Woodward v Smith
[2013] NZHC 1226
•28 May 2013
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2011-441-812 [2013] NZHC 1226
UNDER s 51 of the Trustee Act 1956 and the
Court's equitable and inherent jurisdiction
IN THE MATTER OF an application to remove and substitute trustees, and for other relief
BETWEEN ASHLEY ERIC WOODWARD Plaintiff
ANDJON PHILIP SMITH First Defendant
ANDELAINE CORAL WOODWARD Second Defendant
CIV 2011-441-813
AND UNDER the Trustee Act 1956
IN THE MATTER OF an action to remove trustees and other causes of action
BETWEEN ASHLEY ERIC WOODWARD Plaintiff
ANDJON PHILIP SMITH AND JON BOWER DANIEL SMITH AND SHELLEY-LOU SMITH AS TRUSTEES OF THE APLJ SMITH FAMILY TRUST
Defendants
Hearing: 28 and 29 January 2013
(Further applications filed in April 2013)
Counsel: J Bates for Plaintiff
J Upton QC for Defendants
Judgment: 28 May 2013
JUDGMENT OF MALLON J
WOODWARD v SMITH [2013] NZHC 1226 [28 May 2013]
Contents
Introduction ....................................................................................................................................... [1] Preliminary matters .......................................................................................................................... [3] The background facts........................................................................................................................ [4] The Trusts ........................................................................................................................................ [17] The APLJ Smith Family Trust....................................................................................................... [17] The Wanstead Trust ...................................................................................................................... [21] Other parties ................................................................................................................................ [25] Combined asset position as at 31 March 2012 ............................................................................. [29] Contentious evidence ...................................................................................................................... [31] Business philosophy ..................................................................................................................... [31] Disharmony .................................................................................................................................. [40] The claim in respect of the Wanstead Trust .................................................................................. [44] The claim in summary .................................................................................................................. [44] The transactions ........................................................................................................................... [45] Self-dealing................................................................................................................................... [46] Investments ................................................................................................................................... [54] Obligation to act “prudently” ...................................................................................................... [59] Good faith..................................................................................................................................... [61] Requirement to act unanimously .................................................................................................. [62] The claim in respect of the APLJ Smith Family Trust ................................................................. [64] The claim in summary .................................................................................................................. [64] Transactions relied upon .............................................................................................................. [65] Self-dealing distributions.............................................................................................................. [67] Investments ................................................................................................................................... [72] Overall complaint ......................................................................................................................... [73] Claim for rectification ..................................................................................................................... [75] The Wanstead Trust ...................................................................................................................... [75] The APLJ Smith Family Trust....................................................................................................... [76] Limitation Act 1950 ......................................................................................................................... [79] The relief sought .............................................................................................................................. [80] Section 64 of the Trustee Act 1956 ............................................................................................... [81] Discretion to decline relief ........................................................................................................... [82] Section 73 ..................................................................................................................................... [83] Removal of trustees dependent on all the circumstances.............................................................. [84] Need for removal? ........................................................................................................................ [87]
My assessment .............................................................................................................................. [89] Result ................................................................................................................................................ [95] Appendix 1 : APLJ Smith Family Trust
Appendix 2 : Wanstead Trust
Introduction
[1] Ashley Woodward (the plaintiff) seeks removal of the trustees of two family trusts in which he is a beneficiary. His complaint is that Jon Philip Smith, his uncle and a trustee in respect of both trusts, is in a position of conflict. He says that his uncle has infringed the rule against trustee self-dealing in breach of trust, and in breach of his fiduciary duties to the beneficiaries. He also says that his uncle has breached the trust by making interest-free advances to entities in which he had an interest. He has the same concerns in respect of the other two trustees of one of the trusts, who are Jon Philip Smith’s wife and son. As well as seeking the appointment of independent trustees in place of the existing trustees, Ashley Woodward seeks declarations to the effect that all income allocation decisions and drawings made by the trustees to themselves are in breach of their fiduciary duty and in breach of the trusts, orders for inquiries as to loss and related orders. This relief is sought on a summary judgment application.
[2] The application is opposed by all of the trustee defendants (referred to as the “Smith family trustees”) except Elaine Woodward (Ashley’s mother) who abides the decision of the Court. The Smith family trustees contend that the trust deed permits the self-dealing that has occurred and the interest-free advances that have been made. They say that they have acted in good faith throughout and, even if they have breached the trust or their fiduciary duties, that does not automatically warrant their removal. They say that the material disputes of fact between the parties, their counterclaim for rectification in respect of one of the trust deeds, the nature of the claim and the developing law in this area make this claim unsuitable for relief on a summary basis.
Preliminary matters
[3] Before turning to consider the summary judgment application there are some preliminary matters to mention:
(a) The parties attended a settlement conference prior to the summary judgment application but were unable to resolve matters. They agreed, however, to instruct an expert who was to prepare a report.
That report arrived late, and when it arrived the Smith family trustees sought an adjournment of the summary judgment hearing in order to have the opportunity to respond to it.
(b)In response to that application, Ashley Woodward elected to proceed with the allocated summary judgment hearing on the basis that no reference would be made to the expert report in support of that application. I have therefore not reviewed that report.
(c) A difficulty for me in considering the plaintiff ’s application is that the plaintiff’s submissions do not assist with setting out the facts relied on (which are complex). The plaintiff’s counsel may have anticipated that the expert report would assist in this respect. Because the plaintiff elected to proceed with the summary judgment application without reliance on the expert report, I have had to glean the facts from sorting through the information in the collection of affidavits that were filed, which has not been a straightforward exercise.
(d)In advance of the hearing counsel for the Smith family trustees conveyed to counsel for Ashley Woodward that a summary judgment application was the wrong approach. They offered an undertaking prior to the hearing, which was confirmed at the hearing, “that there will be no material change in either trust pending further order of the Court”. Counsel for Ashley Woodward elected to proceed despite the undertaking.
(e) While awaiting the delivery of this judgment, Ashley Woodward became concerned about further actions being undertaken by the Smith family trustees. This led to an application to adduce further evidence which was filed on 5 April 2013. This application related to the listing of a trust property for sale. The Smith Family trustees responded by setting out the circumstances of that listing and making it clear that if any sale were to eventuate it would be subject to court approval.
(f) Ashley Woodward then applied for interlocutory orders because the response to the application for further evidence caused him to have concerns about the scope of the undertaking that had been given and Jon Smith Senior’s understanding of that undertaking. Following telephone conferences and directions in response to that development, that application is to be discussed at a telephone conference to be convened after the delivery of this judgment.
The background facts
[4] The two trusts at issue (the APLJ Smith Family Trust and the Wanstead Trust) were established by Arthur Smith. Arthur Smith was married to Coral Smith. They had two children: Jon Philip Smith and Elaine Smith (later Elaine Woodward through marriage). Jon and Elaine each married (twice in Elaine’s case) and had children. Elaine’s son from her second marriage, Ashley Woodward, is the plaintiff in these proceedings. Ashley married and has three children.
[5] The family (so far as is relevant for this proceeding) is shown in the following diagram:
Grace Elgram
Arthur Percy Lionel Jon Smith = Coral Elaine Smith
Jon Philip Smith (56) = Shelley-Lou Smith Elaine Coral Smith (60s) = Gordon Woodward
Jon Bower Daniel Smith (30s) (Jon Jnr)
Philip Shane Smith
Elizabeth A Smith Ashley Woodward (31) = Sharni Woodward
Petra
Charlotte
Ethan
[6] In this judgment I refer to Jon Philip Smith as Jon Smith Senior. I refer to Jon Bower Daniel Smith as Jon Smith Junior. I refer to Jon Smith Senior’s side of the family as the Smith side of the family. I refer to Elaine Woodward’s side of the family as the Woodward side of the family.
[7] Arthur and Coral Smith and their children (Jon and Elaine) originally lived in England. Arthur Smith was in the merchant navy and then the London Metropolitan Police before setting up a business in his own account. The business developed to the stage where the family company owned various properties in London. The family came to New Zealand in 1965. From 1970 to 1976 the family returned to England. They came back to New Zealand in 1976 except for Elaine who returned to New Zealand later.
[8] The APLJ Smith Family Trust was established in November 1980. The beneficiaries of this trust were Arthur’s wife, Arthur’s children (Jon and Elaine) and grandchildren and the wife or widow of any of Arthur’s children. It was therefore a trust for both the Smith and the Woodward sides of the family. Further details about this trust are set out below ([17] to [20]).
[9] In the mid to late 1980s, two further trusts were established by Arthur Smith. One of those was the Hawkhurst Trust, the beneficiaries of which were the Smith side of the family. The other was the Wanstead Trust which was for the Woodward side of the family. Initially Elaine Woodward was not a trustee of this trust. She became one in March 1988.1 Other trusts and partnerships were established as assets were acquired. Further details are set out below in relation to the Wanstead Trust ([21] to [24]) and the other trusts and partnerships ([25] to [30]).
[10] By a signed handwritten note dated 26 July 1989, Arthur and Coral Smith expressed their wish that after their death Jon Smith Senior and Elaine Woodward be appointed trustees of the “Smith Family Trust”. They also expressed their wish that Ashley Woodward and Jon Smith Junior be made trustees of the “Smith Family
Trust” when legally possible.
