|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
BLENHEIM REGISTRY
CIV 2005-406-82
IN THE MATTER OF an application for directions by trustees
pursuant to s.66 of
the Trustees Act 1956
AND IN THE MATTER OF an application to remove caveat
pursuant
to s.143 of the Land Transfer Act
1952
BETWEEN JEFFREY GILBERT
PATCHETT AND
CHRISTOPHER RAYMOND LAMMAS
Applicants
AND PETER WILLIAMS
Respondent
Hearing: 30
August 2005
Appearances: Q Davies for applicants
M Hardy-Jones for interested party Helen Patchett
R Laurenson
for P and R Williams
Judgment: 5 October 2005
RESERVED JUDGMENT OF MILLER J
[1] Jeff Patchett
and Christopher Lammas are the trustees of the Mt Patriarch
Trust. They wish to sell its principal asset, a farm known as Mt Patriarch,
to Mr
Patchett. He and Helen Patchett, his wife, presently farm the property under a lease
from the trustees. It confers on them
a right to compensation for lessees'
improvements. In this proceeding, the trustees seek a direction that they sell Mt
Patriarch
to Mr Patchett at a price, established by a valuer and net of improvements,
of $710,000.
[2] Two of the beneficiaries under
the trust, Peter and Richard Williams, object
to the proposed sale, saying the valuer's estimate does not represent the true value
of
JEFFREY GILBERT PATCHETT AND CHRISTOPHER RAYMOND LAMMAS V PETER WILLIAMS HC
BLE CIV 2005-406-82 5 October 2005
Mt Patriarch
and that the proposed sale is affected by Mr Patchett's conflict of
interest as trustee, lessee, and proposed purchaser.
[3]
Peter Williams has lodged a caveat No. 6034069.1, relying on his status as a
beneficiary. The trustees seek an order that the caveat
be removed on the ground
that, as a discretionary beneficiary, he lacks a caveatable interest in the land.
Factual background
[4] Mt Patriarch is situated in the Upper Wairau Valley, an hour's drive from
Blenheim. It comprises 482 hectares and runs 3,000
stock units. It is a remote
location, but the property enjoys significant amenity values because it has 5.25 km of
frontage to the
Goulter River, which offers good fishing, and abuts the Richmond
Ranges.
[5] Waka Anderson farmed Mt Patriarch for some 50 years.
In 1982 he
established the Mt Patriarch Trust and transferred the property to it. The
beneficiaries
under the trust are his nephews Peter and Richard Williams and two
friends, Michael Puryer and Robin Smith. They are all discretionary
beneficiaries as
to capital and income during the 70-year trust period.
[6] The original trustees were Peter Radich, a solicitor,
Philip Collins, an
accountant, and Wave Williams, who was Mr Anderson's sister. Peter and Richard
are her sons. For reasons that
were not explained before me her four remaining
children, who include Helen Patchett, are not beneficiaries under the trust.
[7]
Between 1993 and 1997 the original trustees all retired. Mr Anderson, who
held the power of appointment, appointed Messrs Patchett
and Lammas in 1995.
[8] On 1 July 1998 the trustees granted Mr and Mrs Patchett a lease of Mt
Patriarch for five years with
a right to one renewal of three years. The evidence does
not establish whether the lease was renewed in 2003, but Mr Davies' instructions
are
that the Patchetts now farm Mr Patriarch under a monthly tenancy. If so they must
have failed to renew the lease. It provided
that if the lessor permitted the lessees to
remain in occupation on expiry of the term, they would do so as monthly tenants but
otherwise on the same terms so far as they are applicable to such a tenancy.
[9] Clause 31 of the lease provided that the lessees were entitled to compensation
for
improvements made to the land during the term of the lease provided the lessees
had given written notice to the lessor, within three
months of the expiry of the term,
of their desire to be compensated for improvements made to the land. The term
"improvements" was
defined to mean substantial improvements of a permanent
nature including (among other things) swamp reclamation, clearing of bush,
gorse,
broom, sweetbriar or scrub, cultivation (including clearing land for cropping and
clearing, ploughing and sowing land with
grass), planting trees or hedges, fencing,
draining, and roading. Clause 31.8 provided that "value of improvements" meant the
added
value that the improvements gave to the land at the time of valuation. There
was a mechanism for valuing improvements by means of
a trustees' valuation, with
provision for arbitration if necessary.
[10] In December 1999 Mr Anderson made a will under which
he appointed
Messrs Lammas and Patchett executors. As such they succeeded to the power of
appointment of new trustees. Under the
will Mr Anderson left a small bequest to Mr
Lammas, who describes himself as a bushman, and left the residue of his estate to
Mr
Patchett. He also expressed two wishes. The first was that the trustees give Mr
Patchett the opportunity to buy Mt Patriarch at a
price set by a registered valuer
chosen by the trustees. The second was that in exercising their discretion under the
trust, the
trustees should distribute any assets held by the trust equally among the
four discretionary beneficiaries. He recorded that Messrs
Puryer and Smith had
helped him on the property for many years and had contributed greatly by their work
to maintenance of its value.
