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Agreement for Sale and Purchase, Cases, Costs, Removal of trustees, Trustee liability, Trustee Resolutions, Trustee retirement, Trustees

What’s a trustee to do?

Family trusts are tricky things. The more so when there are loose ideas about maintaining and benefitting beneficiaries; but no real means to do so.  Commonly such trusts own a single asset and require regular financial or other assistance from the settlor or involved trustees.

Such was the position of the trust settled by one Mrs Harre in 1989.  Its sole asset was an uneconomic piece of farmland, that represented the remnants of a farm that had been in the family since 1860.

The trustees were Mrs Harre’s daughter Mrs Clarke and her solicitor Mr Lucas.

Time passed.  Thoughts turned to the land.  A family meeting was convened and a general view that it should be sold was developed.  The trustees then embarked on a sale exercise.   Some family members advanced the possibility of some land being retained.  The trustees continued on their path.

Presumably Mrs Harre was not happy with the proposed sale because she removed Mr Lucas as a trustee, appointing herself and her son Roderick as trustees.  Roderick was more sympathetic to different sale options and the possibility of some land being retained.

Mrs Clark then questioned whether Mr Lucas’ removal was valid.  Following which Mrs Harre removed Mrs Clarke.

While on the surface it all looks very tit for tat; also conveyed is the sense that the trustees were not listening to the beneficiaries.  Sometimes, the best result isn’t the biggest dollar return.  The land in question had value perhaps beyond its sale price; regardless of what that might mean in dollar terms.

The matter before the court was who should control the sale of the Trust’s land?   Inherent in this question is who should the trustees be?  At para [15] it is noted that:

“Mrs Clark and Mr Lucas say they should control the sale because:

(a) Mrs Harre and Mr Roderick Harre have ulterior and improper motives towards the land. These are, first, that Mrs Harre does not actually want the land to be sold at all because she wants to carry on using it as she always has; and, second, that she and Mr Roderick Harre want to transfer the land to Mr Roderick Harre, and, possibly, Ms Andrea Harre, at below market value so as to keep it in the family.

(b) Consequently, the exercise by Mrs Harre of her power of appointment to remove Mr Lucas as a trustee and to appoint herself and Mr Roderick Harre as trustees is invalid.”

The newly appointed trustees sought a vesting order transferring the land to them.

The ousted trustees want the land sold for the best price and the proceeds divided equally amongst the beneficiaries.

The starting question is were  the disenfranchised trustees validly removed?

The power of appointment and removal of trustees is a fiduciary power regardless of whether that power is possessed by a trustee or any other individual (note that it is important to differentiate between a power of appointment and an express power contained in a deed of trust and reserved to the trustees – see Do trusts still work?)

 Therefore, a settlor of a Trust who retains the power of appointment of trustees is also under a fiduciary duty to exercise that power only in the best interests of the Trust.

Much consideration is given as to the different parties’ bona fides.  However, the position is conveniently summarised at [50] to [53] as follows:

[50] I do not consider that Mrs Clark and Mr Lucas have established on the balance of probabilities that Mrs Harre appointed herself and Mr Roderick Harre as trustees for an improper purpose. Nor did she remove Mrs Clark and Mr Lucas for an improper purpose. This is a dispute between the settlor of a Family Trust and two of her children who are among the discretionary beneficiaries of the Trust. Mrs Harre, as settlor, does not see any need to hurry the sale of the Trust’s land. Indeed, because of its location, it has appreciated in value potentially by some millions of dollars over the last few years. If subdivision restrictions are further relaxed (as is being publicly discussed), the rise in value might very well continue. Mrs Harre’s dominant purpose in appointing herself and Mr Roderick Harre as trustees was to take control of the sale of the land in the best interests of all beneficiaries. In particular, she considered that a sale by tender would realise the best price. I consider she acted to benefit the purpose of the Trust, namely the advancement in life of the beneficiaries, rather than to benefit herself and Mr Roderick Harre. There is no cogent evidence that her real purpose was to continue to have personal use of the land. I have no doubt that, as a trustee, Mrs Harre will be guided on the sale and distribution of the Trust’s assets by the beneficiaries. She seems to have a good knowledge of the operation of the Trust Deed and to appreciate the need for independent legal advice.

[51] Mrs Harre removed Mrs Clark and Mr Lucas as trustees because she did not approve of the way they were going about putting the land on the market. She also felt that unnecessary family discord was being created.

[52] I accept that Mrs Harre would prefer to keep at least some of the land in the family. But there is no evidence which persuades me that that preference extends beyond giving beneficiaries a chance to purchase at market price.

[53] Similarly, I accept that Mr Roderick Harre has no intention of misusing his position as a trustee to acquire any part of the Trust’s property at an undervalue. His appointment was not for the improper purpose of obtaining the property below market rates. I do not find that he is motivated as a trustee to do anything adverse to the interests of the beneficiaries. To the contrary, he wishes to identify how best to maximise the return to the beneficiaries from the Trust.”

Accordingly, the court found the exercise of the powers of appointment to be valid.  However, all parties’ costs were ordered to be met from the trust – the court being satisfied that the removed trustees’ actions were in the nature of seeking directions rather than unnecessarily defending proceedings, such that they should be personally liable.  The court noting:

[66] In this case the defendants had genuine concerns about the legality of their removal. Although they did not take the initiative in seeking directions, the case was conducted to that end.

The case is a useful read as while it relates to a family dispute, all sides are sufficiently reasonable  that the process of finding the answer is illustrative.  Too often these decisions are determined more by reference to failing arguments than winning ones.

 

References:

  • Harre v Clark [2014] NZHC 2533
  • Carmine v Ritchie [2012] NZHC 1514
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