Mackie Law Independent Trustee Limited [2017] NZHC 1570 (10 July 2017)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

UNDER	Section 51 of the Trustee Act 1956 and s 76 of the Public Trust Act 2001
IN THE MATTER	of the Donald Trust
BETWEEN	MACKIE LAW INDEPENDENT TRUSTEE LIMITED, CARROLL JEAN MUIR AND ANNE RUTH HASTIE AS TRUSTEES OF THE DONALD TRUST Applicants
AND	JOANNE FLEUR CHAPLOW Respondent

Hearing:	2 June 2017
Appearances:	M R Taylor for Applicants M J Allan for Respondent
_Judgment:	_{10 July 2017}

MACKIE LAW INDEPENDENT TRUSTEE LTD & ORS v CHAPLOW [2017] NZHC 1570 [10 July 2017]

[1] Mackie Law Independent Trustee Ltd (MLIT), Carroll Muir and Anne Hastie are the trustees of the Donald Trust, settled by the late Hugh Munro. The trust’s only asset is a residential property in Point Chevalier, Auckland. The primary beneficiary is Joanne Chaplow, Mr Munro’s daughter. Upon Mr Munro’s death in January 2016 the trustees agreed that the property should be resettled on a new family trust for the benefit of Ms Chaplow and her children. But they insisted that resettlement proceed in accordance with Mr Munro’s memorandum of wishes. After months of disagreement over the terms of the resettlement and ongoing dispute over payment of the trustees’ legal fees, the trustees now wish to retire and have the Public Trust take over as sole trustee.

[2] The trustees have applied for orders (1) removing them as trustees (2) appointing the Public Trust in their place (3) requiring the legal fees incurred by them to be met from the assets of the trust and (4) costs on the application.

[3] Ms Chaplow opposes the application save that she accepts that a certain level of fees may properly be paid from the trust. Ms Chaplow herself has not made any formal application but in her affidavit in opposition she seeks orders (1) that the property be resettled on her family trust (2) that the mortgage granted by the trustees to secure payment of the legal fees be discharged (3) fixing the amount of the legal costs for which the trustees are entitled to be indemnified from the trust assets and (4) costs on the application. The trustees did not object to the lack of any formal application by Ms Chaplow.

[4] The various applications relating to the removal/replacement of the trustees, discharge of the mortgage and resettlement of the property are intertwined and I deal with them together. But I consider the trustees’ application regarding indemnity for legal fees first because, in examining that issue, the factors that indicate how the other applications should be dealt with follow more easily.

[5] The applications regarding the trustees’ entitlement to have their legal fees indemnified from trust assets raise the following questions:

(b) Were the trustees entitled to grant a mortgage over the trust property to secure payment of the legal fees?

(c) Are the trustees entitled to an indemnity in relation to all the legal fees incurred and, if not, to what extent is an indemnity available?

[6] The various applications relating to how the trust and the property should be administered raises the following questions:

[7] Mr Munro settled the Donald Trust in 2000. The primary beneficiaries were Ms Chaplow and her brother, Andrew, who subsequently died without issue. Mr Munro was an eligible beneficiary in his capacity as settlor. Lineal descendants of the primary beneficiary (and their spouses) are eligible beneficiaries, as are other of Mr Munro’s relatives such as siblings. The Donald Trust has only ever held one asset, the property in Point Chevalier, which was Mr Munro’s primary residence prior to his death.

[8] The trust deed confers broad powers on the trustees to apply income for the benefit of the beneficiaries. Trustees are also permitted to transfer the whole or any part of the capital of the trust fund to or for the benefit of the primary beneficiaries or the eligible beneficiaries in such manner and subject to such terms and conditions as

the trustees think fit.¹In addition the trustees have the power of resettlement of the income or capital of the trust fund for the benefit of any discretionary beneficiary.²

[9] In 2011 Mr Munro began a relationship with a Chinese woman, Qingjuan Lu. Ms Lu spent periods of time in New Zealand on short-term visas. In mid-2015 she returned to China to be with her daughter who was pregnant. She had not returned to New Zealand by the time Mr Munro died in January 2016.

[10] By late 2015 Mr Munro was very ill with leukaemia and was admitted to hospital. In January 2016, while still in hospital, Mr Munro took steps to finalise his affairs with the assistance of his friend, Carroll Muir, and his solicitor, Kelvin Mackie. On 15 January 2016 he executed a new will. The same day he signed a memorandum of wishes in relation to the trust. He died six days later, on 21 January

[11] The executors under the new will were Ms Muir and a cousin of Mr Munro, Anne Hastie. Mr Munro’s only significant asset was a holiday house at Leigh, north of Auckland. According to correspondence between Ms Muir and Mr Munro it was worth slightly over $700,000 in late 2015 and had a $200,000 mortgage over it. His will directed that Ms Lu was to receive a bequest of $100,000 from Mr Munro’s personal estate. If the Leigh property had not been sold prior to his death it was to be sold and the proceeds applied first to make up any difference between the funds available from Mr Munro’s estate and the bequest to Ms Lu with the balance allocated equally between Mr Munro’s grandchildren.

[12] Any residue of the estate was to be held on trust for the trustees of the Donald Trust, who were to distribute it in accordance with the memorandum of wishes. Other than the Leigh property the estate appears to have comprised a car, a boat, bank accounts and Mr Munro’s Kiwisaver account. There was limited evidence about the value of these assets. The car was sold by Ms Chaplow for $1,500 and there is no evidence that it was worth more than that. The boat was apparently worth

_{about $10,000 and was transferred to Ms Chaplow in part-payment of
testamentary}

expenses that she had met. No evidence was produced regarding Mr Munro’s bank accounts and Kiwisaver account. In any event, the property has been sold and, after payment of the mortgage, the bequest to Ms Lu and legal fees, appears to have yielded about $395,000, which has been invested for Ms Chaplow’s children, who are still minors.³It therefore appears that there is no or no significant value in the residuary estate.

