Te Aute Board v Hauraki
[2014] NZCA 532
•4 November 2014 at 3:00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA451/2013 [2014] NZCA 532 |
| BETWEEN | THE TE AUTE BOARD Appellant |
| AND | JOHN DOUGLAS TAMATI HOKO-WHITU-ATU HAURAKI AS TRUSTEE OF THE NGAWAPURUA AND RUA ROA TRUSTS WAIAPU BOARD OF DIOCESAN TRUSTEES RICHARD TATERE |
| Hearing: | 13 August 2014 |
Court: | Ellen France, Randerson and Harrison JJ |
Counsel: | B W Morley and S Holderness for Appellant |
Judgment: | 4 November 2014 at 3:00 pm |
JUDGMENT OF THE COURT
A We allow the first respondent’s application for leave to adduce further evidence on appeal.
BThe appeal is dismissed.
C The appellant must pay costs to the third respondent for a standard appeal on a Band A basis with usual disbursements.
DThere are no orders for costs in respect of the first and second respondents.
____________________________________________________________________
REASONS OF THE COURT
(Given by Randerson J)
Table of Contents
| Para No | |
| Introduction Background (c) Were the Board and the Parish entitled to withdraw the consents they gave after the rehearing on 6 August 2009? The estoppel point (d) Are there any grounds to interfere with the MAC’s overall conclusions on the merits? | [1] [13] [17] [38] [58] [64] [83] |
Introduction
This appeal from a judgment of the Māori Appellate Court (the MAC) relates to two dairy farms at Dannevirke and Woodville.[1] The farms are owned by two trusts settled in 1968 by trust orders and known as the Rua Roa and Ngawapurua Trusts respectively. The owner of the lands at that time was Hōhepa Tatere I (also known as Doc).
[1]Tatere v Te Aute Trust Board – Mangatainoka No 1BC, No 2C and No 1, Tamaki 2A1C Lot 1 DP 7840, Tamaki 2A2A (Balance) [2013] Māori Appellate Court MB 243 (2013 APPEAL 243) [Substantive judgment].
The Trusts provided that specific whānau beneficiaries would be entitled to income for a defined period after which the land would revert to two final (capital) beneficiaries, the appellant as to four-fifths and the second respondent as to one-fifth. We will refer to the appellant as the Board and to the second respondent as the Parish.[2] Both the Board and the Parish are also income beneficiaries. Doc Tatere died in 1971. The trustees of both Trusts at the time of relevant events were Doc Tatere’s son Hōhepa Tatere II (Hepa) and Te Aroha Edwards. We will refer to them as the trustees. They have since been replaced by the first respondent Mr Hauraki.
[2]The second named capital beneficiary was the Anglican Parish of Dannevirke for which the second respondent holds any property interests.
Apart from the Board and the Parish there were nine income beneficiaries: six from the Edwards whānau (children of Te Aroha Edwards) and three from the Tatere whānau (children of Hepa). One of these, Richard Tatere, is the third respondent. The date of distribution to the final beneficiaries of the Rua Roa Trust was 22 March 2012, being the date upon which the last of the nine beneficiaries (Josephina) attained the age of 40 years. For Ngawapurua, the date of distribution is the later of 22 March 2012 or the death of Te Aroha Edwards. Since Te Aroha is still alive, the date of distribution under the trust order for Ngawapurua has not yet arrived. Both Trusts also provide for certain annuities. The only annuities remaining at December 2007 were for Te Aroha Edwards ($600 per annum under the Ngawapurua Trust) and for the Parish ($200 per annum under the Rua Roa Trust). The annuity to the Parish terminated at 22 March 2012.
The farms were operated as a partnership[3] with profits and losses shared on an agreed basis.[4] It is common ground that the trustees have not made any distributions to the income beneficiaries. Rather, they adopted a policy of capital growth by investing the profits from the farming operations in improving the farms. It is evident that the Board and the Parish recognised from about 2004 onwards that this policy was unfair to the income beneficiaries. Negotiations between the affected parties led to an agreement in principle to vest the Ngawapurua farm in the final beneficiaries and the Rua Roa farm in the income beneficiaries (the distribution arrangement). The then trustees applied under s 244 of the Te Ture Whenua Māori Act 1993 (the Act) to vary the trust orders to bring forward the distribution dates. On 4 December 2007 Deputy Chief Judge Isaac (as he then was) in the Māori Land Court (the MLC) made a conditional order bringing forward the dates of distribution in both Trusts to 1 February 2008.[5]
[3]The Tatere Partnership.
[4]From 1 September 2000 an amendment to the partnership agreement provided that profits and losses were to be shared as to 60 per cent by Ngawapurua and 40 per cent by Rua Roa.
[5]Tatere – Mangatainoka No 1BC, No 2C and No 1, Tamaki 2A1C Lot 1 DP 7840, Tamaki 2A2A (Balance) (2007) 193 Napier MB 46 (193 NA 46) at 172.
In early 2008, members of the Emery whānau applied for a rehearing of the variation application. They were four children of Pearl Emery, an adopted daughter of Doc Tatere. Pearl Emery, now deceased, had been entitled to an annuity from each Trust but had no other entitlement under the Trusts.
A rehearing was granted on 19 August 2008 but due to several adjournments was not heard until 6 August 2009.[6] At the conclusion of the hearing, Deputy Chief Judge Isaac reserved his decision giving the parties seven days to make further submissions on defined matters. By mid-August 2009, the then trustees, the Board and the Parish and at least six of the nine income beneficiaries filed memoranda consenting to the variation and the distribution arrangement. Despite the existence of substantial agreement and support for the agreed proposals as required by s 244(3) of the Act the MLC did not then issue its decision. Further applications intervened as we detail below and the Board and the Parish purported to withdraw their consents to the proposals on 21 April 2010 and 4 June 2010 respectively. Other affected parties did so too.
[6]Emery – Mangatainoka No 1BC, No 2C and No 1, Tamaki 2A1C Lot 1 DP 7840, Tamaki 2A2A (Balance) (2008) 196 Napier MB 281 (196 NA 281) [Rehearing decision].
After a lengthy delay and numerous further memoranda, the MLC finally
issued a decision on 29 March 2012 declining the application to vary the terms of the Trusts.[7] On 4 April 2012, Judge Coxhead granted an application by the Edwards whānau to remove the trustees.[8] They appealed to the MAC against both judgments of the MLC in a single notice of appeal filed on 28 May 2012.
[7]Hohepa Tatere II and Te Aroha Edwards as Trustees of Ngawapurua and Ruaroa Trusts – Mangatainoka No 1BC, No 2C and No 1, Tamaki 2A1C Lot 1 DP 7840, Tamaki 2A2A (Balance) (2012) 15 Takitimu MB 4 (15 TKT 4).
[8]Edwards v Tatere – Mangatainoka No 1BC, No 2C and No 1, Tamaki 2A1C Lot 1 DP 7840, Tamaki 2A2A (Balance) (2012) 15 Takitimu MB 204 (15 TKT 204) [Removal decision].