He also recorded that they had assisted him, together
with Messrs Patchett and Lammas, in his personal care since he lost his mobility.
[11] Mr Anderson died on 19 January 2003.
[12] The purchase price was forgiven over the years but the Mt Patriarch Trust
still owes some $223,328 to the estate. Because Mr Patchett is the sole residuary
beneficiary, the trustees propose that he receive
this money as a credit against the
purchase price.
The process adopted by the trustees
[13] On 11 June 2002, Mr Michael Turner,
barrister, wrote to the beneficiaries in
his capacity as counsel to the trustees. He explained that he wrote to advise of the
trustees'
intentions for Mt Patriarch. The trustees sought the beneficiaries' views
regarding its sale to Mr Patchett. He advised "the trustees'
intention upon the sale of
the land [sic] the trust should be wound up and, after payment of usual expenses, the
assets distributed
in accordance with the deed of trust, namely equally between Peter
Williams, Richard Williams, Michael Sean Puryer and Robin Smith".
[14] In 2003 the Patchetts commissioned a valuation by Mr Stark of Alexander
Hayward Limited. He recorded that the valuation
was required to exclude
improvements made by Mr and Mrs Patchett. They were extensive, including
cultivation of numerous
paddocks and regrassing, fencing, erection of two new sets
of sheep yards and one set of cattle yards, erection of a new dwelling,
application of
fertiliser and lime, improvement of stop-banks and clearance of matagouri, gorse,
manuka and scrub. After deducting
these improvements the market value of the land
as at the date of valuation, 17 October 2003, was $620,000. The valuation did not
identify the capital value of the land (including improvements) or the value of
improvements.
[15] It is implicit in Mr Stark's
approach that the Patchetts had given (or intended
to give) notice under cl 31.1 of their intention to claim compensation for
improvements,
but the evidence before me did not establish whether that has been
done. The valuation was not conducted for the purpose of valuing
lessee's
improvements; rather, it was intended to value the land after deduction of
improvements. Nor was it a trustees' valuation as required under clause
31.1 and
envisaged in the wishes expressed in Mr Anderson's will.
[16] The Patchetts offered to buy the property at Mr Stark's
valuation.
Recognising that Mr Patchett has an interest in the proposed sale, he has taken no
active role in the trustees' decision-making
in relation to it. As the independent
trustee, Mr Lammas felt that a further valuation should be obtained to consider in
more detail
the question of improvements allowed under the lease. He instructed Mr
Curry of Hadley & Lyall Limited, who valued the property (as
at 18 March 2004) at
$820,000 after deducting improvements of $460,000. The total value of land and
improvements was $1,280,000.
[17] Because he was surprised at the substantial difference between the two
valuations, Mr Lammas instructed a third valuer,
Mr Newdick of Newdick Fraser
Limited, to complete a third valuation. Although his brief was to value the property,
Mr Newdick's report
is more accurately characterised as an umpire's report. It
seems he was not supplied with a list of improvements, and he did not
inspect the
property. Rather, he sought to reconcile the two valuations as a desk-top exercise.
In a short report dated 7 May 2004,
he recorded that the two valuers had arrived at
similar land values on a per hectare basis. The principal difference between them
was that they differed over the area of land to be treated as `light medium flats' and
the value of lessees' improvements to that
area. Mr Newdick proposed that a fair
figure probably lay somewhere near the middle of the two assessments. On that
basis of valuation,
the property's value net of lessees' improvements was assessed at
$710,000. He recorded that he had discussed the valuations with
Messrs Stark and
Curry and they agreed that $710,000 should be adopted as the sale price. On what
basis of valuation they reached
that reported consensus he did not say.
[18] There is no doubt that the Patchetts have carried out extensive improvements
during
their tenure as lessees. So the valuation of improvements is of considerable
importance. Further, there is much room for differences
of opinion with respect to
the extent and value of improvements. But the trustees did not have the benefit of a
condition assessment
of the property as at 1998, and there is no evidence that they
sought independent verification of the improvements. They
did invite the
beneficiaries to attend when Mr Newdick viewed the property for purposes of his
valuation, but he elected not to inspect
it. It appears that Mr Stark did refer to 1998
photographs, while Mr Curry had Mr Patchett present when the property was
inspected.
None of the three valuers appears to have addressed himself to the
question whether the improvements claimed were substantial or
whether, having
regard to the lessees' good husbandry obligations, they were improvements at all.
Nor is it apparent that they
valued the improvements by considering expressly the
extent to which they gave added value to the land at the time of valuation.
[19] Mr Turner invited the beneficiaries to assent to the Newdick assessment.