[13] Mr Munro appointed new trustees to the Donald Trust: Ms Muir, Ms Hastie and MLIT, of which Mr Mackie was a director. The memorandum of wishes was addressed to them. I discuss it in detail later. It is sufficient for now to note that, subject to Ms Lu being able to occupy Mr Munro’s principal residence for three months following his death, Mr Munro wished Ms Chaplow to receive priority and the trustees to consult her to ascertain her wishes; if Ms Chaplow wished, the Point Chevalier property was to be sold and the net proceeds applied to her.

[14] Within a short time disagreement arose between Ms Chaplow and the trustees over how the trust property should be administered. In particular, the trustees were unhappy about Ms Chaplow undertaking work to the property and tenanting it without their approval. It was, however, agreed that the property would be resettled on a new trust to be established by Ms Chaplow for the benefit of Ms Chaplow and her children. In the expectation of that happening within a short time the trustees took no action in respect of Ms Chaplow’s dealings with the property.

[15] The resettlement proved difficult to achieve, however. The trustees were concerned to ensure compliance with what they perceived to be the effect of the memorandum of wishes. Sticking points were the identity of the professional trustee for Ms Chaplow’s trust which Mr Munro had wished to be MLIT, the so-called “blood-line requirement” that Ms Chaplow’s husband be excluded as a beneficiary of the new trust, the extent of the indemnity being sought by the trustees and payment

³Ms Chaplow has also complained about the sale of the property in the face of her stated desire to purchase it and the terms on which the proceeds were invested. She sought orders in relation to these issues but there is no basis on which to consider complaints against the executors in the context of this proceeding.

[16] In June 2016 Mr Mackie relinquished representation of the trustees to a new solicitor, Mr Muller. Some progress was made in that it was agreed that an independent professional trustee, Mr Patterson, would be appointed rather than MLIT. But there were problems over the legal fees. The trust had no money to meet the fees and would not permit the resettlement to proceed without Ms Chaplow’s undertaking that they would be paid. Ms Chaplow wanted details of the fees but her request for draft invoices and time records was refused. Some information was provided but agreement could not be reached.

[17] In July 2016, with negotiations over payment of the fees stalled, the trustees advised their intention to resign and proposed that the Public Trust be appointed in their place. They executed a deed of variation of the Trust Deed providing that the Public Trust could act as sole trustee.⁴The trustees also agreed to grant a mortgage over the trust property in favour of Mackie & Co Ltd with a priority sum of

$100,000 plus interest to secure payment of the fees. In late July 2016, Ms Chaplow instructed a new solicitor, Mr Walker, but all negotiations were at an end by

[18] During this period the executors of the estate, Ms Muir and Ms Hastie, were continuing to administer the estate and Mr Mackie was acting as solicitor for the estate. He ceased acting in about August 2016 and another firm, APLS Lawyers, took over. Although the current applications relate only to the trust, the administration of the estate overlaps in that the residue of the estate goes to the trust and is relevant when I come to consider what should happen to the trust.

[19] The trustees have incurred over $30,000 in legal fees to Mackie & Co Limited and GM Legal. They say that they are entitled to be indemnified for these fees. Ms Chaplow says that they are not entitled to be indemnified for fees incurred after 6 July 2016 because work undertaken after that point was related to protecting

_{the trustees’ own position rather than for the benefit of the
beneficiaries.}

[20] The application by the trustees for an order that their legal costs be met from the estate is made in reliance on s 76 of the Public Trust Act 2001. Section 76 is only relevant in the event that the Public Trust is appointed. Nevertheless, jurisdiction also exists under s 72 of the Trustee Act 1956 which relevantly provides:

(1) The Court may, out of the property subject to any trust, allow any person who is or who has been a trustee thereof or to that person’s personal representative such commission or percentage for that person’s services as is just and reasonable.

(1A) In considering under subsection (1) what commission or percentage is just and reasonable the Court shall have regard to the following circumstances, namely:

(a) the total amount that has already been paid to any trustee of the trust, whether pursuant to the trust’s instrument or to any earlier order of the court or to any agreement or otherwise;

(d) the skill and success of the trustee in administering the trust; (e) the value of the trust property;

(g) whether any commission or percentage that might otherwise have been allowed should be refused or reduced by reason of delays in the administration of the trust that were occasioned, or that could reasonably have been prevented, by the trustee;

[21] The jurisdiction conferred by s 72 was considered in Ngai Tai Ki Tamaki Tribal Trust v Karaka where the Court of Appeal held that the jurisdiction to make an order for trustees’ remuneration under s 72 need not be calculated as a commission or a percentage of the trust estate but may simply be in a sum that is just and reasonable.⁵

[22] Since no issue was taken with the relevant jurisdiction, I intend to treat the application as one brought under either s 76 of the Public Trust Act or s 72 of the Trustee Act.

[23] Even in the absence of an express right under the trust deed, it has always been the case that a trustee is entitled to be reimbursed for expenses properly incurred in his or her execution of the trust obligations. The rationale is explained by Danckwerts J in Re Grimthorpe:⁶

It is commonplace that persons who take the onerous and sometimes dangerous duty of being trustees are not expected to do any of the work on their expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out.

[24] In this case, the trust deed expressly provides for the trustees to have expenses incurred in the execution of the trust to be met from the estate. Clause

Instead of acting personally to employ and pay any person whatever to transact all and any business or do any act required to be transacted or done in the execution of the Trust, including the receipt and payment of money, and Trustees are entitled to be allowed and paid all charges and expenses so incurred but are not responsible for the default of any person appointed in good faith or for any loss occasioned by his employment ...

[25] The wording of clause 10.3(a) of the trust deed limits the right of trustees to be reimbursed for expenses incurred “in the execution of the trust”. These words closely reflect the wording of s 38(2) of the Trustee Act, which confers an implied indemnity on trustees for reimbursement from trust property of “all expenses reasonably incurred in and about the execution of the trusts or powers”.

[26] The wording of s 38(2) has been extensively considered and those cases assist in identifying the parameters for the reimbursement of the trustees’ expenses in

this case. In particular, in Re O’Donoghue, which has been consistently applied in this Court, Hammond J observed that:⁷

... the principle that expenses must be properly incurred necessarily requires a trustee, if called upon, to demonstrate that the expenses arose out of an act falling within the scope of his trusteeship; whether it was something that his or her obligations required the Trustee to undertake; and whether the expense incurred was, in all the circumstances, “reasonable”.