1 There are two signed versions of the Wanstead Trust. One version is dated “2nd day of August
1985” and lists the trustees as Arthur and Coral Smith, Jon Smith Senior and Elaine Woodward (all names being included in the typed text). The other version is dated “[ ] day of August 1988. This version has the trustees as being Arthur and Coral Smith and Jon Smith Senior but there is a handwritten amendment, which appears to be dated 21 March 1988, adding Elaine Woodward as a trustee. Jon Smith Senior says that Elaine Woodward was not intended to be a trustee but was added on her insistence and a fresh deed was prepared and signed. As I understand it, he says that the addition of Elaine as a trustee was the product of undue influence by Elaine.
[11] By a deed dated 14 September 1990, the date of distribution under the APLJ Smith Family Trust was to be 2030. It was also provided that the capital fund was to be shared equally per person as between Coral Smith, Jon Smith Senior, Elaine Woodward, Ashley Woodward, Jon Smith Junior, Philip Smith and Elizabeth Smith (depending on who was alive at the date of distribution). The trustees of the trust for the time being were also given power to revoke this appointment.
[12] In early 2001 Arthur Smith gifted a substantial sum to his son, Jon Smith
Senior. A letter signed by Arthur Smith dated 26 February 2001 says that the gift of
$223,000 to his son was “in appreciation of his help and work without which we would not have a dollar.” The letter said that Arthur would have liked to have made a gift of twice as much and that he wished to carry out a gifting programme over the next nine years. This gift followed an earlier gift of either $23,000 or $27,000 made by Arthur Smith to Jon Smith Senior in January 2001.2
[13] On 10 April 2001 Arthur Smith executed a will under which he appointed Jon Smith Senior as the sole executor of his estate. In June 2001, by a deed of appointment, Arthur Smith appointed Jon Smith Senior as an additional trustee of the APLJ Smith Family Trust.3 Elaine Woodward brought High Court proceedings contending that Arthur Smith did not have testamentary capacity when he made the will and that the deed of appointment was obtained under undue influence. These proceedings were unsuccessful.4
[14] Arthur Smith died in November 2001. Jon Smith Senior was the sole executor and trustee of his father’s will. By the terms of the APLJ Smith Family Trust this gave Jon Smith Senior the power to appoint additional trustees of this
trust.
2 Jon Smith Senior’s affidavit says that the gift was for $27,000 although Arthur Smith’s
handwritten note recording the gift referred to $23,000.
3 According to the CA judgment in the proceeding brought by Elaine Woodward ( Woodward v Smith [2009] NZCA 215), the intention had been to appoint Jon Smith Senior as trustee by the April 2001 will. The deed was executed when it was realised that the appointment was not effected through the will.
4 Woodward v Smith HC Napier CIV-2004-441-706, 8 February 2008; appeal dismissed in
Woodward v Smith, above n 3.
[15] Carol Smith died in December 2002. Jon Smith Senior was the sole executor
and trustee of his mother’s estate.
[16] On 14 March 2003, by a deed of appointment, Jon Smith Senior appointed his son, Jon Smith Junior as a trustee of the APLJ Smith Family Trust. On
10 September 2010 he also appointed his wife, Shelley-Lou, as an additional trustee of that trust.
The Trusts
The APLJ Smith Family Trust
[17] Relevant details of this trust are as follows: (a) It was established in November 1980.
(b) The settlor was Grace Elgram, the mother of Arthur Smith.
(c) The trustees were initially Arthur Smith and his wife Coral Smith.
Arthur Smith and Coral Smith have passed away.
(d) The present trustees are Jon Smith Senior, his wife Shelley-Lou
Smith, and their son Jon Smith Junior.
(e) The discretionary beneficiaries in respect of net annual income are Arthur Smith’s wife (Coral Smith) (now deceased), the children (Jon and Elaine), the grandchildren (Jon Smith Junior, Philip Smith, Elizabeth Smith and Ashley Woodward) and the wife or widow of any of the children of Arthur Smith (Shelley-Lou Smith).
(f) The date of distribution of the capital is 2030, and the capital is to be
divided equally between Jon Smith Senior, Jon Smith Senior’s three
children, Elaine Woodward and Ashley Woodward.5
5 Pursuant to the 14 September 1990 deed.
[18] The trust deed set the trustees’ powers, authorities and discretions. Relevant provisions are set out in Appendix 1.
[19] As at 31 March 2012 the trust’s assets are:
(a) a 50 per cent interest in a partnership (the Emerson Street Properties Partnership) which owns a property in Emerson Street, Napier, which has five retail shops;
(b)a 20 per cent interest in a partnership (the Smith Trust Partnership) which owns a property in Gloucester Street, Taradale, which has one retail shop;
(c) a 67 per cent interest in a partnership (the Smith Property Partnership) which owns a property at 333 Heretaunga Street, Hastings, which has three retail shops;
(d)ownership of a property at 343 Heretaunga Street, Hastings, which has three retail shops and four residential flats;
(e) a 28.8 per cent interest in a partnership (the Hawkhurst Vineyard
Partnership) which owns a vineyard and nursery block;
(f) a 50 per cent interest in a partnership (the Townlodge Motel
Partnership) which owns a motel business; and
(g)ownership of a property in Havelock North on which there are two houses;
(h) a 20 per cent interest in a partnership (the Ashley Woodward
Partnership) which owns a property at Palomino Road, Haumoana. [20] The total funds of the APLJ Smith Family Trust are around $5.6 million.
The Wanstead Trust
[21] Relevant details of this trust are:
(a) It was established in August 1985. (b) Arthur Smith was the settlor.
(c) The trustees were Arthur Smith and his wife Coral Smith, and his two children Jon Philip Smith and Elaine Coral Woodward.
(d) Following the death of Arthur and Coral Smith the trustees are now
Jon Philip Smith and Elaine Coral Woodward.
(e) The discretionary beneficiaries in respect of income, capital and advances on capital are Ashley Woodward (the son of Elaine Woodward) and his children (Petra, Charlotte and Ethan) and grandchildren.
[22] The trust deed sets out the trustees’ powers. Relevant provisions are set out in Appendix 2.
[23] As at 31 March 2012 the Wanstead Trust’s assets are:
(a) a 25 per cent interest in the Emerson Street Properties Partnership, which owns the property at Emerson Street, Napier, which has five retail shops;
(b)a 15 per cent interest in the Smith Trust Partnership which owns the property at Gloucester Street, Taradale, which has one retail shop;
(c) a 40 per cent interest in the Ashley Woodward Partnership, which owns the property at Palomino Road, Haumoana.
[24] In total the Wanstead Trust has around $1.5 million in capital and around
$500,000 in “income reserved”.
Other parties
[25] Other relevant entities on the Smith side of the family are:
(a) The Hawkhurst Trust: The trustees of the Hawkhurst Trust are Jon Smith Senior and Jon Smith Junior. The beneficiaries are all of Jon Smith Senior’s children and (possibly6) his grandchildren. The trust was settled by Arthur Smith at around the same time as the Wanstead Trust was settled. It has a 25 per cent interest in the Emerson Street Properties Partnership, a 45 per cent interest in the Smith Trust Partnership, a 33 per cent interest in the Smith Property Partnership
and a 10.9 per cent interest in the Hawkhurst Vineyard Partnership.
(b)The JP Smith Trust: The trustees of the JP Smith Trust are Jon Smith Senior and Jon Smith Junior and the beneficiaries are Jon Smith Senior and the Hawkhurst Trust.
(c) The Napier Road Trust: The trustees of Jon Smith Senior and Jon Smith Junior. The beneficiaries are the Smiths (and possibly their grandchildren7). Jon Smith Senior says that funds gifted to this trust from the APLJ Smith Trust were used to purchase a property in Brisbane. This property is owned by Napier Road Trust Australia Pty Ltd, which is owned by Napier Road Australia Trust, whose beneficiaries are not the same as the trustees of the APLJ Smith Family Trust.
[26] A relevant entity on the Woodward side of the family is:
(a) The Ashley Woodward Partnership: This is a partnership between the
Wanstead Trust (40 per cent), Elaine and Gordon Woodward (40 per
6 The Hawkhurst Trust deed was not included in the evidence.
7 The Napier Road Trust deed was not included in the evidence.
cent) and the APLJ Smith Family Trust (20 per cent). This partnership owns a house in Palomino Road (in which Elaine and Gordon Woodward live) and orchard land which is rented out.
[27] Partnerships in which the APLJ Smith Family Trust has an interest along with interests held by other entities on the Smith side of the family, and where no interest is held by the Wanstead Trust, are:
(a) The Smith Property Partnership: This is a partnership between Hawkhurst Trust (33 per cent) and APLJ Smith Family Trust (67 per cent). This owns the property at 333 Heretaunga Street, Hastings, which has three retail shops which are tenanted.
(b)The Hawkhurst Vineyard Partnership: This is a partnership between Jon Smith Senior (50 per cent), APLJ Smith Family Trust (28.8 per cent), Hawkhurst Trust (10.9 per cent) and Jon Smith Junior (10.3 per cent). This owns the vineyard and nursery.
(c) Townlodge Motel Partnership: This is a partnership between Jon Smith Senior (50 per cent) and APLJ Smith Family Trust (50 per cent). This owns the motel business.
[28] Partnerships in which both the APLJ Smith Family Trust and the Wanstead
Trust have interests are:
(a) The Smith Trust Partnership: This is a partnership between the Wanstead Trust (15 per cent), the APLJ Smith Family Trust (20 per cent), the Hawkhurst Trust (45 per cent) and the Jon Smith Senior (20 per cent). This partnership owns the commercial property in Taradale.