Messrs Puryer and Smith have done so. Peter and
Richard Williams instructed
Harkness Peterson, solicitors, who urged the trustees to revisit the valuations, saying
that it was not
clear that the valuers had correctly approached the question of lessees'
improvements. They also lodged the caveat under which Peter
Williams claimed an
interest in the land as beneficiary.
[20] On 15 June 2004 Mr Turner wrote to Mr Newdick, suggesting that
in light of
Harkness Petersons' comments, the appropriate approach would involve
consideration of the terms of the lease,
an assessment as to improvements made
during the lease, and assessment as to whether such improvements represented work
that a lessee
would be required to undertake in fulfilment of the lease or not. He
suggested that Mr Newdick should contact the Williams through their solicitor.
[21] On 21 June Mr
Newdick replied that little would be gained by his inspecting
the property since Mr Patchett advised that there had already been
seven valuations.
That observation missed Mr Turner's point, since there is no suggestion that the
previous valuations addressed
the value of improvements as defined by the lease. He
added that Mr Stark viewed the property in 1998 so his valuation probably carried
the most weight. He explained that after going through the reports he had
endeavoured to come up with a compromise assessment.
He had discussed the
solicitors' letter with Mr Stark and Mr Curry and they agreed that his assessment
was a fair and reasonable
compromise. Accordingly, he did not propose to take any
further action.
[22] By letter of 28 June, Harkness Peterson expanded
upon their concerns,
pointing out that lessees' improvements were defined to mean substantial
improvements and the value of improvements
meant the added value that the
improvements gave to the land. There were obligations to keep buildings, fences,
ditches, bridges,
stockyards, gates and things on the land in good repair and
condition, and to top-dress pastures. Such maintenance was not to be
taken into
account as lessees' improvements. They expanded on their criticisms of the
valuations, and pointed out that the
Stark and Curry valuations differed in their
assessment of the area to be treated as medium light flats and the value of
improvements
to that area. They suggested that in light of the significant differences
it was not good enough for Mr Newdick to rely on the two
reports and adopt a figure
somewhere near the middle. A responsible valuer ought to have made further
inquiries as to the appropriateness
of the figures used and then formed an
independent assessment. They suggested that Mr Curry be asked to reconsider his
valuation,
and that he should inspect the farm in the presence of Mr Peter Williams
or someone he nominated who was familiar with it before
July 1998.
[23] Mr Turner wrote again to Mr Newdick on 12 July 2004, thanking him for his
letter of 21 June but advising that
"it does not assist matters." He enclosed a copy of
the letter of 28 June from Harkness Peterson and advised that Mr Lammas had
instructed
him to ask Mr Newdick to undertake a comprehensive valuation. He
added that he would be overseas for some time. In the meantime,
Murray Hunt of
Gascoigne Wicks would look after the file.
[24] There is no evidence that Mr Newdick responded to the request
for a further
valuation. On the contrary, Gascoigne Wicks wrote to Harkness Peterson on 14
October 2004, saying that Mr Lammas' view
was that no further purpose would be
served by additional valuations. Mr Newdick considered that he had done as much
as practicable
in the circumstances, and Mr Lammas proposed to proceed on the
basis of Mr Newdick's assessment. He required that the caveat be removed.
[25] The trustees still propose to sell Mt Patriarch at the Newdick estimate of
$710,000. The Patchetts accept that figure. The
evidence suggests the value of the
property has increased since the two valuations were carried out. There is a letter of
5 October
2004 from Mr Blick of Wrightson Real Estate, who said he is familiar
with the property. He noted that a well-known property 8km further
up the river sold
to an American buyer for $2m and suggested that when its amenity values are taken
into account Mt Patriarch could
be worth between $1.4-1.6m to such a buyer. Mr
Lammas accepts that the market is buoyant. But his stance is that it would be unfair
to Mr Patchett to re-value the property, since in his view the delay in completing the
sale is attributable to the two beneficiaries'
insistence on the trustees bringing the
present application.
The trustees' application
[26] The application is brought under
s.143 of the Land Transfer Act 1952 and
s.66 of the Trustee Act 1956. The trustees seek a direction that they sell Mt Patriarch
at a price set by the Newdick valuation
"as in doing so the trustees will be acting in
accordance with s.14(6) and s.28 of the Trustee Act 1956 and otherwise will not be
acting in breach of trust". They also seek an order for removal of the caveat. The
application for directions is said to be brought
on the basis that the trustees seek the
Court's guidance because the sale is to one of the trustees and two of the
discretionary
beneficiaries have raised concerns.
[27] Mr Davies also invited me to assist the trustees, in the event that I am unable
to
endorse the proposed sale, by giving directions as to the process they ought to
follow.
[28] Mr Hardy-Jones appeared by leave
for Helen Patchett, perhaps inadvisedly.
He properly volunteered that he was representing the personal interests of Mr and
Mrs Patchett,
neither of whom is a beneficiary under the trust deed, and his
submissions inevitably tended to highlight Mr Patchett's conflict
of interest. He
sought to persuade me that the trustees and the lessees have settled upon the value of
lessees' improvements, and
that the resulting figure is reflected in the Newdick
estimate.
