Wilson v Pedersen HC Wanganui CIV-2011-483-212

[2011] NZHC 1638

IN THE HIGH COURT OF NEW ZEALAND WANGANUI REGISTRY

CIV-2011-483-212

UNDER  the Trustee Act 1956

IN THE MATTER OF     an application pursuant to ss 51(1) and (2) of the said Act for the removal of Charles William Pedersen as executor and trustee of the estate of the late Robert Murray Adams

BETWEEN  GAY LOUISE WILSON AND JOHN RICHARD MARQUET

Plaintiffs

ANDCHARLES WILLIAM PEDERSEN Defendant

Hearing:         26 October 2011

Appearances: C J Kelly and G Kelly for Plaintiffs

C W Pedersen (In person) Judgment:   27 October 2011

JUDGMENT OF MILLER J

[1]      Before me is an application by two of the trustees of an estate, Gay Louise Wilson, the testator’s widow, and John Michael Marquet, a pastor of Palmerston North, for an order removing the third trustee, Charles William Pedersen, for conflict of interest in the administration of the estate.   The question is whether the Court should  exercise  its  discretion  under  s  51  of  the  Trustee  Act  1956to  remove Mr Pedersen.

[2]      The testator, Robert Murray Adams Wilson, was the registered proprietor of a half-interest in a dairy farm at 382 Himatangi Beach Road, Bulls, known as Mahoe

Dairy Farm.  The other half was held by the RMA and CM Wilson family trust, a

GAY LOUISE WILSON AND JOHN RICHARD MARQUET V CHARLES WILLIAM PEDERSEN HC WANG CIV-2011-483-212 27 October 2011

trust of which he was one trustee and Vanderwood Trustees and Agency Ltd the other.  The beneficiaries of that trust are the three Wilson children.

[3]      Since 2005 a firm called Ballahooley Farming Ltd has worked the farm under a sharemilking agreement pursuant to which the farm’s dairying revenue from Fonterra was split equally between the landowners and the sharemilker.  Curiously, the  sharemilking  agreement  describes  the  sharemilker  as  CW  and  CP  Pedersen trading as Ballahooley Farm Ltd.   Mr Pedersen is a shareholder and director of Ballahooley.

[4]      Mr Pedersen or interests associated with him also own all the shares in Te One a Mara Ltd.  Until 1 October 2010 he was also a director.  He has resigned that office in a futile attempt to eliminate any conflict of interest.  His wife and son are now the directors.

[5]      In May 2009 Mr Wilson entered an agreement to sell his one-half share in the farm to Te One a Mara.   The agreement further provided that the RMA and CM Wilson family trust was to sell a further one-eighth share, but the agreement has never been executed by Vanderwood.   The agreement would leave the RMA and CM Wilson family trust with the remaining 3/8 of the property.  It is now common ground  that  Mr  Wilson  signed  the  agreement  as  trustee  without  authority,  and Mr Pedersen indicated before me that he will not pursue the family trust, saying that he is farming in partnership with the Wilson children and wishes to preserve his relationship with them.   Te One a Mara has affirmed the agreement for sale and purchase so far as it concerns Mr Wilson’s interest, the price being adjusted to reflect the fact that only one half of the property is being sold.

[6]      Under the agreement for sale and purchase a deposit of $150,000 was paid on the agreement becoming unconditional.  Possession was to be given on 2 June 2009, and Te One a Mara was to pay $2,000 per month until 1 June 2012, when the balance would be paid.  The agreement specifies that no interest is to be paid.

[7]      Mr Wilson executed his will on 15 October 2009, and he died on 20 March

2010.  I am told that Mrs Wilson is the residuary beneficiary after payment of minor

legacies to the children.  The children do not oppose Mr Pedersen’s removal so long as an independent third trustee is appointed in his stead.  The estate solicitor, Peter Despard Twigg, is willing to accept appointment and acceptable to them and to the applicants.