Support for this latter proposition appears directly from the authority of the experienced chancery judges in Re Chapman (1895) 72 LT 67 (CA) ... See for instance, Lindley LJ at p 68:

A trustee may be honest, and yet, for over-caution or some other cause, he may act unreasonably; and if, as in this case, his conduct is so unreasonable as to be vexatious, oppressive or otherwise wholly unjustifiable, he thereby causes his cestuis que trust expense which would not otherwise have been incurred, the trustee must bear such expense, and it ought not to be thrown on the trust estate or on his cestuis que trust ...

... Finally, on the law under this head, it must surely be the case that where, on the face of things, the trustees’ actions appear regular enough the burden of proving unreasonableness falls on the party alleging the same. There are cases in the books where the onus has been discharged. See, for instance, Re Knox’s Trusts [1895] 2 CH

[27] In summary, therefore, the trustees’ right to reimbursement of expenses is as provided by clause 10(3)(a) and is limited to reasonable expenses arising out of the trustee’s obligations under the trust. The right to reimbursement and indemnity in respect of expenses is a first charge on the trust fund and, subject to the requirement that the expenses have been properly incurred as already discussed, may be met

through using the trust property as security for borrowing to meet the expenses.⁸

[28] The problems between the trustees and Ms Chaplow arose substantially from the terms on which the Point Chevalier property was to be resettled. The trustees

⁷Re O’Donoghue [1998] 1 NZLR 116 (HC) at 121–122, cited in Kain v Hutton HC Christchurch

⁸In Re Chambers Settlement [1900] NZGazLawRp 116; (1900) 3 GLR 19; s 21 Trustee Act 1956.

took the view that they were bound to adhere to what they perceived the memorandum of wishes required in this regard.

[29] It is not uncommon for settlors to provide direction to trustees by a memorandum of wishes as to how the trustees should exercise discretion conferred by the trust deed. A settlor is entitled to give such direction and a trustee is entitled to take it into consideration. However, a settlor’s wishes conveyed in this way cannot override the trustee’s independent judgment. The learned authors of

The trustees ... must be careful to provide documentation revealing that they consciously exercised an independent discretion when making decisions, naturally taking serious account of the settlor’s wishes but appreciating that the ultimate decision was theirs. For the trustees to give effect exactly to the settlor’s wishes (without having some evidence of independently deciding to follow those wishes) is very dangerous because it lays them wide open to the charge that either the trust deed on its own contains provisions which are a pretence or sham, because the real trust terms incorporate the legally binding letter of wishes, or the trustees have committed a breach of trust in automatically following the settlor’s legally significant (but not legally binding) wishes without consciously exercising an independent decision.

[30] In Chambers v S R Hamilton Corporate Trustee Ltd, the Court of Appeal made the following observations about memoranda of wishes:¹⁰

Settlors are entitled to express their wishes for the benefit of trustees, and trustees are entitled to take them into account. They can be important guidance to them in the exercise of discretionary powers. However trustees, whatever a settlor’s wishes, must conscientiously apply their independent discretion in exercising their powers. Wishes can only be taken into account if they are not inconsistent with the purposes of the trust as appears from its written terms.¹¹Trustees should not blindly obey all settlor instructions. It is necessary for trustees to read and understand a memorandum of guidance to discern the settlor’s wishes, and then with those wishes in mind make an independent assessment of the appropriate course of action taking into account not just the memoranda, but all relevant factors.

⁹David Hayton (ed) Underhill and Hayton: Law Relating to Trusts and Trustees (19^thed.

¹⁰Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, (2017) 4 NZTR27-008 at

¹¹Citing Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 (CA) at 431 and 445 per

Mahoney and Sheller JA; and Futter v Futter [2013] UKSC 26, [2013] 2 AC 108 at [66].

2. As settlor of the Trust, I wish you to note my wishes. I may revise these from time to time. I am aware that my wishes are not legally binding on you, but I expect that you will give these wishes careful consideration and implement.

4. I direct my trustees to allow QINGJUAN LU to remain in sole and exclusive occupation of whatever principal residence, we, or she is residing in as at the date of my death for a period not to exceed three (3) months from the date of my death.

5. Subject to the limited occupation right recorded herein to QINGJUAN LU, where I am survived by my daughter JOANNE she should receive priority.

6. I direct my trustees to consult with Joanne Fleur Chaplow as the only living primary beneficiary of the Trust in relation to the property at 4/29 Sutherland Road, Point Chevalier (otherwise known as Henry Louis Court, Point Chevalier).

In circumstances where JOANNE wishes for the property to be sold I direct my trustees to undertake the sale in an orderly fashion with the law firm of MACKIE & CO LIMITED to be appointed as the solicitor to act on the conveyancing transaction.

I direct my trustees to apply the net proceeds to JOANNE in a tax- effective way and as to so protect against any claims which might ever be made against JOANNE’s assets.

7. After I have died the Trustees should, following the sale of the Pt Chevalier property, consider whether the Trust should be wound up. I direct that instead of transferring any assets or capital of the Trust to my daughter JOANNE, those assets should be resettled for the benefit of JOANNE and her children in the discretionary family trust to be prepared by MACKIE & CO LIMITED.

I direct that the structure of the Trust should be as follows: (a) Sole settlor – Joanne Fleur Chaplow

In each case the trustees should confer with the beneficiary concerned to ascertain her wishes.

[32] There are three important aspects to note. First, Ms Lu was not a beneficiary of the trust. Mr Munro’s wish that she be able to occupy the trust property was contrary to the trust deed and the trustees ought not have allowed her to occupy the trust property. No actual loss resulted from their doing so but it was clearly the source of ill-feeling between the trustees and Ms Chaplow and contributed to the trustees’ lack of perspective evident in their communications with her.

