IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2013-485-648 [2013] NZHC 2590

UNDER	The Trustee Act 1956

BETWEEN	JACINDA ANN FOOTE Plaintiff

AND	CRIAG LINDSAY FOOTE Defendant

Hearing:	4 October 2013

Counsel:	C J Kelly for Plaintiff
No appearance for Defendant

Judgment:	4 October 2013

ORAL JUDGMENT OF THE HON JUSTICE KÓS

[1]       The management of a trust is deadlocked.  One of the trustees has lost interest in its affairs and will make no decisions.   The trust deed provides for majority decision making.  But there are only two trustees.  The deed also provides that in the event of equality the dispute may be referred to arbitration.

[2]       The plaintiff, Mrs Foote, proposes another solution.  It is that both trustees be replaced.  In addition she seeks orders vesting the trust properties in the new trustees and orders for reimbursement of costs that she has incurred personally in sole management of the trust.

Background

[3]       The parties, Mr and Mrs Foote, are the two trustees of the Foote Family
Trust.    They were  formerly husband  and  wife.    They separated  in  2000.    The defendant, Mr Foote, now lives in Tauranga.

FOOTE v FOOTE [2013] NZHC 2590 [4 October 2013]

[4]       The trust was settled on 1 August 1996.  The primary beneficiaries are the plaintiff, defendant and their two children, Deanne and Brandon.   They are now adults in their own right.

[5]       Clause 16 of the trust deed provides for the power of appointment of trustees. The power is vested in “Craig Lindsay Foote or Jacinda Ann Foote” to appoint additional trustees and new trustees, or also to remove any trustee.  Mr Chris Kelly, who appears today for Mrs Foote, accepts that that power must be a joint one.   It would  make  no  sense  in  this  case  for  the  power  to  be  able  to  be  exercised unilaterally.  In that event an appointment could immediately be countermanded by the  other  trustee  removing  the  new  appointee.    Removal  could  immediately be countermanded by reappointment by the other trustee.  None of this makes any sense unless the power of appointment is regarded as a joint one.   I also accept in the circumstances that the power of appointment is one personal to the two named parties.  It is not a power ex officio their status as trustees.  Indeed they are, de facto, the settlors of the trust, even though formally the trust was settled by their then solicitor.

[6]       Clause 17 provides for the making of majority trustee decisions.  The clause is curiously worded:

If the Trustees are not anemones in their decision as to the exercise or non- exercise of any power authority or discretion conferred on them by this Deed of by law then and where there are more than two (2) Trustees the decision of the majority of the Trustees shall be final.

In this case it is clear that neither Mr nor Mrs Foote are anemones.  Nor plainly, in the circumstances, are they unanimous, which I think is the word intended by the draftsperson.

[7]       In this case they have been deadlocked for some time.

[8]       The assets of the trust comprise two properties containing three dwellings (one being a double unit) at Porirua.   The properties were purchased in 1996 or thereabouts.  The purchases were largely funded out of borrowing.  As the property market boomed, equity in the property has become substantial.   The debt is now

quite small.   Rentals paid by the tenants cover basic maintenance.   But they have been insufficient to do more substantial structural maintenance that is now required.

[9]       Mrs Foote deposes in her affidavit that she has been unable to get decisions made by Mr Foote.  He has stopped jointly paying cheques with her. An attempt was made in 2008 to negotiate a solution.   But that has not worked.  An interim arrangement was made for Mr Foote to undertake some repairs on one of the properties.  But he did not complete them.  Further work requires to be done because of a small explosion, the result of a wiring fault.   Mrs Foote then incurred costs herself in order to cover these repairs.  More work still needs to be done.

[10]     An effective resolution to this deadlocked trust needs to be achieved.

[11]     Initially  Mrs  Foote’s  approach  to  the  matter  was  to  deal  directly  with Mr Foote.  As that failed to produce results, she had her then solicitor write to him. None of that seems to have produced very much traction.   More recently she has instructed Mr Kelly.  As Mr Kelly puts it, one definition of insanity is to keep doing the same thing repeatedly and hope that something will change.  So he has attempted to break the deadlock by instead issuing these proceedings.

[12]     The proceedings were issued in April 2013 and appear to have been served on Mr Foote on 14 May 2013.  Mr Foote has taken no steps whatsoever.  No statement of defence has been filed.  No affidavits in opposition have been filed.  Affidavits of service on Mr Foote of the various steps taken by Mrs Foote are on the Court file.

[13]     This morning Mr Foote telephoned the Registry and advised that he was now planning to get a lawyer and take some steps in the proceeding.  Too late.  There is no formal opposition to the proceeding and I intended to proceed to judgment regardless of this late and informal intervention.   I am satisfied that the principal orders sought in this case are ones entirely appropriate to be made.  I cannot imagine what useful opposition Mr Foote could offer at this stage.  In any event, he is well out of time to offer it.