[29] Mr Laurenson appeared for Peter and Richard Williams
to oppose the
trustees' application, substantially on the grounds outlined in the Harkness Peterson
correspondence.
Does the trust
deed permit a trustee to acquire trust property?
[30] It is an inflexible equitable rule that a person in a fiduciary position
may not
put himself in a position where his interest and duty conflict: Bray v Ford [1896]
AC 44, Collinge v Kyd [2005] 1 NZLR 847 at [54]. In Aberdeen Railway Company
v Blaikie Brothers [1854] 2 ER Rep 1281, 1286 [1843-60] All ER 249, 252 Lord
Cranworth LJ held:
... and it is a rule of universal application that no-one having such duties to
discharge
shall be allowed to enter into any engagements in which he has or
can have a personal interest conflicting or which possibly
may conflict with
the interests of those he is bound to protect.
[31] The question whether interest and duty possibly may
conflict is assessed
objectively. In Boardman v Phipps [1966] UKHL 2; [1966] 3 All ER 721, Lord Upjohn held that the
phrase "possibly may conflict" means that the reasonable man looking at the relevant
facts and circumstances
of the particular case would think that there was a real
sensible possibility of conflict. It is immaterial that the transaction
may be for full
value: Tito v Waddell (No.2) [1977] 3 All ER 129.
[32] That there is a conflict of interest and duty in this case cannot be doubted. As
trustee, Mr Patchett's duty is to act in
the interests of the beneficiaries, which in this
case means seeking the best price that he can for Mt Patriarch: Buttle v Saunders
[1950] 2 All ER 193, 195. In his personal capacity, his interest lies in having the
trustees offer the property to him at valuation, preferably a valuation
that takes a
conservative view of the value of the land and a generous view of the value of
improvements. In saying that I offer
no reflections on his integrity. Rather, the
point is that his own economic incentives are in conflict with his duty to
his
beneficiaries. I observe that Mr Patchett commissioned the Alexander Hayward
valuation and offered to purchase the farm at the
assessed value of $620,000. It was
Mr Lammas who insisted on obtaining a second valuation.
[33] However, it is well established
that a trustee may deal with the trust property
where the instrument creating the trust expressly authorises it. Whether that is
so is a
matter of construction of the instrument: Re Beatty's Will Trusts [1990] 3 All ER
844. When construing the instrument, the Court seeks to ascertain the settlor's
intention: Re Hayes' Will Trusts [1971] 2 All ER 341.
[34] Accordingly, the question is whether the trust deed authorised such dealings.
The deed did not expressly contemplate the
present transaction. At that time the
trustees were two professional advisors, Mr Radich and Mr Collins, and Mrs
Williams. But clause
6(b) provided that the trustees had the power:
To sell all or any part of the real or personal property or interest therein
comprising the Trust Fund and/or income thereof or any part thereof at such
price and on such terms and subject to
such conditions as they in their
absolute discretion think fit with power to allow the whole or any part of the
purchase
money to remain on mortgage of the property sold.
[35] And Clause 11 provided:
The trustees and each of them shall be
entitled to act hereunder and to
exercise the powers hereby conferred upon them and to contract with the
Trustees in
their his or her personal or other capacity and otherwise deal with
the Trustees in the same manner and to the same extent
as if they he or she
had not been appointed Trustees notwithstanding that any one or more of
them in his or her personal
capacity or as a director of or shareholder in any
company or as Trustee of any other Trust or otherwise howsoever may be
owner of or interested in or in anyway concerned or associated with any
property or interest therein or other matter
or thing whatsoever which as
Trustee hereof they propose to acquire or dispose of or in anyway deal with
and notwithstanding
that their his or her interests or duty in any particular
matter or matters may conflict with their his or her duty to the
Trust Fund
and/or income thereof or the beneficiaries herein.
[36] Mr Anderson subsequently appointed Mr Patchett as trustee,
and it must be
assumed that he approved of the trustees' decision to lease Mt Patriarch to Mr and
Mrs Patchett in 1998. And in 1999
Mr Anderson expressed the wish in his will that
the trustees should offer Mr Patchett the opportunity to purchase Mt Patriarch at
valuation. Accordingly, there is clear evidence, extrinsic to the trust deed, of the
settlor's wish to allow Mr Patchett qua trustee
to purchase the trust property.
[37] It is not necessary to consider whether such evidence is admissible to
construe the deed,
however. Mr Laurenson accepted that clause 11 of the trust deed
allowed Mr Patchett to acquire the property. But he submitted that
clause 11 does
not qualify Mr Patchett's obligations not to profit from his trusteeship and to secure
for the beneficiaries the best
price reasonably obtainable. I accept the first of these
submissions. The second requires the qualification that the trustees'
duty rather
requires that they seek the best price reasonably obtainable and that, as lay trustees,
they use such diligence and care
as people of ordinary purchase and vigilance would
use in the management of their own affairs: Kilsby v Kilsby unreported,
HC
Palmerston North, CP102/92, Neazor J, 20 December 1995. I emphasise that the
trustees' duty in this case is not complicated by
any conflicting duty to Mr or Mrs
Patchett, since neither is a beneficiary, and it is common ground that the property
ought to be
sold.
