IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE

CIV-2018-443-16 [2018] NZHC 2963

IN THE MATTER

AND	of the Trustee Act 1956	

IN THE MATTER	
of an application pursuant to s 51 of the
Trustee Act 1956	

BETWEEN	
LINDA MARGARET THOMSON AND KERRY WAYNE THOMSON
Plaintiffs	

AND	
KEVIN JOHN RILEY Defendant	

Hearing:	10 October 2018
(further submissions received 19 and 31 October 2018)	

Appearances:	
S Hughes QC for Plaintiffs
J Marinovich and S Ebert for Defendant	

Judgment:	
15 November 2018	

(INTERIM) JUDGMENT OF GRICE J

[1]       Mr and Mrs Thomson, the plaintiffs, and Mr Riley, the defendant, are the executors and trustees of the estates of their late parents, Kenneth Riley who died on
18 July 1999 and Margaret Riley who died on 26 March 2013.   Their children, Mrs Thomson and Mr Riley, are the sole beneficiaries of their estate.

[2]       The primary asset of the Riley estate is a farm property at Kaimata in Taranaki. The wills of Kenneth and Margaret Riley anticipate that Mr Riley could acquire ownership of this farm property by exercising an option to purchase under the wills.

THOMSON v RILEY [2018] NZHC 2963 [15 November 2018]

[3]       Kenneth and Margaret Riley had mirror wills.  The farm was owned by them as tenants in common in equal shares, with the surviving partner having a life interest under each will.

[4]       Mr Riley’s option under the wills was to purchase the farm as a going concern. The valuation process is set out in the wills.   The trustees may provide a second mortgage at a rate of interest and other terms and conditions to be determined by the trustees.

Issues

[5]       It is common ground now that the option to purchase has been properly exercised. The parties have also now agreed that they will all resign as trustees and a replacement trustee should be appointed by the court.   The appointment of new trustees will bring these proceedings to an end.

[6]       Counsel came to this agreement after some initial dispute concerning the scope of today’s hearing. They agreed that the:1

Agreed	1.  Trustees resign;
2.  Replacement trustees follow terms of will;
3.  Option to purchase has been exercised;
4.  Primary function to sell farm according to option process in Wills;
5.  Trustees acting as “trustees” and not “executors”.

[7]       The only matter for this court is whether it should appoint new trustees and if so who the new trustees should be.

Disputed evidence

[8]       At the outset of the hearing Ms Hughes indicated that there were a number of items of evidence contained in the briefs of evidence and affidavits that she objected to on the basis that the parties had agreed that the hearing was limited to the appointment of replacement trustees.  She noted that the basis upon which the parties
had agreed to proceed was that the evidence would be focused on the issue of the new

1	Handwritten agreement handed up by counsel at the hearing of 10 October 2018.

trustees to be appointed. This was to avoid criticisms being made of the other by either party.

[9]       Ms Hughes    submitted    that    the    briefs    filed    by    Mr Riley    and

Ms Van Wyngaarden strayed considerably from the agreed point of the hearing and engaged   on   a   wholesale   attack   on   the   Thomsons.       She   sought   that
Ms Van Wyngaarden’s brief of evidence from [4] to [23] and Mr Riley’s brief of evidence from [8] to [56], [64] to [135] and [139] to [152] be redacted. At the hearing it was noted that she did not seek that any of the documents which had been produced in the common bundle be excluded from the hearing.

[10]     Accordingly, I decline to make the orders for redaction as sought, as:

(a)       Mr Riley  has  responded  to  the  issues  raised  by  Ms Thomson  and purports to explain his reasons for acting in the way Ms Thomson has criticised    in    her    evidence.         Mr Riley    and    his    partner
Ms Van Wyngaarden have set out the background as they see it. It may be that Ms Thomson’s background affidavit was more restrained and succinct than Mr Riley’s.  Nevertheless, Mr Riley is entitled to reply.

(b)       Much of the evidence is by way of background and not directly relevant to the matters I need to decide. Nevertheless, it is a useful background. I will receive the evidence and put such weight as I consider appropriate on it; and

(c)	I also bear in mind that the evidence of neither the Thomsons nor of

Mr Riley or Ms Van Wyngaarden has been tested in cross-examination.