The MAC heard the appeal relating to both matters and issued separate reserved judgments. On 8 March 2013 the appeal against the trustees’ removal was dismissed[9] and on 14 June 2013 the appeal against the MLC judgment dismissing the variation application was allowed.[10] We will refer to these as the removal judgment and the substantive judgment respectively. Orders were made in the substantive judgment giving effect to the variation and the distribution arrangement.
[9]Tatere v Te Aute Trust Board – Mangatainoka No 1BC, No 2C and No 1, Tamaki 2A1C Lot 1 DP 7840, Tamaki 2A2A (Balance) [2013] Māori Appellate Court MB 105 (2013 APPEAL 105) [Removal judgment].
[10]Substantive judgment, above n 1.
The appeal to this Court relates solely to the substantive judgment of the MAC. In substance, the MAC found:
(a)The conditional variation order advancing the distribution date made by the MLC on 4 December 2007 became unconditional once the consents of the affected parties were filed in August 2008.
(b)The parties had acted on the consents filed and had altered their position. They were estopped from denying the arrangement or at least there were grounds to found an argument based on estoppel.
(c)The rehearing gave an adequate opportunity for parties to be heard and remedied any omissions in the presentation of the case for the trustees at the original hearing.
(d)Consents to the distribution arrangement canvassed at the rehearing were all filed by 19 August 2009.
(e)The MLC should not have received further memoranda or submissions thereafter. Rather, it was required to make a decision on the evidence and submissions before it confirming that all relevant parties agreed to the distribution arrangement.
(f)The only opposition to the making of an order at that time was from the Emery whānau. Having reviewed the matter on the merits, there was no reason arising from the case presented by the Emery whānau which might influence the Court to decline to approve the variation and the distribution arrangement. Their interests would only be affected in the event of a subsequent sale of the Rua Roa land.
Relying on s 37(3) of the Act the MAC allowed the appeal and annulled the decision the MLC made on 29 March 2012.[11] The MAC also:
(a)Made an order under s 241(1) of the Act vesting the Ngawapurua lands in the Board and the Parish as to a four-fifths and one-fifth share in common respectively and terminating the Ngawapurua Trust; and
(b)Made an order under s 244 of the Act varying the Rua Roa Trust order to substitute the nine income beneficiaries for the existing capital beneficiaries.
[11]Section 37(3) enables the Court to exercise any part of the jurisdiction of the court without further application where it considers it necessary or desirable.
The Board’s appeal to this Court under s 58A of the Act is supported by the Parish and by Mr Hauraki who was appointed by the MLC on 4 April 2012 to replace the trustees who were then removed.[12] On 23 July 2014, we granted an application by Mr Richard Tatere to be joined as third respondent to the appeal.[13] We also provisionally allowed an application by Mr Hauraki for leave to adduce further evidence on appeal and granted an application by the appellant for leave to adduce further evidence on appeal.
The issues
[12]Removal decision, above n 8, at [104].
[13]The Te Aute Trust Board v Hauraki [2014] NZCA 344.
Numerous grounds were relied upon in support of the appeal but the broad issues are these:
(a)Did the former trustees have standing to bring the appeal to the MAC against the decision of the MLC of 29 March 2012?
(b)What is the status of the orders made by the MLC on 4 December 2007?
(c)Were the Board and the Parish entitled to withdraw the consents they gave after the rehearing on 6 August 2009?
(d)Are there any grounds to interfere with the MAC’s overall conclusions on the merits?
(a) Did the former trustees have standing to bring the appeal to the MAC against the decision of the MLC of 29 March 2012?
The essence of the Board’s submission on this issue is that Hepa Tatere and Te Aroha Edwards were removed as trustees by order of the MLC on 4 April 2012. While it was accepted that they were able to appeal against their removal, it was submitted they no longer had the ability to appeal against the dismissal by the MLC of the variation application on 29 March 2012. In particular, it was said that the former trustees no longer had any standing in terms of s 58 of the Act, which governs the jurisdiction of the MAC to determine appeals from any final order of the MLC. That section relevantly provides:
58 Appeals from Māori Land Court
…
(2)Any such appeal may be brought by or on behalf of any party to the proceedings in which the order is made, or any other person bound by the order or materially affected by it.
It was accepted that the former trustees were parties to the MLC order but it was argued that they were parties only in their capacity as trustees. In contrast, they were bringing their appeal in their personal capacity. Then it was said that the former trustees were not bound by the order because they were no longer trustees and were not bound personally. Finally, it was submitted that the former trustees were not materially affected by the order. In consequence, it was submitted that Mr Hauraki (who had by then been appointed as trustee) was the only person entitled to bring the appeal.
We do not accept these submissions. First, the former trustees were a party to the MLC proceedings even if they were later removed as trustees. It is clear from the express terms of s 58(2) that the ability to bring an appeal to the MAC is governed by the status of the appellant in the proceedings in which a relevant order is made by the MLC. It is the status of the appellant at the time of the proceedings in the lower court that matters, not their status thereafter. In any event, we are satisfied that the former trustees were both bound by the order and materially affected by it. That is so, notwithstanding their removal as trustees. Apart from anything else, Te Aroha Edwards was materially affected as a person entitled to an annuity under the Ngawapurua Trust.
We are satisfied that the MAC had jurisdiction to consider and determine the appeal by the former trustees. However, before leaving this issue we record that we were not persuaded by a submission made by Mr Watson on behalf of Richard Tatere that r 7.5(1) of the Māori Land Court Rules 2011 meant that the order of the MLC did not take effect until any appeal against it was finally disposed of. We are satisfied that this rule deals only with the time when an order of the MLC may be sealed.
(b) What is the status of the orders made by the MLC on 4 December 2007?
Background
We first detail some further background necessary to determine this issue. As the MAC found, the distribution arrangement was intended to address the income distribution imbalance which affected both the Tatere and Edwards children. Discussions had commenced as early as January 2003 with a view to addressing the absence of any distribution of income to the income beneficiaries under the Trusts. Over the next several years possible solutions were discussed. Negotiations intensified in 2007. A meeting took place on 29 August 2007 between representatives of the Board and Hepa Tatere. The minutes of the meeting record that the 2005 and 2006 annual accounts of the farming partnership operating the farms were tabled and copies taken for the assistance of the Board. The value of the Ngawapurua block was then said to be about $3.5 million and the Rua Roa block $4.5 million. The Ngawapurua farm was considered to be the better of the two and to have the better herd. There was debt secured over the farms of about $4 million.
The Board representatives are recorded in the minutes as stating that they wanted to progress the issues in accordance with principles discussed earlier and recorded by the Board’s secretary and accountant Mr Palairet in a detailed letter of 1 February 2005. However, the Board had some concerns regarding the debt. The minutes concluded in this way:
It was proposed that the Tatare [sic] family[14] take the Ngawapurua block and that Te Aute Trust Board take the Rus Roa [sic] block. Hohepa agreed to rationale but there are 9 children that this needs to be discussed with.