The roles of the Court and the trustees under s66
[38] In Neagle v Rimmington [2002] 3 NZLR 826, Paterson J held at [23]:
The scope of s 66 and equivalent Australian sections is to give to the trustee
a right to
seek the opinion, advice or direction of the Court on any question
respecting the management or administration of the trust
property. Provided
that the trustee acts in accordance with the advice or directions and that the
relevant facts are
substantially as submitted upon the application, the trustee
is deemed to have discharged his or her duty as trustee in the
subject-matter
of the application (s 69 of the Act). Parties represented on the application are
bound by the judicial
advice and directions given. The jurisdiction is
intended essentially for private advice by the Court to trustees and, in
Australia, is usually made on an ex parte application. The Court advises
trustees as to what course of action they
should follow, where they are in
doubt as to the propriety of the action contemplated. The procedure should
not be
used to determine substantive issues, such as issues of interpretation
of the trust document which involved the question of
breach of trust by any
of the trustees; for the purposes of securing additional powers for the
trustees; or for resolving
a contest between the trustees; see Dal Pont and
Chalmers, Equity and Trusts in Australia and New Zealand (2nd ed), pp 667
669.
[39] Mr Davies argued that the question whether the Court ought to direct under
s.66 that the trustees sell Mt Patriarch
at $710,000 can be answered by reference to
s.14(6) and (28) of the Trustee Act, which respectively provide:
14(6) A trustee
who, in accordance with any power conferred on him by or
under this Act or otherwise, sells any land, or exchanges any land
for any
other land, or grants a lease of any land with an optional or compulsory
purchasing clause, shall not be guilty
of a breach of trust by reason only of
any alleged inadequacy of the amount or value of the sale price or other
consideration
(exclusive of rent) that he received in respect of the
transaction, if, before making the sale or exchange or granting the
lease, he
has ascertained the value of the land involved in accordance with section 28
of this Act, and--
(a) In the case of a sale of the land or a lease thereof with an
optional or compulsory purchasing clause,
the sale price for the land
is not less than the value thereof as so ascertained:
(b) In the case
of an exchange, it is prudent for the trustee to make
the exchange, having regard to the respective values (as so
ascertained) of the pieces of land being exchanged, the interests of
the beneficiaries to whom he is
responsible, and all the
circumstances of the case.]
28 A trustee may, for the purpose of giving effect
to the trust, or any of
the provisions of the instrument, if any, creating the trust or of this Act or
any other Act,
from time to time ascertain and fix the value of any trust
property, or of any property which he is authorised to purchase
or otherwise
acquire, in such manner as he thinks proper; and where the trustee is not
personally qualified to ascertain
the value of any property he shall consult a
duly qualified person (whether employed by him or not) as to that value; but
the trustee shall not be bound to accept any valuation made by any person
whom the trustee may consult. Any valuation
made by the trustee in good
faith under this section shall be binding on all persons beneficially interested
under
the trust.
[40] Mr Davies submitted that by complying with s.28, the trustees would satisfy
their obligation to obtain a fair
market value for the property. Accordingly, the
Court ought to direct the proposed sale at the Newdick estimate.
[41] Were the trustees to sell the property in reliance on the Newdick
estimate, it
may be that they might point to s.14(6) and s.28 in answer to an action for breach of
trust. I express no opinion on
that question. Mr Lammas has wisely chosen a
different course of action. However, there is a considerable difference between a
defence
to a claim for breach of trust and the present application, which invites the
Court to approve a proposed transaction. In Marley
v Mutual Security Merchant
Bank [1991] 3 All ER 198, 203, Lord Oliver drew a distinction between such an
application and an action by beneficiaries alleging misconduct justifying the
removal
of a trustee. He pointed out that in such an action the beneficiaries would be
required to assume the positive burden of
demonstrating a breach of fiduciary duty.
Their failure to do so did not demonstrate the converse, "namely that the transaction
proposed,
because not proved to be a breach of fiduciary duty, is therefore one which
is in the interests of the beneficiaries." That observation
is equally applicable to Mr
Davies' argument. The real issue is whether the trustees can satisfy the Court that
the transaction
is in the interests of the beneficiaries.
[42] I add that it is important not to lose sight of the fact that what is here
proposed
is what was described in Throp v Trustees Executors [1945] NZLR 483 as
a compulsory purchase by a trustee from unwilling beneficiaries. In this case, unlike
Throp, the trustee is not also a beneficiary.
