Thomas v Mackintosh

[2017] NZHC 2656

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2016-409-171 [2017] NZHC 2656

IN THE MATTER	of the estate of Norman Dean Thomas
IN THE MATTER	of an application for directions under ss 64 and 66 of the Trustee Act 1956
IN THE MATTER	of an application for an order for the removal of a caveat under s 145 Land Transfer Act 1955
BETWEEN	PHILIP DEAN THOMAS Applicant
AND	JOHN BOWDEN MACKINTOSH AND MATTHEW CHADLOW HALL Respondents

Hearing:	25 October 2017
Appearances:	D R Weatherley for the Applicant C A McVeigh QC for the Respondents
Judgment:	30 October 2017

JUDGMENT OF MANDER J

[1]      The applicant, Mr Philip Thomas, has appealed a decision of Heath J ordering him to purchase the first respondents’ (the trustees) share of a farm property known as Mays Block.1  Mr Thomas has applied to this Court for a stay of the judgment pending

his appeal to the Court of Appeal.

1      Mackintosh v Thomas [2016] NZHC 3141.

Background

[2]      The first respondents are the professional trustees of the estate of Mr Thomas’s late father.  Heath J’s decision was made in the context of a family dispute regarding the distribution of that estate. Mr Thomas has made claims against his father’s estate, and the remaining respondents are either beneficiaries under the father’s will or family members who also have claims against the estate.

[3]      In order to pursue his appeal it was necessary for Mr Thomas to apply to the Court of Appeal for an extension of time to file his case on appeal.  That application was granted on 24 August 2017.2     The Court’s judgment, delivered by French J, conveniently summarises the background and history to the litigation:

[3]       The estate consists primarily of interests in 11 farm properties worth in total approximately $20 million. Mays Block is one of the 11 properties. Mr Thomas is the registered proprietor of one half of Mays Block and the trustees the registered proprietors of the other half. Mr Thomas has lodged a caveat against the one half interest owned by the trustees on the ground that they hold it on a constructive trust in his favour.

[4]       The family has for some considerable period been endeavouring to resolve the various differences. On 20 September 2015, a Heads of Agreement was  signed,  whereby  the  parties  (including  Mr Thomas  and  the  second respondents) agreed to allocate the various farm properties between them. The Heads of Agreement did not resolve all outstanding issues and negotiations continued.

[5]       Meantime, the point was reached in early 2016 that the trustees urgently required access to funding in order to meet the estate's tax obligations and also pay for the ongoing costs of administering the estate. The trustees applied to the High Court for an order seeking the sale of a property or properties. With the assistance of Heath J, an interim agreement was made under  which an  immediate  cash  payment  of  $550,000  was  made  to the trustees. It was also a term of the interim agreement that a line of credit would be made available to the trustees up to a maximum of $1 million to enable the administration of the estate to continue to completion.

[6]       The line of credit was never put in place and so the trustees brought their proceeding back on for hearing. It was at the conclusion of this hearing that Heath J made the order requiring Mays Block to be sold. Mr Thomas then filed his appeal on 23 December 2016.

[7]       As mentioned, the time for filing the case on appeal expired on 18

April 2017. The application for an extension of time was filed on 8 May 2017. Mr Thomas' explanation for the delay is that between December 2016 and

May 2017 the parties, including the trustees, have been involved in extensive

2      Thomas v Mackintosh [2017] NZCA 366.

settlement discussions which it was hoped would render an appeal unnecessary. These included three judicial settlement conferences which have resulted in significant progress being made towards a final settlement.

[4]      The Court of Appeal considered that Mr Thomas’s delay in the circumstances was understandable and accepted the appeal may have some merit.   However, the Court was concerned with what it described as “the seriously prejudicial effect of the continuing delay on the trustees”. It was observed the trustees were presently without funds and unable to meet their obligations. At the time of the Court of Appeal hearing the trustees had accumulated liabilities of approximately $550,000.   The Court of Appeal concluded:

[9]       In our view, taking all those considerations into account, we consider that justice requires an extension of time to be granted but on condition that Mr Thomas pay the trustees the sum of $150,000 by 31 August 2017.

[5]      Mr Thomas’s appeal will be heard on 15 November 2017.

The stay application

[6]      In light of the outcome of the application to the Court of Appeal, the trustees consent to an order staying execution of Heath J’s judgment until a decision on Mr Thomas’s appeal is delivered.  However, they seek a condition that Mr Thomas pay a further sum of $150,000 to meet the growing costs and liabilities of the estate.

