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Guest v Warner [2018] NZHC 666 (12 April 2018)

Last Updated: 12 April 2018

JUDGMENT OF JAGOSE J

This judgment is delivered by me on 12 April 2018 at 4.30 pm pursuant to r 11.5 of the High Court Rules.

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Registrar / Deputy Registrar

Solicitors:

Greg Kelly Law Limited, Wellington (Plaintiff) G Mathieson, Wellington (Plaintiff)

Devonport Law Limited, Auckland (for Defendant) J R Ross, Barrister, Whangarei

GUEST & ORS v WARNER [2018] NZHC 666 [12 April 2018]

Introduction

[1] This judgment determines issues relating to the trusteeship of the Martin and Anne Guest Family Trust (the “M&A Family Trust”). This proceeding is to determine who are, or should be, the M&A Family Trust’s trustees.

[2] There are other proceedings between the parties relating to the quantification of the M&A Family Trust’s assets, and to their distribution to beneficiaries. A substantial amount of the evidence in this proceeding, led to explain or criticise various conduct relied on in this proceeding, will likely be determinative of those other proceedings. For that reason, except as necessary to determine this proceeding, I do not more expansively consider the factual background.

Relevant background

[3] William John Guest (“Bill”) and Nicholas Martin Guest (“Martin”) are brothers. In an informal partnership from 1976 onwards, they conducted farming and farm contracting businesses in Te Kopuru, near Dargaville in Northland’s Kaipara district. Bill was married to Glenis Doreen Guest (“Glenis”); Martin to Mary Anne Guest (“Anne Guest”). The partnership informally leased land from the M&A Family Trust, the Bill and Glenis Guest Family Trust (the “B&G Family Trust”), Bill, Martin, and Anne Guest.

[4] By deed of 22 May 1998, an accountant, Peter Robert Crawford, had settled the M&A Family Trust with a gift of $10 on trust, to make provision for Martin and Anne Guest “and their children and grandchildren and any other beneficiaries added pursuant to the provisions of this deed”. The three of them were the M&A Family Trust’s initial trustees, to hold the $10, together with whatever property was transferred to them or otherwise acquired, on such trust.

[5] Martin died on 15 August 2012. Anne Guest was executor of Martin’s will. The businesses continued under a new partnership between Bill and the M&A Family Trust until Bill died on 23 July 2016, bringing that partnership also to an end. Anne Guest earlier died on 29 February 2016.
[6] Martin and Anne Guest’s children are Aaron, Joanne, Melissa, and Phillip. The evidence is unclear on their grandchildren; at least Aaron also has children, and Joanne was pregnant at the time she gave evidence. Absent intermediate distribution by trustees, final distribution on 1 May 2078 is to such of the beneficiaries as may then be living as tenants in common in equal shares. But trustees may finally distribute the M&A Family Trust’s assets – or, before that final distribution, the M&A Family Trust’s income and capital – to beneficiaries as they see fit, including to any’s exclusion.

[7] Aaron has made contractual and testamentary promises claims against his parents’ estates and the M&A Family Trust, to be able to continue the farming businesses with Bill and Glenis’s son, Sam. Aaron and Sam worked in their families’ farming businesses, while Martin and Anne Guest’s other children left the farm and the area to study and work elsewhere. Some indication of Aaron’s unique position is what I have understood to be a gift to him (whether or not in settlement of some claim) from each Bill and Martin, or respectively from the B&G Family Trust and the M&A Family Trust, of 50 per cent of a property at Norton Road in Te Kopuru, otherwise owned in equal shares by the partners or the trusts. Bill’s share was transmitted to Aaron in Bill’s will, and a similar wish was expressed for the M&A Family Trust’s share in Anne Guest’s memoranda of wishes and will, expressly “not to be taken into account” in other distributions to beneficiaries. Aaron’s claims are in part based in assertions the trusts’ objectives were to provide the mechanism for succession planning for the farms and partnership. This is one of the proceedings I referred to at
[2] above.¹