And as a trustee, Mr Patchett has a duty
not to profit from his trusteeship. Approval of such a transaction, if it is available at
all, could only be given on the basis that the trustee has satisfied the Court that the
transaction is at full value: Re McNally
(dec'd) [1967] NZLR 521, Tito v Waddell
(No.2) [1977] 3 All ER 129, 228, 241. The trustee always has the option of
resigning so the remaining trustee can consider the matter afresh,
a course which I
invited Mr Davies to reflect upon.
[43] In Marley, Lord Oliver set out (at page 201) two propositions that
affect a
trustee's application for directions:
In the first place, there has always to be borne in mind the position and
duties of a trustee who applies to the court for directions. A trustee who is in
genuine doubt about the propriety
of any contemplated course of action in
the exercise of his fiduciary duties and discretions is always entitled to seek
proper professional advice and, if so advised, to protect his position by
seeking the guidance of the court. If, however,
he seeks the approval of the
court to an exercise of his discretion and thus surrenders his discretion to the
court,
he has always to bear in mind that it is of the highest importance that
the court should be put into possession of all the
material necessary to enable
that discretion to be exercised. It follows that, if the discretion which the
court
is now called upon to exercise in place of the trustee is one which
involves for its proper execution the obtaining of expert
advice or valuation,
it is the trustee's duty to obtain that advice and place it fully and fairly before
the court,
for it cannot be right to ask the judge in effect to assume the
burdens of a trustee without the information which the trustee
himself either
has or ought to have to enable him to carry out his duties personally. The
court ought not to be asked
to act upon incomplete information and, if it is so
asked, the proper course is either to dismiss the application or adjourn
it until
full and proper information is provided.
Secondly, it should be borne in mind that in exercising its jurisdiction
to give
directions on a trustee's application the court is essentially engaged solely in
determining what ought to
be done in the best interests of the trust estate and
not in determining the rights of adversarial parties. That is not always
easy,
particularly where, as in this case, the application has been conducted as if it
were hostile litigation; but
it is essential that the primary purpose of the
applicationindeed, its only legitimate purposebe not lost sight of in
academic discussion regarding the discharge of burdens of proof. Where
beneficiaries oppose a proposal of a trustee
with a host of objections of more
or less weight, the court is, of course, inevitably concerned to see whether
these
objections are or are not well founded, but that must not be permitted
to obscure the real questions at issue which are what
directions ought to be
given in the interests of the beneficiaries and whether the court has before it
all the material
appropriate to enable it to give those directions.
[44] That passage was cited with approval in Neagle v Rimmington (above, at
[26]). And at page 205, Lord Oliver continued:
Any court which is called upon to consider whether a bargain which has
been negotiated is the best reasonably obtainable in the interests of the
beneficiaries will normally, as a minimum, require
to be satisfied by
evidence on a number of matters. It will need to have at least an approximate
assessment of the
value of the property of which it is intended to dispose.
Where that value depends upon accounts, it will need to be satisfied
of the
accuracy of the accounts upon which the value has been based. It will need
to have an informed professional
assessment of whether any proposed sale
has been effected under the most favourable conditions. Particularly in a
case
where there is scope for divergent views regarding the value of the
property sold, it will normally need to know what efforts have been made to
explore
the market and what advice has been received with regard to the
marketing of the property to the maximum advantage.
[45]
Those remarks are apposite in the present case, in which the Court is asked to
direct a sale at a specified price, without benefit
of clear evidence as to either the
extent and present value of improvements or the present value of the land.
Adequacy of the valuations
[46] The evidence tended to establish that the value of the property has increased
since the valuations were undertaken. It appears
that delay has fortuitously served
the beneficiaries' interests. But the trustees' stance is that there is no need to update
the
valuations, since the delay in concluding the transaction is attributable to the
beneficiaries' insistence upon the trustees bringing
this application. I can see no
justification for that stance, in the absence of any duty to the Patchetts. There was a
faint suggestion
in the argument of Mr Davies and Mr Hardy-Jones that an estoppel
or other right might lie against the trust arising out of the trustees'
expressed
intention to sell the property to Mr Patchett, but there is no evidence to support such
a contention and it could scarcely
be reconciled with Mr Patchett's duty as a trustee.
Accordingly, the matter is to be approached on the basis that the trustees owe
no
obligation, legal or equitable, to the Patchetts that might qualify their duty to the
beneficiaries.
[47] I accept Mr Davies'
submission that there are practical considerations, in that
any valuation may be out of date by the time an application is brought
before the
Court. To minimise any such delay should the trustees seek the Court's approval of
a subsequent sale, I will reserve leave
to the parties to apply. Should they apply, the
valuer presumably could file a brief affidavit before the hearing deposing to any
general market movement since the valuation was prepared. But such practical
considerations cannot detract from the point that the
valuations, especially the Stark
valuation, are well out of date and there is evidence that the property's value has
increased since
then. This consideration alone means that the application cannot be
granted in its present form, since the Court cannot be satisfied
that the transaction is
in the beneficiaries' interests.
