Turvey v Vance
[2022] NZHC 1167
•3 June 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-586 [2022] NZHC 1167
UNDER the Trusts Act 2019 IN THE MATTER OF
the F B Turvey Family Trust and the P Turvey Family Trust
BETWEEN
DARYN TURVEY
Applicant
AND
DAVID VANCE
Respondent
CIV-2022-485-041 UNDER
the Trusts Act 2019
IN THE MATTER OF
an application for the directions in respect of the FB Turvey Family Trust and the P Turvey Family Trust
BETWEEN
DAVID VANCE
Applicant
AND
PATRICIA TURVEY, DARYN TURVEY, GLENN TURVEY and MICHELE HALCROW
Respondents
Hearing: 16 May 2022 Appearances:
Applicant in proceeding 586 D Turvey in Person
J P Bell-Connell for Mr Vance the Applicant in proceeding 41 G J Woollaston for Interested Party Patricia Turvey
Judgment:
3 June 2022
JUDGMENT OF GENDALL J
DARYN TURVEY v DAVID VANCE [2022] NZHC 1167 [3 June 2022]
Solicitors:
Dentons Kensington Swan, Wellington Dewhirst Law, Palmerston North
Table of Contents
Introduction [1]
Background facts [6]
The 2020 Judgment [15]
The present applications [19]
“Blessing” application [22]
Preliminary issue — rectification of an error in documents executed by the settlors 12
Mr Vance’s proposed distribution 14
Adjustments to distributions to each beneficiary 17
Patricia’s $200,000 adjustment for failure to maintain the Property 18
Patricia’s failure to pay rates on the Property 20
Patricia’s and Glenn’s use of the time share 20
Patricia’s receipt of rental income 20
Daryn’s maintenance of and improvements to the Property 22
Daryn’s allegations of abuse 23
Daryn’s loan of $65,050 to the trusts relating to the mortgage over the property 24
Daryn Turvey — a notional settlor? 26 Conclusion [102] Daryn’s s 126 Applicaton 29 Costs 29
Introduction
[1] These proceedings involve the Turvey family, members of whom have been engaged in bitter and acrimonious litigation over some time. This judgment relates to two applications:
(a)The first is an application in proceeding CIV-2022-485-000041 (proceeding 41) by David Vance (Mr Vance) under s 133 of the Trusts Act 2019 (the Act) brought by him as the recently court- appointed trustee of two Turvey family trusts (the Trusts) which for some time have held family assets. Under this application, Mr Vance seeks a “blessing” for his proposed distribution of those remaining trust assets. This application, for the purposes of making that distribution, also includes a further application to rectify an earlier error in documents executed by the settlors of the Trusts.
(b)The second is an application in proceeding CIV-2021-405-586 (proceeding 586) bought by the applicant, Daryn Turvey (Daryn), pursuant to s 126 of the Act. This application seeks an order that Mr Vance make final distributions from the Trusts equally to named beneficiaries being Daryn, his brother and sister (with several minor exceptions), in accordance with what he says were earlier orders made by this Court on 16 September 2020.
[2] The earlier 16 September 2020 orders were contained in a reserved judgment of Dobson J (the 2020 Judgment) which followed a strongly contested proceeding involving Daryn and his mother, Patricia Turvey (Patricia).1 This proceeding related in part to the Trusts which are the subject of the present proceeding.
[3] In that judgment, Dobson J, noted that intra-family divisions involving the Turvey family and in particular Patricia and Daryn were such that their claims were “diametrically opposed”.2 Dobson J noted in particular:
1 Turvey v Turvey [2020] NZHC 2403 [2020 Judgment].
2 At [2].
[7] Regrettably, these two proceedings are only a part of wider litigious strategies that have arisen out of divisions within the Turvey family …
…
[8] In their respective affidavits, [Patricia] and Daryn make extensive allegations of wrongdoing against the other …
…
[26] There has been a long-standing and irreparable breakdown in the working relationship between [Patricia] and Daryn in their capacity as trustees of the mirror trusts …
…
[31] I do not consider these competing criticisms raised by each of the trustees [Patricia and Daryn] against the other can possibly be resolved definitively in favour of one or other of them to an extent that would justify one of them remaining as a trustee of the mirror trusts, subsequent to the exclusion of the other. Governance of the mirror trusts requires that they be put in the hands of a competent trustee entirely independent of both factions, with clear directions to resolve the future of the only asset, and receive an outcome. This seems likely to involve the winding up of the trusts and distributions by the trustee in proportions reasonably decided by it, reflecting the terms of the trust deeds and conduct relevant to the value of the asset.
[4] As a result, Dobson J made orders which began the process for Mr Vance to be appointed as trustee of the Trusts and the winding up of those trusts. The winding up proposals are the subject of the present s 133 application before this court.
[5] Dobson J no doubt made those various orders relating to the Trusts in the hope they would achieve some resolution of the long and bitter fight between the Turvey family members. Regrettably, that has not proved to be the case. Instead it has resulted in the present applications.
Background facts
[6] The Trusts in this proceeding are known as the FB Turvey Family Trust and the P Turvey Family Trust. These are mirror trusts formed in May 1989 at the instigation of Patricia and her late husband Frances Bernard Turvey (Frank). Patricia and Frank have three children, Daryn, Glenn Turvey (Glenn),3 and Michele Halcrow (Michele).4
3 The third named respondent in proceeding 41.
4 The fourth named respondent in proceeding 41.
[7] So far as the Trusts are concerned, Frank was the settlor (but not a beneficiary) of the FB Turvey Family Trust and Patricia was one of the beneficiaries of this trust. The second trust, the P Turvey Family Trust, mirrored this — Patricia was the settlor (but not a beneficiary) of this trust and Frank was one of its beneficiaries. Importantly, neither Frank nor Patricia was a beneficiary of the specific trust of which they were the settlor. Other beneficiaries of each trust included Frank and Patricia’s children and grandchildren.