No application can be made to the court until the family meeting has been held and after that Ernie [Mr Gartrell, the lawyer for the trustees] would make an application on Hohepa’s behalf and report to Te Aute Trust Board.
[14]It seems that the expression “the Tatere family” was used here and at other times to refer to all nine of the income beneficiaries.
A further meeting was held on 10 October 2007 between representatives of the Board and the trustees. Professional advisors were present (Mr Palairet for the Board and Mr Gartrell for the trustees). The Chairman of the Board reported on a meeting he and other representatives of the Board had held earlier that day with the trustees. The minutes record:
Agreement had been reached at the meeting subject to confirmation by the board that:
1.An application should be made to the Maori Land Court forthwith to advance the date of distribution from the current date of March 2012. Such application could be made in the next two months and distribution could follow immediately thereafter.
2.The distribution is on the basis that the Tatere family retain the Rua Roa block.
3.All of the debt currently held by the trusts should go with the Rua Roa property.
4.The Ngawapurua property should go to the residual beneficiaries (the Te Aute Trust Board and the Dannevirke Anglican Parish of St Johns).
5.A payment of $50,000 per year for 5 years could be made by the residual beneficiaries to assist with debt financing.
6.The properties are to be divided on a “going concern” basis – that is the cattle and Fonterra shares would go with the respective properties such that each property operates as a separate going concern.
It was resolved that:
That the proposal to accept the Ngawapurua farm stock and assets debt free in settlement of the Te Aute Trust Board and Dannevirke Parish entitlement under the will in this matter be approved in principle subject to due diligence and legal sign off, noting that the interest of the Dannevirke Parish and thereby their approval must be taken into account.
Stan Pardoe/Mark Williams
The Secretary indicated he would write to the Dannevirke Parish directly as their consent would be required for the application to go [to] the Maori Land Court likely to be early December.
The application for a variation
On 16 October 2007, the trustees applied for a variation of the trust orders to advance the date of distribution for both Trusts.
On 18 October 2007 Mr Palairet wrote to the Chairman of the Parish Vestry outlining the discussions that had taken place and seeking the consent of the Parish to the application to bring forward the Trust distribution dates. It is clear from the letter that this was intended to be the first step in implementing what Mr Palairet described as an agreement in principle between the trustees and the Board. After outlining broad terms of the settlement proposal Mr Palairet identified the Board’s reasons for supporting the proposal. In summary these were:
(a)There was a firm resolve from the family members as beneficiaries of the Trust to retain the Rua Roa block, which they considered to be family property.
(b)The Board’s view was that the family’s resolve would probably result in a challenge to “the will” which would be a drawn out, expensive and damaging process.
(c)Given that dairy prices were at record highs, it would give the Board and the Parish an opportunity to access a solid income stream with gross income from the Ngawapurua farm alone trending up to $700,000 before costs and estimated to be in the region of $400,000 to $500,000 after costs.
(d)Further parts of the proposed settlement were that the Board and the Parish would not only take over the Ngawapurua farm as a going concern but would also receive the stock and the Fonterra shares associated with that farm. An additional component offered to the Tatere whānau was a payment of $50,000 per annum for five years to underpin the additional debt-servicing costs that they would undertake. Mr Palairet indicated that the Board would be seeking more financial information and for a budget to be prepared by a farm consultant.
On 13 November 2007, the Chairman of the Parish Vestry wrote to the trustees’ solicitors advising that the Parish consented to the application to vary the trust orders to provide for the distribution dates to be advanced to the date outlined in the application to the Court. This consent was clearly given against the background of the proposed distribution arrangement and as a first step in giving effect to it.
It is clear from a memorandum filed with the MLC in support of the variation application that the formal application was to advance the date of distribution of the Trusts. However, the Court was informed there had been a wider negotiated settlement. The MLC was given a copy of Mr Palairet’s letter of 18 October 2007 and the minutes of the meeting on 10 October 2007 detailing the broader settlement. The record of the hearing before Deputy Chief Judge Isaac on 4 December 2007 confirms that the terms of the wider arrangement were before the Court. However, the Court was advised that some fine-tuning was still required and that there was an issue to be resolved with regard to a mortgage to Rabobank.
In formal terms, the MLC made an order that day (4 December 2007) under s 244 of the Act varying the trust orders by bringing forward the date of distribution to 1 February 2008. That order was subject to the trustees’ lawyers filing with the Court consents from the income and capital beneficiaries. The Court record shows that Deputy Chief Judge Isaac stated:
Once those consents are received then these orders will be made final.
Consents received after the hearing of 4 December 2007
On 6 and 7 August 2008 the trustees’ solicitors provided to the MLC consents from seven of the income beneficiaries.[15] Then, on 12 August 2008 the trustees’ solicitors provided to the MLC consents from the Board and the Parish. The consent from the Parish was in the form of its earlier letter to the trustees’ solicitors of 13 November 2007. The Board’s consent was in the form of a memorandum filed by the Board’s then counsel Mr Van Panhuys on 13 August 2008. The memorandum recorded the Board’s view that, in the prevailing economic climate, access to the Ngawapurua land in advance of the stipulated distribution date was of substantial value to the Board. The memorandum went on to state that it was proposed that the income beneficiaries (other than the Board and the Parish) would take over the Rua Roa farm subject to the existing mortgage. The amount outstanding under the Rabobank mortgage was $4 million but it had since been agreed that liability for $1 million of this debt would be assumed by the Board. Counsel advised the Court that the Board was of the view, based on independent professional advice, that it would receive a benefit at least equal to, if not greater than, the benefit it would otherwise receive if distribution were made on the due date. This was intended to avoid the potential risk of gift duty being imposed in consequence of the arrangement.
[15]These were Jo Edwards, Donna Marsh, Tau Edwards, Hester Edwards, Michelle Edwards, Brenda Tatere and Denise Cawsey. The missing two were Belinda Edwards and Richard Tatere.
The memorandum concluded:
12.Although the income beneficiaries were not entitled to any assets on final distribution in terms of the original settlement, the fact that they are to take one property together with all the existing debt as part of the arrangement for early distribution is seen as being of overall benefit to Te Aute Board Trust.
13.The members of the Te Aute Board Trust also acknowledge a moral component in the proposed arrangement, given that the trustees have over recent years utilised the farming income generated from the trust properties to improve the value of those properties.
14.In particular these actions have included purchasing additional land to create farming units which are more viable in the current farming economic environment. Also the trustees have improved farm plant and constructed modern buildings. They have also purchased stock.
15.While such actions have been prudent and appropriate in the context of farming operations, they have been to the immediate detriment of the income beneficiaries. Income that would have been available for distribution has been applied to capital improvements. Loans to assist the development have been taken out to help fund the program of improvements.
16.These actions have inevitably reduced the availability of funds for distribution to the income beneficiaries under the discretionary distribution provisions in each of the trusts. The income beneficiaries have received no distribution under the discretionary powers in the trusts.