[8] The present proceeding was brought by Anne Guest, both as trustee of the M&A Family Trust and in her personal capacity, and is continued by trustees of the M&A Family Trust, and the executors of her will. The proceeding is brought against Judith Anne Warner (“Anne Warner”). Anne Warner had long been associated with the Guest families, and especially with Bill and Martin’s partnership to which she provided financial bookkeeping services. She worked closely with Bill in farmer advocacy organisations in which he was active. She was appointed a M&A Family

¹ A N Guest v M A Guest CIV-2016-488-0102.

Trust trustee after the partnership’s accountant, formerly a M&A Family Trust trustee, died.

[9] After Martin’s death, Anne Guest’s involvement in the partnership led her to raise questions about the partnership’s accounting, especially as to whether it was conducted equally between Bill and Martin, which now are material in undertaking the partnership’s dissolution. These queries and their responses led to differences between Anne Guest and Anne Warner.

[10] Anne Guest was assisted in those queries by her brother, Basil Ian Livingstone (“Ian”). Ian is the sole director and shareholder of Guest Trustee Limited (“GTL”). His (and Anne Guest’s) parents were creditors to the partnership, repayment of which was in long-term default (but since repaid in full). Ian and Anne Guest developed the view the partnership had operated to Bill’s benefit, and Martin’s corresponding disadvantage, which view is adopted by Joanne and Melissa.

[11] Another proceeding has been issued against Glenis and the B&G Family Trust’s trustees, which I apprehend seeks an alternative accounting for the partnership. This is the other of the proceedings I referred to at [2] above.² By that time, Anne Guest had indicated her wish to exit the partnership.

[12] By deed of 9 October 2015, in her own capacity and as executor of Martin’s will, Anne Guest sought to remove Anne Warner, and to appoint GTL, as trustee of the M&A Family Trust. Anne Warner disputed the validity of Anne Guest’s actions, and declined to authorise transfer of M&A Family Trust property in her name as trustee to the new trustee.

[13] After Anne Guest’s death, as executors of her will, Joanne and Melissa appointed Joanne to act as trustee of the M&A Family Trust together with GTL. Subsequently, they also appointed M Guest Investment Trust Limited (“MGITL”) as a further trustee. Melissa is MGITL’s sole director and shareholder. GTL and MGITL have no material assets.

² J E Guest v G D Guest CIV-2016-488-0015.

[14] In this proceeding Joanne and GTL, as M&A Family Trust trustees, and Joanne and Melissa as executors of Anne Guest’s will, seek declarations that only Joanne, GTL, and MGITL are M&A Family Trust’s trustees; alternatively, they seek orders removing Anne Warner as M&A Family Trust trustee, and appointing Joanne, GTL, and MGITL in Anne Warner’s place. They also seek orders vesting property in the names of Joanne, GTL, and MGITL as M&A Family Trust trustees. Such orders appropriately accompany orders for removal of a trustee from a land-owning trust.³

[15] Anne Warner did not accept she was properly removed as trustee. Nonetheless, by counterclaim, she proposed all trustees (including herself) be removed by the Court, to be replaced by Phillip and a professional trustee. By the time of hearing, she proposed a single professional trustee to oversee the M&A Family Trust’s next steps. Her counterclaims allege the other trustees have breached fiduciary duties including by jeopardising trust asset refinancing through their inaction, and her removal, and by disregarding Aaron’s argued distinct beneficial interests. Aaron claims his sisters, and Ian, are hostile to him.

Removal and appointment of trustees

[16] Section 43(1) of the Trustee Act 1956 (the “Act”) identifies the power to appoint trustees resides first in “the person nominated for the purpose of appointing new trustees by the instrument (if any) creating the trust”.

