Young v Wadman
[2024] NZHC 3571
•27 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-721
[2024] NZHC 3571
UNDER the Trusts Act 2019, the inherent jurisdiction of the High Court to supervise trusts and Part 18 of the High Court Rules 2016 IN THE MATTER OF
The Maungaiti Commercial Trust
ON THE APPLICATION OF
MAUNGAITI TRUSTEE COMPANY LIMITED
Plaintiff
Hearing: On the papers Counsel:
G M Coumbe KC, F C Monteiro and K M Bates as counsel for the Plaintiff, Maungaiti Ltd and Margaret Brown
D H McLellan KC and J W H Little as counsel for Natalie Brown and Julia Dobson
L Farmer, H van Schreven and J D Kaye for Gavin BrownG M Sandelin and G J Angus as counsel for Tiger Brown and Kobe Investments Ltd
V Crawshaw KC, M C Harris and Z A Brentnall as counsel for Rong KangN L Walker and F G Wilson as counsel for Perpetual Trust Ltd S L Robertson KC as counsel for the minor and unborn beneficiaries for the Maungaiti Commercial Trust
Judgment:
27 November 2024
Reissued:
29 November 2024
JUDGMENT OF LANG J
[on application for orders approving settlement]
This judgment was delivered by Justice Lang On 27 November 2024 at 3.30 pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
RE THE MAUNGAITI COMMERCIAL TRUST [2024] NZHC 3571 [27 November 2024]
[1] This proceeding relates to a discretionary trust known as the Maungaiti Commercial Trust (the Trust). The Trust was settled by Mr Alexander Gavin Brown (Alex) under a Deed of Trust dated 29 June 2017. The Trust is the sole shareholder of Maungaiti Ltd (Maungaiti), through which it holds assets for the beneficiaries.
[2] Alex died on 30 November 2019. Disputes subsequently arose between members of his family about the ownership and division of assets belonging to him, Maungaiti and the Trust. This resulted in litigation being issued both in New Zealand and overseas. The disputes relating to Maungaiti and the Trust were largely resolved when all but one member of the family entered into a deed of settlement on or about 7 March 2024. This led to the present proceeding, in which the corporate trustee of the Trust, Maungaiti Trustee Company Ltd (the Trustee), sought orders approving the proposed settlement notwithstanding the fact that one of Alex’s sons, Mr Gavin Brown, was not a party to it.
[3] Gavin now consents to the orders the Trustee seeks. I have been asked to make orders approving the settlement as a matter of urgency because the family wish the Trust and Maungaiti to begin implementing it within the next two weeks.
Background
[4] Alex was survived by his widow, Ms Rong Kang (Rong). In addition, he was survived by their son Tiger. He was also survived by the three children from his first marriage, namely Natalie, Gavin and Julia. Natalie and Julia each have two children, all of whom are minors. Neither Gavin nor Tiger currently has any children.
[5] Natalie, Gavin, Julia and Tiger are the final beneficiaries named in the Deed of Trust. They are also discretionary beneficiaries. Alex’s sister, Margaret, is a discretionary beneficiary and she is also the sole director of both Maungaiti and the Trustee. The remaining discretionary beneficiaries comprise any children or grandchildren of the final beneficiaries.
[6] The vesting date of the Trust was 29 June 2097, being 80 years after it was settled. However, the Deed of Trust gave the Trustee the power to bring the vesting date forward, and recorded Alex’s wish that the Trustee consider bringing forward the
vesting date to five years after the date of Alex’s death. That date is now 30 November 2024.
[7] The principal asset held by the Trust comprises its shareholding in Maungaiti. Maungaiti’s assets comprise cash held on term deposit together with a commercial property that it owns in central Auckland. The assets of the Trust are currently valued at just over NZD 100,000,000.