[8] The sole relevant remaining asset of the Trusts represents the proceeds of sale of a property at 227 Marine Drive, Lowry Bay, Wellington (the Property) which had been owned by the Trusts until its recent sale at a price of $1,410,000. Formerly, this was the family home of Frank and Patricia.
[9] It does not appear that any formal memorandum of Frank or Patricia as to their wishes as settlors of the Trusts, or any similar document, is in existence. As I have noted, Frank and Patricia initially were trustees of their respective trusts. Following Frank’s death late in 2007, Daryn was appointed a co-trustee of the Trusts alongside Patricia.
[10] By at least the time of Frank’s death in 2007, relationships between members of the Turvey family began to break down. It appears that since that time, sadly they have continued to deteriorate. Daryn with his family was apparently living with Patricia at the Property for a period until in 2012, Patricia obtained from the Family Court an occupation order pursuant to which she was entitled to occupy the Property to the exclusion of Daryn.
[11] It seems Patricia later vacated the Property in 2018. It was tenanted from that point onwards until August 2021.
[12] As I have noted, Frank and Patricia set up the Trusts as mirror trusts in May 1989. So far as some discussion of their general purposes in setting up the Trusts is concerned, Daryn and Patricia, the essential protagonists in this litigation, generally have differing views:
(a)Daryn’s view is that the Trusts were established to provide for the three children (Daryn, Glenn and Michele) alone, with all assets ultimately to pass to them as primary beneficiaries. Although Daryn does appear to acknowledge that his mother Patricia as one of the settlors intended to live in the Property for a time, he maintains it was not intended that she or Frank would benefit in any other way, including on the winding up of the Trusts themselves.
(b)In contrast, Patricia’s view is that the Trusts were intended to benefit all the named beneficiaries, but in particular to provide for she and Frank during their individual lives, even though they may not reside at the Property.
[13] Without question it appears that relationships between members of the Turvey family remain bitter and extremely fractious.
[14] It appears from all the evidence that Mr Vance, as the trustee faced with this difficult situation, has made considerable efforts to his credit to reach a fair and reasonable solution for winding up the Trusts. This has met however with strong opposition from both Daryn and Patricia particularly. Hence Mr Vance’s s 133 application. In all the circumstances here in my view there is no question but that it is properly brought.
The 2020 Judgment
[15] Relevant proceedings relating to present matters were bought by Patricia against Daryn in this Court. These, as I note, produced the 2020 Judgment. In those proceedings Patricia had sought:
(a)orders removing Daryn as trustee and executor of Frank’s estate and appointing her to that position; and
(b)orders removing Daryn at the time as a co-trustee (with her) of the Trusts.
[16] Dobson J in the 2020 judgment refused to remove Daryn as trustee and executor of Frank’s estate, but he did go on to replace both Patricia and Daryn as trustees of the Trusts.5 I have outlined his explanation for removing them both as trustees at [3] above.
[17] As a replacement, ultimately this Court at Daryn’s suggestion appointed Mr Vance as the sole trustee of the Trusts.
[18] In that judgment, Dobson J went on to make additional orders setting out steps for the new trustee to take regarding the Property as principal asset of the Trusts, its sale and distribution of the proceeds. These orders relevantly provided that:6
…
(c)the property at 227 Marine Drive, Lowry Bay is to be transferred into the name of the new trustee;
(d)the new trustee is to determine whether the property should be renovated prior to being marketed and is authorised to secure borrowings against the property for that purpose and proceed with its sale;
(e)the new trustee is to review the management of the trusts by the current trustees and form a view on any potential claims against the trustees for actions by them or on their behalf that have adversely affected the value of the trust property, or any letting of the property that has resulted in income being earned that has not been committed to maintaining the property or paying outgoings on it;
(f)in the event that the new trustee concludes that there has been such conduct adversely affecting the value of the trust property, or income not accounted for, then the new trustee is to take that matter or those matters into account in arriving at its decision on distribution, as provided for in (g) below;
(g)once the net proceeds of sale are ascertained, the new trustee is to determine the respective entitlements of the beneficiaries to portions of that amount, in terms of the trust deeds, and in that analysis the trustee is to have regard to the amounts quantified as the responsibility of any trustee or beneficiary under (f) above;
(h)there is no order as to costs.
5 2020 Judgment, above n 1, at [32].
6 At [42].
The present applications
[19] Before me all parties accepted that the present applications under s 133 and s 126 of the Act are usefully heard together.
[20] Daryn’s s 126 application (filed on 19 October 2021) sought orders requiring Mr Vance to “comply with Court orders dated 16 September 2020 and make distributions equally to the beneficiaries described in the trust deed” subject to certain adjustments which were not particularised.
[21] Mr Vance’s s 133 “blessing” application (filed early in 2022) followed this. It is appropriate to consider this application first, as in effect it addresses matters to be considered under the s 126 application.
“Blessing” application
[22]Sections 133 and 134 of the Act provide that;
133Trustee may apply to Court for directions
(1)A trustee may apply to the Court for directions about—
(a) the trust property; or
(b) the exercise of any power or performance of any function by the trustee.
(2)The application must be served, in accordance with the rules of court, on each person interested in the application or any of them as the court thinks fit.
(3)On an application under this section, the court may give any direction it thinks fit.
(4)This section does not restrict the availability of alternative proceedings within the court’s jurisdiction, including a declaration interpreting the terms of the trust.