[17] Clause 2 of the M&A Family Trust deed vested “the statutory power of appointment in [Martin and Anne Guest] during their lifetimes”, and thereafter in the executors of their wills. Clause 3 provided the person with that statutory power also with power relevantly to appoint additional trustees (including themselves), and to remove and to replace any trustee.⁴ The latter is expressly:

To remove a Trustee or Trustees from his or their office or offices and to appoint any other person or persons or trust company to be a Trustee or Trustees hereof either jointly with any continuing trustee or solely if after such removal there shall not be any continuing Trustee.

³ Foote v Foote [2013] NZHC 2590, [2013] NZAR 1386 at [22].

4. Clause 3 provides such power is “[s]ubject to the proviso in subclause (a) of this clause”. Subclause (a) has no proviso. It appears accepted the clause’s opening words err.

[18] There is a question about whether a nominated settlor’s power to appoint and remove trustees is a fiduciary power (to be exercised with a view to the interests of the beneficiaries of a trust), or a personal power (without any such constraints but nonetheless to be exercised in good faith for the purpose for which it was given).⁵ The contest is between viewing that power as sourced in the trust deed, or as a necessary adjunct to settlement of the trust. However, because of the view I take for its resolution, I do not have to decide the question in this proceeding.

[19] The plaintiffs claim Anne Guest’s removal of Anne Warner was properly motivated. In particular, they point to Anne Warner’s supposed conflict of interest as a trustee also in receipt of benefits from the partnership, a conflict said to manifest in her withholding of information from Anne Guest. If Anne Warner has not been removed, they say she should be now. As noted at [15] above, Anne Warner is content to be removed, if replaced with a professional trustee, but denies any conflict or withholding. She is supported in that objective by Aaron, who views his siblings’ and Ian’s attitudes to him contrary to his interests.

[20] It is certainly clear there has been a breakdown in family relations. It seems to be founded in a dispute about Bill’s treatment of Martin, and subsequently Anne Guest, as partners in the farming businesses. Ian, Joanne, and Melissa express marked antipathy to what they describe as Bill’s misconduct of the businesses, which colours their view of others associated with the businesses, such as Anne Warner and Aaron.

[21] Although each Ian, Joanne, and Melissa professed their ability to exercise their trustee duties “impartially”, there is enough in the evidence from which at least to perceive less neutral positions taken by them affecting Aaron. Among the more striking aspects are the following:

(a) Ian insisted on ‘equal’ division as negating any claim to a succession plan for continuing the farming businesses (and this point was echoed in a rehearsed way by Joanne and Melissa);

5. Greg Kelly and Chris Kelly Garrow and Kelly: Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at [16.43].
   • (b) Joanne issued a trespass notice to Aaron, on Anne Guest’s apparent direction, in relation to Aaron’s occupation of the family home in Anne Guest’s absence;

(c) Melissa responded pejoratively to Aaron’s written expression of his desire for Anne Warner’s retention as trustee, saying she doubted he could read the letter he signed; and

(d) they all gave dismissive explanations for belated advice to Aaron about Anne Guest’s death, and also for Aaron’s omission from the order of service for her funeral.

There are other indications of these trustees’ partiality as between beneficiaries’ interests, especially in their hostility toward Bill, Glenis, and Anne Warner, all of whom are associated with Aaron. Even leaving aside the personal clashes, they insisted under cross-examination the purposes of the trust are to be derived from a context-free reading of the M&A Family Trust deed and Martin and Anne Guest’s wills. On its face, this to my mind suggests a degree of wilful blindness to seeing any another objective.

[22] The necessary collaboration between Ian, Joanne and Melissa on trust matters easily lends itself to appearances of collusion. Their conduct in the public gallery during the trial of this proceeding exemplified the gap between them and Aaron, and also Anne Warner and Glenis. In particular, one of them appeared openly derisive while Aaron was giving evidence; more generally, there was the inevitable separation of parties actively involved in litigation against each other. The availability of perceptions of partiality is a disqualifying factor – especially in such family relationships, when the trustees are also either some of the beneficiaries or closely associated with some of them.⁶

[23] Nonetheless, Anne Warner should not actively have resisted her removal, but only have sought the Court’s directions if there was a basis to do so.⁷ An application for such directions could have relied on s 51(1) of the Act, which provides:

⁶ Blair v Vallely (1999) 1 NZTR 9-002 (HC) at 30.