(b)The Emerson Street Properties Partnership: This is a partnership between the Wanstead Trust (25 per cent), the APLJ Smith Family Trust (50 per cent) and the Hawkhurst Trust (25 per cent). The
partnership owns and leases out several properties in Emerson Street, Napier.
Combined asset position as at 31 March 2012
[29] In table form, the assets held by the Wanstead Trust and the APLJ Smith
Family Trust as at 31 March 2012 are as follows:
Emerson St. Napier
5 retail shops
Gloucester St. Taradale
1 retail shop
333 Heretaunga St. W. Hastings
3 retail shops
343 Heretaunga St .W. Hastings
3 retail shops, 4 flats
402,438 & 95/99 Napier Rd. Havelock North
Hawkhurst Vineyards &nursery block
911 Heretaunga St. E. Hastings
Town Lodge Motel
116 Napier Rd. Havelock North
2 houses
Palomino Rd. Haumoana
Land leased for horticulture
Emerson St Properties Partnership
50% APLJ Smith Family Trust
25% Wanstead Trust
25% Hawkhurst Trust
Smith Trust Partnership
45% Hawkhurst Trust
20% APLJ Smith Family Trust
20% Jon Philip Smith
15% Wanstead Trust
Smith Property Partnership
67% APLJ Smith Family Trust
33% Hawkhurst Trust
APLJ Smith Family Trust
100% APLJ Smith Family Trust
Hawkhurst Vineyard Partnership
50% JP Smith
28.8% APLJ Smith Family Trust
10.9% Hawkhurst Trust
10.3% JBD Smith
Townlodge Motel Partnership
50% APLJ Smith Family Trust
50% JP Smith
APLJ Smith Family Trust
100% APLJ Smith Family Trust
Ashley Woodward Partnership
40% EC & GE Woodward
40% Wanstead Trust
20% APLJ Smith Family Trust
[30] This does not include the Brisbane property held by interests associated with the Smith side of the family through the Napier Road Trust (and other entities).
Contentious evidence
Business philosophy
[31] The evidence of Jon Smith Senior is that Arthur Smith’s business motivation
in life was to provide a structure for self-help, not charity (expressed in such phrases
as “God helps those who help themselves” and “No work, no money”).8 He says that the family operated a general pooling of resources. Assets were built up by ploughing funds into the family business and profits were reinvested. He says that over the years he and Arthur Smith had a close relationship and made all business decisions together. He says that his sister, Elaine Woodward, always avoided the family pooling of assets. He says that Elaine and her husband worked outside of the family business and were not involved in the day-to-day decision making of the businesses.
[32] He says that, consistent with this family approach, when he married his wife Shelley-Lou (two months before the APLJ Smith Family Trust was established), her own assets were gifted into the APLJ Smith Family Trust. Jon Smith Senior also says that he gave his earnings to his father for investment. Jon Smith Senior says that the assets which he placed into the APLJ Smith Family Trust (and which he says were later indirectly introduced into the Wanstead Trust) were:
(a) his share of the sale of businesses and properties in England; (b) the proceeds of a sale of a house to his mother;
(c) a 50 per cent share in profits of a butchery business; (d) earnings from jobs in 1970 and 1976;
(e) assets acquired with Arthur and Coral Smith between 1976 and 1980;
and
(f) money from his wife (distributions she received from a family trust and her savings from her employment).
[33] Jon Smith Senior says that the multi-ownership of properties came about
partly as a result of Arthur Smith’s wish to try and unite family members. He says it
8 There is support for that in an extract of a document annexed to Jon Smith Senior’s affidavit on which there is a note that appears to be in Arthur Smith’s hand that says “Elaine get copy, deposit one with accountant. You are to carry out provisions of Trust as you know I would wish. No work no money.”
was also to spread business risk, to reduce the likelihood of a sale or mortgage (and thereby retain family wealth). He says that since his father’s death he has carried on with his father’s philosophy to protect and develop the family asset base and to preserve it for future generations.
[34] Jon Smith Senior says that over the years distributions were made to beneficiaries which were gifted back to the trusts, with the purpose of taking advantage of lower individual tax rates. He says that distributions from the APLJ Smith Family Trust were to his mother, his wife and to his parents’ grandchildren for education and maintenance purposes. He says that the distributions were then gifted by them to the Wanstead Trust, the Hawkhurst Trust and the Jon Philip Smith Trust. He says there were also distributions to Elaine Woodward and these were gifted by her to the Wanstead Trust and then used by the Wanstead Trust to buy its share in the Ashley Woodward Partnership (which owns the Palomino Road property). Jon Smith Senior says that in more recent years the distributions from the APLJ Smith Family Trust have been gifted to the Napier Road Trust which in turn used these funds in 2008 to buy an investment property in Brisbane.
[35] Jon Smith Senior’s evidence is that initially Ashley Woodward participated in the gifting programme, with his distributions being gifted by him to the Wanstead Trust. He says that in more recent years, Ashley has not continued gifting his distributions and has demanded payment of money standing to his credit in his current account. Jon Smith Senior said he made a payment to Ashley from his current account with interest even though other beneficiaries were not receiving interest on amounts held to their credit in their current accounts.
[36] Jon Smith Junior says that Ashley Woodward’s distributions from the APLJ Smith family trust ($296,574) have been greater than those of Philip Smith ($268,841) and Elizabeth Smith ($177,728) and only $47,700 behind Jon Smith Junior. He does not say over which period these figures relate.9 Jon Smith Senior says that since 2006 there has been no allocation of income to Ashley Woodward. He says that this was deliberate. He says that the trustees’ thinking was that the trust
income should be reserved and accumulated to provide an appropriate capital base to
9 Compare with Ashley Woodward’s evidence at [65](a) in this judgment.
pay for a house when and if Ashley called for that. He says that, in line with the family philosophy, the intention was that the house would be owned by the trust as opposed to Ashley individually. He also says that if Ashley Woodward wants to establish a business, then as a trustee he would be happy to consider it.
[37] He also says that the Taradale property owned by the Smith Trust Partnership was purchased after the 1989 share market crash. He says that the larger proportion held by the Smith family was because Arthur and Coral wanted to correct the imbalance which had occurred between the Smiths and the Woodwards through the deed of distribution of the APLJ Smith Trust and the Wanstead Trust.10
[38] Jon Smith Senior says that the Emerson Street property owned by the Emerson Street Partnership was purchased with funds from Arthur and Coral Smith, his own funds and the funds of his wife. He says that Elaine Woodward pressured Coral Smith to gift an interest to the Wanstead Trust at the same time as the 1990 deed of distribution was entered into.
[39] Jon Smith Senior says that he has always tried to act prudently and rationally as a trustee. He says that funds have been moved around inside “the group” (that is, around the family’s trusts and partnerships) on an interest-free basis and without security. This has never been done outside the group. He says he has always acted on advice from accountants and lawyers. He says no concerns were raised by them about self-dealing. He says he has also tried to educate himself on the duties and obligations of trustees.
Disharmony
[40] For a long time the relationship between Jon Smith Senior and Elaine Woodward has not been an easy one. For his part, Jon Smith Senior says that the APLJ Smith Family Trust was set up for his benefit. He believes that the September
1990 deed was executed because Elaine Woodward put pressure on Arthur and Coral
Smith that she and Ashley Woodward would return to the United Kingdom if they were not offered a guarantee that they would benefit from the APLJ Smith Family
10 I note in passing that it is not clear to me that there was any imbalance.
Trust. He also says that Elaine Woodward put pressure on Arthur and Coral Smith to appoint her as a trustee of the Wanstead Trust. He says that his father’s wish to unite the family through the pooling of assets was ill-conceived because Elaine Woodward always wanted to be independent.
[41] Elaine Woodward says that Jon Smith Senior will not let her have anything to do with the Emerson Street Properties Partnership or the Smith Trust Partnership and the decision-making which goes on there on behalf of the Wanstead Trust. She says he controls the bank accounts for these partnerships. She says that there was no agreement that he can look after them. She says that she continues to be in conflict with Jon Smith Senior about a number of matters. She says that they cannot work together because the rift between them is too great. She is willing to step aside as trustee but will not do so when it would leave Jon Smith Senior as sole trustee.
[42] Ashley Woodward says that he is seeking relief from the Court because he believes that “the trust’s affairs have become paralysed due to the ongoing dispute” between Jon Smith Senior and Elaine Woodward and because Jon Smith Senior is not acting in Ashley Woodward’s or his children’s interests and is “seemingly acting out of spite because I gave evidence in my mother’s case”.11 Ashley Woodward’s affidavit evidence refers to a number of matters which he believes show this.
[43] Jon Smith Senior does not accept that the difficult relationship between himself and Elaine Woodward has rendered his position as trustee unworkable. He says that there was no bitterness on his side and that he holds no bad feelings towards either Elaine or Ashley Woodward. He says that Elaine Woodward has signed off the resolutions for the Wanstead Trust each year which adopt the Wanstead Trust financial accounts, but that this has been the extent of her involvement. He says that he would be prepared to put in a new trustee in
substitution for Elaine Woodward in respect of the Wanstead Trust.
11 Referring here to the testamentary capacity and undue influence proceeding taken by Elaine
Woodward (refer fn 3 and 4).