134Protection of trustee while acting under direction of Court
(1)A trustee acting under any direction of the court must be treated as having discharged the trustee’s duties as a trustee in relation to the direction, even though the order giving the direction is later declared invalid, overruled, set aside, or found to be otherwise ineffective.
(2)However, subsection (1) does not indemnify a trustee for any act done in accordance with the direction of the court if the trustee has acted in bad faith in—
(a) getting the direction; or
(b) acquiescing in the court making the order or giving the direction.
[23] New Zealand courts have recently clarified the jurisdiction available in relation to applications by trustees for directions.7 In Public Trustee v Cooper, Hart J adopted the fourfold analysis of trustee direction jurisdiction set out by Robert Walker J (as he then was) in an unreported decision.8 Lord Walker (as he is now known) described four types of applications for directions, summarised as follows:
(a)First, an application by trustees for guidance as to whether a proposed action was within their powers. This will ultimately be a question of interpretation of the trust instrument or a statute or both.
(b)Second, an application for directions on whether a specific proposed action is a proper exercise of a power. In these situations, the trustees are essentially seeking the “blessing” of the Court for an action that they have resolved is within their powers but is particularly momentous. In a case like that, there is no general surrender of discretion.
(c)Third, an application by trustees where they surrender their discretion to the Court, and there is good reason for the Court to intervene such as the trustees being deadlocked, or the trustees being disabled by a conflict of interest.
(d)Fourth, an application where the trustees have taken action that is being challenged as outside their powers or an improper exercise of their powers.
7 Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at [32]; and New Zealand Māori Council v Foulkes [2014] NZHC 1777, [2015] NZAR 1441 at [46].
8 Public Trustee v Cooper [2001] WTLR 901 (Ch D) at 922–924.
[24] Turning now to the proper approach of the Court to “blessing” applications like the present, generally these fall within category 2 above. The judgment in Public Trustee v Cooper provided a three-step framework for determining “category 2” applications (commonly referred to as “blessing” or “sanction” applications) as follows:9
(a)First, has the trustee in fact formed the opinion which the Court is asked to bless?
(b)Second, is the opinion formed one at which a reasonable body of trustees, properly instructed as to the proper meaning of any relevant provisions of the trust deed, could properly have arrived?
(c)Third, is the opinion vitiated by any conflict of interest under which any of the trustees might have been labouring?
[25] New Zealand courts have adopted this framework in a number of cases, and this Court has confirmed without question its jurisdiction to consider and make “blessing” directions in proceedings like the present.10 Further guiding principles have been identified in other overseas jurisdictions, experienced in “blessing” applications, which also apply here:
(a)The Court is not a rubber stamp and it must be satisfied that the trustees are indeed justified in proceeding in accordance with their decision. But the Court should not place insurmountable hurdles in the way of trustees.11
(b)The Court may disagree with a trustee’s decision, but if it is within the range of reasonable decisions the trustee could make, the Court should not hesitate to bless it.12
9 At 925, as summarised by Fitzgerald J in Re Honoris Trust [2017] NZHC 2957, [2018] 3 NZLR 160 at [56].
10 Re Honoris Trust, above n 9; Miller v Cregten [2020] NZHC 1262; and Church Property Trustees v Carrell [2021] NZHC 1130.
11 Cotton v Brudenell-Bruce [2014] EWCA Civ 1312 at [86].
12 Re F [2013] GLR 388 (CA) at [11].
(c)The lengths to which the Court must go in examining the process by which the trustee arrived at the decision must depend upon the particular decision. In some cases, the decision may be a difficult and doubtful one, requiring fine judgment in the face of competing considerations, in others it may be obvious.13
(d)Deciding whether the decision is one at which a reasonable trustee properly could have arrived requires “scrupulous consideration of the evidence” but does not “require second guessing or a line by line micro analysis” by the Court.14
(e)The Court will sometimes engage in a dialogue with the trustees as a result of which the trustee’s decision is modified; but, properly analysed, that is no more than a process by which the Court identifies the circumstances in which it will be satisfied that the proposed exercise of the power is within the proper range of such an exercise.15
[26] One caveat is required in the present case. The authors of Garrow and Kelly Law of Trusts and Trustees in summarising the principles applying to s 133 applications outline this as follows:16
(k) On a directions application the Court will not approve a capital distribution, which is clearly contrary to the provisions of the empowering document.
Preliminary issue — rectification of an error in documents executed by the settlors
[27] A preliminary and fundamental issue raised by Mr Vance in his application here arises from documents entered into by Frank and Patricia in 2001. I turn to address this preliminary issue first.
13 Kay v HSBC International Trustee Ltd [2015] JCA 109.
14 Cotton v Brudenell-Bruce, above n 11, at [12]; and A (As Trustee of the Trust) v R1 Royal Court of Guernsey 25/2016, 22 April 2016 at [22].
15 Re F, above n 12, at [11].
16 Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (8th ed, LexisNexis, Wellington, 2022) at [24.49].
[28] On the face of it, these documents may disqualify Patricia from benefitting from the FB Turvey Family Trust of which she is a beneficiary. As outlined above, she is not entitled to benefit from the P Turvey Family Trust as she is the settlor of this trust and not a named beneficiary. The overall consequence of all this might preclude Patricia here from receiving any distribution from either of the Trusts.
[29] On 16 February 2001, Frank and Patricia each entered into Deeds of Acknowledgement of Debt relating to debts of $16,000 they said were owed respectively by the P Turvey Family Trust to Frank and the FB Turvey Family Trust to Patricia. At the same time, each of them entered into Deeds of Gift forgiving all of these debts.