17.Based on these considerations, the Te Aute Trust Board acknowledges that it may be appropriate for part of the land to be transferred to the ownership of the descendants of the settl[o]r, provided this can be achieved in circumstances which produce a significant benefit to the trust purposes of the Te Aute Trust Board and the Anglican Parish of Dannevirke as the intended recipients of the original capital of the trust properties. Such an arrangement would honour the intent of the settl[o]r at the time the trusts were originally established.
18.On the basis the Court is prepared to make orders which amend the trusts so as to provide for early distribution in the manner described above, the Te Aute Trust Board supports the application and gives its consent to the making of appropriate orders.
We pause here to make these observations. First, although it appears that the initial impetus of the proposals came from the trustees, the Board was strongly supportive not only of the proposal to bring forward the distribution date but also of the wider distribution arrangement that would involve the Board and the Parish receiving not only the Ngawapurua farm but also the associated farm buildings, herd and equipment along with the valuable Fonterra shares associated with the farm.[16] Second, the Board plainly saw at least a moral obligation to support the transfer of the Rua Roa farm to the income beneficiaries. The Board was concerned at the prospect of litigation by the income beneficiaries given the fact that the trustees had not distributed any income during the period of nearly 40 years since the Trusts were settled. Since the Board and the Parish were income beneficiaries themselves they clearly acquiesced in the policy adopted by the trustees. The Board also saw the proposal as being consistent with the settlor’s intention to benefit his descendants. Third, the assumption by the income beneficiaries of the bulk of the bank debt as well as all other indebtedness was an obvious benefit to the Board and the Parish. Fourth, it is clear that the Board had the advantage of both legal and accounting advice at the time these arrangements were agreed to. Fifth, the Parish was kept informed of developments and also consented to the arrangements.
The Board takes over the Ngawapurua assets
[16]These were said to be worth at least $700,000.
Although the MLC had not formally confirmed either the variation or the distribution arrangement the trustees and the Board’s representatives nevertheless agreed on 18 August 2008 that:
… in order to enable the Trust Board to operate the farm for the full 2008/2009 dairy season:
(a)the transfer of Fonterra shares to the Trust Board to be signed and
(b)Te Aute Trust Board assume control of the farm from the start of the 2008/2009 season.
It was also agreed that any issues that may arise concerning the transfer would be resolved by a round-table discussion between the parties.
The 2008/2009 dairy season commenced on 1 June 2008. It is not in dispute that the Board took over the Ngawapurua farm from 18 August 2008 along with the herd and all associated farm assets. It also received a transfer of the Fonterra shares associated with the farm. The Board and the Parish had entered into an arrangement regarding the management of the Ngawapurua farm. Both have had the income available to them from the farm ever since although we were told the Parish has not actually received its one-fifth share. We were told that the farming partnership remains in place although we understand it is no longer operative. Although we did not hear argument on the point, we consider it likely that the partnership effectively terminated on or about 18 August 2008 when the Board took over the Ngawapurua farm.[17] The Board’s obligation under the distribution arrangement to reduce the Rabobank mortgage by $1 million was satisfied in October 2008.
The application for a rehearing
[17]Partnership Act 1908, s 35(1)(b).
In the meantime, four of the Emery children had become concerned about the MLC order of 4 December 2007 and filed an application for a rehearing on 13 March 2008. The application was heard on 5 June 2008 and granted by Deputy Chief Judge Isaac on 19 August 2008.[18] The main ground on which the rehearing was granted was to consider a submission made on behalf of the Emery children that the wider proposal to vest the Rua Roa farm in the income beneficiaries constituted an alienation of Māori land in terms of the Act.
[18]Rehearing decision, above n 6.
As the MAC pointed out, an application for rehearing under s 43 of the Act may be made on such terms as the judge thinks reasonable.[19] This would have permitted the MLC to limit the rehearing to the specific issue raised by the Emery children relating to the alienation of Māori land.[20] The MLC did not limit the scope of the rehearing and it proceeded on the basis that the Court was “back to square one”. In other words, the Court proceeded as if the variation order made on 4 December 2007 had not been made.
[19]Section 43(1).
[20]Substantive judgment, above n 1, at [60].
We have some doubts about the correctness of this approach given the terms of s 43(5) of the Act and the fact that an application for a rehearing does not operate as a stay of proceedings unless the judge so orders. Nevertheless, as the MAC found, the application for a rehearing was treated by the parties and the Court as effectively supplanting the original rehearing of the variation application on 4 December 2007.
The MAC put it this way:[21]
[61] As a consequence the applicants had to put their case again. The record shows that there was full disclosure to the Court as to the terms of the distribution arrangement and as to any subsequent orders required. The rehearing supplanted the original hearing. If there were any omissions in the presentation of the case for the Trustees in the original hearing, and we do not say that there were, these were certainly remedied at the rehearing. We are unable to discern any justification for the Court to determine that the application was not made in good conscience and to decline to consider the argument on behalf of the appellants as to estoppel.
[21]Substantive judgment, above n 1.
It is evident from the transcript of the MLC rehearing application on 6 August 2009 that the trustees and the Board proposed that the Court approve the advancement of the distribution date as well as the wider distribution arrangement. As the MAC found, the general tenor among the parties to the distribution arrangement was that they were still in agreement.[22] Details of the arrangement were placed before the Court in a memorandum prepared by counsel for the trustees and supported by counsel for the Board. Both the Parish and the Waiapu Board of Diocesan Trustees had legal representation. It was indicated on behalf of the Parish that further time was needed to consider the proposal but it gave its consent soon afterwards as we note below. As the MAC found, the consents of the parties filed after the original hearing were still held on the Court file. Members of the Edwards and Tatere whānau and were present at the rehearing. As the MAC observed, it was not unreasonable to have expected that anyone who wished to change their position should advise the Court. The MAC concluded that:[23]
… at the closing of the hearing or within the additional time allowed to the Parish there were grounds for the Court to find that there was sufficient support for the variation.
[22]Substantive judgment, above n 10, at [64].
[23]At [65].
At the end of the hearing on 6 August 2009, the MLC reserved its decision and, subject to certain memoranda being filed within seven days, stated that a decision would be issued at the end of that time.
After the rehearing, the Board gave its consent to the variation and the distribution arrangement by memorandum of 14 August 2009 which stated (amongst other things):
Having taken professional advice, Te Aute is satisfied that the terms of proposed early distribution which involve the provision of funds to enable the Trustees to reduce debt with Rabobank of the Trustees so as to enable the Capital Beneficiaries to receive the Ngawapurua assets otherwise unencumbered, and disowning entitlement to any income from or the assets of the Rua Roa Trust, amount to an appropriate and responsible exercise in performance of their own obligations of Te Aute.
The Parish filed its consent by memorandum of 13 August 2009 and the six Edwards income beneficiaries did so by memorandum of 14 August 2009.
Appellant’s submissions on the effect of the order of 4 December 2007
Mr Morley submitted on the Board’s behalf that there was no clarity as to whose consent was required or as to the terms of any arrangement purportedly approved. As such, there were no effective or valid consents given by the Board, the Parish, or the other affected parties.