[8] Maungaiti derived its assets from Alex’s extraordinary foresight and business acumen. From and after the 1960’s he developed businesses in varied industries across Australia and Asia. The most successful of these flowed from an involvement in zirconium mineral conversion, which he undertook using an ASX-listed company called Astron Ltd (subsequently Astron Corporation Ltd) (Astron). Astron became a leading player in the zirconium market, specialising in the mining, processing and supply of zircon and titanium mineral sands. The sale of a downstream zirconia mineral business in China enabled Astron to return AUD 91,800,000 to its shareholders in May 2014.
[9] Alex lived in China for considerable periods during the 1990s whilst he developed Astron’s business. Whilst in China he worked with and later married Rong, who has a degree in chemical engineering. It appears to be common ground that these skills, coupled with her contacts in China and general business acumen, enabled Rong to play a major role in Astron’s success.
[10] One of the causes of the dispute between family members flowed from the way in which Alex structured the purchase by Maungaiti of two commercial properties in 2016. One of these was the property it still owns. Alex structured the purchase by gifting the sum of approximately NZD 67,500,000 to Natalie. This was recorded in a deed of gift dated 22 May 2017. On the same date, a deed of loan recorded that Natalie loaned Maungaiti the same amount. Maungaiti currently owes Natalie the principal sum of approximately NZD 62,000,000 under the deed of loan.
[11] When Alex died it appeared he had not made a will. At Gavin’s request, Perpetual Trust Ltd (Perpetual) therefore sought and obtained an order on 16 March
2021 appointing Perpetual as administrator of Alex’s estate. Matters relating to Alex’s estate were complicated in September 2021, when a document purporting to be his last will was located in Hong Kong. This named Rong as executrix. The discovery of this document led to disputes within the family as to whether Perpetual should remain as administrator of Alex’s estate. Several sets of proceedings were filed to deal with this and other issues.
[12] Relevantly for present purposes, the Trustee and Maungaiti faced competing claims by Rong and Natalie in a consolidated proceeding in this Court (the consolidated proceeding). This was scheduled to be heard in April 2025, but the fixture has now been vacated because of the proposed settlement.
[13] One aspect of the consolidated proceeding, originally commenced in the Family Court, comprised claims by Rong against the Trustee, Perpetual, Maungaiti and Natalie under the Property (Relationships) Act 1976 (PRA). Rong alleged that the transactions recorded in the deed of gift and the deed of loan were shams, and that the deed of gift (as well as Alex’s actions in procuring Natalie to advance the gifted money to Maungaiti as recorded in the deed of loan) constituted a disposition by Alex under s 44 of the PRA. Rong also contended that a transfer by Alex of shares in Maungaiti to the Trustee was a disposition caught by s 44C of the PRA. For her part, Natalie advanced a claim against Maungaiti to enforce repayment of the amount allegedly outstanding under the deed of loan, together with interest. The consolidated proceeding will be discontinued if approval is given to the deed of settlement.
[14] The family has made extensive efforts to resolve the issues in dispute. These included a lengthy mediation held in November 2022. The mediators were Mr P R Heath KC and Mr C H Toogood KC, both of whom are retired Judges of this Court. In anticipation of the mediation, the Court appointed Ms S L Robertson KC to represent Alex’s grandchildren who were minors, together with grandchildren yet to be born.
[15] The mediation was ultimately unsuccessful, but all parties other than Gavin were subsequently able to negotiate a settlement with the assistance of their respective legal advisors. The settlement was recorded in the deed of settlement that was signed
by all parties other than Gavin on or about 7 March 2024. Gavin received a copy of this document on 8 March 2024.
[16] As noted earlier, Gavin now consents to orders being made approving the deed of settlement. However, the deed remains subject to the approval or blessing of the Court.
The proposed settlement
[17] If approved, the settlement will result in the Trust making an immediate cash payment to Rong in the sum of NZD 20,000,000. Natalie, Julia and Gavin will each receive an immediate payment in the sum of NZD 10,000,000.
[18] The commercial property in central Auckland will be sold and the net sale proceeds will be distributed to Rong, Natalie and (provided the net proceeds reach a certain figure) Tiger. Maungaiti would then be liquidated and the Trust would be terminated.