[48] Turning to the question of lessees' improvements, Mr Laurenson
criticised
the trustees' proposal to adopt the mid-point of the two valuations when it is
apparent that the substantial difference
between them is attributable to varying
approaches to the value of improvements. The better approach, he submitted, would
be to attempt
to reconcile the valuations by verifying which improvements are
attributable to the Patchetts and which are not. I accept that submission.
It is
regrettable that the trustees and Mr Newdick did not adopt the course of action that
Mr Turner very sensibly commended to them
in 2004. That they did not appears to
have been due to the change of legal advisors and Mr Newdick's stance: to Mr
Lammas' credit,
he was evidently willing to follow Mr Turner's advice. That would
have provided the trustees with a proper footing on which to satisfy
themselves with
respect to the extent and value of improvements.
[49] I reject Mr Hardy-Jones' submission that the value of
lessees' improvements
has already been settled as between lessees and lessor by the Newdick estimate.
That report did not value the
improvements at all, but merely sought a middle ground
between two other valuations with respect to the residual value of the land.
None of
the valuations was a trustees' valuation to value lessees' improvements, and only one
(the Curry valuation) actually attached
a value to them.
[50] Lastly, it does not appear that either Mr Stark or Mr Curry addressed the
value of Mt Patriarch's amenities,
but there is some evidence that the property may
have an added value because of them. For that reason too, it would be inappropriate
to approve a sale at the Newdick estimate.
[51] Mr Laurenson submitted that the trustees could establish the value of the
property
only by placing it on the market. He referred me to Marley at 205. Lord
Oliver there held that the more difficult the task of accurate
valuation, the greater is
the necessity that the market be properly tested. Halsbury's Laws of Australia also
suggests (at [430-4060])
that a sale to a trustee ought to be by auction, following a
valuation commissioned to set the reserve.
[52] In my view, there
is no inherent conflict between the trustees' duty to the
beneficiaries and the settlor's wish that Mr Patchett be given an opportunity
to buy at
valuation, so long as the valuation is directed to establishing the current market value
of the property and the trustees
are in no doubt about where their duty lies. The
difficulty is an evidential one; whether the trustees can show that the valuation
corresponds to market value in circumstances where they have not tested the market
and there is a possibility of overseas interest.
In Marley the Privy Council was
concerned with assets of great but intangible value, in the form of rights to the music
of the late
reggae singer Bob Marley. Land is more readily susceptible to valuation.
Difficulties with the present valuations result from poor
process. Accordingly, I
reject Mr Laurenson's submission that the property must be placed on the market. I
also accept Mr Davies'
submission that an open sale process will involve the trustees
in expense, in the form of marketing costs and commission, which they
would avoid
on a sale to Mr Patchett.
Application to remove caveat
[53] The question is whether Mr Williams has a reasonably
arguable claim to a
caveatable interest in the land: Holt v Anchorage Management Limited [1987] 1
NZLR 108. Mr Davies pointed out that during the trust period he is a discretionary
beneficiary as to income and capital, and submitted that
a discretionary beneficiary
lacks a caveatable interest because his only interest lies in the proper administration
of the trust.
Mr Davies cited Philpott v NZI Bank [1990] ANZ Conv Rep 242, in
which Cooke P held:
Counsel for the respondent [caveator]
sought to maintain the caveats by a
variety of arguments, all of which came to substantially the same. It was
said
for instance that in section 137(a) the words "beneficial interest" have a
wider scope than equitable interest; that a caveat
is supportable if the
caveator had some "potentially" enforceable right; and again that, although
[the caveator] had
to accept that this was not an equitable charge,
nevertheless it was an equitable interest. No authority was cited supporting
any of these interpretations of section 137(a). In my opinion for all purposes
material to the present case the words
"beneficial interest" refer to equitable
interests and the section cannot be stretched to include mere potentialities
which have not ripened into interests in any particular properties.
[54] A beneficiary may sustain a caveat where he or she
may claim a beneficial
interest in specific land: Holt v Anchorage Management (above). But a discretionary
beneficiary lacks a proprietary
interest in any particular trust asset: R & I Bank of
Western Australia v Anchorage Investments Pty (1992) 10 WAR 59, Hinde
McMorland & Sim Land Law in New Zealand (Wellington: Lexis Nexis, 2003) at
[10.009]. The discretionary beneficiary's interest
is confined to the proper
administration of the trust.
[55] If matters rested there, the application for removal of the caveat
would be
unanswerable. But Mr Laurenson submitted that the trustees have resolved to
distribute the assets of the trusts equally
among the discretionary beneficiaries, so
crystallising Mr Williams' interest. He referred to Mr Turner's letter of 11 June
2002,
which I have mentioned at paragraph [13] above. That letter was written to
seek the beneficiaries' agreement to the sale of the property
to Mr Patchett. When
seeking approval, the trustees advised that they intended to distribute the proceeds
equally among the discretionary
beneficiaries.