On the first issue, Mr Watson for Richard Tatere agreed that, for the purposes of the variation application under s 244, the only parties directly affected were the Board, the Parish and Josephina (as the only income beneficiary who had not attained the age of 40 years by the time the consents were given in August 2009).[24] These parties all consented. Mr Webster submitted that Te Aroha Edwards was also affected as an annuitant under the Ngawapurua Trust. We accept she was potentially affected but her consent was implicit since she had applied for the variation as one of the trustees.
[24]She did not attain 40 years of age until 22 March 2012.
However, the parties affected by the distribution arrangement included all the nine income beneficiaries since it was proposed under the distribution arrangement that they would receive the Rua Roa farm assets instead of the Board and the Parish and that they would assume certain liabilities. Although only the variation application was formally before the Court at that stage, the advancement of the distribution date was the first step in implementing the distribution arrangement. We accept Mr Watson’s submission that the Emery children were not affected since they were not beneficiaries under the trust orders.
We conclude that the identity of the parties affected were not in doubt. The variation application did not require the support of all of those affected since s 244(3)(b) of the Act requires that the Court need only be satisfied there is “a significant degree of support”. We also consider that the distribution arrangement did not necessarily require the consent of all those affected although we accept that there would need to be general support for that arrangement to obtain approval.
Mr Morley produced a spreadsheet analysing in great detail the various memoranda and other items of evidence as to the terms of the distribution arrangement. He submitted there was no clarity as to its terms. However, we are satisfied that the terms were sufficiently clear to enable those affected to provide an informed consent and for the MLC to understand what was proposed. Clarity to the point of contractual certainty was not required. The essence of the arrangement was clearly stated (at least by the time of the rehearing) in a memorandum provided by counsel for the trustees. It had not changed materially since the proposals were first agreed in principle, save for the change to payment of the Rabobank mortgage already mentioned.
Mr Morley submitted it was unclear as to what was to happen to the debts of the Tatere farming partnership. He submitted there was $858,000 owing by the farming partnership to the Ngawapurua Trust at 31 March 2011 and that this figure had increased to $1.132 million by 31 March 2011. Although a memorandum for the trustees dated 23 July 2009 had said the nine income beneficiaries were to meet the liabilities of the partnership, this had not been referred to in later memoranda.
A chartered accountant, Mr N L Ivamy, explained in an affidavit admitted on appeal that the bulk of the amount said to be owing by the Rua Roa Trust to the Ngawapurua Trust arises from negative equity in the Rua Roa Trust as reflected in the farming partnership accounts. He said that positive equity in the Ngawapurua Trust’s partnership assets had assisted Rua Roa.
The issue of debts arising from the farming partnership is not referred to in the MAC decision or its formal orders but there is ample material from 2007 onwards to show that the parties had agreed in principle that the income beneficiaries who were to receive the Rua Roa assets would assume responsibility for the Rabobank debt and the other partnership debts. If there are other issues arising from the winding up of the family partnership, it would appear that these will need to be separately addressed. As matters stand, the farming partnership appears to have been effectively terminated in or about August 2008. Reconstituted accounts produced in this Court for each Trust have been prepared on the basis that the farming partnership has not operated a dairy farm on the Ngawapurua land since 31 August 2008. Effectively, each farm has been operating separately.
Mr Hauraki submitted there were significant issues arising and that the former trustees had not placed accurate information before the lower courts about the financial position of the farming partnership.
We are in no position to make a determination about the issues Mr Hauraki now raises on the basis of the material before us. If the orders made in the MAC are upheld any remaining issues arising from the termination of the farming partnership will have to be agreed or determined by the MLC if agreement cannot be reached.
Mr Morley also drew attention to the memoranda from the Board and the Parish in which their consents were given, submitting they showed the Board and the Parish had not consented in the same terms as the trustees had proposed. In particular, he submitted the Board had only agreed to relinquish its interests in the Rua Roa Trust rather than agreeing that the nine income beneficiaries would become the capital beneficiaries of that Trust. We have examined the relevant memoranda and do not accept that submission. Read as a whole, we are satisfied that both the Board and the Parish agreed to the Ngawapurua Trust assets vesting immediately in themselves as to four-fifths and one-fifth respectively and the nine income beneficiaries receiving the assets of the Rua Roa Trust. They also understood that they would no longer have any responsibility for the Rabobank loan subject to the agreed payment by the Board of $1 million in reduction of the amount outstanding. The Board’s actions in taking over the Ngawapurua farm assets on 18 August 2008 demonstrate clearly that the Board understood what had been agreed.[25] So too the Parish, which entered into an arrangement with the Board as to the management of the farm.
Events after the consents were given
[25]As described at [28]–[29] above.
As the MAC noted a plethora of further memoranda were filed by the Board, the Parish and the six Edwards beneficiaries after the consents were provided in August 2009.[26] The MAC could not find anything in the Court record to show the Judge had formally admitted these memoranda or that he had considered whether to grant leave to do so.
[26]At [41].
Various affected parties began to withdraw their consents. On 28 August 2009, the Emery children informed the MLC that they no longer consented to Ngawapurua being transferred to the Board and the Parish. On 16 December 2009, the six Edwards children sought orders (described as an application for an ex parte injunction) confirming that the powers of the then trustees be restricted to those of custodian trustees and that Mr Hauraki be immediately appointed as responsible trustee. Further orders were sought in relation to the handing over of records.
The application for an injunction was endorsed by counsel for the Board and supported by an affidavit sworn by one of the Board’s trustees, Mr Tutu Taonga Wi‑Repa. Mr Wi-Repa said that after several meetings with the affected families, a provisional accord was reached in late November 2009 but one of the trustees had changed their mind and resiled from the agreement reached. The Board considered it would have no option other than to protect its interests by legal action. Mr Wi-Repa confirmed that the Board had paid $1,070,000 to the trustees under the distribution arrangement on 8 October 2008. He said that the trustees had not been able to deliver their side of the bargain, namely the consent of all beneficiaries (including the Emery whānau), approval of the Court and the necessary transfer documentation in respect of the Ngawapurua property. In order to complete the transaction, the Board was seeking an order that resulted in the Ngawapurua farms being vested in the Board and the Parish in the shares provided by the Trust order.
Mr Wi-Repa’s affidavit went on to set out in considerable detail allegations of breach of trust against the trustees. He said that the trustees’ actions had put the financial viability of the Board in serious jeopardy. We will refer to these allegations later when reviewing the decisions of the MLC and MAC on the removal application and whether there were grounds for the Board and the Parish to withdraw their consents.
In a minute recording a telephone conference which took place on 21 December 2009 with counsel for affected parties, Chief Judge Isaac granted an interim injunction pursuant to s 19(1)(b) of the Act restraining the trustees from dealing with either of the farms other than day-to-day running and ordered that a hearing before Judge Coxhead take place. In relation to the distribution agreement, the Judge said that “whatever consensus was reached, or thought to have been reached, by the parties on this matter has since broken down …”. The Judge went on to say that if there was written consent by the time of the hearing of the injunction application then he would be happy to progress the matter. Similarly, if, in the interim, all parties were able to give written agreement to a partial variation of the trust orders he would consider granting such a variation.