[30] In a normal situation that might be of little consequence. But in the present case the trust deeds for each of the Trusts contained what must be seen as somewhat unusual provisions, particularly at cl 1.1(D)(iii), expressly excluding from the class definition of “Discretionary Beneficiaries” anyone who is a “notional settlor”.17
[31] Both trust deeds went on to define the concept of a “notional settlor” as follows:18
… if at any time the Trustees shall accept an addition or accretion to the capital of the Trust Fund from any person other than the settlor, and that transaction constituted in whole or in part a gift in terms of the Estate and Gift Duties Act 1968, then for the purposes of this Deed that donor shall thenceforth be deemed to be a “notional settlor.”
[32] It appears that due to the Deeds of Gift for $16,000 which Frank and Patricia respectively entered into on 16 February 2001, Frank became a “notional settlor” of the P Turvey Family Trust and Patricia became a “notional settlor” of the FB Turvey Family Trust.
[33] Under the terms of the trust deeds this would at first glance preclude Patricia from receiving any distribution at all from either trust. In his evidence before me Mr Vance advised that he had concluded that the documents in question (the Deeds of
17 Also excluded from this definition are a range of other people, including the actual settlor of the respective trusts.
18 At cl 1.3(b).
Acknowledgement of Debt and Gift) were incorrectly drafted. In his view, the intention was for Patricia to forgive a loan to the P Turvey Family Trust and for Frank to forgive a loan to the FB Turvey Family Trust. This did not occur under either deed.
[34] Patricia, in her evidence, records that it was not her or Frank’s intention to disqualify themselves from benefitting from the other’s trust, and in signing these deeds they had only intended to increase the capital of their respective trusts. Patricia supports Mr Vance’s approach for rectification of these documents as a result. As I understand it, neither Daryn, Michele nor Glenn has either opposed the rectification or provided any evidence or submissions relating to it.
[35] This Court has jurisdiction to rectify a wide range of documents in line with the true intention of the parties objectively established.19 In all the circumstances here I am satisfied Frank and Patricia as settlors made a common mistake such that the high evidential threshold for rectification is met. In my view, rectification is required here to counteract “the inherent probability that the written instrument truly represents the parties’ intention”.20
[36] Mr Vance’s rectification application succeeds. The rectification order sought here is made.
[37] I note there is a further similar issue in this respect regarding Daryn’s position, which I address below.
Mr Vance’s proposed distribution
[38] The final distribution of the Trust’s assets which Mr Vance proposes, and for which he seeks this Court’s direction under s 133, effectively involves two distributions:
(a)Distribution 1, which deals with the majority of the funds of the Trusts, amounting to almost $1.2 million dollars;
19 See for an early example Scott v Frank F Scott (London) Ltd [1940] Ch 794 (CA).
20 Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 All ER 1077 (CA) at 1090.
(b)Distribution 2, which deals with the balance of the trust funds (if any) which I understand amount to something in the region of about
$100,000.
[39] Mr Vance deposed it would be unlikely any of the Distribution 2 monies would be available for the beneficiaries, as it had been earmarked for outstanding liabilities of the Trusts. As matters proceeded before me it appeared likely this would be the case. This left for principal consideration here the almost $1.2 million majority of the trust funds addressed under Distribution 1.
[40] Turning to this, the net result of Mr Vance’s approach under Distribution 1 was that payments by way of distributions would be made to Patricia and each of her three children (as the immediate next generation beneficiaries) as follows:
(a) Patricia — $461,135.20 (b) Daryn — $290,654.93 (c) Glenn — $222,604.93 (d) Michele — $225,604.93
[41] In proposing a distribution along these lines, Mr Vance acknowledged first that the class of Discretionary Beneficiaries under the Trusts was indeed wider than Patricia, Daryn, Michele and Glenn. It also included members of their immediate families, such as Patricia and Frank’s grandchildren along with others. He noted however that cl 3(c) of each of the trust deeds conferred a complete discretion on the trustee and permitted Mr Vance here to include or exclude other parties from any distribution as he saw fit. Mr Vance says his view was that only those immediate family members listed as Primary Beneficiaries in the trust deeds (being essentially Frank and Patricia and their children) ought to benefit from the winding up of each trust. This he said was consistent with the overarching intention Frank and Patricia had that on a final distribution the trust funds would be split between those children only, or, if they were deceased, to their respective children.
[42] Next, Mr Vance turned to the issue of whether equal distributions between the beneficiaries should be engaged here. This was notwithstanding the fact that equality was not specifically required as payments at this time were discretionary distributions made before the respective Dates of Distribution under the trust deeds.
[43] On this aspect, Mr Vance further commented that in the 2020 Judgment, Dobson J specifically stated that distributions made by the new trustee were to be “in proportions reasonably decided by [him]”.21
[44] As I have noted, Daryn’s proposed approach was simply for equal distributions to be made to the beneficiaries in question from each of the two trusts. Mr Vance concluded, however, that to do this would not be consistent with the original spirit and intent of Frank and Patricia in settling the mirror trusts (as Patricia would receive nothing from the P Turvey Family Trust and only a one quarter share from the FB Turvey Family Trust). This would result, he said, in an inequitable outcome for her.
[45] Instead, Mr Vance determined that all of the funds attributed to the FB Turvey Family Trust should be distributed to Patricia (subject to adjustments I outline below).22 Overall, to avoid what Mr Vance saw as a real inequity relating to Patricia, and something certainly not intended by Patricia and Frank when they settled the Trusts, he reached the conclusion that it would be more appropriate that he exercise his discretion to:
(a)distribute all funds attributable to the FB Turvey Family Trust to Patricia as a named discretionary beneficiary of that trust (subject to adjustments I will outline below); and
21 2020 Judgment, above n 1, at [31].