The claim in respect of the Wanstead Trust
The claim in summary
[44] Counsel for Ashley Woodward submits that the Smith family trustees are engaging in a wealth shifting exercise from the Wanstead Trust to the Smith family, when the Smith family are not beneficiaries under the Wanstead Trust. It is said that this is occurring by Smith family entities borrowing tax paid interest-free trust funds and income distributions which are spent or gifted to other Smith family trusts to the benefit of the Smith family only. It is said that:
(a) the trustees are acting in breach of trust and in breach of their fiduciary duty by engaging in self-dealing (in relation to both income distributions and drawings);
(b)the trustees are acting in breach of trust by not “investing” trust funds (because unsecured advances on interest-free terms cannot qualify as “investments”);
(c) the trustees are acting in breach of trust by not investing prudently; (d) the trustees are not acting in good faith; and
(e) Jon Smith Senior is acting in breach of the trust requirement that the trustees act unanimously.
The transactions
[45] As mentioned above, the submissions did not set out the evidence on which Ashley Woodward relies. From a review of Ashley Woodward’s four affidavits I understand the transactions of concern to Ashley Woodward to include:
(a) an advance of $335,520 as at 31 March 2010 from the Wanstead Trust to the Smith Trust Partnership which is interest free;
(b)a withdrawal from Wanstead Trust in 2008 of $41,426 which was initially deposited in a Building Society and then Westpac, but which in 2010 was deposited with interest ($43,000 in total) with the Emerson Street Properties Partnership;
(c) an advance of $304,940 as at 31 March 2010 from the Wanstead Trust to the Emerson Street Properties Partnership which is interest free;
(d)interest-free advances totalling $730,287 from the Emerson Street Properties Partnership to the Hawkhurst Vineyard Partnership ($331,597), Napier Road Trust ($308,400), Jon Smith Senior ($12,300), Jon P Smith Trust ($1,070) and the Townlodge Motel Partnership ($76,920).
Self-dealing
[46] The self-dealing arises because:
(a) advances to the Smith Trust Partnership are to a partnership in which Jon Smith Senior (a trustee under the Wanstead Trust) has a direct interest and in which the Smith side of the family have interests (as beneficiaries under the APLJ Smith Family Trust and the Hawkhurst Trust);
(b)advances to the Emerson Street Properties Partnership are to a partnership in which Jon Smith Senior has an interest (as a beneficiary under the APLJ Smith Family Trust) and in which the Smith side of the family have interests (as beneficiaries under the APLJ Smith Family Trust and the Hawkhurst Trust);
(c) advances from the Emerson Street Properties Partnership funded by advances from the Wanstead Trust, made to the Hawkhurst Vineyard Partnership, are to a partnership in which Jon Smith Senior has a direct interest and in which the Smith side of the family have interests (as beneficiaries under the APLJ Smith Family Trust and the
Hawkhurst Trust and a further direct interest held by Jon Smith
Junior);
(d)advances from the Emerson Street Properties Partnership funded from advances from the Wanstead Trust, which are in turn advanced to the Napier Road Family Trust, are advances to an entity in which the Smith side of the family have an interest;
(e) advances from the Emerson Street Properties Partnership funded from advances from the Wanstead Trust, which are in turn advanced to Jon Smith Senior, is an advance which directly benefits Jon Smith Senior;
(f) advances from the Emerson Street Properties Partnership funded from advances from the Wanstead Trust, which in turn are advanced to the Jon P Smith Trust, are advances to an entity in which Jon Smith Senior and other members of the Smith side of the family have an interest (as beneficiaries under that trust);
(g)advances from the Emerson Street Properties Partnership funded from advances from the Wanstead Trust, which in turn are advanced to the Townlodge Motel Partnership, are advances to a partnership in which Jon Smith Senior has a direct interest and in which the Smith family have an interest (as beneficiaries under the APLJ Smith Family Trust).
[47] The question is whether these transactions show that Jon Smith Senior is breaching the rule against self-dealing. That in turn depends on the content of that rule. The scope of that rule is well explained for the purposes of this summary judgment application in Lewin on Trusts.12 The principles I take from that
commentary in relation to self-dealing transactions are as follows:
12 John Mowbray and others Lewin on Trusts (18th ed, Sweet & Maxwell, London, 2008).
(a) The self-dealing rule is based on the conflict rule that a trustee must not put him or herself in a position where there is a conflict or possible conflict between his interest and his duty.13
(b)The rule applies not just to purchases of trust property by a trustee, but also to other self-dealing transactions such as loans made by trustees out of trust assets to one of themselves.14
(c) The rule does not apply where the trustee has not placed him or herself in a position of conflict of interest and duty, but is placed in that position by the settlor or the terms of the trust.15
(d)The rule does apply where the position of conflict is not brought about by the settlor or the terms of the trust, even though the conflict is not of the trustees’ own making. In such a case the trustee should retire from the trust or seek the directions of the court.16
(e) The rule does not apply where the express terms of the trust authorise self-dealing transactions.17
[48] Applying these principles here, the first question is whether the transactions involve a conflict or possible conflict between Jon Smith Senior’s interest and his duty. The answer to that question is yes. In each of the transactions described above Jon Smith Senior has an interest as a direct recipient of the advances, as a beneficiary under a trust which is the recipient of the advances, or as the father of children that are beneficiaries under a trust which is a recipient of the advances.
[49] The next question is whether the express terms of the Wanstead Trust authorise these advances. As to that:
13 At [20-58].
14 At [20-64] and [20-68].
15 At [20-96].
16 At [20-97].
17 At [20-95].
(a) The preamble shows an intention that the trustees are to have a wide discretion, but it does not confer express permission to deal with the trust fund or make distributions to themselves.
(b)Clause 2.2 permits the trustees to invest the trust income (rather than to distribute it to a beneficiary). It is a general power to invest, and does not expressly authorise transactions that would otherwise be a conflict of interest.18
(c) Clause 6.1 permits the trustee to invest trust money “entirely as it thinks fit and with such power in all respects as if the Trustee were the sole absolute owner” and further provides that the Trustee is not accountable for any loss in relation to the investment. The “entirely as it thinks fit” wording again provides a general power which does not authorise a trustee to act contrary to their duties to beneficiaries. The power to act as if the trustee is the absolute owner, is directed to the powers an owner would have in relation to an investment they make (for example, as to management or realisation of the investment). It does not authorise a trustee to make an investment that is in actual or potential conflict with the trustees’ duties to the
beneficiaries.19 Protecting a trustee from accountability for any loss
in relation to an investment is also not directed at authorising a conflict.
(d)Clause 6.5 authorises the trustees to lend trust money “to any company or companies person or persons including any Beneficiary.” Again that is a general power which does not authorise a trustee (who is not a beneficiary) to lend to himself.
[50] That leaves clause 10.4. Under that clause a trustee is not barred from dealing with the trust, and the trustee has the same powers of contract, despite the
18 As counsel for Ashley Woodward submits, cl 2.2 is to be contrasted with the draft conflict of interest clause set out in John Brown (ed) New Zealand Master Trusts Guide (2nd ed, CCH New Zealand, Auckland, 2005), Appendix 1, cl 24.1 and commentary.
19 This is supported by Earl of Cardigan v Moore [2012] EWHC 1024 (Ch) at [65] (referred to by counsel for Ashley Woodward).
trustee’s personal involvement, as if he (or she) was neither a trustee nor a beneficiary. This applies only if the trustee is the settlor or a beneficiary. Jon Smith Senior was not the settlor of the Wanstead Trust. Nor is he a beneficiary.
[51] Jon Smith Senior contends that he is a “de facto settlor”.20 This is on the basis that he mingled his funds with his father’s funds in the APLJ Smith Family Trust, which in turn introduced funds into the Wanstead Trust. Ashley Woodward does not accept that this claim is supported by sufficient evidence (which he says would need to be shown in the financial accounts). He also submits that the concept of a “de facto settlor”, which has been accepted in tax cases, does not assist in interpreting the meaning of “settlor” as used in cl 10.4 of the trust deed.
[52] In the present case I am doubtful that “settlor” in cl 10 would include a de facto settlor (that is, a person other than the named settlor because that other person in fact settled funds on the trust). This is because:
(a) One of the authorities relied upon did not discuss the issue (because it was agreed in that case that there was a “de facto settlor”) and the other two cases were in the context of revenue law. The question here is what is meant by “settlor” in cl 10.4 of the Wanstead Trust.
(b)It does not seem to be contended that Arthur Smith was a nominal settlor only. Moreover, at least some of the funds Jon Smith Senior contends he contributed, pre-dated the establishment of the Wanstead Trust. Had it been intended that Jon Smith Senior was to be treated as a “settlor” for the purposes of the Wanstead Trust (and cl 10.4 in particular) then one would expect this to have been expressly provided for.
(c) The Wanstead Trust was stated to be one for the benefit of Ashley
Woodward. If Ashley Woodward had become a trustee (as it seems
20 Counsel for Jon Smith Senior refers to Commissioner of Inland Revenue v Dick [2003] 1 NZLR
741 (CA); Baker v Beasley [1965] NZLR 1031 (SC); Breakspear v Ackland [2008] EWHC 220, [2008] 3 WLR 698 (Ch) (the latter case proceeding on an acceptance that the trustee was the “de facto settler”).
Arthur Smith may have envisaged might occur at some point) then this clause would have authorised him to deal with the trust property and enter into contracts in relation to the trust property despite a personal involvement. Should Arthur Smith wish to deal with the trust property the clause enabled him to do so. The purpose of the clause therefore seems to have been to permit Arthur Smith and Woodward family members who might become trustees and who were beneficiaries to deal with the trust property.