[8]      At all material times since June 2009 Te One a Mara has been in possession of the farm.   Ballahooley continues to work it as sharemilker.   However, in June

2010 Te One a Mara ceased its monthly payments of $2,000.  Mr Pedersen says that this action was justified because Mr and Mrs Wilson dishonoured an oral agreement, entered at the same time as the agreement for sale and purchase, that Fonterra would be instructed to direct a greater share of the farm’s revenue to Te One a Mara.  He says that Te One a Mara was to receive 5/8 of the farm owner’s share of the income from Fonterra as well as the sharemilker’s 50 per cent.

[9]      It appears that Mr and Mrs Wilson may have believed Te One a Mara would separately purchase Mr Wilson’s shares in Fonterra for additional consideration. Mr Pedersen says that there was no agreement to sell shares; rather, he and Mr and Mrs  Wilson  agreed  orally  on  a  handshake  that  revenues  would  be  reassigned. Mrs Wilson denies any such agreement, and nothing about the agreement for sale and purchase may be said to contemplate it.  I am given to understand that payment of dairying revenue is tied to shareholding in the co-operative and Fonterra insists that there be only one shareholder per farm.   However, shares do not necessarily follow the farm; they are tied to production and a farmer who sells up may sell them to Fonterra if the purchaser already has enough shares to cover its production.  I am also told that parties who have an interest in a farm’s revenue may come to what Mr Pedersen described as side arrangements of the sort that he says he agreed with the Wilsons.

[10]     Mr Pedersen explains that he did decide after Mr Wilson’s death to buy one half of the shares, which have significant value.  He explained that he did so not to secure the revenue but because his other farms have now increased production to the extent that they require additional shares.

[11]     A judicial settlement conference was held recently, in other litigation brought by the Wilson children against the estate trustees and Mrs Wilson personally.  The estate’s solicitor attended to assist the Court.  Mr Pedersen appeared in person.  A settlement was reached.  The conference also resulted, apparently as an aside, in an amended agreement for sale and purchase, which Mr Pedersen signed for Te One a Mara.  Under the amended agreement the price was adjusted to reflect the fact that only one half of the farm is now being sold.  Mr Pedersen also says that the arrears of almost $400,000 owed by Te One a Mara were forgiven.   The other trustees’ position is that the estate had no alternative but to reach an agreement.  There is no reference to the arrears in the amendment, which takes the form of an addendum to the original agreement.  However, the amendment provides that Te One a Mara will purchase one half of the shares owned by the estate and will pay $1.5 million in addition  to  the  payments  already  made.     The  language  used  is  unclear,  but Mr Pedersen told me that the shares purchased are also included in that sum, in addition to the forgiveness of arrears, evidencing what he describes as Mrs Wilson’s acceptance of her wrongdoing and she would describe as his greater bargaining power.  There is no provision for instalments.  No date is given for payment, but the parties  accept  that  1  June  2012  remains  the  settlement  date.     However,  the amendment provides that Te One a Mara will use its best endeavours to settle the matter as soon as possible.

[12]     It is over the question of settlement that the conflict now continues.   The other trustees say that Te One a Mara will delay settlement as long as possible and further that Mr Pedersen is likely to create difficulties over distribution of the estate notwithstanding the settlement with the Wilson children.  They say they cannot sue because Mr Pedersen will not co-operate in enforcing the agreement, nor will he resign.  He is using his status qua trustee to prefer the interests of Te One a Mara.  In the meantime, the estate cannot pay its numerous debts, including the undertaker’s fee for Mr Wilson’s funeral.  That has been outstanding for more than a year.  The estate is no longer able to cover mortgage payments.  Mrs Wilson says that she is in dire financial straits personally.

[13]     Mr Pedersen responds that his refusal to  pay the $2,000 per month was

justified by the Wilsons’ refusal to honour the agreement to assign a share of the

owner’s revenue to Te One a Mara, and in any event the settlement conference has “substantially eliminated” any conflict of interest.  Further, the trustees have never discussed the dispute.   He maintains that the Court should respect Mr Wilson’s decision to appoint him as trustee of the estate knowing of the conflict of interest.  In his  evidence and  submissions  he invites  the Court  to  explore the merits  of the disputes between the estate and Te One a Mara.