[33] Secondly, clause 6 makes it clear that Mr Munro wished Ms Chaplow to be consulted as to whether the Point Chevalier property was retained or sold. He allowed for the possibility that she would want to sell it and directed the trustees to apply the proceeds “to Joanne” in a way that protected her assets from claims. The memorandum was silent as to what was to happen if the property was kept; presumably it was to be retained in the trust. That outcome would, of course, have left Ms Chaplow worse off than if it were sold, since the proceeds of sale were to be for her benefit only whereas under the trust she was only one, albeit the primary, beneficiary. Moreover, if the proceeds were held on trust for her alone (the apparent intention) she would have been entitled to require the trustees to transfer the funds to

[34] Thirdly, on its plain wording, clause 7 was not concerned with the Point Chevalier property at all. Whilst the opening words suggest that clause 7 is triggered only if the Point Chevalier property is sold, under clause 6 it was for Ms Chaplow alone to decide whether to sell or retain it and, as discussed, if it was sold the proceeds of sale were to be applied to her only. It follows that the directions regarding resettlement and the terms of Ms Chaplow’s new trust were intended only for assets other than the Point Chevalier property i.e. the residuary estate. On the evidence I have it seems possible that there will be no, or only minimal, assets available for transfer to the trust from the residuary estate. If that is the case it would hardly warrant the cost of creating a new trust for the resettlement.

[35] The trustees were entitled to consider the memorandum of wishes as part of their decision making process. They could, if they thought it appropriate, adhere to

_{it, provided doing so did not conflict with the trust deed itself.
However, there is}

nothing in the material before me to indicate that the trustees actually considered the meaning of the memorandum of wishes or whether it was appropriate to adhere to it. In the trustees’ correspondence there is frequent reference to the memorandum of wishes but little to the trust deed itself. No signed minutes or resolutions by the trustees were produced, merely an undated and unsigned document described as “minutes/resolution of trustees’ meeting” which referred to the trustees’ resolution “[t]o exercise Trustees’ discretion with reference to implementation of the Memorandum of Wishes of the Settlor ... ”. No mention was made of the trust deed itself.

[36] Nor is there any record of consultation with Ms Chaplow as to whether she wanted the property sold, though I infer from Ms Chaplow’s own conduct that she did not. However, the trustees wrongly proceeded as if clause 7 applied to the property and required it to be resettled on the terms specified there, which it did not. Resettlement was, of course, permitted by the trust deed but the trustees were not constrained as to the terms of resettlement by clause 7. Indeed, resettlement on those terms would be contrary to clause 6 which disclosed an intention that Ms Chaplow alone should take the benefit of the Point Chevalier property.

[37] In my view, the trustees acted in breach of their obligations under the trust deed by insisting on adherence to what they (incorrectly) perceived was required by the memorandum of wishes and in the face of Ms Chaplow’s express disagreement on some matters. Against that conclusion I turn to consider the issue of indemnity for the trustees for legal fees incurred in relation to the Point Chevalier property.

[38] There was a distinct level of mistrust between the trustees and Ms Chaplow from an early stage. I record the sources of that mistrust because it was a potent factor in the parties’ increasingly fractious dealings during 2016.

[39] It is evident that Ms Muir and Mr Mackie perceived Ms Chaplow negatively because they believed that she had been estranged from her father and unsupportive of his relationship with Ms Lu. Ms Muir felt that Ms Chaplow behaved badly

towards Ms Lu when the latter was staying at the Point Chevalier property after Mr Munro’s death. The trustees also viewed Ms Chaplow as wanting to control the trust assets herself, contrary to Mr Munro’s wishes.

[40] For her part, Ms Chaplow did not accept that she had been estranged from her father and felt that neither Ms Muir nor Mr Mackie understood the dynamics of her family. She did not accept that she acted inappropriately towards Ms Lu. She considered that Mr Mackie had drafted the memorandum of wishes so as to ensure work for himself. Ms Chaplow also claims that Mr Mackie invoiced her for the probate application on 22 January 2016, more than two weeks before probate had actually been applied for and that at a meeting on 5 February 2016 he said that probate had been applied for on 3 February 2016 but, upon telephoning the High Court in Wellington, Ms Chaplow learned that the probate application had not been made until 19 February 2016. Ms Chaplow made it clear very early on that she wanted to limit Mr Mackie’s fees and asked that the trustees obtain her consent to meetings with him, which the trustees refused to do.

[41] From the trustees’ perspective Ms Chaplow created difficulties by dealing with the property without their approval. In February 2016 she told Ms Muir that she wished to paint the interior and re-carpet the property and rent it out to a friend from April 2016. Ms Muir advised that there were no trust funds available for reimbursement and if Ms Chaplow wanted to undertake the work she would have to do so on that basis. She also advised that the trustees would need to consider the proposed renovations and tenancy and asked for a written proposal as to both.

[42] Ms Chaplow did not provide details of the proposed work, quotes or a tenancy agreement. When Ms Muir went to the property on 30 March 2016 she found a painter already working. Ms Chaplow emailed Mr Mackie advising that she had had a rental appraisal done and on the basis of it intended to rent the property for

$600 per week. She noted that both he and Ms Muir had agreed that the rental income could be paid directly to her to offset expenses. Ms Muir disputes that this was agreed, but even if she had agreed, any agreement was very clearly withdrawn by her email of 30 March 2016.

[43] However, despite their concern and frustration the trustees took no action because they expected the property to be resettled on Ms Chaplow’s trust within a short time. Ms Muir advised Ms Chaplow to arrange for the establishment of her own family trust for that purpose.

[44] There was a point in March – April 2016 when no progress was made, because Mackie & Co’s fees had not been paid. In an email chain that referred to both estate and trust matters, Mr Mackie told Ms Chaplow on 15 March 2016 that he had incurred fees to date that “exceed[ed] a combined sum of $5,400” and that he would not be comfortable continuing to act without payment. Mr Mackie provided an invoice for $5,445.00 which Ms Chaplow paid on 14 April 2016. She says in her affidavit that it covered all Mr Mackie’s work in respect of both the trust and the estate to that date.

[45] By mid-April 2016 Ms Chaplow’s own solicitor, Matthew Carson, had prepared a trust deed establishing Ms Chaplow’s family trust for the purposes of resettlement of the property from the Donald Trust, together with a deed of resettlement. He sent them to Mr Mackie for review. From about this point, matters began to go awry.