[56] Mr Davies argued that there is insufficient evidence that the discretion has
been exercised, citing Webb
v Honnor [1820] EngR 392; (1820) 1 Jac & W 352, 37 ER 410 for the
proposition that clear evidence of the trustees' intention to exercise their discretion is
required. He also submitted that
the trustees cannot exercise a power in futuro. In
my view it is manifestly arguable that the trustees did decide to distribute the
proceeds equally among the four beneficiaries, and were communicating that
decision in circumstances where they sought the beneficiaries'
consent to the sale.
That being so, it is arguable that the beneficiaries now have a fixed and ascertainable
interest in the proceeds.
[57] Counsel did not address the question whether Mr Williams thereby acquired a
beneficial interest in the land, and not merely
in the proceeds of its sale. I will
approach the matter on the basis that it is arguable that the trustees exercised their
discretion
in his favour and, if so, he thereby acquired an interest in the land. That
suffices to sustain the caveat on an interim basis.
Result
[58] I decline to approve the proposed sale to Mr Patchett at the Newdick
valuation. For the reasons given in this
judgment, the Court is far from satisfied that
a sale at that price is in the interests of the beneficiaries.
[59] Mr Davies
sought such guidance as I am able to give. I suggest that if the
trustees wish to pursue a sale to Mr Patchett at valuation in accordance
with the
settlor's wishes, Mr Patchett should first consider whether it is appropriate that he
remain a trustee. The beneficiaries'
interests might best be served by appointment of
another independent trustee, in circumstances where Mr Patchett is both lessee (with
a claim to compensation for improvements that are substantial but of ill-defined
extent) and prospective purchaser. The trustees
should then consider when to sell.
The question whether the lease has been renewed may influence the timing of the
sale, since the
lease may affect the value of the property one way or the other.
[60] The trustees should also satisfy themselves whether they
have attracted an
obligation to compensate the Patchetts under the lease. The lease requires timely
notice, and the trustees may
need to take advice on the question whether notice has
been given, or waived, or whether an obligation has otherwise arisen to compensate
the Patchetts. I record that on the evidence before me, I am in no position to reach
any findings on the question whether such an
obligation has arisen, but the evidence
does suggest they made the improvements on the understanding that they would buy
the property
at a price net of improvements or receive compensation. And there is
no doubt that their improvements have contributed in a substantial
way to its value.
[61] The trustees will then need to satisfy themselves regarding the extent of
lessees' improvements, in terms
of the lease. There is no reason why they should not
consult Mr Stark when identifying the lessees' improvements since he knows the
property, but to minimise future controversy it would wise to engage a new valuer to
conduct the valuation. The valuer should be
instructed to value improvements in
accordance with the lease, and his or her attention should be drawn to the question of
amenity
values.
[62] Mr Davies suggested that the trustees might seek two valuations with a third
valuer acting as umpire. That is a
decision for the trustees. It does not seem
necessary to prescribe such a mechanism at the outset, if a process such as that
outlined
in Mr Turner's letters to Mr Newdick is followed and the trustees are open
to the beneficiaries' views. In that case, the trustees
might consider the valuation
and any objections to it before deciding whether to commission a second one.
[63] On the evidence
and argument before me, it is arguable that Mr Williams has
a caveatable interest in the property. So I am not prepared to grant
the application
for an order that the caveat be removed. In the ordinary way it might be dismissed
on terms requiring him to prove
his interest, but that seems unnecessary when all
accept that the property is to be sold. Rather, I propose to adjourn the application so
that the trustees
may bring it on, if necessary, in anticipation of a sale. Should the
Court be satisfied that the sale is at market value, I anticipate
that the caveat would
be removed in the interests of all beneficiaries, on terms (if necessary) that protected
Mr Williams' claim
to an interest in the proceeds.
[64] The trustees and the beneficiaries will have leave to apply.
Costs
[65] Mr Laurenson
sought an order that his clients' reasonable solicitor-client
costs be met from the trust fund. Mr Davies sought costs against Mr
Williams. As I
have held that the Williams' opposition to the application for directions was well-
founded, an order that their reasonable
solicitor-client costs be met from the trust
fund is appropriate. This order excludes the costs associated with lodging and
sustaining
the caveat, the costs of which are reserved. Counsel may file memoranda
should they be unable to agree on costs.
[66] Mr Hardy-Jones
also sought costs from the trust fund, more than a little
optimistically. I can see no justification for such an order. His clients
are not
beneficiaries, and any proper private interest that they may have in the proceeding
corresponded to the stance taken by Mr
Davies, whose costs will be met from the
trust fund.
Delivered at 3.00pm this 5th day of October 2005.
F Miller J
Solicitors:
Gascoigne Wicks, Blenheim for Applicants
Harkness &
Peterson, Wellington for Respondents
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2005/88.html