[14]     That a conflict of interest exists is painfully obvious.  The amendment to the agreement for sale and purchase has not eliminated it.   It is in the interests of the estate that the transaction be settled at once.  In his capacity as trustee Mr Pedersen must loyally pursue that objective.  He must do so with urgency, for the estate has numerous debts which have now been outstanding for some time.  It goes without saying that he, as trustee, shares responsibility for seeing that the debts are paid when due, and must do whatever is lawfully and reasonably within his power to realise assets to that end.  But the amendment to the agreement for sale and purchase confirms unequivocally that Mr Pedersen acted in the interests of Te One a Mara when renegotiating the price.   Settlement might have been brought forward, but it was  not.    Rather,  Te  One a Mara has  now  assumed  an  obligation  use its  best endeavours to settle as soon as possible, an obligation the breach of which may sound in an action for damages brought by the vendors.

[15]     I record that Mr Pedersen articulately and courteously explained before me that he has not only discharged the moral obligation which he assumed to Mr Wilson and takes seriously, but also that he would, as trustee, be prepared to join in an action against Te One a Mara.   He also says that he has in fact preferred the estate’s interests over those of Te One a Mara, which might have sued for non-performance of the obligation to assign revenues to it.   I need not, and do not, decide whether there  was  an  oral  agreement  for  payment  of  an  additional  share  of  the  farm’s earnings to Te One a Mara.  Clearly too there are issues within the Wilson family the details of which I am not privy to.  Mr Pedersen says he has acted in the interests of all beneficiaries, who include the Wilson children.

[16]     But the short answer to Mr Pedersen’s points is that it is enough that interest

and duty conflict in a way that is likely to interfere with the loyal administration of

the estate.[1]   The jurisdiction to remove a trustee arises whenever it is expedient to do so.[2]   Removal is not a punishment that must be preceded by a finding of moral fault. It is simply a matter of seeing that the trusts under the will are properly executed by trustees whose authority and willingness to administer them is beyond dispute.[3]   An honest difference of opinion or friction of personalities may suffice.[4]    I accept that Mr  Wilson  appointed  Mr  Pedersen  knowing  of  the  conflict  of  interest,  but

Mr Wilson did not authorise self-dealing in his will and he was not to know of the difficulties that would unfold.

[1] Scott v Scott HC Tauranga CIV-2004-470-94, 15 September 2008.

[2] Trustee Act 1956, s 51(1).

[3] Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA).

[4] Plumley v Plumley (1979) 3 MPC 139 (SC).

[17]     It is I think inevitable that differences of opinion and recriminations will dog the estate administration so long as Mr Pedersen remains a trustee.   The trusts require that the estate’s assets be realised and the proceeds distributed in accordance with Mr Wilson’s will.  Mr Pedersen’s conflict of interest must stand in the way of realising the assets with the requisite urgency.   It is also manifest that the other trustees are in conflict with Mr Wilson such that they cannot reasonably be expected to work together.  They do not share his view that the amendment to the agreement for sale and purchase is fair.  He assures me that he would be prepared to sue Te One a Mara, and I am prepared to accept that he would join in such decision if he thought it right.  But that merely highlights the conflict, because he also says that Te One a Mara has already exercised its best endeavours to advance settlement.  That stance points  to  both  an  information  advantage  over  the  other  trustees  and  a  likely difference of opinion about the merits of litigation.

[18]     At  the  hearing  I  made  an  order  removing  Mr  Pedersen  as  trustee  and substituting Mr Twigg.   The order has already taken effect.   Mr Pedersen must forthwith deliver up  to  Mr Twigg any property of the estate in his possession, including documents.  There will be leave to apply.

[19]     The applicants move for costs against Mr Pedersen on an indemnity basis. On the face of it, this is an appropriate case for an award of costs against him, strictly

confined of course to the application to remove him as trustee, for the conflict was

obvious.  However, I am not persuaded that indemnity costs are appropriate.  I have made no finding of wrongdoing against Mr Pedersen.  I will deal with the application on the papers.  Memoranda may be filed within three weeks by Mr Kelly, and within a further two weeks by Mr Pedersen.

Miller J

Solicitors:

Greg Kelly Law Limited, Wellington for Plaintiffs