22 Given that Patricia is not a beneficiary nor entitled to benefit from the P Turvey Family Trust, if the assets of the FB Turvey Family Trust were to be distributed equally then she would receive only 25 per cent of those funds. The result would be that Patricia would receive a potential gross distribution of only about $150,000 as part of this Distribution 1 and from this, because of proposed adjustments Mr Vance intends to make to Patricia’s distribution (which total
$215,679.60). Patricia would receive nothing by way of distribution and in fact she would owe a debt to the Trusts of some $65,679.60. This Mr Vance felt would account for what he saw as Patricia’s failures as a trustee but would fail to account for her reasonable expectation that she would benefit from occupation of the Property which was essentially the family home during her lifetime, with something similar to a life interest in that Property.
(b)distribute the funds attributed to the P Turvey Family Trust to Daryn, Michele and Glenn in equal shares (again, subject to some adjustments I outline below).
[46] In my view, that approach taken by Mr Vance broadly speaking is justified on the evidence before the Court, it is a reasonable one, and it achieves a sensible and appropriate outcome in all the circumstances here. It is accordingly one which the Court should “bless”.
Adjustments to distributions to each beneficiary
[47] In his proposed Distribution 1, Mr Vance intends to make a number of adjustments to the amounts payable to some of the discretionary beneficiaries. He outlines these as follows:
(a)Patricia’s distribution is to be reduced by $200,000 to recognise her failure to maintain the Property/account for rental income that she received;
(b)Patricia’s distribution is to be reduced by $12,679.60 to recognise her failure to pay rates on the Property;
(c)Patricia’s and Glenn’s distributions are each to be reduced by $3,000 to recognise their exclusive use of a time share owned by the Trusts; and
(d)Daryn’s distribution is to be increased by $65,050 to recognise a loan he made to the Trusts in 2002 not yet repaid.
[48] Before I turn to deal with each of these proposed adjustments, it is useful to note too that in his final decision on Distribution 1 payments to the discretionary beneficiaries, Mr Vance declined to make any adjustments for the following matters:
(a)Patricia’s specific receipt of rental income from time to time relating to the Property;
(b)Daryn’s alleged maintenance carried out on and improvements to the Property; and
(c)Daryn’s allegations of physical, mental and emotional abuse by Patricia and Glenn against him, his family and Frank.
[49]I now turn to consider each of these adjustments in turn.
Patricia’s $200,000 adjustment for failure to maintain the Property
[50] The $200,000 adjustment to Patricia’s share Mr Vance proposes is in my view specifically in line with comments made by Dobson J in the 2020 Judgment where his Honour directly contemplated adjustments being made for conduct that “adversely affected the value of the trust property”.23
[51] Mr Vance contends there is no real dispute here that the Property was not adequately maintained and by mid-2021 it was in a state of significant disrepair as evidenced by a 9 May 2021 builder’s report which he had obtained. Neither, he says, can it be questioned that this lack of maintenance indeed contributed significantly to the lower price for which the Property was sold.
[52] On this last aspect, there is before the Court a market valuation report dated 6 September 2021 from Truebridge Partners, registered valuers. This indicated the Property if sold at the time “as is” might have a value of $1.7 million, whereas, if it was sold with timely maintenance undertaken, its sale value was assessed at $1.9 million.
[53] The difference of $200,000 represented by this lack of maintenance issue Mr Vance contends is clearly due to Patricia’s actions here. He maintains too he was entitled to rely on the expertise of these registered valuers to identify the extent of this maintenance adjustment at $200,000.
23 2020 Judgment, above n 1, at [42].
[54] Patricia denies she was responsible for maintaining the Property at all. This, she says, is because maintenance costs were not specifically provided for in the Occupation Order made in her favour by the Family Court pursuant to which she occupied the Property between 2012 and 2018. She maintains that, as the extent of her rights and obligations attaching to her use and occupation of the home were defined in this Occupation Order, effectively an estoppel arises with respect to what is now the proposed attribution of such maintenance costs to her. Her contention is that she was entitled to use and deal with the Property throughout as she thought fit, and in any event, at a bare minimum, that consideration is relevant to her estoppel claim and ought to have been taken into account by Mr Vance in challenging the $200,000 adjustment from her entitlement.
[55] So far as Daryn’s position is concerned, he agrees that Patricia was responsible for maintaining the Property as Mr Vance says because the maintenance obligation arose from her position as a trustee of the Trusts. He suggests however that the adverse effect on the value of the Property ought to be quantified at a far higher figure of between $300,000 and $500,000, as opposed to the figure Mr Vance settled upon of
$200,000. As I understand his argument, Daryn refers to the Truebridge Partners 6 September 2021 valuation at either $1.7 million with the Property sold as is, or $1.9 million, with maintenance repairs undertaken. Daryn points out the Property was finally sold for approximately $1.4 million, which he suggests bears out his figures.
[56] I do not accept this argument. Taking into account the builder’s report and the Truebridge Partners valuation, both of which he obtained, I am satisfied Mr Vance was entitled in relying on these to reach his conclusion that the expert valuer’s difference of $200,000 alone should represent the quantum of the adjustment to Patricia’s distribution. Accordingly, I reject Daryn’s claim as to a higher adjustment than the
$200,000 figure proposed here.
[57] In my view, this amount is further supported by evidence before the Court as to Patricia’s receipt of certain amounts of rental income from the Property (and the apparent obfuscation over the whereabouts of other amounts), some of which should have been applied towards maintenance required during the term of the tenancy. As I see it, these aspects override any possible argument which might assist Patricia’s
position here. I conclude that this $200,000 adjustment to Patricia’s position here is a decision Mr Vance has taken which on the evidence is one a reasonable trustee could properly have arrived at. Certainly, it is within the “range of reasonable decisions” a trustee could make.