As noted at the outset, the Board withdrew its consent to both the distribution arrangement and the variation application on 21 April 2010. Only brief reasons were given. It was said there was no unanimity or agreement in respect of the variation application and that concerns had arisen as a result of the Board becoming aware of certain (unspecified) matters in the context of the application for removal of the trustees. The Parish followed suit by withdrawing its consent on 4 June 2010. The Parish did not give any reasons for withdrawing its consent at that time but in a memorandum dated 28 September 2010 its counsel said that the Parish had not been consulted by the Board about the distribution arrangements and changes made to it by the Board. Mr Webster repeated the complaint about lack of consultation in his submissions for the Parish before us. As Mr Watson submitted for Richard Tatere, this assertion is not supported by the documentary evidence we have already outlined, which shows that the Parish was informed of the arrangements, was advised by its own lawyers at relevant times and consented to the distribution arrangement as well as the advancement of the distribution date.
The MLC decision of 29 March 2012
It was not until 29 March 2012 that Chief Judge Isaac delivered his judgment dismissing the application for a variation of trust to bring forward the date of distribution. His judgment is relatively brief. The Judge noted that although consents had been received soon after the rehearing on 6 August 2008, there had also been an objection received from the Emery children. By the date of a telephone conference he held on 20 March 2012, he said the only beneficiaries seeking the variation were the three Tatere children. He rejected a submission made on behalf of the Tatere children that the other interested parties were not entitled to withdraw their consents on the basis of the doctrine of estoppel.
It had been submitted that the distribution agreement had been partly performed by the Board taking over the Ngawapurua farm and paying the agreed sum of $1 million to reduce the Rabobank mortgage. The Judge considered this argument was fundamentally flawed for two reasons. First, the variation of trust was dependant on an order from the Court which had not been granted. Second, the applicants for the variation had not come to the Court with clean hands. He stated that the Court and the other beneficiaries had been misled. Although reference had been made to the terms of the distribution agreement, the Court had not been given details. There was insufficient support for the application in terms of s 244(3) of the Act and it was accordingly dismissed.
We say immediately that we agree with the MAC’s conclusion that there is no support in the MLC record for the conclusion that the trustees had misled the Court. To the contrary, the records clearly show that the terms of the distribution agreement were put before the MLC in considerable detail.
Conclusions on the status of the orders made by the MLC on 4 December 2007
If we were to focus narrowly on the status of the orders made on 4 December 2007, there is some merit in the MAC’s conclusion that within a short time after the rehearing application on 6 August 2009 the provisional order made on 4 December 2007 had become final. Thereafter it is arguable that the application to bring forward the distribution dates for the Trusts could be treated as formally approved. However, in the circumstances as they occurred, we consider a wider view must be taken. First, it would be plainly unjust if the variation application were approved without reference to the distribution arrangement. That would have been solely to benefit the Board and the Parish since it would have resulted in their receiving both farms immediately. Second, it is apparent that the application for rehearing proceeded on a very unsatisfactory basis. It is a matter of regret that neither the parties nor the MLC itself clarified the scope of the matters for consideration at the rehearing. Third, the trustees were clearly seeking approval for the distribution arrangement. This could not have been effected as a variation under s 244 of the Act but required approval under s 241 since it essentially involved a termination of trust. We agree with the MAC that the trustees ought to have had a formal application before the MLC under that section either in addition to the original application for variation or as an amendment to it.
However, despite these procedural imperfections, there is no doubt that the terms of the distribution arrangement were before the Court at the rehearing and that by mid-August 2009 both the variation application and the distribution arrangement had been approved by all interested parties other than two (or possibly three)[27] of the nine income beneficiaries. As the MAC has found, that demonstrated a sufficient degree of support for the variation application and also provided a sound basis for approval of the distribution arrangement.
[27]See below n 29.
We agree with the MAC that the MLC should not have received further memoranda on the subject of the rehearing after mid-August 2009. The Court had made it clear that it would issue its judgment after allowing the seven day period for the filing of consents. Instead, without granting leave to do so, it allowed further memoranda to be received and considered. We acknowledge that the application to remove the trustees had emerged on the day the rehearing took place but there was no suggestion by those supporting that application that it should affect the approval of the variation or the distribution arrangement. The only impediment to granting approval by mid-August 2009 was the objection by the Emery children, which required determination as part of the rehearing application. In the end, the MLC did not regard it necessary to determine that objection since it dismissed the applications before the Court for lack of support.
It is fundamental to due process and the integrity of all courts that proceedings be progressed in an orderly way in accordance with any relevant court rules and the principles of natural justice. When directions are given for further submissions or consents to be provided within a specified time, those directions should be adhered to. The court should not allow further memoranda to be received after the hearing has concluded outside the time specified unless leave to do so is granted. We agree with the MAC that without such leave, unsolicited memoranda should not be received or read. It is unfortunate and inimical to the proper administration of the MLC that memoranda were filed without leave and that the court process was allowed to stretch out for two and a half years until a decision was eventually delivered. All of this led to parties changing their minds and purporting to withdraw their consents as well as the additional time and cost for all involved.
We would add that the MLC also erred in failing to give weight to the extent to which the parties had already implemented their original agreement by the time the Court gave its decision of 29 March 2012. Rather, it treated the subsequent withdrawal of consents as the decisive factor.[28]
[28]As discussed in more detail at [87] to [90] below.
In summary, our conclusions to this point are:
(a)It is arguable that the provisional order made on 4 December 2007 approving the variation application had become final by mid-August 2009. However, a conclusion to that effect should be considered in its wider context as we have noted at [58] above.
(b)Although there was no formal application before the MLC on 6 August 2009 to approve both the variation and the distribution arrangement, there was support for their approval from all affected parties save two or possibly three of the nine income beneficiaries.[29]
(c)The MLC ought not to have received further memoranda after mid‑August 2009 without granting leave for that purpose. No such leave was given.
(d)The MLC ought to have delivered its decision after the rehearing application on the basis of the material and consents available to it in mid-August 2009.
(e)It follows that the MLC was wrong to take into account subsequent withdrawals of consent and to conclude that there was insufficient support either for the variation or the distribution arrangement.
(c) Were the Board and the Parish entitled to withdraw the consents they gave after the rehearing on 6 August 2009?
[29]It might be argued that the original seven consents given in 2008 did not apply to the distribution arrangement but the six consents later given by the Edwards children covered both the variation and the distribution arrangement.
In view of our findings in relation to the second issue, it is not strictly necessary for us to reach any final conclusion on this topic since we are satisfied the MAC was right to conclude that the application for variation and the approval of the distribution arrangement should have been considered on the basis of the facts as they stood at mid-August 2009 when the relevant consents had been obtained. However, the Board and the Parish submitted that they were entitled to withdraw their consents on two bases. First, that the doctrine of estoppel did not prevent them from doing so. Second, there were proper grounds for their consents to be withdrawn.