[46] Despite an initially positive indication Mr Mackie was not happy with the documents Mr Carson had prepared. One sticking point was that the independent professional trustee named was a trustee company associated with Mr Carson, rather than MLIT. The trustees eventually accepted that MLIT would not play any role in the new trust; in her affidavit Ms Muir explained that because of antagonism between Ms Chaplow and Mr Mackie it seemed unworkable for MLIT and Ms Chaplow to be co-trustees, for MLIT to be an initial trustee as envisaged by clause 7 of the memorandum of wishes or for Mackie Law to prepare the trust deed.

[47] Mr Mackie wrote to Mr Carson on 25 and 27 May 2016 identifying the trustees’ three major concerns. The first was personal exposure for departing from the provisions of the memorandum of wishes. It will be evident from what I have already said that this concern was misplaced; the trustees’ obligation was to adhere to the terms of the trust deed. They were entitled to consider the memorandum of

wishes but since they had no obligation to do so, no exposure could result from not doing so.

[48] The second concern related to Ms Chaplow’s actions in taking control of the trust asset without consulting the trustees. Mr Mackie was concerned, justifiably, to ensure that the trustees would not be personally exposed for any work undertaken by Ms Chaplow without their agreement. He was doubtful that the indemnity Mr Carson had prepared, which covered liability arising from the trustee’s ownership of the property, would necessarily capture the liability that the trustees were concerned about. I do not see this as an unreasonable concern.

[49] The third concern was the outstanding legal costs. Mr Mackie observed that:

If we had implemented the provisions of the memo of wishes, costs would have been minimal.

Joanne’s desire to undermine her father’s wishes and ongoing attempts to treat trust assets as her own have resulted in the attendances generated by me.

In any event, as Joanne has retained the only income of the trust, being rental on Point Chev, the trust has no funds to pay my invoices.

To conclude, my required wording for insertion into the deed of partial re- settlement represents a compromise as between the legitimate concerns of the trustees and the desire on the part of your client to retain the asset in her trust.

All she has to do is indemnify us for what she has done with the Point Chev property, maintain the bloodline requirement and pay my reasonable costs.

If that is unacceptable to her, then we revert back to the provisions of the memo of wishes whereby the property will remain in the ownership of the Donald Family Trust.

2016 reiterating that the trustees’ primary concern was their potential exposure for not implementing the memorandum of wishes. He observed that “the primary directive in the Memorandum of Wishes was for the Point Chevalier property to be sold in an orderly fashion”. This was simply not correct; nowhere in the memorandum of wishes does Mr Munro indicate that the sale of the property is his wish, let alone his “primary directive”. The overall tenor of the memorandum of wishes is that Ms Chaplow was to be consulted and her wishes ascertained regarding

[51] Mr Mackie went on to advise that Mr Muller had been engaged by the trustees to represent them from that point. Shortly after being instructed, Mr Muller met with Mr Carson. The outcome was a proposal that the resettlement be completed as soon as possible on the basis of a trust deed and deed of resettlement approved by a new independent trustee and the provision that Ms Chaplow could, after a time, ask the new independent trustee to resign in favour of one nominated by herself. The existing trustees required, in addition to the standard indemnity, an indemnity for damage or loss incurred as a result of Ms Chaplow’s taking possession of the trust property and arranging a tenant, Ms Chaplow to account to the trustees for income received prior to the resettlement and that the trust must pay Mackie & Co and GM reasonable legal costs up to the date of resettlement.

[52] An independent trustee, William Patterson, agreed to consider accepting appointment. However, negotiations stalled over the issue of fees. Mr Carson suggested that Ms Chaplow be permitted to offset the money she had expended on the trust’s behalf (presumably on the redecorating work) against the rental she had received. Although Mr Carson said that Ms Chaplow had offered to account for the rental there is no evidence of that and no evidence before me as to how much rental she received.

[53] Before the trustees could respond Ms Chaplow advised that the tenant had given notice as a result of a serious leak to the roof. The estimated cost of repairs was about $40,000. She pointed out that she had spent $20,000 on Mr Munro’s testamentary expenses and a further $20,000 on the Point Chevalier property and needed to have the property resettled so that it could be used as security for borrowings. It is not clear what the response to that request was, though evidently the trustees did not accept that the rental should be offset.

[54] On 6 July 2016 Mr Muller emailed Mr Carson, referring to the expectation that he would have confirmation of the e-dealing details the following day to effect the resettlement but pointing out that because no rent had been paid into the trustees’

account they had no funds to meet the accounts that Mackie & Co and GM Legal would render. He sought an undertaking that those costs would be paid on transfer of the title. He noted that the estimate of costs was $3,500 plus GST and disbursements (if any) for Mackie and Co and $4,200 plus office services, GST and disbursements (if any) for GM Legal.

[55] Through Mr Carson, Ms Chaplow requested copies of draft invoices and supporting time records, noting that Mr Mackie had previously advised that he would await the sale of the Leigh property for the balance of his fees and pointing out that the rental was less than the amount of Mr Mackie’s fees. He proposed that Ms Chaplow take her father’s boat, valued at about $10,000, as an offset against the testamentary expenses she had already met and that the executors agree to reimburse the balance of those advances on settlement of the Leigh sale.

[56] Mr Muller’s response was that Ms Chaplow was not entitled to request copies of invoices or time records and that since he did not act for the estate he could not take that aspect any further. On 12 July, however, Mr Muller did provide time records for GM Legal together with a letter and schedule of time for Mackie & Co. Mr Muller’s email stated that the time records for Mackie & Co now amounted to a total of $8,505 plus GST, and the records for GM Legal $6,090 plus GST. He noted that “if the trustees are rendered invoices on a time and attendance basis, the final invoices will exceed the estimates given in a previous email”.

[57] Mr Carson advised that Ms Chaplow would pay Mr Mackie and Mr Muller the estimates of $3,500 plus GST and $4,200 plus GST respectively, a total of

$8,330. The rest of his email makes it clear that he expected re-settlement to occur imminently. That offer was met with a counter-offer on 15 July under which Mackie

(presumably $6,090 plus GST and disbursements as referred to in his 12 July email).

