than $25,000 in total that was incurred in regard to the Trust owned businesses and a legitimate Trust expense; or
2. required to meet any tax obligation of the Trust; or
(v)otherwise enter into (or attempt to enter into) any transaction or series of transactions having a total value of more than $25,000 which affects or may affect any Trust property in any way (whether owned legally, beneficially or otherwise).
(b)Brian Stratford undertakes not to withhold unreasonably express written consent for:
(i)any routine expense greater than $25,000 in total amount; and
(ii)any transaction which has a total value greater than $25,000 and involves any person or entity not in any way connected with David Vance or Lynn Stratford or any person or entity which they control or with whom they are in any way connected.
(c)Lynn Stratford is prohibited from exercising her power to remove and appoint trustees without leave of this Court.
[93] I reserve leave for counsel to apply to this Court to vary or clarify the orders set out in [92] above.
Obiter
[94] Much water has passed under the bridge since Brian was trespassed from his farms. In my view, it would be appropriate that he be allowed access to the farms, albeit on conditions that he not seek to engage with any staff in a manner that
undermines the authority of the directors of the various farming companies. I would also encourage Lynn to give serious consideration to resigning as a trustee and asking this Court to appoint somebody of the ilk of Mr Thornton in her place to act alongside Mr Vance with a view to taking the heat out of the relationship property dispute. Whilst I have not found in Brian’s favour in terms of the remedies he seeks, I am not without sympathy for the predicament that he, and Andrea, find themselves in having committed so much of their lives to Stratford Farms only to find themselves excluded. I am hopeful Andrea’s words during the hearing might resonate. It may be too late to save the relationships between parents and between the siblings themselves. But I am mindful that there are a number of young cousins who, as matters stand, will no doubt be alienated from those with whom they should have close bonds. Brian is unwell. He is battling a number of medical conditions. I would hope that permitting him to drive his ute around the farms might go some way to resolving the impasse.
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Eaton J
Solicitors:
Tavendale and Partners, Christchurch McElroys
Wynn Williams, Christchurch Dentons Kensington Swan
Lee Salmon Long
Copy to:
Lady Deborah Chambers QC, Barrister, Auckland Jeremy Johnson, Barrister, Christchurch
Andrea Sutherland
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