TARASIEWICZ v TITFORD [2013] NZHC 3466 [18 December 2013]

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2012-488-872

[2013] NZHC 3466

BETWEEN

GINA TARASIEWICZ

Applicant

AND

MENGHA TRUSTEES LIMITED

Second Applicant

ALLAN JOHN TITFORD

First Respondent

SUSAN MAREE COCHRANE

Second Respondent

OFFICIAL ASSIGNEE

Third Respondent

Hearing:

13 December 2013

Appearances:

G F Kelly for applicants

First Respondent in person

B Westenra for second respondent

K M Wakelin for third respondent

D M Shanahan for children

R Butler as counsel appoiinted to assist the Court

M Thomas as litigation guardian for Leo Titford

Judgment:

18 December 2013

JUDGMENT OF LANG J

[on application for orders under s 64(1) of the Trustee Act 1956]

This judgment was delivered by me on 18 December 2013 at 2.30 pm,

pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

[1] This proceeding concerns a trust known as the Mengha Trust (“the trust”).

The first respondent, Mr Titford, arranged for the trust to be created in Launceston,

Tasmania by deed dated 1 May 1999 (“the trust deed”).

[2] The person named in the Deed as “the Principal” has the power to appoint

and remove trustees, and to appoint additional beneficiaries. Mr Titford claims that

he is the current Principal under the trust deed. The second applicant, Mengha

Trustees Limited (“Mengha Trustees”), is the current trustee of the trust. Mengha

Trustees was appointed as trustee by order of this Court on 2 August 2011. The first

applicant, Ms Tarasiewicz, is the director and shareholder of Mengha Trustees. She

was formerly Mr Titford’s accountant.

[3] Mr Titford is named in the trust deed as the Primary Beneficiary. Primary

Beneficiaries under the trust deed also include Mr Titford’s spouse and/or defacto

spouse. Mr Titford was married to the second respondent, Ms Cochrane, for a

considerable period and their relationship produced seven children. Mr Titford and

Ms Cochrane separated in July 2009 under fraught circumstances, but their marriage

remains on foot. Although Mr Titford remains married to Ms Cochrane, he does not

accept that either she or the seven children are beneficiaries in terms of the trust

deed.

[4] Mr Titford is also the father of another child, Leo, who was born during the

course of his relationship with his current partner, Ms Marcian Thomas. Leo is now

approximately 16 months old.

[5] The trust’s principal assets are two farms situated in the Far North. One of

these is situated at Awanui, and comprises six titles (“the Awanui property”). The

second is situated near Kaikohe, and comprises four titles (“the Kaikohe property”).

[6] The Awanui property is situated approximately 13 kilometres north of

Kaitaia. It comprises a total of approximately 230 hectares, and is farmed as a dairy

unit. The property includes a headland that extends out into the Rangaunu Harbour.

It also includes an island that can be accessed by a causeway across part of the

harbour.

[7] Mengha Trustees seeks an order under s 64(1) of the Trustee Act 1956 (“the

Act”) giving it the power to sell the Awanui property. Mengha Trustees also sought a

similar order in respect of the Kaikohe property, but now accepts that any sale of that

property will raise complex issues. It therefore does not advance that aspect of its

application.

[8] In anticipation that the Court may be minded to make such an order, Mengha

Trustees has entered into a conditional agreement to sell the Awanui property to a

third party for the sum of approximately $2.21 million. The sale is conditional upon

Mengha Trustees obtaining an order giving it the power to complete the sale of the

property.

[9] The applicants also seek two other orders. First, they seek an order under s

52 of the Act vesting the titles to the Awanui property in Mengha Trustees. This is

necessary because the titles are currently in the name of Ms Cochrane and the

Official Assignee.

[10] Secondly, the applicants seek an order removing Mr Titford as Principal

under the trust deed. They say this is necessary because Mr Titford has the power in

his capacity as Principal to remove and appoint trustees. The applicants are

concerned that Mr Titford may use this power to remove the present trustee and

replace it with a person who is sympathetic to his cause. This could jeopardise the

proposed sale.

[11] Mr Titford and Ms Thomas oppose all three applications. They contend the

property should be retained, and that Mengha Trustees should endeavour to improve

and develop it further so that it will increase in value in the years to come.

Representation

[12] Mr Titford acts on his own behalf, but was assisted by two McKenzie friends,

Ms Thomas and Mr Coles.