[58] Mr Muller also sent the draft trustee resolution to which I have already referred. It included as a condition of the resettlement that Ms Chaplow indemnify the trustees in relation to: (1) claims against the trust by Ms Lu in relation to the limited occupation right (2) claims or losses in relation to any work undertaken to

the property by Ms Chaplow and (3) “all costs incurred by the Trust in completing the partial resettlement anticipated hereunder including but not restricted to solicitor/client costs incurred by Mackie & Co Ltd and GM Legal Ltd”.

[59] Mr Carson interpreted the last as an attempt to preclude Ms Chaplow from having the costs revised by the Law Society and seeking a refund from the trustees. He responded on Ms Chaplow’s behalf, offering a total of $6,000 to cover both Mackie & Co Ltd and GM Legal Ltd, the amount pitched to allow for that constraint. She subsequently offered to pay the costs that Mackie & Co Ltd and GM Legal had sought on the basis that if a costs revision resulted in a reduction of fees the trustees would immediately make a refund to her. The trustees rejected that offer and made a final offer, that Ms Chaplow pay GM Legal’s fees as previously presented (i.e.

$6,090 plus GST and disbursements) and a reduced fee of $7,096.07 to Mackie & Co. The offer was left open only for a limited time. It was not accepted.

[60] On 21 July 2016 Mr Muller advised that the trustees intended to resign and that they had sought the consent of the Public Trust to accept appointment. The following day the trustees registered a mortgage over the trust property in favour of Mackie & Co Ltd to secure an unspecified amount for legal fees but with a priority figure of $100,000.

[61] The question to which I turn next is: against this background, to what extent are the trustees entitled to be indemnified for the fees they have incurred?

[62] Mr Mackie deposed that he was a professional trustee of the Donald Trust and had incurred costs in that capacity, including the cost of legal services that he himself had rendered. In fact, Mr Mackie was not a trustee; he was a director of the trustee company, MLIT. But this point was not taken and nothing appears to turn on it.

[63] Mackie & Co has rendered an invoice for $21,973.37 (including GST and disbursements). It is dated 28 February 2017 and said to relate to professional

attendances between 19 February and 8 July 2016. The fee is not itemised. The narration shows that of the total amount, $16,840 related to:

Our Fee for all professional attendances rendered in accordance with time recording ledger for period 19 February 2016 up to and including 8 July

2016, together with attendances rendered in accordance with the provisions of our letter of engagement and with reference to the considerations referred

[64] The invoice included as a disbursement an invoice from another law firm, Smith & Partners, for $2,352.20 being the costs associated with registration of the mortgage.

[65] No time records have been produced. In his affidavit Mr Mackie identified the legal services that are the subject of the invoice as including but not restricted to:

[66] Without an itemised fee or time records it is difficult to identify precisely what work Mr Mackie did. The correspondence provides the only basis on which I can draw an inference as to what was done. Contrary to the narration in the invoice itself, the attendances clearly went beyond 8 July 2016; the services identified by

Mr Mackie include, for example, the deed of variation of the trust deed dated 21 July

2017 and the agreement to mortgage registered on 22 July 2016. Conversely, the reference in the invoice to all costs incurred from 19 February 2016 suggests duplication with the invoice that Ms Chaplow paid in April 2016 to cover Mr Mackie’s work in respect of both the trust and the estate until that date.

[67] There is no explanation, nor any apparent reason, for Mr Mackie’s costs on a time and attendance basis increasing from the $8,505 referred to Mr Muller’s email of 12 July 2016 to $16,840. Given that Mr Muller was representing the trustees by then it is inexplicable that the fee should nearly double over the period that Mr Mackie was no longer acting, save for minor attendances such as approaching the Public Trust.

[68] I note further that the lower figure of $8,505 was not an offer to settle but said to have been the fee on a time and attendance basis; on 6 July 2016 Mr Muller had provided an estimate of $3,500 for the work performed by Mackie & Co Ltd. When Mr Carson queried this amount and asked for more detailed records, Mr Muller’s reply on 7 July 2016 stated “Neither [Kelvin nor I] are slaves to time recording, so those records aren’t available immediately” but noted that the trustees were aware of the estimate and of the view the fees were reasonable. Mr Carson queried why it would take a week to produce time records. On 12 July Mr Muller replied with time schedules and the figure of $8,505. There was no explanation for the increase by $4,005 from the estimate of $3,500 a week before.

[69] Fees reasonably incurred in relation to the resettlement of the property on Ms Chaplow’s family trust and in negotiating the form of indemnity in relation to work undertaken without the trustees’ consent are indemnifiable. But such costs would reasonably be expected to be modest; one can hardly imagine a simpler situation than a single asset held on trust for an adult primary beneficiary. The process was made far more difficult and expensive than it needed to be as a result of the trustees misunderstanding the terms of the memorandum of wishes and treating it as a binding document. Mr Mackie himself acknowledged this in his email of

[70] Other aspects of the work undertaken cannot be said to have been incurred in the execution of the trust at all. The first is dealing with Ms Lu. Mr Mackie was copied into emails between Ms Muir and Ms Chaplow about this problem and I infer from Ms Muir’s email to Ms Chaplow that she would not have acted without Mr Mackie’s advice. Further, the issue of an indemnity against any claims by Ms Lu continued to be raised as late as July 2106. Nevertheless, I cannot tell how much time Mr Mackie charged for in relation to it and I therefore cannot identify how much of the fees relate to this issue.

[71] The second area that I consider is not indemnifiable is the period after 3 June

2016, when Mr Muller was acting. Mr Mackie’s time appears to include attendances on the Public Trust and arranging the mortgage securing the legal fees. The time spent arranging the consent of the Public Trust to act might ordinarily have been within the scope of the trustees’ duties. However, the potential involvement of the Public Trust was only an issue because the trustees had misunderstood the terms of the memorandum of wishes and their obligations under it. This is not to say that the trustees were not acting honestly or genuinely. However, as Lindley LJ in Re Chapman observed, a trustee may be honest and yet act wholly unjustifiably to incur costs which would not otherwise need to be incurred, for example out of an

[72] Thirdly, arranging the mortgage was not within the scope of the trustees’ duties; although the unreimbursed expenses of trustees are a first charge on the property, for so long as the property remained in the hands of the trustees they were entitled to refuse to transfer it until payment had been made. Leaving aside the question of the extent to which the fees were indemnifiable, incurring the cost of a mortgage (over $2,000) was completely unnecessary.