[19] From her share of the net sale proceeds Natalie is obliged to pay roughly one-third to her solicitor’s trust account to hold for three months. This is to provide an opportunity for Natalie and Gavin to seek agreement on how these funds should be applied, and for Gavin to pursue his claim in respect of these funds in the absence of any agreement. The remaining funds are to be divided equally between Julia and Natalie. If Natalie’s share of the sale proceeds exceeds the amount owing under the deed of loan and her costs, the excess amount is to be divided equally between Natalie, Julia and Gavin.
[20] The deed of settlement also contains detailed provisions prescribing how a proportion of the Astron shares in which Alex had an interest are to be transferred for the benefit of Natalie and Julia’s children. Tiger has been the managing director of Astron since February 2021. Natalie and Julia have agreed that they will not challenge the Astron shares held by Kobe Investments Ltd, a company of which Tiger is the sole director and shareholder. They have also agreed to transfer to Tiger any interest they have acquired in the Astron shares.
[21] At the time of his death Alex owned several properties in New Zealand in his own name. Under the proposed settlement Natalie and Julia have agreed that, if they receive any interest in these properties, they will transfer them to Tiger. For his part Tiger, has agreed that, if he receives these properties, he will hold the equitable interest in three of the properties for Rong’s benefit.
[22] Finally, the settlement will result in Natalie and Rong discontinuing their claims in the consolidated proceeding.
Orders sought
[23]The parties now seek:
(a)An order under s 133 of the Trusts Act 2019 (the Act) confirming that it is proper and lawful for the Trustee to enter into the deed of settlement.
(b)An order under s 144(1)(c) of the Act approving the settlement. This is necessary because any settlement under the Act that is achieved other than by order of the Court must be approved by the Court where the trust in question has minor or unascertained beneficiaries.
(c)An order under s 124 of the Act approving the termination of the Trust. This is also necessary because the Trust has minor or unascertained beneficiaries.
(d)An order that the costs of the Trustee, Margaret and counsel for the minor and unborn beneficiaries be paid from the assets of the Trust.
The application for orders under s 133
Relevant principles
[24]Section 133 of the Act provides as follows:
133 Trustee may apply to court for directions
(1)A trustee may apply to the court for directions about—
(a)the trust property; or
(b)the exercise of any power or performance of any function by the trustee.
(2)The application must be served, in accordance with the rules of court, on each person interested in the application or any of them as the court thinks fit.
(3)On an application under this section, the court may give any direction it thinks fit.
(4)This section does not restrict the availability of alternative proceedings within the court’s jurisdiction, including a declaration interpreting the terms of the trust.
[25] The breadth of directions that may be given under s 66 of the Trustee Act 1956, the predecessor to s 133 of the Trusts Act, was unclear for a considerable period. However, in Re PV Trust Services Limited,1 Fitzgerald J relied on the reasoning contained in earlier English and New Zealand cases in determining that the courts in New Zealand have the power to make orders of the type sought in the present proceeding.2 She held that trustees may seek a direction under s 66 even where there is no real doubt as to the scope of the trustees’ powers and the trustees have decided how they wish to exercise them.3 One situation in which directions may be sought is where the decision in question is particularly momentous for the trust in question. In such a situation the trustees are entitled to obtain the approval, or blessing, of the Court for the action they propose to take. Gendall J adopted the same approach in Turvey v Vance.4
This case
[26] In the present case I have no hesitation in concluding that the decision by the Trustee to enter into the deed of settlement was momentous for the Trust. It will result in the vesting date for the Trust being brought forward and the Trust property being
1 Re PV Trust Services Ltd [2017] NZHC 2957.
2 Public Trustee v Cooper [1999] All ER (D) 1524, [2001] WTLR 901 (Ch) at 922–924. See also Neagle v Rimmington [2002] 3 NZLR 826 (HC) at [23]; Melville v NRMA Insurance (NZ) Ltd (2002) 1 NZTR 12-002 (HC) at [58]; Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131 at [32]; Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 (PC) at 201; and Gailey v Gordon [2003] 2 NZLR 192 (HC).
