Whale v Silich

[2022] NZHC 3339

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE

CIV-2022-488-48

[2022] NZHC 3339

UNDER

The Trusts Act 2019

IN THE MATTER

of The Vernwith Valley Farm Trust

BETWEEN

GARY JON WHALE

Applicant

AND

TANYA MAREE SILICH

First Respondent

VERNWITH VALLEY TRUSTEE COMPANY LTD

Second Respondent

Judgment:

(On the papers)

9 December 2022

JUDGMENT OF BREWER J

This judgment was delivered by me on 9 December 2022 at 4 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Hammonds (Dargaville) for Applicant

WHALE v SILICH [2022] NZHC 3339 [9 December 2022]

Introduction

[1]    Mr Gary Jon Whale is one of three trustees of the Vernwith Valley Farm Trust (the Trust). The other trustees are his former wife, Ms Tanya Maree Silich, and the Vernwith Valley Trustee Co Ltd (the Trustee Company).1

[2]Mr Whale applies by way of originating application for:2

(a)removal of Ms Silich and the Trustee Company as trustees of the Trust;3

(b)appointment of a new trustee in addition to himself as the existing trustee;4

(c)the Court to review the acts, omissions or decisions of Ms Silich;5 and

(d)the Court to appoint a receiver to administer the Trust.6

[3]Ms Silich and the Trustee Company have taken no steps in the proceeding.

[4]    On 5 October 2022, having considered the documents filed in support of the application, I issued a Minute giving notice of my decisions:

(a)I would grant the application for removal of Ms Silich and the Trustee Company as trustees.

(b)I would also remove Mr Whale as trustee.

(c)I would appoint Mr Desmond Bernard Quinn as a trustee.

1      Mr Whale and Ms Silich are directors and shareholders of the Trustee Company. Mr Whale and Ms Silich each hold 49 shares in the Trustee Company, with a third entity, JMA Bay of Islands Ltd, holding two shares.

2      I granted leave to commence proceedings by way of originating application on 12 July 2022.

3      Trusts Act 2019, s 112.

4      Section 114(1).

5      Section 126(1).

6      Section 138(1).

[5]    As the Trust Deed requires a minimum of two trustees, I required Mr Whale to nominate a second independent trustee. I also indicated that it would be premature to make any of the further orders sought in [2] above. The new trustees would be able to review the operation of the Trust either themselves or through appointing a qualified accountant.

[6]Mr Whale has since nominated a second independent trustee.

[7]I now give reasons for my decisions and make the relevant orders.

Background

[8]Mr Whale and Ms Silich married in 1989.

[9]    Mr Whale is a carpenter by trade. He had been involved in the building industry and was a member of the Certified Builders Association, which recommended the creation of family trusts to its members as a means of protecting assets and for succession purposes.

[10]   The Trust was formed by Deed dated 8 June 2004. The three settlors of the Trust were Mr Whale, Ms Silich and Spicers Trustee Co (BOI) Ltd.7 The assets of the Trust were primarily derived from relationship property. The beneficiaries of the Trust include Mr Whale and Ms Silich, with their two adult sons named as final beneficiaries. Under cl 8.3 of the Trust Deed all decisions made by the trustees affecting the Trust must be unanimous.

[11]   After living in the South Island for many years, the family moved to a farm property at Waipu Cove in March 2008. The property had initially been purchased for cropping purposes and to run livestock. But following poor financial returns it was soon decided the Trust would convert the property to a dairy farm and for that purpose acquire a dairy herd.

[12]All decisions made by the trustees were unanimous until November 2015.

7      Spicers Trustee Co (BOI) Ltd retired as trustee in 2010 and the Trustee Company was appointed as the new trustee.

[13]Mr Whale and Ms Silich separated in November 2015.8

[14]   Following the couple’s separation, there was little in the way of agreement between the trustees about the operation of the Trust. A “farm advisor” had initially been designated as the “go-between” to assist Ms Silich and Mr Whale in managing the farm property owned by the Trust. But over time the advisor either stopped relaying Mr Whale’s views to Ms Silich or Ms Silich chose to ignore them.

[15]Ms Silich began making decisions unilaterally, without consulting Mr Whale.

[16]Mr Whale says, for example:

(a)Ms Silich moved farm chattels and implements owned by the Trust to a farm property she purchased in Dargaville, without Mr Whale’s knowledge or consent.

(b)Ms Silich refused to consent to be a plaintiff in proceedings to recover the value of farm machinery retained by the Sandy Ridge Trust after it purchased the majority of the farmland owned by the Trust.

(c)Ms Silich arranged for the Trust to pay a sum of money to a fencing contractor without Mr Whale’s knowledge, and for which the Trust was not liable.

(d)Ms Silich reduced the size of the Trust’s milking herd from more than 230 cows to approximately 120, without explanation.

(e)Ms Silich moved the remaining herd of dairy cows from the Waipu Trust farm property to Ms Silich’s new farm in the Dargaville district, at the Trust’s expense.

8      They divorced in November 2018.

(f)The income from milking the dairy herd or from leasing the dairy herd has not been disclosed to Mr Whale, and appears to have been paid into separate bank accounts operated by Ms Silich.

(g)The dairy herd has since been sold. Mr Whale has not been able to ascertain who purchased  the cows or for how  much.  He suspects  Ms Silich was trading in cows in her own name and potentially using Trust funds to finance acquisitions.

(h)The solicitors for the Trust paid out from the Trust account three separate “deposits” which had been paid by the purchaser of farmland owned by the Trust. Those funds were subsequently withdrawn by  Ms Silich. Mr Whale’s consent was never sought or obtained.

(i)The Trust paid interest  on a loan to Mr and Ms Marsden, without    Mr Whale’s agreement.

