Van Selm v Ormsby
[2018] NZHC 2820
•31 October 2018
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2018-419-9
[2018] NZHC 2820
IN THE MATTER of an application for an order to authorise dealings with trust property BETWEEN
JACOB VAN SELM
Plaintiff
AND
ALAN DE LISLE ORMSBY
First Defendant
JANINE ALEXANDRA ORMSBY
Second DefendantJACQUELINE ANN VAN SELM
Third Defendant
Hearing: 25 October 2018 (further submissions received on 29 October
2018)
Appearances:
K R Lydiard for Plaintiff
J P Koning for First Defendant
G M Spry, M Hutchison and E R Anderson for Second Defendant K L Hoult for Third Defendant
Judgment:
31 October 2018
INTERIM JUDGMENT OF LANG J
[on application for directions under ss 64 and 66 of the Trustee Act 1956]
This judgment was delivered by me on 31 October 2018 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
VAN SELM v ORMSBY [2018] NZHC 2820 [31 October 2018]
[1] This proceeding concerns the estate of the late Elizabeth Ormsby, who died in February 2007. Mrs Ormsby was survived by her three children, Alan, Janine and Jacqueline (known as Tia). They are the defendants in this proceeding. The plaintiff, Mr van Selm, is married to Tia and is the sole executor of Mrs Ormsby’s last will.
[2] In her last will Mrs Ormsby left her residuary estate to Alan, Janine and Tia in equal shares. However, she left the family farm near Otorohanga to Alan. This comprised the bulk of her estate in terms of monetary value.
[3] The fact that Alan inherited the farm prompted Tia and Janine to issue proceedings in the Family Court seeking further provision from their mother’s estate under the Family Protection Act 1955. The Family Court upheld their claims and vested shares in the farm in them.1 Alan appealed to this Court, and succeeded in having the shares awarded to his sisters reduced.2 Subsequent applications by Alan for leave to appeal to the Court of Appeal against this Court’s decision were refused.3 As a result, the farm is now to be vested in Alan as to 45 per cent, Janine as to 30 per cent and Tia as to 25 per cent.
[4] Mr van Selm has filed the present application because he faces a dilemma. The administration of the estate has now reached the point where he would ordinarily transfer the farm to the defendants in the shares ordered by this Court. However, the litigation in the Family Court and this Court has led to several awards of costs being made in favour of Alan, Janine and Tia. Alan has been awarded $15,452.29, Janine has been awarded $59,049 together with disbursements and Tia has been awarded the same amount. The courts have directed these awards to be paid from the estate.4 Excluding accrued interest, the estate now owes a total sum of approximately
$150,000 by way of costs. Interest will continue to accrue until the costs are paid.
[5] At present, the estate holds liquid assets amounting to approximately $115,000. This sum is insufficient to meet the awards of costs as well as other current and
1 Van Selm v Van Selm [2015] NZFC 3242, [2015] NZFLR 693.
2 Ormsby v Van Selm [2015] NZHC 2822.
3 Ormsby v Van Selm [2016] NZHC 228; Ormsby v Van Selm [2016] NZCA 323.
4 The estate is also required to pay costs of approximately $3,000 plus disbursements to counsel who represented minor beneficiaries at the hearing in the Family Court.
contingent liabilities. The only other assets of any real value held by the estate are Fonterra shares worth approximately $460,000 and the farm itself.
[6] The farm is currently valued at approximately $1.7 million, and has a mortgage owing to a bank in the sum of approximately $440,000. The farm is currently being operated by a sharemilker who also owns the cows pastured on the property. The agreement with the sharemilker will remain in force until 31 May 2019. Under that agreement the estate receives a proportion of the income generated from milk production on the farm. The estate currently receives approximately $200,000 per annum in this way.
[7] Mr van Selm believes it is impracticable to sell the Fonterra shares. He therefore considers the farm should now be sold to enable the outstanding awards of costs to be paid in full. He anticipates that the balance of the sale proceeds would be distributed to the defendants in accordance with the shares they were to take in the farm.
[8] Janine and Tia support the application because they do not want to receive their shares in the farm and wish to have their costs paid. Alan, however, is adamant that the farm should not be sold. Mr van Selm has therefore applied to the Court for directions under ss 64 and 66 of the Trustee Act 1956 (the Act) permitting him to sell the farm.