⁷ Carmine v Ritchie [2012] NZHC 2279, (2012) 3 NZTR 22-025 at [3]- [4].

The court may, 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, make an order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

‘Substitution’ necessarily infers a power of removal, which the Court has in its inherent jurisdiction in any event.⁸

[24] As the Court of Appeal found in R v Leitch (in a criminal context, but the principle applies more widely), ‘expedient’ connotes a lower threshold than ‘necessary’.⁹ Courts have taken ‘expedient’ to mean:¹⁰

... conducive to, or fit or proper or suitable having regard 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 exercise of the powers conferred upon the trustee’.

The word “imports considerations of suitability, practicality and efficiency”.¹¹

[25] On the other hand, a trustee should not be removed lightly: the motivating reason for trustees’ removal must be some “detriment to the administration of the trusts”.¹² ‘Expedience’ is not enough on its own for the Court to appoint new trustees. There must also be reason for the Court’s assistance: for example, in circumstances in which others have powers to appoint, some reason to doubt those powers will be exercised appropriately.¹³ Removing a trustee is an inherently discretionary exercise to be made in pursuit of the “satisfactory execution of the trust for the welfare of the beneficiaries”.¹⁴

[26] As to who the Court will appoint, the general principle is “to appoint the person or persons best suited to administer the Trust in the circumstances prevailing”.¹⁵ More specifically, the Court is guided by three considerations:¹⁶

⁸ Green v Green [2015] NZHC 1218, (2015) 4 NZTR 25-017 at [598] and [600].

⁹ R v Leitch [1998] 1 NZLR 420 (CA) at 429.

10. Re Roberts (1983) 70 FLR 158 at 162 cited in Re C P Clifton Children’s Trust (2004) 1 NZTR 14- 018 at [33].

¹¹ Peng v Rothschild Trust (Schweiz) AG [2017] NZHC 25, (2017) 4 NZTR 27-001 at [38].

¹² Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [146] and [153].

¹³ Attorney-General v Ngati Karewa and Ngati Tahinga Trust (2001) 1 NZTR 11-012 (HC) at [68].

¹⁴ Green v Green, above n 8, at [606].

¹⁵ Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA) at 97.

¹⁶ At 97-98.

(a) settlor’s intentions: the Court will give considerable weight to the expression of the settlor’s intentions as to the identity of the trustees, if such can be discerned. But the Court is not bound by them, and may depart from them “if good cause is shown”;

(b) neutrality between beneficiaries: trustees must be neutral and even- handed as between beneficiaries with different interests. Courts typically will refuse to appoint beneficiaries (or their spouses or relatives or advisors) or others interested in the trust property, even though their appointment would not be objectionable on that ground alone;¹⁷ and
(c) promotion of the purposes of the Trust: this is inherent in any trusteeship.

Application in the present case

[27] At the core of the dispute affecting the parties is the extent of the M&A Family Trust’s assets, particularly as may yet be drawn from the partnership, and whether and in what proportion they should be distributed, now or subsequently. Ian, Joanne and Melissa all gave evidence to the effect there should no distributions from the M&A Family Trust until its assets and liabilities are identified, and then such distributions should be made “equally” between the beneficiaries.

[28] The impasse meant the partnership defaulted on loan repayments, and risked mortgagee sale of the farm, despite a debt/asset ratio of $1.4m/$5.0m and a refusal by the M&A Family Trust trustees to consider refinancing. As a result of a mediation (presumably between at least the parties to the proceeding) some of the M&A Family Trust’s land was sold to obviate that risk. Yet, between them, Ian, Joanne and Melissa have spent over $560,000 of their own money in advances to the M&A Family Trust in connection with the various proceedings.