[73] In the circumstances, it was for the trustees, not Ms Chaplow, to demonstrate the extent to which fees were properly incurred in relation to the trustees’ execution of the trust. The onus to demonstrate reasonableness necessarily lies on the trustees

_{once called upon, as Hammond J observed in Re
O’Donaghue.}¹⁴_{This onus not
only}

¹³_{Re Chapman (1895) 72 LT 67 (CA) at 68, cited in
Re O’Donoghue, above n 7.}

required the trustees to give some explanation of the costs they had incurred before this Court, but also to provide details of the fees incurred to Ms Chaplow as the beneficiary when requested.¹⁵They have failed to do this.

[74] Given that some work was done that was indemnifiable and that Ms Chaplow has expressed agreement to paying the Mackie & Co fees incurred prior to 6 July

2016, I am prepared to make an assessment of the reasonable costs incurred up to that date. I take that figure to be Mr Mackie’s 6 July 2016 estimate of $3,500 plus GST and disbursements.

[75] Mr Muller, the principal of GM Legal, took over acting for the trustees from Mr Mackie in June 2016. Mr Muller has sworn a very short affidavit annexing two invoices rendered by GM Legal. Neither was itemised and no time records have been produced.

[76] The first invoice is for $5,129 dated 5 July 2016 for the period up to 30 June

2016. It was prepared for the purposes of an offer to settle all amounts owing to his firm for the amount of $4,200 plus office services, disbursements and GST (the estimate of GM Legal’s costs given in Mr Muller’s email of 6 July 2016). This invoice appears never to have been provided to Ms Chaplow. The narration for the fee was for professional services including:

[77] As I have noted, in correspondence at the time Mr Muller said that the actual amount then owing on a time and attendance basis was $6,090 plus GST, but did not provide details. There was no explanation for the increase from the estimate of

$4,200 plus GST and disbursements. The offer to settle for $4,200 plus GST and disbursements was, however, withdrawn. The invoice was reversed and a fresh invoice dated 28 February 2017 issued.

[78] The 28 February 2017 invoice was for $11,528.75 (including GST) and covered a longer time frame. It contained the following narration:

[79] The same concerns as I have expressed earlier arise in relation to GM Legal’s fees. This ought to have been a straightforward resettlement. The issues that led to the level of cost were largely of the trustees’ own making. Certainly they were entitled to seek an indemnity for exposure arising from unauthorised work that Ms Chaplow had had done. But they were not entitled to seek an indemnity against any claim Ms Lu might have brought. Nor were they entitled to an indemnity for

exposure arising from departing from the memorandum of wishes. Further, as I have discussed, insisting on resettlement on the terms set out in clause 7 of the memorandum of wishes was inappropriate, since clause 7 did not apply to the property. Nor, given that a significant amount of Mackie & Co’s time was not indemnifiable, could the trustees expect to be indemnified for the time spent by Mr Muller trying to secure payment of those fees.

[80] I accept Ms Chaplow’s assertion that at some point the trustees’ desire to protect their own position, in particular to ensure they were not personally exposed on the legal fees, became their predominant concern. They cannot expect to be indemnified for the fees that resulted.¹⁶

[81] I find that the best course is to take the same approach as I have taken to the Mackie & Co fees and accept the estimate given on 6 July 2016 of $4,200 plus GST and disbursements as representing a reasonable amount for work referable to the execution of the trust.

[82] The trustees wish to be discharged. They have concluded that they are unable to administer the trust and, in the circumstances, that is a reasonable view. They have applied under s 51 of the Trustee Act, or alternatively under s 76 of the Public Trust Act, to have the Public Trust appointed the sole trustee in their place.

[83] Ms Chaplow opposes these applications, mainly on the ground that they will result in further cost. She takes the view that the trustees should remain and undertake the task for which they were appointed and that if the Court were to order resettlement of the property all outstanding matters could quickly be resolved. Ms Chaplow’s view is understandable but it is not practical; a trustee cannot be forced to remain against his or her will.

[84] Section 43(1)(c) of the Trustee Act provides that where a trustee desires to be discharged, the person with the power of appointment under the instrument creating

the trust, or if that is not possible the continuing trustee, may appoint a new trustee. In this case, all the trustees wish to be discharged. By virtue of clause 13 of the trust deed, the executors of Mr Munro’s estate, Ms Muir and Ms Hastie, hold the power of appointment. They could, and should, have appointed new trustees. Ms Muir has given no explanation as to why this could not have been done.

[85] However, the Court has the power to remove and replace trustees as part of its inherent jurisdiction to supervise the administration of trusts and under s 51 of the Trustee Act. Section 51(1) allows the Court to appoint a new trustee:

whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult or impracticable so to do without the assistance of the court ...

[86] Expediency is not an especially high threshold; in R v Leitch Richardson P described it (in the criminal context) as setting a lower threshold than necessary¹⁷and in the context of estate administration Associate Judge Osborne considered that the term “expedient” imported considerations of “suitability, practicality and efficiency”.¹⁸

The Court must be satisfied not only that there are grounds for the exercise of the discretion but also that “as is inexpedient, difficult or impracticable to do so without the assistance of the court ...” That condition may be fulfilled where, for example, there is no or inadequate provision in the trust instrument for the appointment of trustees but may also apply even where such provision does exist. If, for example, the court were satisfied that the power to appoint new trustees was unlikely to be exercised fairly and objectively having regards to the interests of all beneficiaries (including those who seek to be on the preferential roll of beneficiaries, then that could afford a basis for the court to conclude that the statutory conditions were fulfilled.