Patricia’s failure to pay rates on the Property
[58] Mr Vance has calculated outstanding unpaid rates on Patricia’s part at a figure of $12,679.60. As specifically recorded in the Occupation Order in her favour, Patricia had an obligation to pay rates for the Property. Mr Vance understands there is no real dispute as to this liability deduction to be made on Patricia’s share.
[59]I agree. The $12,679.60 adjustment is to be made.
Patricia’s and Glenn’s use of the time share
[60] Mr Vance also proposes to make an adjustment to recognise Patricia’s and Glenn’s exclusive use of a time share owned by the Trusts in Hobsonville, Auckland, from about 2014. Daryn says that Patricia and Glenn had exclusive rights to its use and he was excluded from any possible use. It seems information regarding the time share also may not have been fully provided here. In any case, the adjustment which Mr Vance proposes for this time share use is quantified at $3,000 which Patricia accepts is a relatively modest amount.
[61] In all, I am satisfied a $3,000 adjustment by way of deduction from their respective entitlements is appropriate to recognise this benefit accruing to each of Patricia and Glenn.
Patricia’s receipt of rental income
[62] As I understand it, Patricia’s occupation of the Property ended in around 2018 when she vacated it. All parties agree the Property was tenanted for various periods from that time. Between around November 2018 and July 2019, rental for the Property was paid to a property management company. This company paid expenses relating to the Property and then made payments to Patricia for rates and insurance. The balance of the funds, totalling some $10,800 as I understand it, has now been transferred to
Mr Vance and forms part of the trust funds available for distribution. Patricia has not accounted for the payments she received from the property management company. In addition, between approximately August 2019 and August 2021, it seems rent for the property was paid directly to Patricia and she has not accounted to the Trusts for these funds.
[63] Daryn’s position is that deductions clearly ought to be made from Patricia’s distribution to reflect rental income obtained by her. He suggests this amounts to something approximating $150,000.
[64] In the 2020 Judgment the new trustee was not directed to “make” an adjustment for rental income received. Instead the new trustee was required to “take that matter
… into account”.24 Mr Vance says he has done so. From the evidence before the Court, I am satisfied this is the case. Mr Vance’s conclusion as I understand it was that the most appropriate outcome here was not to make any adjustment for rental income received by Patricia largely because the intention of she and Frank when the Trusts were established was that either of them would have the right to the use of the Property for the rest of their lives as their original family home. Broadly speaking as I understand the position, Daryn generally accepts this to be the case. Accordingly, Mr Vance appears to take the view that, as it was always open to Patricia to choose to reside elsewhere and to rent out the Property, she was entitled to receive the rental income from the Trusts which she did. This, he noted, was akin to the rights of someone with a life interest in the Property. In my view, this approach is one a reasonable trustee might adopt in all the circumstances prevailing here.
[65] Mr Vance’s view from the evidence seems to be that although this joint intention existed that Patricia should receive the rental income, this did not absolve her from her obligation to maintain the Property which she failed to do. Overall, in carrying out his general balancing act between all the parties here, as I understand it, Mr Vance took the view that the $200,000 maintenance adjustment was broadly appropriate to cover both aspects.
24 At [42].
[66] In this respect another minor issue arose. It is not disputed between the parties that in addition to failing to pay certain rates for the Property, Patricia also let the insurance cover over the house and improvements lapse. This was again in breach of her obligations as a trustee and also failed to comply with the requirements of the Occupation Order in her favour. Nevertheless, Mr Vance, in my view quite properly, concluded for his calculations that this failure to pay insurance premiums as it turned out did not have any bearing on the value of the Property as no events occurred that would have given risen to a claim had a policy been in place. The position obviously would have been different if any such event had occurred.
Daryn’s maintenance of and improvements to the Property
[67] Daryn contends that he ought to be compensated for what he claims to be maintenance of and improvements to the Property that he said he carried out at various times. From the evidence before the Court, it does seem that both Patricia and Glenn have agreed that Daryn did carry out at least some work at the Property, but they say it was poorly completed and some required remediation by external contractors. Indeed, they both contend that, if anything, work Daryn carried out largely diminished the value of the Property itself.
[68] Evidence before the Court from Mr Vance details correspondence he had with Daryn relating to these claims. It includes requests for information detailing these alleged contributions towards maintenance of the Property. Mr Vance maintains he made it clear he was prepared to make adjustments to Daryn’s distribution based on documentary evidence recording the costs incurred and the basis on which that work had taken place.
[69] In response, Daryn it seems has filed some documents recording a number of what he contends are maintenance tasks he undertook on the Property. Mr Vance responds however that the only supporting evidence Daryn has provided is a series of receipts from Resene Paints Ltd and it is not clear whether these receipts in fact relate to the Property itself.
[70] Mr Vance says he has considered whether he might entertain a guess as to the value of work at the Property undertaken by Daryn but does not consider there is
sufficient material before him to enable him to do this. It is Mr Vance’s further position that, in any event, he cannot be satisfied that, even if Daryn did complete the maintenance work he says he has done, this was undertaken with the intention of being reimbursed for it, rather than simply as a gratuitous act or simple performance of what might be seen as a “family chore”.
[71] Furthermore, Daryn has been unable to produce any evidence over the course of these proceedings that might properly serve as a basis to challenge the decision Mr Vance has carefully reached here.
[72] I conclude that, as Daryn has been unable to put before this Court anything of substance to truly challenge Mr Vance’s rejection of his maintenance and improvement claim, there is no alternative but for this Court to accept Mr Vance’s decision here.