[29] Ian, Joanne and Melissa intend the freeze on M&A Family Trust assets to include the Norton Road property, as an outworking of beneficiaries’ ‘equal’ treatment.

¹⁷ See also the cases referred to in Garrow and Kelly, above n 5, at [16.108]-[16.115].

The Norton Road property provides a neat view of the inter-relatedness of some issues affecting both trust property and beneficiary interests. On the one hand, Melissa said she understood Aaron’s 50 per cent “settled his prior years of unpaid wages”. Aaron said, “at the beginning”, the house at Norton Road was for his parents to live in until it was relocated to the farm, and Aaron would remain in the family home on the farm. But ultimately Aaron and his partner, Maree, moved into the Norton Road property. Melissa acknowledged Anne Guest’s intentions to gift Aaron the balance of the property, but said it would have to wait until determination of Aaron’s claim, and determination of M&A Family Trust’s “assets and liabilities before any form of distributions are made to any beneficiary”.

—should a new trustee be appointed?

[30] In my view, appointment of a new trustee in substitution for the present trustees is pragmatic and desirable, for the following reasons:

(a) the beneficiaries’ interests are better served without some beneficiaries, or those beneficiaries’ advisors or confidantes, acting as trustees. That is particularly the case when there is a split in beneficiaries’ interests and fealties, not represented in the trustees;

(b) I am concerned for the security of M&A Family Trust’s property. That property was at least initially intended to support a working farm and partnership, but it appears the trustees are more focused on its realisation into capital for distribution; and

(c) Ian, Joanne and Melissa’s plain “animosity” towards Bill and the partnership is a clear disincentive to their efficiently executing the trusts, and faithfully and soundly exercising their trustee powers.

[31] The potential for the trustees to misstep is illustrated by the plaintiffs’ urgent application for appointment of a receiver to realise the partnership’s assets, to avoid the mortgagee sale I referred to at [28] above, and to give the M&A Family Trust “control of their share of the farm”. In his minute of 15 December 2016, Moore J refused to grant such urgency. His Honour observed the application appeared to be an attempt to sidestep Bell AJ’s direction for the present proceeding to be determined in
advance of the partnership proceeding, which sought comparable relief to the application. The application’s “natural consequence must necessarily be that the farm will no longer be viable”; and its granting “would necessarily incur very substantial costs for all parties”.

[32] Although Joanne and Melissa, as executors of Anne Guest’s will, have power to make such substituting appointment, the evidence is plain they will not do so. No one is identified by them as an alternative or additional trustee. Melissa objected to appointment of a professional trustee on grounds the M&A Family Trust could not afford it without liquidating assets. But the M&A Family Trust presently has both significant cash on hand and an income stream, although there are also anticipated liabilities said to be capable of consuming both.

[33] The plaintiffs’ counsel, Chris Kelly, emphasised in submissions the wasted expenditure involved in any new appointee coming up to speed. It is strongly urged for the plaintiffs the appropriate trustees are Ian, Joanne and Melissa. But the ‘wasted expenditure’ is not the M&A Family Trust’s; it is of Ian, Joanne, and Melissa personally, which they have incurred without entitlement to its recovery. Their ‘investment’ is in anticipated recovery of net equity assessed at $2.7m. I do not know if that ‘investment’ was necessary or desirable in terms of the trust objects and powers.

[34] For those reasons, I find it expedient to appoint a new trustee in substitution for the present trustees. I also find it is at least unlikely such appointment will occur without the Court’s intervention.

—who should the new trustee be?

[35] The M&A Family Trust deed gives no indication of the settlors’ intentions as to who may or may not be appointed as trustees.