(d)The evidence suggests that Arthur Smith established trusts for each side of the family that were separate from the main family trust (intended potentially to benefit all members of the family) and into which funds would be gifted and applied for the benefit of each side of the family.21 It is not obvious that Arthur Smith would then have wanted to authorise Jon Smith Senior to use funds gifted into the trust established for the Woodward side of the family, for the benefit of Jon Smith Senior or the benefit of the Smith side of the family.
[53] However, I do not reach a concluded view on this. As this is a summary judgment application the evidence before me is limited and it has not been tested by cross-examination. The factual matrix in which the Wanstead Trust was established is therefore not fully explored. While I am doubtful that this would put a different complexion on how clause 10.4 is to be interpreted, I am not prepared to rule that out at this stage. That is especially because, for reasons which I will come to ([89] to [94]), I do not consider it appropriate to order Jon Smith Senior’s removal as a trustee on this summary judgment application.
Investments
[54] Jon Smith Senior says that at one stage the grandchildren did receive interest on their current accounts, but this practice stopped in 2009 on the basis of independent professional accounting advice. He says that, in any event, whether and
in what circumstances interest is payable on advances is totally a matter for the
21 At about the same time a trust was established for the benefit of the Smith side of the family (the terms of that deed are not in evidence).
trustees in the exercise of their discretion and without liability for any loss that may occur. He also says there have been no advances made by the Wanstead Trust. Rather there are small loans to it and all income has been reserved since 2007. He says that there is no wealth shifting in these circumstances.
[55] I am unsure how this evidence fits with Ashley Woodward’s evidence as to the transactions set out above. It is evidence which needs to be explained and tested. It may simply be a difference in terminology between Jon Smith Senior and Ashley Woodward and/or how advances are treated in the financial accounts. For present purposes I will proceed on the basis that there have been “advances” (in the sense of funds made available to other entities which are repayable to the Wanstead Trust) that I have identified above.
[56] Ashley Woodward contends that advances which are unsecured and interest- free are not “investments” and are therefore not authorised by the trust deed.22 I do not agree with this contention. Clause 2.2 permits the trustee to invest trust funds rather than applying the trust income to a beneficiary. More specifically, cl 6.5 permits the trustees to “lend all or part of the Trust Fund on such terms and conditions with or without interest and with or without security” as the trustee thinks fit. Interest-free and unsecured advances are therefore permitted by the deed. In my view the power to “invest” must be read in that light. In this case the advances are
made to partnerships which own property and/or operate businesses. Jon Smith Senior says that the net rent from the Emerson Street and Taradale properties is placed on interest-bearing account with Westpac and BNZ in the name of the particular entity and so those funds are working for the group. It therefore seems on the limited evidence before me that the advances are intended to provide a return to the Wanstead Trust through its interest in the partnerships.
[57] Ashley Woodward submits that advances to loss-making businesses (i.e. the vineyard partnership and the motel business) are not “investments”. I do not accept this submission. I have not been referred to evidence that discusses the extent of the
losses or the viability of the businesses in light of the losses. Losses may be
22 Counsel for Ashley Woodward refers to Khoo Tek Keong v Ch’ng Joo Tuan Neoh [1934] AC 529 (PC) and Dalriada Trustees Ltd v Faulds [2011] EWHC 3391 (Ch) in support of the submission that an unsecured loan is not an investment.
temporary and returns may be made from the sale of the business and/or capital gains from the land on which the business is operated. The information before me is too limited to consider this issue any further.
[58] Ashley Woodward submits that advances to help fund the Australian property purchase (via the Napier Road Trust) are not an “investment” because no capital gain or return is contemplated. As I understand it, it is not alleged that Wanstead funds have been used to purchase the Brisbane property directly. Rather it is alleged that Wanstead funds have been advanced to other entities which have in turn made advances to the APLJ Smith Trust which in turn has advanced funds to purchase this property. If it can be shown that Wanstead Trust funds have been used to purchase the Brisbane property (as to which further evidence is needed) it is unclear how that could be an investment for the Wanstead Trust when it does not have any ownership interest in the property.
Obligation to act “prudently”
[59] Ashleigh Woodward says that the trustees are not investing the Wanstead share of income “prudently” by permitting current accounts in the partnerships to accrue from year to year. He says that the “wealth shifting strategy” has the opposite effect of a prudent investment. He says that cl 6.1 of the trust deed does not oust the requirement to invest prudently. He says that where a trustee is not required to invest prudently, that needs to be an express term in the trust deed.23
[60] Jon Smith Senior says that the investment decisions are the type of issues that can only be decided after a proper and full evaluation of the evidence placed before the Court. I agree.
Good faith
[61] Ashleigh Woodward says that even if the trustees were permitted to self-deal, permitted to make unsecured interest-free loans, and were not required to make
“prudent” investments, the trustees were required to act in good faith. It is submitted
23 Relying here on Brown, above n 18, at Appendix 1, 185 and Bartlett v Barclays Trust Co (No 1)
[1980] 1 Ch 515.
that it is the antithesis of good faith for a trustee to benefit from trust funds at the expense of a beneficiary by lending the money elsewhere on interest-free unsecured terms. However it is unclear on the evidence that the investments are at the expense of a beneficiary. Again this type of submission is not one that is appropriately determined on a summary judgment application.
Requirement to act unanimously
[62] Ashleigh Woodward refers to evidence from Elaine Woodward that there is no understanding with Jon Smith Senior that she would manage the decision making on behalf of the trustees in relation to the Palomino Road property and that he would manage the decision making on behalf of the trustees in relation to other partnership entities. He says that Jon Smith Senior is making all the decisions other than in relation to the Palomino Road property. He says that a beneficiary is entitled to have
all trustees contribute to decisions.24
[63] Jon Smith Senior says that all decisions have been agreed to or ratified by the trustees, with Elaine Woodward signing off on Wanstead Trust resolutions each year. Given this evidence, the claim that the trustees are not making decisions unanimously cannot be determined on a summary judgment application. The evidence needs to be tested in the ordinary way.
The claim in respect of the APLJ Smith Family Trust
The claim in summary
[64] Similar claims are made in respect of this trust. Counsel for Ashley Woodward says that funds received from the APLJ Smith Family Trust are flowing to Smith family enterprises by way of self-dealing advances, and income distributions are exclusively made to Smith family beneficiaries. These actions are
said to breach the trust and the trustees’ fiduciary duties.
24 Reference is made to Public Trustee v Cooper [2001] WTLR 901 (Ch).
Transactions relied upon
[65] Again I have found it difficult to isolate the particular transactions that are of concern to Ashley Woodward. However, from my review of the affidavit evidence, I understand the transactions of concern to include:
(a) In the period between 1 April 2003 through to 31 March 2011 the drawings in favour of the trustees and their daughter Elizabeth and son Philip, totalled $1,211,246 (including income allocations of
$825,000). In the same period Ashley Woodward did not receive any income allocations but did receive $13,248 in education expenses (deducted from a loan account).
(b)Loans in 2009 from the Smith Trust Partnership to the APLJ Smith Family Trust ($500,000), Emerson Street Properties Partnership ($58,670), Townlodge Motel Partnership ($1,080), Hawkhurst Vineyard Partnership ($96,000) and Jon Smith Senior ($21,700). In
2010 the Smith Trust Partnership accounts showed the $500,000 as part of the APLJ Smith Family Trust capital account.
(c) An interest free advance from the Smith Trust Partnership to the APLJ Smith Family Trust in the 2010 financial year.
[66] The complaint therefore seems to be about:
(a) Distributions made to beneficiaries on the Smith side of the family which exceed distributions made to Ashley Woodward, and
(b)Advances made in a partnership in which the Wanstead Trust has an interest, to other entities in which the Wanstead Trust and/or Ashley Woodward have an interest.
Self-dealing distributions
[67] Counsel for the Smith family trustees submits that cl 2(b) of the trust deed allows the trustees to make payments of income to beneficiaries in their absolute discretion, and that by definition this includes trustees. He submits that it is settled law that the court will not interfere with a trustees’ decision made in the exercise of a discretion so long as the trustees acted in good faith, and did not take into account
irrelevant considerations nor act with an improper motive.25
[68] Counsel for Ashley Woodward submits that the distributions involve self- dealing and that there is no relevant exception to the rule against self-dealing that applies to the trustees here. He submits that clause 2(b) is a general power to distribute funds to such persons as they think fit, and that this general power is limited by the rule that a fiduciary cannot distribute to himself/herself. He says that there is no express self-dealing clause in the trust deed. Although the defendant
trustees are all original discretionary beneficiaries they are not original trustees.26
Counsel refers to a number of authorities said to make it clear that the exception does not apply to successor trustees.27 He says that being a de facto settlor in tax terms does not assist Jon Smith Senior.
[69] Lewin on Trusts discusses the self-dealing rule in relation to trustees’ powers to make distributions (i.e. dispositive powers). In essence, the same principles apply to dispositive powers as they do to administrative powers (i.e. as discussed above). That is, unless authorised by the terms of the trust, trustees cannot exercise a dispositive power in their own favour. However the terms of the trust can authorise
that. It is therefore possible to authorise a trustee who is also a beneficiary, to
25 See for example Wong v Burt [2005] 1 NZLR 91 (CA); Edge v Pensions Ombudsman [1998] Ch 512 (HC) at 513; [2000] Ch 602 (CA) at 627.