The estoppel point
We deal first with estoppel. We did not have the benefit of full submissions about the availability of the doctrine of estoppel in the context of proceedings in the MLC. None of the authorities mentioned by counsel are of material assistance. It has been held by the High Court of Australia in civil proceedings for damages that estoppel or waiver may be available to prevent a party from relying on defences previously abandoned.[30] There may also be rules of court or statutory provisions that impact on the ability of a party to change its position after an election has been made. We have in mind, for example, an election not to give or call evidence.
[30]Commonwealth of Australia v Verwayen (1990) 170 CLR 394 discussed in the recent decision of this Court in Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407.
However, in a statutory jurisdiction such as that of the MLC, we do not consider the doctrine of estoppel will ordinarily be available in circumstances where a party withdraws its consent before a formal court order has been made. That was the view adopted by the MLC. This conclusion was reached on the basis that the outcome of the application before the Court was dependant on the exercise of the Court’s statutory discretion under s 244 of the Act or, if required, under s 241.
There is support for that view in the recent decision of the Hong Kong Court of Appeal in Kan Lai Kwan v Poon Lok To.[31] The Court concluded after consideration of English authorities that, in the context of a statutory jurisdiction in family law cases, it was necessary to balance two issues of public policy: the desirability of finality in litigation and, on the other hand, the importance to the parties in the interests of justice that discretionary decisions are made on a properly informed basis. In short, the Court held that the parties are bound by the doctrine of estoppel but, where the circumstances demand the court’s intervention, it is free to override that estoppel in exercising its statutory jurisdiction and to act upon evidence material to its determination.
[31]Kan Lai Kwan v Poon Lok To [2014] HKCFA 65 at [115]–[127].
This conclusion is supported by the quasi-inquisitorial role of the MLC as identified in s 69(2) of the Act. We note too that proceedings before the MLC must be conducted in such a way as, in the opinion of the judge, will best avoid unnecessary formality.[32] Nevertheless the judge still has the power (and we would say the obligation) to ensure that the proceedings of the Court are conducted in a proper manner.[33]
[32]Te Ture Whenua Māori Act 1993, s 66(2).
[33]Section 66(3).
In the present case, we agree with the MLC’s view that the Board, the Parish and other parties who had provided their consents in the period up to mid-August 2009 were not prevented by the doctrine of estoppel from later withdrawing their consents before any formal orders were made by the Court. We reach that conclusion because the consents were withdrawn before the Court had exercised its statutory discretion or made any formal orders.
However, our conclusion on the estoppel point does not mean that changes of stance on important issues should be encouraged without proper grounds to do so. Indeed, the courts in this jurisdiction and more generally are likely to be unimpressed by parties who withdraw consents or change their minds without good reason. The merits of their position and their general credibility may be called into question in such circumstances and there are consequences for the administration of justice as we have already outlined.
The reasons for withdrawing the consents
Counsel for the Board, supported by counsel for the Parish and Mr Hauraki, submitted that the conduct of the trustees in failing to disclose proper financial information and in their conduct more generally, meant that the Board and the Parish were entitled to withdraw their consents to the distribution arrangement. Reliance was placed on the decision of the MLC removing the trustees and on the MAC judgment upholding that decision. It was pointed out that the MAC’s judgment has not been further appealed to this Court.
Mr Watson submitted in opposition that if parties purported to withdraw their consents, they should not be permitted to do so at least without proper process. That would have enabled an examination by the MLC of the circumstances in which the consents were originally given. He also submitted that the Board and the Parish had been provided with proper financial information at relevant times and that they each had the benefit of professional advice. There were, he said, no valid grounds for the Board and the Parish to withdraw their consents.
The MLC and MAC removal judgments
A review of the judgments of the MLC and the MAC in respect of the removal of the trustees does not materially support many of the criticisms made by Mr Wi‑Repa in his affidavit.[34] Judge Coxhead’s main concern in the MLC’s removal judgment was that the trustees had not treated the beneficiaries equitably or impartially.[35]
[34]See [52] above.
[35]Removal decision, above n 8.
The judgment of the MLC was upheld by the MAC on the basis that the trustees were in breach of the trust orders by taking steps to vary the trust order and by taking the side of the family beneficiaries.[36] That was regarded as a breach of their duty to act fairly or impartially. If they wished to pursue that course, the MAC considered they should first have obtained advice as to whether they were in a conflict of interest and whether they should resign.[37] Given their relationships with some of the beneficiaries, the MAC considered the trustees should have sought directions from the Court at the very least.
[36]Removal judgment, above n 10.
[37]At [82].
The MAC found that the Board and the Parish had the capacity to enter into the distribution arrangement and that they carried out due diligence and took expert advice before committing themselves to the arrangement.[38] However, the fact that there was an element of immediate settlement in favour of the Board and the Parish was not considered to change the position for the trustees. Overall, the MAC considered the breaches of duty by the trustees to be serious.[39]
Our assessment
[38]At [76].
[39]At [77].
We understand the reasoning process adopted by the MAC in the removal judgment but we make these observations. There is nothing to suggest that the Board and the Parish were anything other than willing parties to the distribution arrangement. They acknowledged the risk of an action against the trustees by the income beneficiaries and they considered there were substantial advantages to themselves in obtaining an immediate distribution to themselves of the Ngawapurua farm and the profits which would flow from that. The MAC found in its substantive judgment that any such claim by the income beneficiaries had a reasonable chance of success.
Absent the variation of the distribution dates, the Board and the Parish would otherwise have been required to wait until the death of Te Aroha Edwards before they would become entitled to the Ngawapurua Trust assets. The Board and the Parish also recognised a moral duty to the income beneficiaries and saw the distribution of the Rua Roa farm to them as being consistent with Doc Tatere’s intentions to benefit the family.
The MAC accepted that the policy of developing the farming assets of the Trusts had been to the benefit of the Board and the Parish in that the capital assets of the Trusts had been enhanced. Conversely, it had been to the detriment of the income beneficiaries. The MAC found that the actions of the trustees were “explainable” in the light of the general agreement of all parties to the arrangement and their need to improve the position of Rua Roa for that purpose.[40] The MAC did not see the trustees’ actions as manipulating the assets of the Trusts for the benefit of the family beneficiaries at the expense of the residual beneficiaries. It found the finding of the MLC on that issue to be unjustified.
[40]At [50].
Like the MAC we do not discern any manipulative or misleading conduct by the trustees. However, the important point for present purposes is that while the MAC considered it was appropriate to remove the trustees and appoint Mr Hauraki in their place, it did not regard the trustees’ breach of duty as an impediment to approving both the variation and the distribution arrangement. To the contrary, the MAC considered it was appropriate in the circumstances to make both orders. The MLC did not find there were any substantial errors in the accounts or that adequate financial information was not provided at the time the distribution arrangement was negotiated. We also note that the MAC found in its removal judgment that the total land area held by the trusts increased from 164.7638 hectares in 1968 to the present holdings of 314.8133 hectares,[41] a point which Mr Hauraki submitted should have been viewed as a criticism of the trustees.
[41]At [16]–[17].
