Wallace v Naknok

[2012] NZHC 382

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-007077 [2012] NZHC 382

IN THE MATTER OF     an application under the Trustee Act 1956

BETWEEN  STEWARD WILLIAM WALLACE Plaintiff

ANDAPHISARA NAKNOK Defendant

Hearing:         23 February 2011

Counsel:         MIS Phillipps for Plaintiff

No appearance for Defendant

Judgment:      9 March 2012

I direct the Registrar to endorse this judgment with a delivery time of 4.30pm on the

9th day of March 2012.

RESERVED JUDGMENT OF MACKENZIE J

[1]      This  is  an  application  under the Trustee Act  1956  (the Act)  seeking  the removal of the defendant as trustee of The Torbay S and B Trust.   No steps have been taken by the defendant in the proceedings.

[2]      The background is that the trust was created by the plaintiff as settlor under a deed of trust dated 23 October 2006.   Mr Wallace was sole trustee.   He is also a discretionary beneficiary and the final beneficiary under the trust.   The trust deed conferred on Mr Wallace the power of appointment of new trustees.   There is no power of removal in the trust deed.   The trust was formed after Mr Wallace had separated from his previous wife and his share of the relationship property was

settled into the trust.

WALLACE V NAKNOK HC AK CIV-2011-404-007077 [9 March 2012]

[3]      On a trip to Thailand in 2006, he met Ms Naknok and they married on

7 May 2007.   In August 2007, Ms Naknok was appointed a second trustee of the trust.  Shortly afterwards, the trust purchased a property in St Luke’s, which became the matrimonial home.   At the same time, Mr Wallace retired as trustee, leaving Ms Naknok as the sole trustee.  In January 2008, Mr Wallace reappointed himself a trustee so that there were, and are now, two trustees, Mr Wallace and Ms Naknok.

[4]      No transfer of the land to the new trustees was registered following the reappointment of Mr Wallace as a trustee.  The St Luke’s property remains registered in the sole name of Ms Naknok.

[5]      The parties separated in November 2010.  Mr Wallace lodged a caveat against dealings on the land in December 2010.  He also, through his solicitors, sought the cooperation of Ms Naknok in resigning as trustee of the trust and transferring the title  to  Mr Wallace’s  name  as  sole  trustee.     There  was  no  response  to  that correspondence.  These proceedings were issued in November 2011 and served on Ms Naknok.  She has taken no steps.

[6]      The application for removal is brought under s 51 of the Trustee Act 1956. That section is not applicable in this case.  Section 51 confers power on the Court to appoint new trustees, not to remove a trustee.   An appointment may be made in substitution for an existing trustee, but that is not what is sought here.

[7]      The  Court  does  have  an  inherent  jurisdiction  to  remove  a  trustee.    The relevant power is summarised in Garrow v Kelly on Trusts in these terms:[1]

The Court has inherent jurisdiction to remove a trustee if the welfare of the beneficiaries and of the trust property requires this.  That is, when the Court considers that allowing the trustee to continue in office would prevent the proper execution of the trust.

[1] Noel Kelly, Chris Kelly, and Greg Kelly (eds) Garrow and Kelly Law of Trusts and Trustees (6th ed, LexisNexis, Wellington, 2005) at [17.7.5].

[8]      That jurisdiction to remove a trustee is ancillary to the Court’s principal duty to see that a trust is properly executed.   The main guide is the welfare of the beneficiaries.[2]   In Letterstedt v Broers, Lord Blackburn said:[3]

If satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed.  It must always be borne in mind that the trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.

[2] Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington,

2009) at [5.2.8].

[3] Letterstedt v Broers (1884) 9 Apps Cas 371 at 386.

[9]      I consider that in this case, there are no circumstances which justify the exercise of that inherent jurisdiction.  There is no evidence of misconduct on the part of Ms Naknok. The most that can be said against her is that she has failed to respond to a request that she resign as a trustee.  She was not bound to accede to that request. I do not consider that a failure to respond to it can be regarded as a dereliction of her duty as a trustee.  She remains registered as sole proprietor of the St Luke’s property (over which Mr Wallace has lodged a caveat).  There is, however, no evidence that Mr Wallace ever asked Ms Naknok to sign a transfer to both trustees.  She cannot be said to be in dereliction of her duty as a trustee in that regard.  There is no evidence of any mistake or neglect of duty in any other respect.

[10]     The essence of the application is that Mr Wallace would prefer that he be the sole trustee.   That is an outcome that he is unable to achieve without either the cooperation of Ms Naknok or the intervention of the Court.  As I have noted, the main guide to the Court in the exercise of the inherent jurisdiction is the welfare of the beneficiaries.   Mr Wallace is the sole beneficiary.   However, he has chosen to form a trust.  That creates a legal relationship to which the law of trusts applies.  The trust deed confers upon him the power of appointment of new trustees, but not the power of removal of existing trustees.   While the Court must have regard to the welfare of the beneficiaries, that does not require the Court to accede to the wishes of the beneficiary as to whom the trustees should be.   There is no evidence of any potential threat to the welfare of the beneficiaries which would justify the Court’s

recourse to the inherent jurisdiction to remove a trustee.

[11]     For these reasons, I consider that the grounds for the exercise of the Court’s

inherent jurisdiction have not been made out. The relief sought is refused.

[12]     The application seeks, as ancillary relief, an order under s 52 of the Act vesting the land in the name of Mr Wallace alone. The refusal of the order sought for removal makes that inappropriate.  However, as I have noted, the land is not now registered in the name of both trustees.  The first step to achieving that should be a request to Ms Naknok that she sign a transfer to both trustees.  If she is unwilling to cooperate in this step, that might provide some evidence to support a further application for removal.  That is a matter which may require further consideration, depending on the circumstances at the time.

[13]     There will be no order as to costs.

“A D MacKenzie J”

Solicitors:         MIS Phillipps, Barrister, Auckland for Plaintiff