Orders sought

[14]     Mrs Foote seeks three orders:

(a)	An order for the replacement of trustees.

(b)	An order vesting the trust properties in the new trustees.

(c)	Directions  that  the  new  trustees  reimburse  Mrs  Foote  for  certain expenses.

I will deal with each of these in turn.

Order for replacement of trustees

[15]     Section 51 of the Trustee Act 1956 provides the Court with power to appoint a new trustee or trustees if it is inexpedient, difficult or impractical to do so without assistance of the Court.  The Court may appoint new trustees either in substitution for or in addition to any existing trustee.  It is therefore a power both to remove and to appoint.

[16]     One of the situations in which this power may be exercised is where a trustee refuses to act in a reasonable and cooperative manner with other trustees.1   Similarly, where a trustee has refused to carry out the trust.2

[17]     In this case Mr Foote’s complete failure to cooperate in the conduct of the trust, meaning that repairs to trust property have had to be funded personally by Mrs Foote, is ample justification for the making of the orders sought.

[18]     There will be an order removing Mr Foote as a trustee.

[19]     At the same time Mrs Foote seeks that she also be removed, and that the new trustees appointed be the couple’s two adult children, Deanne and Brandon.  They

1	Garrow and Kelly Law of Trusts and Trustees (7th ed, Lexis Nexis, Wellington) at [17.62], citing
Burrows v Rental Space Ltd HC Auckland M1405/98, 7 June 2001.
2	Idem, citing Palairet v Carew (1863) 32 Beav 564 (Ch).

have signed consents to appointment and I am satisfied that it is appropriate that they be appointed.

[20]     An  order  is  now  made  appointing  Brandon  and  Deanne  as  trustees  and removing Mrs Foote also as trustee of the Foote Family Trust.

Vesting order

[21]     Section 52 of the Act provides that the Court has power to vest land in certain circumstances.  In particular s 52(1)(a), where the Court has appointed a trustee of land.

[22]     In this case the Court has removed the existing trustees in whom the trust property is vested and appointed two new trustees.  It follows from that action that in order to give effect to the trust, the Court must vest the property in the new trustees.

[23]     There will be an order vesting the title to the properties in Porirua, certificates of title WN 51C/353 and WN 17C/334, in the joint names of Deanne Charlotte Foote and Brandon Craig Foote.

Reimbursement of expenses

[24]     Mrs Foote seeks directions under s 66 of the Act that, in accordance with s

38(2), the trustees reimburse her for the expenses she has incurred on behalf of the trust, including legal fees and costs incidental to this application.

[25]     It is a fundamental proposition that a trustee need not conduct the affairs of a trust at his or her own expense.3   Section 38(2) provides that a trustee may reimburse all expenses reasonably incurred in the execution of the trust.  That provision is in addition to, rather than substitution for, ordinary principles of Equity governing trustees’ indemnities.  The provision does not refer specifically to reimbursement of the costs of a former trustee.  However, that has been dealt with by Dobson J in Bank
of New Zealand v Rowley.4  He concluded that a trustee’s indemnity survives even

3	Tudball v Medlicott (1888) 59 LT 370 (Ch).
4	Bank of New Zealand v Rowley [2012] NZHC 3540, (2012) 25 NZTC 20-157.

after ceasing holding that position.  There is also authority for that approach in the

Federal Court of Australia in Rothmore Farms Pty Ltd v Belgravia Pty Ltd.5

[26]     In this case I do not think it is necessary for me to make a formal direction under s  66.    I have looked at  the schedule of  costs  incurred  and  the  evidence provided by Mrs Foote.  I am satisfied that the building costs and invoices referred to in Mrs Foote’s first affidavit are appropriate trust costs. As is the income tax amount paid, also referred to in the same affidavit.   The legal fees Mrs Foote incurred in attempting to manage the affairs of the trust are appropriate ones to be met out of the costs of the trust.  All should be reimbursed to her by the new trustees as proper trustee expenses.

[27]     The same goes for the unpaid costs of Mrs Foote’s present solicitor, to the extent they are not repaid by Court orders for costs which will be made shortly.  So in the first instance the trust may reimburse Mrs Foote for her present solicitor’s costs.  But in due course when costs are paid by the defendant to the plaintiff, she must reimburse the trust for that payment.

Costs

[28]     This is an appropriate case for costs being awarded against the defendant. This application was necessitated by his persistent inaction as a trustee.

[29]     I will order costs on a category 2 band B basis accordingly, together with reasonable disbursements as fixed by the Registrar.

Stephen Kós J

Solicitors:
Greg Kelly Law Limited, Wellington for Plaintiff

5	Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745.