[88] In exercising the power to remove trustees the over-arching consideration is the welfare of the beneficiaries. In Letterstedt v Broers the Privy Council identified

_{the welfare of the beneficiaries as their “main guide” in
exercising the “delicate”}

¹⁹Attorney-General v Ngati Karewa and Ngati Tahinga Trust (2001) 1 NZTR 11-012 (HC) at [68].

jurisdiction of removing trustees.²⁰In Miller v Cameron Dixon J expressed this in more expansive terms:²¹

The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound execution of the powers conferred upon the trustees. In deciding to remove a trustee the court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised. But in a case where enough appears to authorize the court to act, the delicate question whether it should act and proceed to remove the trustee is one upon which the decision of a primary judge is entitled to especial weight.

[89] Incompatibility between trustees and beneficiaries, a not uncommon circumstance, is not, in itself, justification for doing so, but nor is removal for this reason precluded. In Kain v Hutton, the Court of Appeal said:²²

... mere incompatibility between trustees is not enough. Any incompatibility must be at such a level that the proper administration of the trust is seriously adversely affected and it has become difficult for a trustee to act in the interests of the beneficiary.

[90] In the circumstances of this case I have no doubt that the requirements of s 51(1) are met. The relationship between the trustees and the sole primary beneficiary has entirely broken down. The trustees have been compromised as a result of Ms Chaplow dealing with the property herself. Conversely, Ms Chaplow has been disadvantaged by the trustees’ actions in relation to other aspects of the trust’s administration. For whatever reason, those with the power to appoint have elected not to do so and, in any event, any appointment now would be contentious given the poor relationship between Ms Muir and Ms Chaplow. Matters have plainly reached the point where the Court should intervene. But it is not obvious what form that intervention should take.

[91] The Public Trust has indicated that it would act if appointed by the Court and the trustees seek an order under s 76(5) of the Public Trust Act. Mr Taylor, for the

²²Kain v Hutton [2007] NZCA 199, [2007] 3 NZLR 349 at [267] (citations omitted).

trustees, submitted that it was appropriate for the Public Trust to be appointed but did not provide any particular grounds for this.

[92] Ms Chaplow opposes the appointment of the Public Trust on the grounds that doing so would simply increase the level of cost already incurred. Moreover, Ms Chaplow sees the problem as wider than merely replacing the existing trustees. She takes the view that the property could, and should, be resettled on her family trust, the trustees of which are herself and Mr Patterson and that this would avoid the need to appoint new trustees of the Donald Trust altogether.

[93] After careful, and anxious, consideration I have concluded that there is insufficient information to enable orders to be made that would fully address the issues. The trustees are only concerned with being removed and having their legal fees met. But removal can only be achieved by substituting new trustees and that decision depends on factors that the evidence does not address.

[94] First, given my conclusion as to the effect of clauses 6 and 7 of the memorandum of wishes, it must be open to Ms Chaplow to revisit the decisions she has made regarding the retention or sale of the property and, if it is to be resettled, whether it should be resettled onto the family trust in the terms currently proposed or different terms or onto another trust of which she is the sole beneficiary. It is therefore premature to determine Ms Chaplow’s application for resettlement as it currently stands.

[95] Secondly, if the property is to be transferred out of the Donald Trust (either by sale or resettlement) there is a real question as to whether the Donald Trust should continue or be wound up and this may influence the choice of the replacement trustee or trustees. As far as I can tell from the evidence there are either no or no significant assets left in Mr Munro’s residuary estate to go to the trust under the terms of the will. If that is correct it may be better for it to be distributed and the trust wound up. It might be possible for this to be done by Ms Chaplow and Mr Patterson, as trustees of both trusts.

[96] Thirdly, whatever happens to the property and the Donald Trust, the legal fees that I have found to be indemnifiable need to be paid. On the evidence there appear to be only two sources of funds for that purpose. One is the property itself, by selling it or using it as security to borrow. Funds raised in either way would not be available immediately. The other is the rental for which Ms Chaplow has not yet accounted. But no relief has been sought from Ms Chaplow so there is no mechanism for requiring payment from her in the current context. Of course, Ms Chaplow could give an undertaking to pay the fees that are indemnifiable from the trust but I cannot make an order to that effect.

[97] In these circumstances the only orders that I can make are those in relation to the extent of the indemnity and the mortgage. The removal and replacement of the trustees and any decision regarding how the property is to be dealt with must await further evidence and submissions.

(a) Although the trustees were entitled to have regard to, and even to follow, the memorandum of wishes to the extent it did not conflict with the trust deed, they failed to independently apply their minds to that course. As a result they wrongly allowed Ms Lu to occupy the trust property. They misunderstood the effect of the memorandum of wishes and so failed to properly consult Ms Chaplow as to her wishes regarding the Point Chevalier property. And they proceeded on a misapprehension as to the terms on which the property should be resettled;

(b) As a result of these failings significant costs were incurred for work that was not required in the execution of the trust. Therefore only a portion of the fees incurred are indemnifiable from the trust property;

(d) Although there are grounds on which to remove the trustees it is unclear who should be appointed in their place. This depends largely on the future of the Donald Trust. If the Point Chevalier property is to be resettled or sold and there is nothing significant to come from the residuary estate it would, in my view, be premature to appoint the Public Trust because that would simply incur further cost for a trust that has no means of paying further fees. A better solution might be for Ms Chaplow and Mr Patterson to assume responsibility for both the Donald Trust and Ms Chaplow’s family trust.

(a) The trustees are entitled to be indemnified in respect of the legal fees incurred to Mackie & Co to the extent of $3,500 plus GST and disbursements and in respect of the legal fees incurred to GM Legal to the extent of $4,200 plus GST and disbursements;

(c) Counsel are to confer. If there is agreement as to what should happen next I will make consent orders upon the filing of a joint memorandum. Otherwise, counsel are to file a joint memorandum within 14 days proposing a timetable for the provision of further evidence regarding the residuary estate and submissions. To expedite the resolution of this matter I am prepared, if the parties wish, to deal with the remaining matters on the papers.

[100] Both parties seek costs and the trustees seek to have their costs met from the trust property. Since final orders have not been made I reserve costs pending

High Court of New Zealand Decisions

Mackie Law Independent Trustee Limited [2017] NZHC 1570 (10 July 2017)