Appointment of trustees – s 51 of the Trustee Act 1956

[11]     Under s 51(1) of the Trustee Act 1956, the court may appoint a new trustee or trustees, if:

(a)	It is “expedient” to appoint a new trustee or trustees; and

(b)      It is “inexpedient, difficult, or impractical, to do this without the assistance of the court”.

[12]     The principles that govern appointment under s 51 of the Act were summarised by Randerson J in Attorney General v Ngati Karewa and Ngati Tahinga Trust when he said:2

The Court must be satisfied not only that there are grounds for the exercise of the discretion but also that ‘it 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 regard 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.

[13]     The word “expedient” imports concepts such as practicality and efficiency.3  In this case I consider it is expedient to appoint new trustees for the following reasons:

(a)       The present trustees have indicated they wish to resign;

(b)       The evidence discloses there have been a number of disputes between the parties.  In particular, concerning the deductions that Mr Riley has indicated  he  will  be  claiming  on  the  transfer  value  he  will  pay Mrs Thomson for her share in the farm.  This is the most significant asset in the estate.  The disputes go back some years and strike at the heart of their relationship.

(c)       For periods of time Ms Thomson and Mr Riley and their respective families have not spoken to each other because of the disputes.

(d)       While the parties agree they should resign have been unable to agree upon who should be the new substitute trustee.

2	Attorney General v Ngati Karewa and Ngati Tahinga Trust HC Auckland M2073/99, 5 November
2001 at 21.
3	R v Leitch (1997) 15 CRNZ 321 (CA) at 327 – 328 cited in Crick v McIlraith [2012] NZHC 1290 at [18].

(e)       The evidence indicates that parties remain suspicious of the other’s motives.

[14]     It is clear that the parties are unable to reach agreement on who should be appointed in their places.  Without the assistance of this Court, it is likely that that progress in the distribution of the trusts and the sale of the farm would face substantial disputes and delays.

[15]     I am of the view that it is appropriate for the court to assist in the appointment of trustees to replace the present trustees. Having resolved that matter, the major issue now before me is who those trustees should be.

Who should replace the present trustees

[16]   Often where there are trustees whose relationship has become fraught, particularly where they are also beneficiaries, they become entrenched, and this results in a contested application for the removal and replacement of the trustees. In this case the parties must be given credit for the fact they agree that they should all step down and be replaced with an independent trustee or trustees.

[17]     Two potential groups of trustees are proffered as options before the Court:

(a)       The Thomsons suggest the appointment of Mr Larmer and Ms James as trustees.

(b)	Mr Riley suggests the appointment of the New Zealand Guardian Trust

Company Ltd (Perpetual Guardian).

Mr Larmer and Ms James

[18]     The Thomsons press for the appointment of Mr Larmer and Ms James on the basis that:

(a)       Mr Larmer  has  the  required  expertise  and  experience  in  areas  of valuation, dispute resolution (both mediation and arbitration) and farm advisory  work.    He  has  an  impressive  list  of  appointments  and

positions. He was previously a principal in a firm of registered valuers in New Plymouth.   He is no longer with that firm and no longer undertakes valuation work in the Taranaki area, due to an agreement with his former firm.   He now concentrates on appointments as trusteeships, advisory work and dispute resolution.

(b)       Ms James is a chartered accountant and a partner with Staples Rodway based in New Plymouth.   She has an impressive governance background, including as a founding director of Fonterra Co-operative Group Ltd up to 2003.

(c)	Both Mr Larmer and Ms James have experience as trustees.

[19]     Mr Riley says that he likes Mr Larmer’s experience in regard to resolving the dispute. However, he considers the job of mediating “or deciding the dispute” is quite separate to the job of trustee of the estates.  He sees advantages in keeping the two roles separate which is why he says he prefers Perpetual Guardian to be the trustee and to have Mr Larmer deal with the dispute.

[20]     The criticism made of Mr Larmer by Mr Riley is not that he does not have the skills, but rather that his particular skills lie in dispute resolution and farm advisory work. Mr Riley says he is willing for Mr Larmer to be retained to undertake that work in relation to resolving the disputes between the parties.  However, Mr Riley says:

(a)       Mr Larmer was willing to undertake a dual role as dispute resolution practitioner and trustee. These roles are incompatible.