26 Counsel for Ashley Woodward refers to authority and commentary which indicates that that the legal position is not clear as to whether an original trustee-beneficiary is impliedly authorised to
exercise dispositive powers in his/her favour (other than in respect of pension schemes). For example, Mark Herbert and the United Kingdom Trust Law Committee Working Party on Conflicts of Interest in Trusts (May 2006); Dever v Knobloch HC Napier CIV-2008-441-537,
29 October 2009; Johnston v Macfarlane Trustees 1986 SC 298. He says that this highlights that equity is slow to create any exception to the basic rule that trustees should not use their powers
to benefit themselves. He says that, absent express or some sustainable settled basis to imply authority to benefit oneself, the law remains that a trustee cannot profit from his trust Re Edward’s Will Trusts [1947] 2 All ER 521; Re Beatty [1990] 1 WLR 1503 (Ch).
27 Earl of Cardigan v Moore, above n 19; Rafferty v Philp [2011] EWHC 709 (Ch); Jones v Firkin- Flood [2008] EWHC 2417 (Ch); Breakspear v Ackland, above n 20.
exercise a power under which the trustee himself can benefit over other beneficiaries.28 Lewin on Trusts suggest that it may not be sufficient authorisation if the power is a general one which is merely capable of being exercised in the trustee’s favour. For example, the generality of a power to distribute a fund “to such persons as they think fit” may be limited by the fiduciary obligation not to benefit one-self.29
[70] Clause 2(b), relied on by the Smith family trustees, does not expressly state that distributions may be made to beneficiaries even if they are trustees. However it does permit distributions to be made to Arthur Smith’s wife, and she was an original beneficiary. It is also apparent that Arthur Smith intended Jon Smith Senior to benefit from the trust. He was a discretionary beneficiary of trust income and he was also one of the beneficiaries who were to share the capital fund at the distribution date. Jon Smith Senior’s conflict between his trustee duties and his interest as a beneficiary arose because Arthur Smith appointed Jon Smith Senior as a trustee. When he made that appointment it is not clear that he intended that Jon Smith Senior could no longer receive distributions as a beneficiary. It is arguable that the terms of the trust were intended to permit successor trustees, who were beneficiaries, to make distributions to themselves. This is, in my view, an argument better determined on the basis of evidence that is adduced and is subject to cross-examination in the ordinary way.
[71] Moreover the drawings (referred to in [66](a) above) are such that I do not understand how that evidence fits with Jon Smith Junior’s evidence (referred to in [36] above). On their face they seem to be quite inconsistent. Therefore, irrespective of whether there is unauthorised self-dealing, it is unclear as to the extent to which this has occurred. This is relevant to whether it is appropriate to grant relief on this summary judgment application.
Investments
[72] I am unclear what advances, if any, from the APLJ Smith Family Trust are said to breach the terms of the trust. Clause 6(c) permits advances to be made
interest-free and unsecured. On that basis there can be no objection. To the extent
28 Lewin on Trusts, above n 12, at [20-126].
29 At [20-128] and [20-129].
that the advances are said to be imprudent or not made in good faith, those are not matters that can be properly assessed on a summary judgment application.
Overall complaint
[73] As I understand it, the real complaint about this trust is that Wanstead Trust funds are being advanced to entities which in turn are providing funds to the APLJ Smith Trust. These funds are then part of the funds available to make distributions to the Smith side of the family or otherwise to benefit the Smith side of the family. And distributions are being made from the APLJ Smith Trust to the Smith side of the family but not to the Woodward side of the family. In this way funds which should be available to the Wanstead Trust beneficiaries are ending up in the hands of the Smith side of the family.
[74] To the extent that this is a complaint about the use to which Wanstead Trust funds are put, that claim is one in respect of the Wanstead Trust (and raises the issues discussed above). To the extent that this is a complaint about decisions made by the trustees of the APLJ Smith Family Trust, it has to be remembered that the trustees of that trust are empowered to make distributions that benefit one side of the family over the other. Such decisions may only be challenged if the discretion is being exercised without good faith, or with improper motives or taking into account irrelevant factors. The evidence on their behalf is that they are acting in good faith and are making decisions for proper and valid reasons. Again, this is something that cannot be determined properly on a summary judgment application.
Claim for rectification
The Wanstead Trust
[75] A counterclaim for rectification of the Wanstead Trust deed is no longer pursued and therefore need not be discussed.
The APLJ Smith Family Trust
[76] The Smith family trustees counterclaim for rectification of the APLJ Family
Trust. Rectification is sought in two respects, but the one of present relevance is so
as to permit self-dealing in respect of trust property owned by the trust. Ashley
Woodward applies to strike out the rectification claim on the basis that:
(a) with Arthur Smith and Coral Smith’s deaths, adequate evidence is not
available to support the claim;
(b) there is an adequate alternative remedy, namely for the trustees to resign and an independent professional trustee to be appointed.
[77] The Smith family trustees submit that it is evident from the wording of the deed, in particular cl 2(b) and the philosophy and conduct of Arthur Smith, that self- dealing was intended under this trust. It is said that if the strictures of the self- dealing rule had been explained to Arthur Smith in 1980 when he was establishing the trust, it is almost certain that he would have wanted the trust to provide for this, to allow for appropriate flexibility and to avoid potential argument. It is noted that the trust deed permitted self-dealing in relation to Coral Smith who was a trustee and a beneficiary. It is also noted that Arthur Smith placed his confidence in Jon Smith Senior by appointing him as the trustee knowing that he was a beneficiary.
[78] A strike out application proceeds on the basis that pleaded facts can be established. In the present case, it is plausible that Arthur Smith intended that, in respect of the APLJ Smith Family Trust, Jon Smith Senior could make distributions to himself and could make advances to businesses in which he and other members of his family had an interest. Whether that intention was given effect to by the terms of the trust, or could form the basis of a claim for rectification is better determined when all the relevant evidence is available and tested in the ordinary way. I therefore decline to strike out this claim.
Limitation Act 1950
[79] The pleadings for the Smith Family trustees contend that Ashley Woodward’s claims are statute barred. Ashley Woodward says that the claims are not statute barred. He notes that the proceedings were filed in December 2011 which is within three/six years of acts or omissions that occurred on or after 31 December 2010. I do not consider this any further because the submissions for the Smith family trustees
did not explain why it was said that the claims were statute barred, when Ashley
Woodward’s claim is focussed on recent transactions.
The relief sought
[80] As set out at the outset, the relief claimed is for declarations, removal of trustees, and enquiry into losses. A number of matters have been raised by the parties as relevant to the relief that might be granted if the Smith family trustees have breached the terms of either trust by engaging in self-dealing transactions or by entering into imprudent investments or otherwise.
Section 64 of the Trustee Act 1956
[81] One of these is whether the transactions at issue could be retrospectively authorised under s 64 of the Trustee Act 1956. For Ashleigh Woodward it is submitted that s 64 does not apply as a matter of interpretation because the section is expressly subject to any contrary intention in the trust deed and it is concerned with court directions obtained in advance.30 Whether transactions could now be authorised is potentially relevant to whether the trustees should now be removed.
For other reasons (discussed below at [89] to [94]) I am not satisfied that they should be removed. It is also relevant to whether an enquiry into losses should be ordered. I am not satisfied that this relief should be ordered on this application either.
Discretion to decline relief
[82] The same response applies to the submissions that were made as to whether the Court has a discretion to decline to enforce the rule against self-dealing.31 This would need to be considered further if declarations were to be made or enquiries into loss ordered. However I am not satisfied that it is appropriate to order the relief that
Ashleigh Woodward seeks on this summary judgment application.
30 Counsel for Ashleigh Woodward submits that the comment in Dever v Knobloch, above n 26, that s 64 of the Trustee Act might be available to authorise challenged decisions if they were reasonable decisions is not correct and the Judge was not referred to the relevant authorities. He also submits that although Underhill and Hayton acknowledges in exceptional circumstances a disposition of trust property to a trustee might be sanctioned by the courts, this is said to be unclear and not the law in New Zealand: David J Hayton (ed) Underhill and Hayton Law Relating to Trusts and Trustees (16th ed, LexisNexis, London, 2003).
31 The submissions referred to Chellew v Excell [2009] 1 NZLR 711 (HC) and United Kingdom authorities.
Section 73
[83] Reference was also made to the provisions in the trust deed that protect the trustees from liability, and similarly to s 73 of the Trustee Act 1956. Counsel for Ashley Woodward submitted that neither these provisions in the trust deed nor s 73 assists the Smith family trustees here. That is because he submits that, to the extent that Mr Smith has failed to get trust income in, this is an omission to act.32 He says that to the extent that he was acting to his own advantage he was not purporting to act as a trustee. He says that no reasonable trustee could have thought that what he did was for the benefit of the beneficiaries.33 These are not matters that are relevant to whether the trustees should be removed for acting contrary to the provisions of the trust. They might be relevant to whether an inquiry into losses should be ordered but that is not relief I consider to be appropriate on this application in any event.
Removal of trustees dependent on all the circumstances
[84] On behalf of the Smith family trustees it is said that the removal of trustees on a summary judgment is not appropriate except in the clearest of cases. This is because the Court’s jurisdiction to remove trustees (being the persons in whom the settlor has reposed confidence) is a “delicate” one, “dependent on details often of
great nicety” and where the circumstances of the case must be considered carefully.34
The Court must be guided by the welfare of the trust estate as a whole35 and the judgment to be made about this is “largely discretionary”36. A balanced assessment of all the facts is therefore required. That this assessment ordinarily cannot be done on a summary judgment application (where the matter proceeds on the basis of
affidavit evidence not subject to cross examination) is said to be borne out by the
32 Counsel for Ashley Woodward relied on Kapa-Watene v Latimer HC Whangarei CIV-2009-488-
504, 27 July 2011.