As earlier noted, Mr Hauraki made a number of criticisms of the financial information presented by the trustees during the proceedings in the lower courts. However, in the context of a second appeal and without Mr Watson having any realistic opportunity to make a detailed response, we are unable to make any determinations in that respect. Given the findings in both the MLC and the MAC as to financial matters, we do not view the matters now raised as an impediment to the orders made in the MAC.
Mr Hauraki also raised certain issues about whakapapa and tipuna whenua. As we indicated prior to the hearing of the appeal, we do not have the expertise to enter into those issues and note that the MAC described the whānau of Doc Tatere in its substantive judgment.[42] We also observe that Mr Watson on behalf of Richard Tatere has not had any opportunity to place material before us in response to Mr Hauraki’s submissions on this subject.
[42]Substantive judgment, above n 1, at [8]–[9].
While it is not essential for our judgment we conclude that it is not shown that the Board and the Parish had any proper justification to withdraw their consents.
(d) Are there any grounds to interfere with the MAC’s overall conclusions on the merits?
The MAC approached the case on the basis that it must deal with the situation as it was in August 2009. The Court concluded there was no reason for the MLC to decline to make an order on the basis of an agreement by all the parties to the arrangement. The only opposition to the making of an order was from the Emery whānau and the MAC had found there was no reason arising from their position which might influence the Court to decline to make an order. The rights of the Emery whānau as members of the preferred classes of alienees under the Act would not be adversely affected if the orders sought were granted. There is no challenge to that finding.
Although the MAC appears to have been in error in finding that all of the income beneficiaries supported the proposals, we do not consider this undermines the Court’s conclusions. The proposals were plainly approved by the Board, the Parish and the great majority of the income beneficiaries. Prior to the rehearing in the MLC, seven consents had been filed to the variation and, by August 2009, there were six consents to both the variation and the distribution arrangement. Richard Tatere also supported the arrangement. He and the other two Tatere beneficiaries opposed the later withdrawal of the consents. It appears that there were only two or possibly three income beneficiaries whose consents had not been formally provided. But, as the MAC found, there was a general consensus supporting the approval of both the variation and the distribution arrangement at the rehearing in the MLC on 6 August 2009 and this was largely reflected in the consents filed shortly thereafter.
In considering whether the orders made by the MAC were appropriate, it is useful to compare the position of the parties before the consents were given in 2009 and their position under the variation and distribution arrangement. As matters stood, the Board and the Parish were not entitled to distribution of the capital of either Trust. In the case of Rua Roa, they were not entitled to the farm assets until Josephina turned 40 on 22 March 2012. As to Ngawapurua, they were not entitled to receive the Trust’s assets until the later of 22 March 2012 or Te Aroha Edwards’ death. Upon distribution in terms of the trust orders, the Parish and the Board would also have been responsible for all of the partnership debt including the substantial Rabobank loan. As to income, Josephina (as the remaining income beneficiary) as well as the Board and the Parish were entitled to any distribution of income. Te Aroha Edwards remained an annuitant under the Ngawapurua Trust. Importantly, all income beneficiaries had a right of action against the trustees for breach of fiduciary duty in consequence of their failure to allocate any income to the beneficiaries over the 40 year period since the trust orders were made in 1968. This was recognised by the Board and the Parish as a significant factor in their agreeing to the variation and the distribution arrangement.
By contrast, under the agreed arrangements, the Board and the Parish became entitled immediately to the capital of the Ngawapurua Trust represented by the farm along with its associated buildings, plant, herd and the Fonterra shares. In 2007 and 2008, the Board and the Parish recognised this was a substantial advantage to them at a time of record dairy prices. The Board and the Parish also became entitled to all the profits from the Ngawapurua farm and would be freed from responsibility in respect of the Rabobank mortgage and other indebtedness of the farming partnership. We accept that the Board assumed responsibility to reduce the Rabobank mortgage by $1 million but they saw this as appropriate to ensure that the transaction could proceed. The income beneficiaries would become entitled under the distribution arrangement to the Rua Roa farm in place of the Board and Parish as final beneficiaries but the income beneficiaries would also be responsible for the balance remaining on the Rabobank mortgage and other indebtedness in the partnership. It was implicit in the distribution arrangement that the income beneficiaries would no longer have any basis to claim redress from the trustees for their failure to distribute income. Both the Board and the Parish were strongly in favour of both the variation and the distribution arrangement for the reasons canvassed at [27] above.
A critical factor in assessing the overall merits is that the Board and the Parish took over the Ngawapurua farm and all the associated assets in August 2008 and have been entitled to the profits from that farm since that time. In the absence of a court order, they had no lawful authority to take over the farm, as Mr Morley acknowledged. That was also recognised by counsel for the trustees at the time of the rehearing in August 2009. The net result is that instead of the Rua Roa farm vesting in the nine income beneficiaries as originally agreed, the Board and the Parish now seek to have it vested in themselves under the terms of the trust order. Under that scenario, the payment of the $1 million would be to their benefit as the equity in that farm would be increased.
For their part, if the orders made by the MAC are not upheld, the income beneficiaries would be left with a possible claim against the trustees for breach of fiduciary duty. While this may not be statute-barred, it is likely to be met with a defence of laches (delay) and there may also be evidential difficulties. There could be no certainty of outcome and no doubt considerable expense would be incurred. This may be contrasted with the certainty that would have followed from the distribution arrangement as now confirmed by the orders of the MAC.
We are satisfied that to allow the appeal with the result that the Board and the Parish would ultimately receive the capital assets of both Trusts would be significantly unfair in the circumstances we have outlined. Mr Morley submitted that little difficulty would be involved in unravelling the arrangements for the Ngawapurua farm that have now been in place for the last four years. There was little evidence to support that submission. We are not at all persuaded the status quo could be restored without significant cost, time and effort.
The Ngawapurua assets already mentioned have been taken over by the Board and the Parish; the Board has received all the income and paid all the expenses for that farm since October 2008; it has secured a mortgage in favour of the Bank of New Zealand over the farm and developed the property at its own expense; and has operated the Ngawapurua farm as a separate entity from the Rua Roa farm. It is not clear whether the Rabobank mortgage is now secured solely over the Rua Roa farm. If it is, this presents a further difficulty in restoring the status quo.
We are satisfied that the MAC was right to make the orders it did which effectively restored the terms of the variation and the distribution arrangement which the Board and the Parish originally agreed to for reasons they considered to be fair and reasonable at the time.
Result
We allow the first respondent’s application for leave to adduce further evidence on appeal.
The appeal is dismissed.
Counsel were agreed that costs should follow the event. Accordingly, we order that the appellant must pay costs to the third respondent for a standard appeal on a Band A basis with usual disbursements. We do not consider it is necessary to make any award of costs for or against the first respondent since as the trustee, Mr Hauraki is entitled to his costs from those Trusts. Nor do we consider it is necessary to make any award of costs for or against the second respondent since its role was very much secondary to that of the appellant.
Solicitors:
Hesketh Henry, Auckland for Appellant
Sainsbury Logan and Williams, Napier for Second Respondent
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