(j)Ms Silich obtained loans totalling $75,000. Mr Whale refused to give consent for the Trust to repay those debts as he says they were loans personal to Ms Silich. He says the personal loans were nevertheless repaid utilising proceeds from the sale of the herd of dairy cows owned by the Trust.

(k)Ms Silich had a number of credit cards which she used to make purchases on behalf of the farm and to make personal purchases. The Trust made regular payments towards those credit card debts, notwithstanding that many of the purchases were for Ms Silich personally, such as airline tickets she purchased to travel to Australia.

[17]   Mr Whale accordingly submits that Ms Silich has made a number of decisions relating to the operation of the Trust without his knowledge or consent. He believes many of those decisions have been to the detriment of the Trust, and often for the personal benefit of Ms Silich herself.

The law

[18]   The Court may order the removal of trustees under s 112 of the Trusts Act 2019:

112     Court may make order for removal

Whenever it is necessary or desirable to remove a trustee and it is difficult or impracticable to do so without the assistance of the court, the court may make an order removing a trustee.

[19]   This exists alongside the Court’s power to remove trustees under its inherent supervisory jurisdiction to ensure the proper execution of trusts.9

[20]The relevant principles were outlined by the Court of Appeal in Tod v Tod:10

(a)The starting point is the Court’s duty to see estates properly administered and trusts properly executed.

(b)This jurisdiction involves a large discretion which is heavily fact- dependent.

(c)The wishes of the testator/settlor (evidenced by the appointment of a particular executor or trustee) are to be given consideration, but ultimately the question is as to what is expedient in the interests of the beneficiaries.

(d)Expedience is a lower threshold than necessity, and imports considerations of suitability, practicality and efficiency. Misconduct, breach of trust, dishonesty, or unfitness need not be established.

(e)Hostility as between administrators/trustees and beneficiaries is not of itself a reason for removal, but hostility will assume relevance if and when it risks prejudicing the interests of the beneficiaries.

[21]The interests of the beneficiaries must always be the focus:11

… if [the Court is] 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 trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.

9      Trusts Act, s 8.

10 Tod v Tod [2015] NZCA 501, [2017] 2 NZLR 145 at [22], quoting Farquhar v Nunns [2013] NZHC 1670 at [13]. See also Frickleton v Frickleton [2016] NZCA 408, [2017] 2 NZLR 154 at [29].

11 Letterstedt v Broers (1884) 9 App Cas 371 (PC) at 386 per Lord Blackburn, delivering the Privy Council’s opinion, as cited in Frickleton v Frickleton, above n 10, at [33]. See, as to conflicts of interest, Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (8th ed, LexisNexis, Wellington, 2022) at [17.84]; and Tod v Tod, above n 10, at [27(c)].

[22]The court may appoint a new trustee under s 114 of the Trusts Act.12

Discussion

[23]   I am satisfied that grounds exist to remove Ms Silich and the Trustee Company as trustees of the Trust.

[24]   Mr Whale and Ms Silich have not met with one another since early 2016, following their separation in November 2015. Thereafter any contact between them was by way of the farm advisor as intermediary. That too stopped after a time, either because the advisor stopped relaying Mr Whale’s views to Ms Silich or because    Ms Silich chose to ignore them.

[25] The effect is that since early 2016 Ms Silich appears to have been making decisions unilaterally in relation to the operation of the Trust. This has involved her dealing with assets owned by the Trust in the various ways outlined at [16] above, without consulting Mr Whale and without regard for the requirement that all decisions made by the trustees affecting the Trust be unanimous. Some of those dealings appear to have been for the benefit of Ms Silich personally, rather than for the beneficiaries of the Trust. I make clear that this Judgment does not go further than note the appearance of personal benefit; it does not decide that there has been.

[26]   The evidence (uncontradicted) is to the effect that the proper execution of the Trust is frustrated. It is in the interests of the beneficiaries that Ms Silich and the Trustee Company now be removed as trustees.

[27]I will therefore grant the application for removal of the trustees.

[28]   I will also remove Mr Whale as trustee. I consider the level of estrangement between Mr Whale and Ms Silich is now such that  it  would  be  too  difficult  for Mr Whale to be even handed between all beneficiaries of the Trust.13 It is better to start with a clean slate.

12     Section 114(1).

13     See Oldfield v Oldfield [2019] NZHC 492, (2019) 5 NZTR 29-105 at [43].

[29]   I am satisfied that Mr Desmond Bernard Quinn and Mr William Edward Mallett, both registered (now retired) chartered accountants, are suitable replacement trustees.14

[30]   I will not make the further downstream orders sought by Mr Whale, namely for the Court to review the steps taken (and not taken) by Ms Silich in her capacity as trustee and for the Court to appoint a receiver to administer the Trust. The new trustees will be able to review the operation of the Trust either themselves or through appointing a qualified accountant.

Result

[31]   I grant the application for removal of Ms Silich and the Trustee Company as trustees of the Trust.

[32]I remove Mr Whale as trustee.15

[33]   I appoint Mr Desmond Bernard Quinn and Mr William Edward Mallett as trustees of the Trust (the new trustees).

[34]   I reserve leave to the new trustees to apply for further or ancillary orders in this proceeding to give proper effect to the transition in operation of the Trust from the present trustees to the new trustees.

[35]   The actual and reasonable costs of this proceeding may be paid from the assets of the Trust.

[36]   The actual and reasonable costs of the new trustees in carrying out their duties as trustees, including investigating the allegations made by Mr Whale, may be paid from the assets of the Trust.

Brewer J

14     By reference to the helpful criteria set out by Gendall J in McLaughlin (as beneficiaries of the Ashley Trust) v McLaughlin (as trustee of the Ashley Trust) [2021] NZHC 3015 at [130]–[135].

15     Trusts Act, s 112.