Daryn’s allegations of abuse
[73] Daryn also claims that abuse by Patricia and Glenn against him and his family has taken place in a number of instances. It does appear that some of these allegations are supported in affidavit evidence before the Court from his sister Michele. All, however, are denied by Patricia.
[74] Daryn maintains he ought to receive an additional $300,000 from the Trusts to recognise this abuse. It is Mr Vance’s understanding that Daryn says this $300,000 should be deducted prior to any division of the trust funds between the beneficiaries, as opposed to being treated as an adjustment to the distributions to be made to Patricia and Glenn.
[75]In response to these contentions, Mr Vance’s position appears to be that:
(a)Daryn’s allegations have not been substantiated to the point where Mr Vance would consider it appropriate to make any adjustment to reflect them; and
(b)In any event, conduct of this nature (even if proven, which is not the case here) would not normally be a matter that would warrant any adjustment to proposed distributions. Mr Vance notes that neither the allegations nor any supporting evidence were put to him at any time prior to his making and communicating to the parties his proposed distribution decision.
[76] I am satisfied here that Mr Vance’s approach on this aspect is an appropriate one. His decision to make no adjustment in Daryn’s favour for the broadly unsupported abuse allegations Daryn advances is a reasonable one in my view and unobjectionable in all the circumstances here.
Daryn’s loan of $65,050 to the trusts relating to the mortgage over the property
[77] Daryn, apparently supported by Michele, also claims that in 2002 he personally made a part payment towards the Trusts’ mortgage over the Property for $65,000 (plus a $50 payment fee), which was intended to be a loan and not a gift to the Trusts. Daryn says this principal sum ought to be repaid to him as part of his distribution here.
[78] In late October 2021, Daryn filed proceedings in the District Court against Mr Vance as trustee of the Trusts seeking repayment of the $65,050. Those proceedings I am told have now been discontinued on the basis the issue will be dealt with in the context of the present application.
[79] However, prior to October 2021, Daryn it seems had not taken any enforcement action with respect to repayment of the amount he now alleges is owing. In the District Court proceedings, Mr Vance pleaded a limitation defence, and his position remains that any legal claim in respect of the loan is time-barred. Mr Vance argues however that this does not prevent him from taking the “loan” into account in his calculations for present purposes.
[80] Patricia in response disputes that any amount of the $65,050 should be repaid. She argues the original payment from Daryn was in fact a gift. Alternatively, if this is not the case, then later it became a “gift” because repayment was not demanded, and it became statute-barred. Accordingly, she maintains that Daryn has inadvertently
become a notional settlor of the Trusts and therefore, in terms of the strict requirements outlined in the respective trusts deeds, he is prevented now from benefitting personally from the Trusts.
[81]Mr Vance disagrees with these objections advanced for Patricia because:
(a)there is no real dispute that the $65,050 payment was in fact made by Daryn to the mortgagee, Guardian Assurance Ltd, and the Trusts clearly benefitted from it;
(b)there is no documentation indicating that Daryn forgave the payment (in stark contrast to the Deeds of Forgiveness of Debt entered into by Frank and Patricia discussed earlier) or that Daryn intended the payment to be anything other than a loan; and
(c)it is highly unlikely Daryn had intended to gift this relatively large sum to the Trusts because the result of doing so would be to disqualify him from benefitting from either Trust as a “notional settlor”.
[82] It is for these reasons that Mr Vance in his calculations deducted the $65,050 from the total funds available prior to any distribution being made and proposed to add this amount to Daryn’s distribution at the outset.
[83] In my view, there can be no doubt from the point of view of principle and fairness here that Mr Vance’s proposal to increase Daryn’s distribution by the $65,050 amount recognised as a loan to the Trusts is unobjectionable and appropriate. Mr Vance has obviously taken advice and considered the issue carefully.
[84] However, I turn to consider whether this payment at some time comprised a “gift” from Daryn and therefore he is to be regarded as a “notional settlor” of both trusts and consequently disqualified as a beneficiary.
Daryn Turvey — a notional settlor?
[85] Patricia argues that due to his $65,050 assistance to them, Daryn is a “notional settlor” of each of the Trusts and accordingly in terms of the exclusionary provisions in both Deeds of Trust is “specifically excluded from being a discretionary beneficiary”. If Daryn is so characterised as a “notional beneficiary”, any proposed distribution to him personally directly conflicts with Mr Vance’s obligations as trustee under s 24 of the Act, namely that “[a] trustee must act in accordance with the terms of the trust”. It arguably follows from Patricia’s contention that any proposal to personally benefit Daryn here must be unsustainable in terms of the contractual provisions of the relevant trust deeds which it infringes.
[86] It appears to be common ground that the payments of $65,050 in question were made by Daryn over a period of months in 2002 in reduction of the Trusts’ mortgage indebtedness, and that Daryn took no real steps to seek repayment of the sum prior to October 2021. Both Patricia and Mr Vance have taken the position that any legal claim from Daryn with respect to the loan has long been time barred.
[87] In this case the $65,050 loan must be seen as a bare advance repayable upon demand, with time running from the date of the advance.25 In my view all the evidence clearly supports this. A six-year limitation period defence to any repayment claim therefore applies pursuant to s 4 of the former Limitation Act 1950 or s 11 of the Limitation Act 2010.
[88] There is no evidence before the Court that Daryn made any demand of the trustees for repayment of the loan before October 2021. Issues as to a possible readvancement of the loan from time to time to re-engage a new six-year limitation period thereafter fall away.