[9] Alan has filed a counterclaim seeking an order that the farm be vested in the defendants in the shares ordered by the Court.
Approach
[10]Sections 64 and 66 of the Act provide as follows:
64 Power of Court to authorise dealings with trust property and variations of trust
(1) Subject to any contrary intention expressed in the instrument (if any) creating the trust, where in the opinion of the Court any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, retention, expenditure, or other transaction is expedient in the management or administration of any property vested
in a trustee, or would be in the best interests of the persons beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the same without the assistance of the Court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the Court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the Court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income:
provided that, notwithstanding anything to the contrary in the instrument (if any) creating the trust, the court, in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent to the order, may make such an order and may give such directions as it thinks fit to the trustee in respect of the exercise of any power conferred by the order.
…
(4) An application to the court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.
66 Right of trustee to apply to court for directions
(1)Any trustee may apply to the court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power or discretion vested in the trustee.
(2)Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the court thinks expedient.
[11] I do not propose to consider the application of s 66 because the authorities make it clear that the Court’s powers under that section are circumscribed.5 If they are to be made at all, the directions sought by Mr van Selm should be made under s 64.
[12] The wording used in s 64 permits the Court to make an order empowering a trustee to enter into a transaction irrespective of whether the trust instrument provides the trustee with that power. The Court’s power under the first part of s 64(1) is subject, however, to any contrary intention expressed in the instrument creating the trust. In
5 Banicevich v Gunson [2006] 2 NZLR 11 (CA) at [21], citing Andrew Butler (ed) Equity and Trusts in New Zealand (Brookers, Wellington, 2003) at [5.2.3](8) and Neagle v Remmington [2002] 3 NZLR 826 (HC) at [22]-[34].
the present case Mrs Ormsby clearly intended that Alan should receive the farm and that it should not be sold. I therefore proceed on the basis that the will evinces an intention contrary to the order Mr van Selm seeks.
[13] The proviso to the section permits the Court to make an order even where the trust instrument expresses a contrary intention. It may only do so, however, where all persons who may be interested in the proposed transaction are parties to the application, or where they are represented or consent to the order sought. The Court may therefore make an order notwithstanding the absence of consent by an interested party so long as that party is either present or legally represented at the hearing. All parties interested in the proposed sale of the farm were represented at the hearing before me.
[14] Regardless of whether the trust instrument contains the power sought, the Court must consider the proposed transaction is expedient in the management or administration of any property vested in the trustee, or that it is in the interests of all persons beneficially interested under the trust. The order sought in the present case is plainly not in Alan’s interests because he wishes to retain the farm. The fact that it may be in his sisters’ interests for the farm to be sold does not provide the Court with jurisdiction under the proviso. The Court should not sanction a transaction, however expedient it may be for one beneficiary, if it is inexpedient from the point of view of others.6 It follows that the order sought by Mr van Selm can only be granted if it is expedient in the management or administration of trust property.
[15] In Banicevich v Gunson, the Court of Appeal emphasised that in giving directions under s 64 the courts must not cross the boundary between giving directions designed to render the management or administration of the estate more expedient and those that effectively re-write the substantive trust.7
6 Banicevich v Gunson, above n 5, at [42], citing Re Craven’s Estate, Lloyd’s Bank Ltd v Cockburn (No 2) [1937] Ch 431 at 436.
7 Banicevich v Gunson, above n 5, at [46], citing Re Smith [1975] 1 NZLR 495 (SC) at 497.
Preliminary issue: jurisdiction
[16] A preliminary issue arises as to whether the Court has jurisdiction to make orders under s 64 in the present case. Mr Koning on Alan’s behalf raised the issue of jurisdiction on the basis that Mr van Selm is currently the executor, and not yet the trustee, of Mrs Ormsby’s estate. He submitted Mr van Selm may still be the executor because he has not yet paid the debts owing by the estate. As a result, he does not yet hold the balance of the estate’s assets in the capacity of a trustee.
[17] I am grateful to counsel for the submissions filed following the hearing regarding this issue. I am satisfied the Court does have jurisdiction to make orders under s 64, and largely for the reasons contained in the submissions filed by counsel for Janine and Tia.