(b)       Mr Riley’s partner, Ms Van Wyngaarden, had a telephone conversation with Mr Larmer where she discussed the possibility of him assisting in resolving the disputes. Therefore, this gives rise to a conflict of interest as Mr Larmer had expressed some views.  Mr Larmer does not deny there was a conversation, and in fact agrees that some of the notes made by Ms Van Wyngaarden would likely be things he said.  For instance, “cost  value”  and  references  to  values  of  land  would  have  been

references to his comments. However, he cannot specifically recall the conversation.  He said he often had inquiries about his availability as a dispute resolution practitioner and, given he cannot recall this conversation, it must have been a very general inquiry.

(c)       No objection is taken to Ms James’ credentials.  However, Mr Riley says that his partner was on a netball committee with Ms James some years ago and so this is a conflict.  He also notes she was founding director of Fonterra which may mean she might favour Fonterra to take the farm milk.  In response, Ms James says she has not been involved with netball although she has been involved with other sporting organisations and cannot recall any dealings at all with Mr Riley’s partner.  I also note that her Fonterra role ended some 15 years ago.

[21]	In my view, neither of the argued conflicts put forward would be impediments per se to the appointment of either Ms James or Mr Larmer in the ordinary course.

[22]	In relation to Mr Larmer:

(a)       His willingness to also act as a dispute resolution facilitator in the past as well as a trustee does not disqualify him from being appointed.  I would have reservations about a trustee acting as an arbitrator (in the formal sense) as that role imports other responsibilities which may be at odds with the fiduciary obligations of a trustee. However, that is not the issue here.

(b)       In relation to the telephone conversation that Ms Van Wyngaarden recalls.   Copies of her notes made at the time were attached to her affidavit.  The notes contain information not only about the telephone conversation she said she had with Mr Larmer, but also outline a strategy for Mr Riley to take in relation to the farm.  It refers to the names of accountants and lawyers who might assist.   This material appears to be unrelated to any conversation with Mr Larmer.  I accept
Mr Larmer’s evidence that if there was a query by Ms Van Wyngaarden

it was of a general nature. It would not be sufficient to give rise to any conflict of interest in the ordinary course.

[23]     I also consider both Mr Larmer and Ms James are well qualified to undertake the role of trustees.

[24]     That being said, I have reservations about whether it is appropriate to appoint them in the present circumstances. I refer to those later.

Perpetual Guardian

[25]     Mr Riley nominates the Perpetual Guardian as an independent trustee to replace himself and the Thomsons.

[26]     Mr Fifield gave evidence.  He is the branch manager of Perpetual Guardian covering  the  areas  of  Manawatu  and Taranaki.   The  company  has  an  office  in New Plymouth.

[27]     Perpetual Guardian is:

(a)	A professional trustee company set up under statute;

(b)	Regulated by the financial markets authority for some of its operations;

(c)	Has	offices	nationwide	with   over	140,000   will   relationships, administering or supervising assets valued over $100 billion;

(d)	The company has 135 years of experience in estate planning and trustee services in New Zealand;

(e)	Has  been  appointed  countless  times  as  an  independent  trustee  to administer dairy farms such as the present;

(f)	Has established systems and processes over many years to ensure compliance with legislation and best practices; and

(g)       Holds insurance to cover trustee activities, excluding only health and safety matters and certain tax matters.  Mr Fifield’s evidence was that in the areas that it does not insure for (Health and Safety and specific
tax issues) no insurance cover is available at all in New Zealand.

[28]     Mr Fifield  had  reviewed  Kenneth  and  Margaret’s  wills  and  had  some knowledge of the estate assets, but not in detail.  In fact, the Perpetual Guardian’s consent to act as trustee was conditional on further due diligence.  His evidence was that it was unlikely that Perpetual Guardian would not accept an appointment. However, he said from a sensible commercial point of view he needed to take various steps to satisfy himself as to the position of the estate.  He indicated that some of the due diligence was required to check the level of compliance.  This was in areas such as health and safety. If the check showed any noncompliance steps could be taken by the company upon appointment to put in place a programme to achieve compliance.