Mr Thomas opposes the imposition of any conditions.

[7]      Rule 12(3) of the Court of Appeal (Civil) Rules 2005 (the Rules) provides:

(3)      Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,

(a)       order a stay of the proceeding in which the decision was given or a stay of the execution of the decision: or

(b)      grant any interim relief.

Rule 12(4) of the Rules provides that an order for stay may:

...

(b)       be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.

It is not disputed that the Court has jurisdiction to impose a condition of the type sought by the trustees.

The respective arguments

Mr Thomas

[8]      Mr Thomas’s position was that the overall interests of justice did not favour a further payment. Mr Weatherley who appeared on behalf of Mr Thomas submitted the issue had effectively been addressed by the Court of Appeal.  Additionally, that the Court of Appeal had accepted that Mr Thomas’s appeal may have some merit. Against that background, it was submitted his appeal should not be rendered nugatory by the imposition of a condition requiring him to contribute further to the administration of the trust.

[9]      Mr Weatherly submitted the Court of Appeal had effectively weighed the justice of the situation when granting an extension of time on the condition Mr Thomas pay the trustees $150,000.   I understand that sum has been paid, with Mr Thomas himself  contributing  $110,000  and  one  of  the  beneficiaries,  Ms Eleanor  Marr, providing $40,000 by way of a loan.

[10]     It was submitted on behalf of Mr Thomas that he would not be in a position to pay a further $150,000 and could only do so by borrowing against assets he jointly owns with the estate.  This, it was submitted, would require the trustees’ consent and only increase the trust’s liabilities. While I acknowledge that arrangements may need to be put in place to fund any further payments, apart from concerns expressed regarding potential consequences for arrangements agreed by the parties should the sale ordered by Heath J proceed there was no evidence filed which directly addressed Mr Thomas’s current financial position.

[11]     It was also suggested that any further payment by Mr Thomas would be “irreversible” and that, unlike payments usually made in the context of a stay, he would not be able to recover such a payment. For reasons that I canvas later in this judgment, I do not accept that submission as persuasive in the circumstances of this case.

The trustees

[12]     The  trustees  submitted  that  the  Court  has  a  wide  discretion  to  impose appropriate conditions upon the grant of a stay of execution.  Mr McVeigh QC on behalf of the trustees submitted the exercise of that discretion should be informed by the Court’s inherent protective jurisdiction in respect of trusts and trustees, which indeed extends to the interests of the beneficiaries themselves that the trust be well administered.3

[13]     Mr McVeigh emphasised the “parlous financial situation” of the trustees which was now being prolonged by the actions of Mr Thomas in appealing the sale order which itself was designed to relieve financial pressure on the estate.  The Court of Appeal had acknowledged the serious prejudicial effect on the continuing delay on the trustees.4

[14]     It was submitted on behalf of the trustees that it was indisputable that as a matter of law they were entitled to be paid from estate assets.   However, it was emphasised that funding was required primarily to meet outstanding costs owed to creditors and to meet the estate’s tax obligations. As a result of accumulated liabilities it was submitted that without funds the trustees cannot properly fulfil their obligations.

[15]     In relation to the approach taken before the Court of Appeal, it was submitted the figure of $150,000 was one that had been suggested by counsel as the minimum required by the trustees to meet pressing obligations at that time.  The latest affidavit of one of  the trustees,  Mr John Mackintosh,  sworn  this  month,  puts  the current accumulated liabilities at some $639,000 with ongoing expenses totalling approximately $37,000 per month.

Decision

[16]     The delay in Mr Thomas filing his case on appeal was because of protracted settlement discussions that have taken place over the course of this year.   While

3      Senior Courts Act 2016, s 12; High Court Rules 2016, r 18.1(a)(ix); Re Plato [1989] 2 NZLR 360 (HC) at 364; Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320 at [15]-[19]; Re Norfolk’s (Duke) Settlement Trust [1982] Ch 61.

4      Thomas v Mackintosh, above n 2, at [8].

significant progress has been made, a series of settlement conferences has not resulted in a final resolution of the proceedings.  The history of those settlement discussions were outlined in an earlier affidavit of Mr Mackintosh. He referred to various minutes made  by Associate  Judges  of  this  Court  recording  progress  towards  achieving settlement which, while advanced, has not ultimately been concluded.   The point

Mr Mackintosh makes is that the protracted settlement process has been accompanied by the ongoing and escalating accumulation of costs to the estate which cannot be indefinitely deferred.