[18] The starting point is that Mr van Selm does not hold any beneficial interest in the assets belonging to Mrs Ormsby’s estate. He holds them on trust for the persons named as beneficiaries under the will. Furthermore, he has been granted probate of Mrs Ormsby’s last will. As a result, he falls within the definition of an “administrator” under s 2(1) of the Administration Act 1969. This in turn means the definitions of “trust” and “trustee” under s 2(1) of the Trustee Act become relevant:
trust does not include the duties incidental to an estate conveyed by way of mortgage, but with this exception it extends to implied and constructive trusts, and to cases where the trustee has a beneficial interest in the trust property, and to the duties incidental to the office of an administrator within the meaning of the Administration Act 1969, …and trustee has a corresponding meaning …
[19] An administrator under the Administration Act clearly comes within the definition of a trustee for the purposes of the Trustee Act. As a result, I do not consider anything turns on whether Mr van Selm’s current status is correctly described as that of an executor or trustee. Either way, his appointment as administrator of Mrs Ormsby’s estate means he falls within the definition of a trustee for the purposes of the Trustee Act. The Court therefore has the necessary jurisdiction to make the orders Mr van Selm seeks.
Decision
[20] The only reason Mr van Selm wishes to sell the farm is to pay the outstanding court costs. The other operating expenses and debts of the estate have either been paid or can be paid from the funds held by the estate. It is also important to bear in mind that the farm does not form part of Mrs Ormsby’s residuary estate. There is no dispute that an executor or administrator may resort to assets falling within the residuary estate to pay the estate’s debts.8 The farm, however, is the subject of a specific bequest (as now amended by the Court) to Mrs Ormsby’s three children. As a result, it would not normally be available to meet the debts of the estate. It follows, in my view, that an order for the sale of the farm could only be regarded as expedient for the management or administration of the estate if the outstanding costs could not be paid using the remaining assets that will fall into the residuary estate.9
[21] During the hearing, a considerable amount of time was spent discussing the issue of whether the estate could increase the existing borrowings against the farm to enable the outstanding costs to be paid. The property could then be transferred to the nominated beneficiaries subject to the increased mortgage.
[22] I was grateful to Mr Granville, the accountant responsible for supervising the trust’s financial affairs, for his assistance at the hearing regarding this issue. He said the income currently earned by the farm and the present level of equity in the property are likely to be sufficient to enable the estate to borrow further funds from the bank to enable the costs to be paid.
[23] Upon reflection, however, I do not consider this to be an appropriate means by which to pay the costs. Any further borrowings against the property will decrease the equity available to the beneficiaries when the property is transferred to them. In effect, they would be required to pay the costs themselves using their shares in the equity. I therefore do not consider the costs should be paid utilising this method.
8 N Richardson and L Breach Nevill’s Law of Trusts, Wills and Administration (12th ed, Lexis Nexis, Wellington, 2016) at [15.6.3](a).
9 N Richardson and L Breach, above n 8 at [15.6.2].
[24] There are, however, two sources other than the farm from which Mr van Selm can pay the costs. First, his evidence was to the effect that some of the funds presently held in the estate’s bank accounts could be utilised to pay costs. Secondly, on my understanding of the situation the Fonterra shares remain an available source of funds with which to pay the balance. The shares will ultimately form part of the residuary estate and as such will be owned equally by the three defendants. Unlike the farm, they are not the subject of a specific bequest in the will and are therefore available to meet the estate’s debts.
[25] Mr Granville understands that it will not be possible to sell any of the Fonterra shares until the end of the current dairy year on 31 May 2019. A sale of the shares may also produce complications if the estate wishes to continue the farming operation after that date because the shares are apparently tied in some way to milk production from the property. These issues obviously present difficulties, but unfortunately reflect the reality of the estate’s financial position. As matters currently stand I do not consider they justify Mr van Selm resorting to a sale of the farm to meet the estate’s debts.
[26] I acknowledge, however, that Mr Granville was unsure about the exact nature of the restrictions on the ability to sell the Fonterra shares when he gave evidence. To guard against the possibility that the shares cannot be sold, I propose to grant Mr van Selm leave to apply further within the next 14 days if he ascertains it will not be possible to sell any of the shares on or after 31 May 2019.