[29]      Mr Fifield said he also needed to be satisfied that there were adequate financial resources in the trusts, whether that was by way of funds held, or in assets. This may lead to deferral of the payment of trustee fees and professional fees to fund what was required in terms of resolution of the disputes, transfer of the farm and distribution of the trusts.  Again, he did not consider this would prevent Perpetual Guardian from taking up the role.

[30]     Mr Fifield  appeared  to  be  straightforward  and  responsible  in  answering questions put to him.  He accepted that Mr Larmer had substantial qualifications as a valuer, business adviser, farming adviser and dispute resolution specialist. Mr Fifield admitted he did not have the level of skills held by Mr Larmer, but came from a banking background.  He had been an officer at a substantial bank in Taranaki which had the largest market share of rural lending in New Zealand at the time.  He is now based in Palmerston North.

[31]     Mr Fifield also mentioned that Perpetual Guardian would consider appointing

Mr Larmer as either the second appointed valuer or umpire in the valuation process of the farm, nevertheless considering what had happened in these proceedings he might canvass the parties first to seek their consent on that issue.

[32]     Mr Fifield indicated that in his view the role of the trustees was to make decisions according to their professional responsibilities.  It was the role of advisors and other practitioners to advise the trustees.  That advice may well be accepted but not necessarily.

[33]     Mr Fifield was aware that the parties had previously attempted to appoint

Mr Larmer and Mr Ansley (an experienced solicitor) to be the replacement trustees and to resolve the disputes between the parties including the valuation price of the farm for the option to purchase. He noted the appointment at some stage contemplated a dual role of trustees and “arbiters”. He was of the view that this dual role might give rise to a conflict of interest.   Mr Fifield said that Perpetual Guardian would never assume both roles although he said in cross-examination that he was aware that other trustees may well do so. He noted that the dual role was becoming less common these days.  Presumably as the risks to those undertaking those roles have increased.

[34]     Mr Fifield has not been drawn into the beneficiaries’ dispute.   He did not appear partisan and was clear Perpetual Guardians’ obligation as a trustee.  He also had an appreciation of the need to use appropriate professionals where necessary, but had no hesitation in noting that where decisions were required, Perpetual Guardian would make them on a suitably informed basis.

[35]     The Thomson’s concerns about the appointment of Perpetual Guardian are largely centred around the fact that Mr Fifield is based in Palmerston North, and that there will more costs in involving both trustees as well as separate dispute resolution specialists and farm advisors.  They say that there was no objection to Mr Larmer when he was to be appointed together with Mr Ainsley, and cannot see why there should be now.

Conclusion

[36]     The court is guided by three considerations in considering who to appoint as trustees:4

4	R v Leitch [1998] 1 NZLR 420 (CA) at 429; Guest v Warner [2018] NZHC 666 at [26] (citations omitted), citing Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 (CA) at
97 – 98.

(a)       Settlors’ intentions: the court will give considerable weight to the expression of the settlors’ intentions as to the identity of their trustees, if such can be discerned. But the court is not bound by those intentions and may depart from them “if good cause is shown”.5  In this case there are  no  apparent  settlors  intentions beyond  the  appointment  of  the present trustees who are family members.  There is no mechanism for the appointment of new trustees under the will.

(b)       Neutrality between beneficiaries: the trustees must be neutral and even handed as between beneficiaries with different interests.  The 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;

(c)       Promotion  of  the  purposes  of  the  trust:  this  is  inherent  in  any trusteeship.6  In this case both parties have put up independent trustees. Therefore, the issue of neutrality between beneficiaries and any suggestion of conflict of interest in that regard does not arise.

[37]     In my view both Mr Larmer and Mr Fifield for Perpetual Guardian in their evidence have shown appreciation of the responsibility of trustees.  Ms James did not give evidence but her affidavit indicates she is also well equipped for appointment. Therefore, the decision as to who should be the trustees requires a finer analysis than is usually the case.

[38]     I had considered the possibility of the appointment of a  third party, not suggested by either, as a trustee.  However, that would further complicate and delay the resolution and distribution of the trusts.  In any event, both parties have proposed independent and professional trustees.