[89] In the trust deeds the definition of “notional settlor” is clear. As noted, cl 1.3(b) of the deeds clearly provides that “an addition or accretion to the Capital of the ‘Trust Fund’” that derives from a beneficiary and “that constituted in whole or in part a gift
25 DFC New Zealand Limited v McKenzie HC Christchurch CP 177-92, 14 September 1992; and
Reynolds (as liquidator of James Development Ltd (in liq)) v Calvert [2015] NZHC 400.
in terms of the Estate and Gift Duties Act 1968” will deem that beneficiary “thenceforth … a ‘Notional Settlor’”.
[90] Given the significant effluxion of time since the $65,050 loan was made by Daryn, an available limitation defence is clearly arguable against any recovery action for the loan. Arguably, therefore, under the Limitation Act a deemed release/surrender and therefore gift of the debt in terms of the Estate and Gift Duties Act 1968 occurred by the end of 2008 and Daryn may accordingly be excluded as a “notional settlor” from being a beneficiary.
[91] If on an annual or some other periodic basis a notional demand for repayment of the debt and a re-advance of it had occurred on Daryn’s behalf, the debt might not be time-barred now and no question of Daryn being regarded as a “notional settlor” may arise. This, however, is not in line with the evidence which is before the Court.
[92] Another opposing argument possibly exists here. This concerns a possible suggestion that Daryn’s loan has always remained a loan notwithstanding the Limitation Act defences. This is because the time limits in that Act merely provide defences to a cause of action brought to recover a debt. The limitation defences need to be advanced by a debtor so as to effectively “park” a creditor’s cause of action, but arguably the “loan” still remains. In this case, however, Mr Vance has indeed raised the limitation defence.
[93] Daryn might also argue that he was not aware of the “notional settlor” and deeming provision in the trust deeds and therefore he should not be bound by these. However, this is also not borne out on the evidence.
[94] Finally, Daryn might further argue that to relinquish his “entitlement” under the Trusts as a beneficiary, full knowledge of the true position is required, and that has not happened in this case. Again, I am satisfied the evidence is not sufficient to support this argument for Daryn.26
26 I leave aside further possible arguments (not available on the facts before me) that all this might create an incentive for other beneficiaries to “trick” a co-beneficiary like Daryn into making a “gift” to a trust simply to disqualify them as a “notional settlor”
[95] Overall, I note again Mr Vance’s own position here that the $60,050 debt did become subject to the limitation defence. Thus, notionally at least, it might be said that as a Trustee he has “accepted an addition or accretion” to the capital of the Trusts’ funds such that Daryn could be deemed a “notional settlor” and disqualified as a beneficiary under the rather unusual provisions in the trust deeds to this effect.
[96] Although that position is not entirely clear here, it is one that in my view this Court must recognise. I emphasise that point, noting also that any s 133 application by trustees for guidance or directions must always relate to proposed action within their powers.
[97] There is, however, another way, as I see it, to achieve a fair and equitable outcome in this case, which all parties here seemed to accept was the ultimate goal. This is for Daryn’s share in the distribution to pass to his children in trust upon their respectively reaching the age of 18 years, in terms of the provisions in the Trusts Act 2019.
[98] Accordingly, I conclude, taking what might be regarded as a precautionary approach here, that the position with respect to Daryn’s $290,654.93 entitlement under the Distribution 1 resolution that Mr Vance has reached must alter. Daryn’s entitlement, which on a quantum basis I find unobjectionable, needs to pass to his daughters as members of his family, who themselves are discretionary beneficiaries of the Trusts.
[99] I raised this aspect in discussions at the conclusion of the 16 May 2022 hearing with all counsel and Daryn, and it appeared to be broadly accepted that at worst, Daryn’s entitlement here would pass to his children (grandchildren of Patricia and Frank) as named discretionary beneficiaries under the Trusts. Daryn informed me his only two children are his daughters Zara Turvey and Jorja Turvey who are presently respectively aged 16 and 13.
[100] Mr Bell-Connell, for Mr Vance, confirmed that Mr Vance took the position that it was in order for him as suggested to make a substitution of appropriate beneficiaries if required. That too seemed to be accepted by counsel for Patricia and by Daryn.
[101] I have concluded therefore that Daryn’s overall entitlement in terms of the distributions proposed is to be paid in this case to a trust to be established for the benefit of his daughters Zara and Jorja equally upon their respectively attaining the age of 18 years
Conclusion
[102] For all the reasons I have outlined above, the s 133 application from Mr Vance is granted with the amendment I note at [101] above.
[103] An order is now made in terms of Mr Vance’s s 133 application dated 17 December 2021, with the amendment that the entitlement of Daryn is now to pass to trustees of a new trust to be formed for the benefit of his children Zara and Jorja equally upon their respectively attaining the age of 18 years.
[104] A further order is made granting leave to the parties to return to the Court on 48 hours’ notice if any further directions are required first, as to implementation of the orders made herein and/or secondly, as to the identity of the trustees and the terms of the Trust to be formed for Zara Turvey and Jorja Turvey as noted at [103] herein.
Daryn’s s 126 Applicaton
[105] This effectively disposes of Daryn’s application under s 126 of the Act, which is effectively dismissed. The test to be applied under this section, as to whether this was a decision reasonably open to Mr Vance as Trustee, exercises the same touchstone.
Costs
[106] As to costs, they are reserved. The parties are urged to liaise with a view to agreeing costs if they are in issue, failing which counsel and the parties may file memoranda (sequentially) on the question of costs which are to be referred to me. (These are to be a maximum of five pages). I will decide the question of costs based upon the material then before the Court.
[107] At this point, I simply comment that Mr Vance’s costs should in any event at least be met from the Trusts, given that his s 133 application in my view was properly brought and has effectively succeeded.
Gendall J
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