33 Walker v Stones [2000] 4 All ER 412 (CA). The situation is said to be similar to that in Spencer v Spencer [2012] 3 NZLR 229 (HC).
34 Letterstedt v Broers (1884) 9 App Cas 371 (PC).
35 Letterstedt v Broers, above n 34; Guazzini v Pateson (1918) 18 SR (NSW) 275 (NSWSC);
Miller v Cameron (1936) 54 CLR 572.
36 Miller v Cameron, above n 35.
absence of any examples in the New Zealand cases where removal of trustees has occurred on a summary basis.37
[85] In the present case, relevant facts that need to be properly explored are said to include:
(a) the extent of the close working relationship between father (Arthur Smith) and son (Jon Smith Senior) and the confidence reposed by Arthur Smith in Jon Smith Senior by giving him the sole power of appointment, and relying on him to carry on the businesses, trusts and partnerships in accordance with Arthur Smith’s philosophy;
(b)the extent of the contributions by Elaine Woodward to the group and the significance of that to the trustee decision making;
(c) the fact that Jon Smith Senior did not receive any distributions from the APLJ Smith Family Trust between 1980 and 2008, which is said to put payments received by him since then in proper context.
(d)the hostilities between Jon Smith Senior and Elaine Woodward, but not as between the grandchildren.
[86] I agree that these factors are potentially relevant. It may well be that the Smith family trustees have breached the trust and their duties, but their evidence is that they have operated the trusts as Arthur Smith did when he was alive and that they acted in good faith and on the basis of legal and accounting advice. That evidence cannot be properly tested on a summary judgment application. But if that evidence is correct, that raises the possibility that the trustees might be permitted to continue their role in light of and in accordance with any declaratory relief that might
be ordered (following a substantive hearing).
37 Scott v Scott [2012] WTLR 1439; Claydon v Symonds [2012] NZHC 2501; Robertson v Henderson [2012] NZHC 1077; De la Rossi v Pilkington [2012] NZHC 1826; Time v Fagalilo HC Wellington CIV-2008-485-540 9 March 2010.
Need for removal?
[87] Counsel for the Smith family trustees submits that there is nothing before the Court which indicates that there is any danger of dissipation or inappropriate use of trust assets. He points out that everything is being properly recorded and all property movements are identifiable and traceable. He submits that action is not required to “stop the rot” as counsel for Ashley Woodward contends. This is supported by:
(a) an undertaking from Jon Smith Senior that “there will be no material change in either trust pending further order of the Court”. This undertaking was subject to reserving the right to pay normal outgoings (which was explained at the hearing as including power, rates, insurance or routine maintenance) (as though there is now a dispute between Ashleigh Woodward and the Smith trustee defendants as to the scope of this undertaking – refer above at [3](f));
(b) proposing that the Wanstead Trust could acquire an interest in the
Brisbane property acquired by the Napier Road Trust;
(c) advising that Jon Smith Senior would be happy to advance funds from the Wanstead to enable a house to be completed (which is the subject of evidence from Elaine Woodward).
[88] For the Smith family trustees it is also said that the group as a whole is operating profitably. Ashley Woodward accepts that the Emerson Street Properties Partnership, the Smith Trust Partnership, the APLJ Smith Family Trust and the Wanstead Trust are profitable. He does not have information about the Smith Property Partnership to know whether that partnership is operating profitably. It seems to be agreed that the entities making losses are the Ashley Woodward Partnership (apparently a “small” loss) and the Hawkhurst Vineyard Partnership and the Townlodge Motel Partnership (which are also making losses, though they are also “small” losses according to Jon Smith Senior).
My assessment
[89] In my view it is not appropriate to order the summary removal of the Smith family trustees from the APLJ Smith Family Trust nor of Jon Smith Senior as a trustee from the Wanstead Trust at this stage. It does appear that advances are being made from the Wanstead Trust to entities in which Jon Smith Senior has an interest which may breach the rule against self-dealing, but it also appears that this may have
been how the Wanstead Trust operated when Arthur and Coral Smith were alive.38 If
that is so then the advances may well have been made in good faith and that, together with Arthur Smith’s clear wish that Jon Smith Senior be involved as a trustee, make it inappropriate to order his removal on a summary basis.
[90] In any event it is by no means clear on the evidence that the advances are not ultimately to the benefit of the Wanstead Trust. That depends upon the profitability of the entities in which the funds are being used and whether and how returns from those entities are accounted for. The evidence about this was not clear. If the advances are ultimately of benefit to the Wanstead Trust, that is also relevant to whether the advances have been made in good faith and in the best interests of the beneficiaries and therefore whether it is necessary to remove Jon Smith Senior as a Wanstead Trust trustee rather than to permit him to continue in accordance with the Court’s findings at a substantive hearing. The advances are recorded in the financial accounts. There is no suggestion that any advances that are of concern to Ashley Woodward are at risk and not recoverable should he establish at a substantive hearing that they were made in breach of trust or fiduciary duties. This too counts against ordering the relief sought on a summary basis.
[91] If Wanstead funds have in part or in whole funded the Brisbane property, then it is difficult to see how that could be an investment authorised by the Wanstead Trust, when it holds no interest in that property. The evidence about this is not clear.
Jon Smith Senior has proposed that the Wanstead Trust could acquire an interest in
38 Jon Smith Senior says that many properties purchased while Arthur and Carol Smith were alive were funded using inter-family entity interest-free advances. For example, the development of the Townlodge Motel between 1978 and 1981, the purchase of four shops at 329 Heretaunga Street around 1983, the purchase of a rural property at 402 Napier Road in 1987 and the development of a vineyard and dwelling on that property, and the purchase of 389 Gloucester Street, Taradale.
the property. I do not know whether this will be of interest to Ashley Woodward and whether it will help restore the imbalance he perceives there to be as between the Smith side of the family and the Woodward side of the family. I therefore do no more than note that this offer has been made and that this is a neutral factor in whether relief should be ordered at this point.
[92] More generally, if Wanstead funds are in reality funding distributions to the Smith side of the family (via advances from the Wanstead Trust to other entities, which in turn make advances to the APLJ Smith Family Trust, which then fund distributions to the Smith side of the family) that would be contrary to the intention of the Wanstead Trust, as a trust for the benefit of Ashley Woodward and his children/grandchildren. Whether this is occurring and how it is occurring needs to be the subject of expert evidence (and it may be that it is covered by the expert report which was not part of the evidence for the purposes of the summary judgment application). If that is what such expert evidence demonstrated that would raise questions as to whether the Wanstead Trust advances to the entities were authorised by the trust and whether such advances were prudent and made in good faith. It would also be important to know the terms on which those entities operate (that is, whether they permit Wanstead Trust advances made to those entities to be used to make advances to the Smith side of the family). The terms on which those entities operate are not before me. Again the lack of clarity about the facts makes summary relief inappropriate.
[93] It is apparent that there is long-standing family disharmony as between Jon Smith Senior and Elaine Woodward, as a result of which the Woodward side of the family does not trust Jon Smith Senior to be fair to them. The “group” approach which Jon Smith Senior has pursued is seen by Ashley Woodward to be a mechanism by which trust funds for his benefit and the benefit of his children/grandchildren are improperly diverted to the Smith side of the family. If John Smith Senior’s recent approach has been to favour the Smith side of the family over the Woodward side of the family in a way that did not occur when Arthur Smith was alive, disharmony will likely continue. Likely ongoing disharmony suggests that a change in trustees is desirable. But whether all or some of the Smith family trustees should continue as trustees of the APLJ Smith Family Trust (with or without an independent trustee)
depends in my view at least partly on whether the trustees have operated that trust in good faith and in accordance with how it was operating when Arthur Smith was alive. It seems less likely in my view that Jon Smith Senior should continue to be a trustee of the Wanstead Trust when the beneficiaries no longer trust him. However these are decisions that will depend on a better understanding of the facts than I have been able to gain on this summary judgment application.
[94] Therefore, while I consider it is not appropriate to order specific relief on this application, a change in the trustees is something that the parties (and their advisors) should give serious consideration to. It is unfortunate that the agreement to have an independent expert review the trusts and make recommendations has not achieved a resolution. Resolution of the matter in accordance with the recommendations of an agreed independent expert (perhaps with a process where the parties can make submissions to the expert before final recommendations are made) seems a better course than (a) continuing to operate the trusts in the manner they have been and (b) continuing with this litigation (with the attendant costs, delay, uncertainty and likely family tension that will involve).
Result
[95] The application for summary judgment is dismissed. The strike out application is dismissed. The application to adduce evidence as to the proposed sale of the Havelock North property is granted, but did not alter my assessment of the summary judgment application (Jon Smith Senior having made it clear that any sale would be subject to the Court’s approval). A telephone conference is to be convened to enable directions to be made in respect of the interlocutory application for interim orders and for other timetabling directions for this proceeding. Costs are reserved.
Mallon J
Solicitors:
Gresson Grayson, Hastings, for the plaintiff
Appendix 1 : APLJ Smith Family Trust
[1] Clause 1 of the trust deed empowered the trustees “to invest the Trust Fund” in the manner authorised in the trust deed. Clause 2 of the trust deed concerned the income from the trust assets. It empowered the trustees as follows:
2. TO stand possessed of the net annual income arising therefrom upon the following trusts:-
(a) To set aside such part or parts of the net annual income arising from the Trust Fund as the Trustees in their absolute discretion shall determine in or towards the creation of a capital fund either for discharging any liabilities of the Trust Fund including any mortgages or other charges thereon or on any part or parts thereof or for paying the premiums of any life insurance policy on the life of any person or persons as the Trustees in their absolute and uncontrolled discretion shall think fit or for the maintenance repair improvement or development of any assets forming part of the Trust Fund or for the accumulation of a capital sum in the interests of the beneficiaries for eventual distribution as part of the capital of the Trust Fund or for any other purpose which the Trustees in their absolute discretion shall decide is or may be for the benefit or betterment of all or any part of the Trust Fund or any beneficiary hereunder and any capital fund so created shall become part of the capital of the Trust Fund and shall follow the disposition thereof.