[27] I have therefore concluded on the basis of the information presently available that it will not be expedient in the administration or management of the estate for the farm to be sold at this point because other assets are or will be available for that purpose. Furthermore, I consider the sale of the farm would cross the boundary referred to in Banicevich v Gunson because it would effectively re-write one of the provisions of the will by removing the bequest of the property to the three defendants.10
10 Banicevich v Gunson, above n 5.
[28] If the Fonterra shares can be sold I consider there is no impediment to Mr van Selm transferring the farm to the three beneficiaries at this point. The provision in the will relating to the farm is a specific bequest, and should be treated in the same way as other specific bequests Mrs Ormsby made in her will. These related to her household furnishings and jewellery.
[29] The bank would need to consent to the transfer but Mr Granville did not consider this is likely to be an issue given the income currently earned by the farming operation and the level of equity the defendants will inherit.
[30] I acknowledge that Janine and Tia do not want to take ownership of their shares in the farm because this means they will be required to co-operate with Alan in assuming the estate’s obligations under the agreement with the sharemilker. This should not present a problem in practice, however, because the estate is not involved in the day-to-day running of the farm whilst that agreement remains on foot. It also appears that Mr Granville has been largely responsible for administering the estate’s interest in the sharemilking operation, and there is no reason why this arrangement could not continue after the property is transferred into the names of the defendants.
[31] Furthermore, I consider the appropriate means by which the differences between Janine, Tia and with Alan regarding the future of the property should be resolved is an application under s 339 of the Property Law Act 2007. Once the farm is transferred to the three beneficiaries there will be no impediment to Janine and Tia applying to the Court for an order under s 339(1) that the property be sold or that Alan be directed to purchase their shares. As matters presently stand, Janine and Tia may not have standing to apply for orders under s 339 because they do not come within the definition of an “owner” or “co-owner” for the purposes of s 339.
[32] I advised counsel during the hearing that time would be available to hear any such application in the High Court at Hamilton on 25 February 2019. I confirm I would also be prepared to case manage any such proceeding to ensure it is ready for hearing on 25 February.
[33] Counsel agreed that, unless it is sold to the present sharemilker, the farm cannot be sold in any event until the sharemilking agreement comes to an end on 31 May 2019. A fixture in February 2019 should provide ample time for steps to be taken to implement any orders the Court might make under s 339.
[34] I also record that counsel advised me during the hearing that Alan has been investigating the possible purchase by the sharemilker of his sisters’ shares in the farm. A fixture in February 2019 would also enable those investigations to continue.
Result
[35] Subject to the reservation of leave set out below at [36], I decline at this stage to make an order that the farm be sold to pay the outstanding court costs.
[36] I reserve leave to Mr van Selm to renew his application for a sale of the property by memorandum and supporting affidavit to be filed and served no later than 14 November 2018 if he discovers it will not be possible to sell sufficient Fonterra shares to pay the outstanding court costs on or after 31 May 2019. In that event I will arrange a further hearing, probably by way of telephone conference, to determine what orders should be made.
[37] In his counterclaim Alan seeks an order under either s 52(1)(g) or (h) of the Trustee Act vesting the farm in the defendants in the shares ordered by the Court. I decline to make such an order at this stage because I consider it to be premature to do so.
Costs
[38] Costs are formally reserved as requested by counsel for Alan. My tentative view is that Alan was the successful party and should receive an award of costs in his favour for that reason. I am also satisfied Mr van Selm was justified in bringing the application given the difficult situation in which he found himself. Given that they were required to be parties to the proceeding I consider Janine and Tia were entitled to take a position in relation to Mr van Selm’s application. My tentative view is
therefore that Alan, Janine and Tia should all receive an award of costs on a category 2B basis, and that those costs should be paid by the estate.
[39] Counsel should await the outcome of the enquiries to be made by Mr van Selm regarding his ability to sell the Fonterra shares. If the parties cannot reach agreement as to costs at that point they should file concise memoranda and I will deal with that issue on the papers.
Lang J
Solicitors:
Haigh Lyon, Auckland Koning Webster, Papamoa
Norris Ward McKinnon, Hamilton Niemand Peebles Hoult, Hamilton
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