3 Re PV Trust Services Ltd, above n 1, at [54].
4 Turvey v Vance [2022] NZHC 1167 at [23].
distributed in its entirety. It will then result in the termination of the Trust. It is therefore the type of decision that is amenable to directions under s 133.
[27] In considering whether to make an order under s 133(3), the Court must determine three issues:5
(a)Has the trustee, as a matter of fact, formed the opinion the Court is asked to bless, namely that the proposed action would be in the best interests of the beneficiaries?
(b)Is the opinion one that a reasonable trustee could have properly arrived at?
(c)Is the trustees’ opinion vitiated by any conflict of interest?
[28] Margaret has provided an affidavit in which she confirms she has concluded that the proposed settlement will be in the best interests of the beneficiaries of the Trust. She explains why that is so.
[29] I am also satisfied, and largely for the reasons Margaret gives, that her decision to enter into the deed of settlement is one that a reasonable trustee could have properly reached in the circumstances of this case.
[30] First, the Trustee and Maungaiti were facing claims from Rong and Natalie that were significantly greater than the total value of Maungaiti’s assets. The Trustee has always regarded the deed of loan as evidencing a genuine transaction. As at 29 February 2024, Margaret calculated the amount owing by Maungaiti to Natalie as amounting to approximately NZD 88,000,000. It could not repay the loan because of the claims being advanced by Rong under the PRA. Margaret has received advice that Rong’s claims have substance and are complex. She has summarised the complex issues that Rong’s claims raise in her affidavit. Margaret has assessed Rong’s claims as amounting to approximately 50 per cent of the value of Maungaiti’s assets. This
5 Public Trustee v Cooper, above n 2, at 925, cited with approval in Re PV Trust Services Ltd, above n 1, at [56].
meant the total value of Maungaiti’s assets fell approximately NZD 32,000,000 short of being able to satisfy both claims.
[31] The settlement will involve Natalie charging a lesser interest rate whilst Rong has agreed to receive payments totalling approximately NZD 33,000,000. It will therefore enable both claims to be satisfied.
[32] Secondly, the settlement will enable the Trust to make immediate payments to Natalie, Julia and Gavin. Maungaiti and the Trust have not been able to make any loan repayments or substantial distributions for the last four years.
[33] Thirdly, Gavin and Natalie have never been able to resolve Gavin’s claim that he is entitled to share in the loan repayment proceeds. The settlement will result in Gavin receiving the sum of NZD 10,000,000, as well as the opportunity to pursue that claim, and any others, if he wishes to do so.
[34] Fourthly, the proposed settlement gives effect to Alex’s wish, reflected in his choice of final beneficiaries, that his children should be the primary beneficiaries of the Trust. Although Tiger is unlikely to receive any payment under the deed of settlement, he has other substantial assets available to him, including his interests in Astron. Importantly, the settlement accords with the present wishes of all the final beneficiaries, including Gavin and Tiger.
[35] Fifthly, it ensures that the needs of the remaining discretionary beneficiaries are met through the funds to be received by their parents. In addition, Tiger has agreed to transfer some of his shares in Astron to Natalie and Julia’s children. In this context it is important that Ms Robertson as counsel appointed to represent the interests of the minor and unborn beneficiaries supports the proposed settlement.
[36] Sixthly, it gives effect to Alex’s desire, reflected in the Deed of Trust, that the Trust should not be terminated for a period of five years after the date of his death. That period will have passed by the time the assets are distributed and the Trust is terminated.
[37] Finally, the proposed settlement will bring to an end the financial cost to the Trust and Maungaiti of funding the litigation currently in existence. It will also resolve many of the longstanding disputes between members of the wider family.