(b) Subject to 2(a) hereof until the date of distribution hereinafter defined to pay or apply such part or parts if any as the Trustees determine of the balance of the said net annual income so that it vests annually in the hands of the recipients in or towards the maintenance education advancement or howsoever they in their absolute discretion consider is for the benefit of such of them the said ARTHUR PERCY LIONEL JOHN SMITH’s wife for the time being, children and grandchildren and the wife or widow of any of the children of the said ARTHUR PERCY LIONEL JOHN SMITH in such shares and proportions whether exclusively of any one or more of them or not and whether partially or otherwise as the Trustees shall before the 31st day of March in each year appoint.
(c) Subject to 2(a) hereof and 2(b) hereof and in default of appointment and insofar as any such appointment shall not extend then the income shall be accumulated and added to the capital of the Trust Fund.
[2] Clause 3 of the trust deed concerned distribution of the capital of the trust fund. The September 1990 deed was made in accordance with this provision.
[3] Clause 6 provided:
6. THE Trustees in addition to those conferred on them by law shall have and may exercise all or any of the following powers authorities and discretions, namely:-
...
(c) Lend any monies forming part of the Trust Fund to any limited liability Company or to any person or persons with or without interest or the taking of security and generally on such terms as the Trustees shall think fit without being liable for any loss that may occur through such lending.
(d) Borrow such sums as they shall in their absolute discretion think fit upon the security of any real or on a personal property forming part of the Trust Fund at such rates of interest and upon such terms as to repayment as the Trustees shall think fit and to renew or vary such loans in the discretion of the Trustees and so that no Mortgagee shall be concerned to enquire as to the necessity regularity or propriety of the exercise of the powers hereby conferred or in any way to see to the application of monies so advanced.
(e) Retain as authorised investments of the Trust Fund any investments coming into their hands as part of the Trust Fund notwithstanding that such investments may be of a hazardous terminable or wasting nature.
...
(j) Carry on any business (whether in partnership or otherwise) with further power to use and apply any part of the Trust Fund as capital in such business and with further power to employ or join in employing in such business all such managers agents servants clerks workmen and others as the Trustees shall from time to time think fit AND it is hereby directed that the Trustees shall be absolutely indemnified by and out of the Trust Fund for and in respect of any loss or liability which they may sustain or incur by reason of their so carrying on any such business or businesses as aforesaid AND it is also directed that if in any year losses shall be sustained by the Trustees in carrying on such business then and in every such year such losses shall (but subject always however in the case of a partnership business to the terms and conditions contained in any agreement or articles affecting the same) be charged to income or if the Trustees shall in their absolute discretion think fit to capital and such losses if charged to capital (subject as aforesaid) may in the absolute discretion of the Trustees be recouped to such capital out of profits made by the Trustees in any subsequent year or years in carrying on such business.
...
(q) Notwithstanding anything to the contrary hereinbefore contained the Trustees in their absolute discretion may hold any part or parts of the income to which any beneficiary or beneficiaries may be entitled under the provisions of this Deed to the credit of such beneficiary or beneficiaries without being required to pay such income to the beneficiary or beneficiaries concerned to accumulate with or without any allowance or provision for interest on such accumulation for any period or periods not being beyond the
date of distribution defined AND IT IS HEREBY DECLARED that no such accumulation shall be construed as defeating the vested right of any beneficiary in any such income whether such vesting has arisen through the appointment of income by the Trustees or through operation of this Deed in default of such appointment being made.
(r) Generally in respect of these presents to exercise the same powers as they might do if absolute owners of the Trust Fund and the powers conferred by this Clause shall be in no ways limited or restricted by reference to or inference from the terms of any other clauses and without in any way limiting any other power.
...
(t) Employ and pay any person firm company or corporation to do any act of whatever nature relating to the trusts hereof including the receipt and payment of money without being liable for loss incurred thereby and generally to delegate responsibility and control to any one or more of the Trustees or any person firm company or corporation as they in their absolute and uncontrolled discretion think fit including any bank account.
(u) No Trustee hereof shall be liable for any loss not attributable to his or her dishonesty or to the wilful commission or omission by him or her of any act known by him or her to be a breach of trust and in particular no Trustee shall be bound to take any proceedings against a co-Trustee for any breach or alleged breach of trust by such co-Trustee.
[4] Clause 7 provided for the appointment of new and additional trustees.
Appendix 2 : Wanstead Trust
[1] The preamble of the Wanstead Trust provided:
WHEREAS
A. The Settlor desires to make provision for his grandson ASHLEY ERIC WOODWARD in the manner set out in this Deed.
...
E. The Settlor desires the Trustee to have the most absolute discretion possible in relation to the administration of the Trust Fund and in the distribution of the capital and income of the Trust Fund.
[2] The interpretation provisions included the following:
1.6 the expression “as the Trustee thinks fit” and “the Trustee as it thinks fit” shall give the Trustee the widest and most absolute and unexaminable discretion including where applicable the power to prefer one or other Beneficiary to the total exclusion of any other or others of them;
...
[3] As to income the trust deed provided:
PART 2: INCOME
SUBJECT to Clause 5 the Trustees shall during the Income Period hold the
Trust Fund UPON TRUST as follows:
2.1 To apply the whole or any part of the income arising from the Trust Fund in any Financial Year to any one beneficiary or among or between the Beneficiaries in all respects as the Trustee thinks fit as follows-
(a) By paying so much of the income as the Trustee thinks fit to any Beneficiary or to a bank account in the name of any such Beneficiary ...
(b) By paying to the parent or guardian of any Beneficiary to be applied for the maintenance education advancement or benefit in any way whatsoever of that Beneficiary ...
(c) By investing so much of the income as the Trustee thinks fit on behalf of any Beneficiary ...
2.2 Notwithstanding the provisions of Clause 2.1 the Trustee may accumulate any income not otherwise applied pursuant to sub-clauses (a), (b) or (c) of Clause 2.1 by investing the same and the resulting income therefrom and by holding the accumulations as an accretion to the Trust
Fund but with power nevertheless at any time or times and from time to time to resort to accumulations as if they were current income.
2.3 Notwithstanding the provisions of Section 40 of the Trustee Act
1956 or any other provision or rule of law to the contrary now in being or enacted thereafter the Trustees shall be under no obligation to pay interest on
any funds held or appropriated to or accumulated for the benefit of any
beneficiary be the funds income or capital and the entitlement thereto vested or contingent.
[4] The trust deed contained the following powers and discretions:
PART 6: POWERS OF THE TRUSTEE
THE Trustee shall have the following absolute powers and discretions which it may exercise either alone or jointly with any other person or persons:-
6.1 Notwithstanding that the Trust Fund consists of trust moneys, to invest the same and deal with and manage and transpose and realise such investments entirely as it thinks fit and with such powers in all respects as if the Trustee were the sole absolute owner thereof and the Trustee shall not be accountable in any way whatsoever for any loss arising out of the making of any investment or out of the failure to realise any investment or out of its management of any investment.
...
6.4 To borrow, to raise or concur in raising from any person including a trustee or trustees hereof with or without security any money which the Trustee thinks fit for any purpose in relation to the execution of the trusts or powers conferred on the Trustee by this Deed by mortgaging or charging with or without a power of sale all or any part of the Trust Fund.
6.5 To lend all or part of the Trust Fund on such terms and conditions with or without interest and with or without security as the Trustee thinks fit to any company or companies person or persons including any Beneficiary.
...
6.8 (c) To leave the entire management of such business to any partner therein and to renew partnerships and generally to act in all matters relating to such business or businesses as if it were beneficially entitled thereto and without responsibility for loss.
...
6.13 To acquire any property whether movable or immovable upon such terms and conditions as the Trustee shall agree to and to hold such property without considering the question of its sale or realisation for such periods as the Trustee thinks fit without being responsible for loss or being concerned to obtain a better return therefrom if such property were sold or realised.
...
6.27 To employ and pay any person firm Company or Corporation to do any act of whatever nature relating to the trusts hereof including the receipt and payment of money without being liable for loss incurred thereby and generally to delegate responsibility and control to any one or more of the Trustees or any person firm or Company or Corporation as they in their absolute and uncontrolled discretion think fit.
[5] The trust deed contained the following provision as to trustee liability:
7.1 WHILE purporting to act in the execution of the Trusts and powers hereof no Trustee shall be liable for any loss not attributable to its his or her own wilful neglect or dishonesty it being the intention of the Settlor that the Trustee shall have the widest possible powers and discretions in the investment and management of the Trust Fund and in particular no Trustee shall be bound to take any proceedings against a Co-Trustee for any breach or alleged breach of trust by such Co-Trustee.
[6] The trust deed also provided:
10.4 No Trustee shall be barred in any way from dealing with the Trust and the Trustee shall have the same powers of contract despite the personal involvement of the Trustee (provided the Trustee is the Settlor or a Beneficiary) he would have had if he was neither a Trustee nor a Beneficiary.
3
1