[17]     When the matter first came before Heath J last year, a consent order was made for the payment of $550,000 in cash.  This was paid, however, a line of credit in the sum of $1 million was to be arranged. This was never put into effect, and necessitated the trustees returning to the Court and Heath J’s order that Mr Thomas purchase the trust’s share in Mays Block. Apart from the Court of Appeal’s order in August of this year no other contributions have been made.

[18]     Mr Thomas filed his stay application in January 2017.  Mr Thomas’s position is that effectively the Court of Appeal’s leave judgment has overtaken the merits of the trustees’ argument that further relief should be required as a condition of the entry of a stay.  I do not accept that to be the case. The liabilities of the trustees continue to grow and will do so, not only until the Court of Appeal delivers its judgment but even if dismissed, for a period until the arrangements ordered by Heath J are able to be put in place and a sale effected.

[19]     Should Mr Thomas’s appeal succeed that outcome will still not resolve the fundamental issue of how the financial pressure on the trust from its current and ongoing costs and liabilities are to be mitigated.  As submitted by Mr McVeigh, it is indisputable that the trustees are entitled to payment and the costs will have to be met. That will devolve not just to Mr Thomas but ultimately to the beneficiaries and other family members.

[20]     Mr Weatherly observed that Mr Thomas himself is not a beneficiary under his father’s will, having been deliberately excluded.  He posed the question as to why the responsibility should fall on him alone. The reasons for Mays Block being the subject

of the sale order were traversed with me by counsel.  It is sufficient to note that this property was not, at least initially, identified by the trustees who were content for any one of the farm properties to be the subject of an order. However, Mr Thomas has the possession, use, and benefit of the properties which the parties have agreed he is eventually to receive. It is therefore inevitable that if funds are to be raised by way of a sale he will be the affected party.  The second respondents who did not wish to be heard on Mr Thomas’s application filed memoranda either in support of the stay application or abiding the Court’s decision.

[21]     These respondents together with Mr Thomas were parties to a document entitled “Mediation Heads of Agreement” (Heads of Agreement) which was executed as a result of a mediation. Heath J in an earlier judgment recorded that counsel for the respective parties had agreed that this agreement reached at mediation was enforceable in its present form.5  The Heads of Agreement addresses the costs of the administration of the estate and how they are to be divided between them.  Clause 37 provides:

37.      If there is a shortfall in the estate, it will be met as to:

a.        $0 to $400,000 shortfall by Eleanor Marr 50% and Philip

Thomas 50%.

b.shortfall in excess of $400,000 by Eleanor Marr, Alison Syme and Philip Thomas in equal one-third shares.

[22]     It is apparent therefore that whatever obligations are presently placed on

Mr Thomas to contribute to the costs of administering the estate, ultimately these will have to be divided in a manner consistent with the agreed arrangement set out in the Heads of Agreement and, if required, adjustments made.

[23]     In my view it is appropriate that some further contribution should be made as a condition of the stay beyond that required by the Court of Appeal in August. Accumulated  liabilities  have  since  increased  by  some  $89,000  and  based  on

Mr Mackintosh’s calculation of ongoing monthly expenses of $37,000 will at least grow by another $74,000 by the end of the year.  In order for these rising costs to be controlled and managed pending the resolution of Mr Thomas’s appeal, I consider it

just that he make arrangements to provide a further contribution of $85,000.

5      Mackintosh v Thomas [2016] NZHC 2313 at [3].

[24]     I have arrived at the more modest amount of $85,000 for two reasons.  Firstly, because of the earlier condition imposed by the Court of Appeal when allowing Mr Thomas’s appeal to proceed.  Secondly, in recognition of the nature of the current application and that the objective of any condition attaching to a stay is confined to attempting to achieve a fair position between the parties during the limited period before the appeal is determined.

Result

[25]     Accordingly, I make an order staying execution of Heath J’s judgment of

19 December 2016 on the condition that Mr Thomas makes payment of $85,000 to the trustees before the hearing of his appeal on 15 November 2017.

Solicitors:

Meares Williams, Christchurch

Young Hunter, Christchurch

Wynn Williams, Christchurch

Russell Moon & Fail, Ashburton

Mortlock McCormack Law, Christchurch