[36] I can draw limited inference as to those intentions from Martin and Anne Guest’s subsequent appointment of trustees. Prior to Martin’s death, the M&A Family Trust’s trustees were Martin and Anne Guest, plus the partnership’s accountant, Peter Crawford. On Mr Crawford’s retirement, they appointed the partnership’s new accountant, Tony Cocurullo, to take his place as trustee. At about the time of
Mr Cocurullo’s death, they appointed the partnership’s bookkeeper, Anne Warner, to take his place. I might be able to infer from those appointments a desire to have a financially experienced trustee without any beneficial interest in the trust property, but realistically there is no express or implicit expression of the settlors’ intentions.

[37] The weight the courts place on neutrality as between beneficiaries, and the courts’ refusals to appoint even people with indirect interests in trust property, strongly favours appointment of a professional trustee. That would tend to exclude Aaron’s and Anne Warner’s nomination of Phillip as a trustee (which Anne Warner had withdrawn in any respect by the conclusion of trial). Both Aaron and Anne Warner also suggested appointment of Gunson McLean Trustees Limited, which was involved in the mediated sale and purchase of some of the M&A Family Trust’s property. While I have no reason to think Gunson McLean Trustees Limited would be partial to its nominator’s interests, I acknowledge appearances of partiality are still material, and its particular appointment was opposed by the plaintiffs.

[38] Last, promotion of the M&A Family Trust’s purposes requires the trustee to stand back from the present contests, objectively to consider exactly what those purposes are and how they are best to be promoted. To my mind, that is presently best achieved by appointment as trustee of an experienced trust lawyer, desirably with experience in negotiation and mediation techniques as means of dispute resolution.

[39] Anne Warner’s counsel, Cushla Webster, advised very late in the piece of the possible availability for appointment of Auckland barrister and solicitor, Chris Darlow of Grove Darlow. After trial concluded, I was provided with Mr Darlow’s confirmation to counsel of his availability. No objection to that appointment has been made. From what I know of Mr Darlow’s reputation, he is likely to meet the requirements at [38] above.

Result

[40] I will appoint a new trustee in substitution for the present trustees of the M&A Family Trust, and vest the property described in North Auckland Land Registry identifiers NA15A/115, NA89/298, NA24D/1400, NZ7D/73, and NA118B/835 in that new trustee. Counsel should advise if that list is incomplete or inaccurate.
[41] I invite counsel to agree the identity of a new trustee meeting the requirements for such appointment at [38] above, and confirm that agreement by joint memorandum to be filed within 10 working days of this judgment; alternatively, within that same period, to file and serve any memorandum with full grounds for opposing Mr Darlow’s appointment, and any memorandum in response within 5 working days of service of the memorandum in opposition.

Costs

[42] In my preliminary view, each party should bear their own costs in this proceeding. That is because:

(a) the costs should not be borne by the M&A Family Trust;

(b) no-one can claim truly to be the successful party in this proceeding;¹⁸

(c) the costs of the Martin and Anne Guest family members and advisors are further investments made in those beneficiaries’ personal interests; and

(d) Anne Warner’s liability for her own costs acknowledges the Carmine v Ritchie principle: a trustee who unsuccessfully fights an action for their removal without the court’s sanction “is personally exposed to costs, even if he or she acts on counsel’s opinion and in good faith”.¹⁹
Some costs incurred in this proceeding may be recoverable in one or another of the other proceedings. I do not know. A decision parties should bear their own costs in this proceeding does not prevent that.

[43] If my preliminary view is not accepted by any party, and costs cannot otherwise be agreed between them, costs are reserved for determination on short memoranda of no more than five pages – annexing a single-page table setting out any contended allowable steps, time allocation, and daily recovery rate – to be filed and served on all parties by:

¹⁸ High Court Rule 14.2(1)(a).

¹⁹ Carmine v Ritchie, above n 7, at [4].

(a) any party claiming costs within ten working days of the date of this judgment;

(b) any party opposing costs within five working days of service of the claimant’s memorandum; and

(c) the relevant claimant strictly in reply within five working days of service of the opponent’s memorandum.






—Jagose J