[38] There is no suggestion that Margaret was subject to any conflict of interest that might affect or vitiate her decision to execute the deed of settlement and implement its terms. Although she is a discretionary beneficiary of the Trust, she has never received any distribution from it and does not seek one as part of the settlement. The only recompense she receives is the salary paid to her by Maungaiti for her services as its sole director.
[39] It follows that the Trustee has satisfied me that the factors necessary to enable an order under s 133(3) to be made have been established.
The application for an order under s 144(1)(c)
[40]Section 144 provides as follows:
144ADR process for internal matter if trust has beneficiaries who are unascertained or lack capacity
(1)If a trust has any beneficiaries who are unascertained or lack capacity, then, for a matter relating to that trust that is subject to an ADR process,—
(a)the court must appoint representatives for those beneficiaries; and
(b)those representatives may agree to an ADR settlement, or agree to be bound by an arbitration agreement and any arbitral award under that agreement, on behalf of the beneficiaries who are unascertained or lack capacity; and
(c)any ADR settlement must be approved by the court.
(2)If representatives have been appointed under subsection (1) for beneficiaries who are unascertained or lack capacity,—
(a)the representatives must act in the best interests of the beneficiaries on whose behalf they have been appointed; and
(b)the court may order that a representative’s costs be paid out of the trust property; and
(c)the court may make any order that it thinks fit regarding the terms of a representative’s appointment.
(3)This section applies only to internal matters.
[41] As the wording of the section makes clear, it applies to an “ADR settlement”. This obviously means a settlement produced by an alternative dispute resolution process. The term “ADR” in this context is sufficiently wide to include a settlement reached through negotiations between the parties with the assistance of their respective counsel.6
[42] In the present case, Margaret clearly took into account the position of the grandchildren, both minor and as yet unborn, and concluded that they would be well provided for through the substantial payments their parents are to receive under the proposed settlement. In addition, they will benefit indirectly from the fact that the disputes between the wider family members have been resolved. Again, it is significant that Ms Robertson supports the application for an order being made under s 144(1)(c).
[43]Jurisdiction therefore exists to make an order under s 144(1)(c).
Application for orders under s 124
[44] The proposed settlement requires the Trust to be terminated once all the assets have been distributed. Under s 121 of the Act, a trustee is required to terminate a trust where all the beneficiaries who hold all the beneficial interest in the trust property consent to that being done and provide a written request to the trustee to that effect. In the present case, however, the fact that there are minor or unascertained beneficiaries means that the Court must approve the termination of the Trust under s 124 of the Act on behalf of those beneficiaries.
[45] For reasons already given, I am satisfied that the interests of the minor and unascertained beneficiaries will be advanced through the proposed settlement. Ms Robertson, counsel for the minor and unascertained beneficiaries, supports this aspect of the application as well.
6 Bartlett v Kirkpatrick [2024] NZHC 1923 at [21] and [35].
[46] Jurisdiction therefore exists to make an order under s 124 of the Act approving the termination of the Trust.
Conclusion
[47] I am satisfied that the Court should give its approval or blessing to the proposed settlement as embodied in the deed of settlement. I therefore make the following orders:
(a)an order under s 133 of the Act directing that it is proper and lawful for the Trustee to enter into the deed of settlement;
(b)an order approving the settlement under s 144(1)(c) of the Act;
(c)an order under s 124 of the Act approving the termination of the Trust on behalf of the minor and unborn beneficiaries once the settlement has been implemented and all trust property has been distributed; and
(d)an order that the costs of the Trustee, Margaret and counsel for the minor and unborn beneficiaries be met from the assets of the Trust.
Lang J
Solicitors/counsel:
Wilson Harle/G Coumbe KC, Auckland
Anthony Harper/D H McLellan KC/J W H Little, Barrister, Auckland L Farmer, Barrister, Auckland/Clark Boyce, Christchurch
Morris Legal/G M Sandelin, Barrister, Auckland Gilbert Walker/V Crawshaw KC, Auckland Russell McVeagh, Wellington
S L Robertson KC, Auckland
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