5	Guest v Warner, above n 4, at [26].
6	At [26].

[39]     Another option would have been the appointment of both Mr Larmer and Perpetual Guardian as trustees.  However, Mr Riley made it clear that he would not contemplate the appointment of Mr Larmer as trustee in any circumstances.

Practical implications of the appointment of a trustee

[40]     Mr Larmer impressed me in his evidence as a practical and robust professional. Clearly skilled in many areas including dispute resolution, farm management and valuation. He impressed me as someone who would not be shy of using his knowledge in any area for what he considers is the benefit of the trust. While that in some respects may be useful, in these circumstances it may lead to conflict with Mr Riley who is the present manager of the farm.  He has now expressed a firm view that he would not voluntarily accept Mr Larmer as a trustee.

[41]     Mr Riley’s views appear to have been reinforced by the advice that he is receiving about trustees acting as arbitrators. Mr Fifield also commented, while there were trustee/arbitrators, that was not the model that Perpetual Guardian used. He also noted that the concerns with conflicts and risk around the dual roles and that currently the thinking in the trust industry was the roles should be separate.

[42]     It is clear from the correspondence that Mr Larmer and Mr Ainsley were considered suitable trustees for appointment at an earlier stage, by both parties.
Ms Hughes says the suggestion that they also be arbitrators or dispute resolvers was only made by Mr Riley not her client.  Nevertheless, it was being actively pursued at one stage at least by Mr Riley and Mr Larmer was amenable to the suggestion.  I do not consider this necessarily would result in his having a conflict of interest, however, in the circumstances Mr Larmer’s appointment may add a further complication to the effective resolution of the disputes between the beneficiaries and distribution of the trusts.

[43]     In all the circumstances, it appears appropriate to appoint Perpetual Guardian as the independent trustee. The reasons for this are:

(a)	It is a dedicated trust company with all the benefits that that brings.

This includes core expertise (including in-house counsel), extensive

experience dealing with trusteeships of farms such as the present case, appropriate insurance and compliance systems, as well as a presence in New Plymouth.

(b)       It has significant capital and is not dependent on one individual being responsible for the administration.

(c)       Mr Larmer  is  well  qualified  but  has  been  involved  in  discussions concerning the appointment of trustees and a possible role as a dispute resolution expert for some time.  Mr Riley, at least, has an objection to
Mr Larmer acting in those roles and as trustee.  Given the possibility that this may give rise to further problems in the relationship, there is a risk  in  appointing  Mr Larmer  to  be  trustee.    It  may  lead  to  the compromising of the official distribution of the estate.   While it is
Mr Riley’s perception that Mr Larmer has views on the dispute, due to his   conversation   with   Ms Van   Wyngaarden,   nevertheless   that perception may add to the difficulties surrounding resolution of the issues between the beneficiaries.   Therefore, that is not a risk that should be taken in the circumstances.

(d)       There is no suggestion that Ms James be appointed other than together with Mr Larmer as trustee.  Therefore, if Mr Larmer is not appointed she should not be considered alone.

[44]     In those circumstances, the balance favours the appointment of the Perpetual Guardian subject to it accepting appointment. As the indication from Mr Fifield was that further due diligence would be required before it accepted the appointment, I direct that the consent of Perpetual Guardian be provided by memorandum to this court within 10 days of the date of this judgment.  The appointment will not be complete until that consent is provided.

[45]     Leave is reserved to counsel to make any submissions in relation to that consent within five days of filing and service of that consent.

Conclusion

[46]     I make an interim order appointing Perpetual Guardian as trustee of the trusts created by the wills of Kenneth and Margaret Riley.

[47]   Perpetual Guardian is to file its consent (without conditions) to such appointment within ten days of the date of this decision at which stage I will issue a final order.

[48]     The parties have a further five days from the filing of the consent to file any submissions in relation to that consent.

Costs

[49]     Counsel indicated they would attempt to resolve the issue of costs between them. If they remain unable to resolve this issue, I will direct the filing of submissions.

Solicitors:
Billings, Barristers & Solicitors, New Plymouth
C & M Legal, New Plymouth

Grice J