[13] Because Mr Titford was not represented and the proceeding raises some

complex legal issues, I appointed Mr Butler as counsel to assist the Court. His role

has been to present contrary argument to that advanced on behalf of the applicants. I

record my appreciation to Mr Butler for accepting appointment at short notice, and

for filing helpful and thorough submissions.

[14] Ms Cochrane is represented by counsel, as are her children. Ms Cochrane

and her children support the making of the orders sought by the applicants.

[15] Ms Cochrane was bankrupt between 2007 and 2010. She was also formerly a

trustee of the trust. The Official Assignee is party to this proceeding because he has

lodged charging orders against the titles to the Awanui property. These relate to a

judgment the Official Assignee obtained against Mengha Trustees in another

proceeding in this Court on 31 May 2013.1 The judgment related to a claim for

indemnity in respect of an order for costs made against Ms Cochrane incurred in

earlier litigation. Although Mr Titford disputes this, the evidence is to the effect that

Ms Cochrane was party to that litigation in her then capacity as trustee of Mengha

Trustees.

[16] Mr Titford does not accept the validity of the debt owing to the Official

Assignee, but for present purposes the Court cannot go behind the judgment the

Official Assignee has obtained against the trustee. The Official Assignee supports

the present application, but only on the basis that the judgment debt in his favour is

satisfied from the sale proceeds of the Awanui property.

[17] Leo’s interests obviously differ from those of Ms Cochrane’s children. For

that reason I appointed Ms Thomas as Leo’s litigation guardian to represent his

interests in this proceeding. At the hearing on 13 December 2013 she advised me on

Leo’s behalf that she supported the stance taken by Mr Titford.

The hearing

[18] The hearing commenced in Whangarei, where this proceeding was filed, on

12 June 2013. I adjourned that hearing at the point where Ms Cochrane and the

Official Assignee’s witness, Mr Viljoen, were to be cross-examined. I took that step

1 Official Assignee v Tarasiewicz HC Whangarei CIV-2012-488-657.

because I was aware that Ms Cochrane was to give evidence against Mr Titford in

criminal proceedings that were to commence in the District Court at Whangarei in

September 2013. I did not consider it appropriate for Mr Titford or one of his

McKenzie friends to be permitted to cross-examine Ms Cochrane in the present

proceeding when she was also scheduled to give evidence against Mr Titford in

pending criminal proceedings. I also considered that the outcome of the criminal

proceeding was likely to have a material influence on the outcome of the present

proceeding. As will become evident, that has proved to be the case.

[19] The hearing then resumed in Auckland on 13 December 2013.

The application for orders under s 64 of the Act

The law to be applied

[20] It is necessary first to consider whether the law of New Zealand or the law of

Tasmania applies to the trust created by the trust deed. This issue arises because the

trust deed provides that the law of Tasmania is the law applicable to the trust.

[21] Clause 1.1 of the trust deed also provides, however, that the applicable law

means “the law of the state, country, territory or place in which the trustee is resident

from time to time”. A corporate trustee does not have a place of residence as such,

but the registered office of Mengha Trustees is in New Zealand. In addition, Clause

1.1 contains the following proviso:

… PROVIDED THAT if this deed should come before any Court, the

applicable law should be the law which such Court determines.

[22] Given the fact that all of the trust’s assets are in New Zealand and the

registered office of its corporate trustee is in New Zealand, I determine in terms of

Clause 1.1 of the trust deed that the law applicable to the trust deed at the present

time is the law of New Zealand.

Section 64 of the Trustee Act 1956

[23] Section 64 of the Act relevantly provides as follows:

64 Power of Court to authorise dealings with trust property and

variations of trust

(1) Subject to any contrary intention expressed in the instrument (if any)

creating the trust, where in the opinion of the Court any sale, lease,

mortgage, surrender, release, or other disposition, or any purchase,

investment, acquisition, retention, expenditure, or other transaction is

expedient in the management or administration of any property vested

in a trustee, or would be in the best interests of the persons

beneficially interested under the trust, but it is inexpedient or difficult

or impracticable to effect the same without the assistance of the Court,

or the same cannot be effected by reason of the absence of any power

for that purpose vested in the trustee by the trust instrument (if any) or

by law, the Court may by order confer upon the trustee, either

generally or in any particular instance, the necessary power for the

purpose, on such terms, and subject to such provisions and conditions

(if any) as the Court may think fit, and may direct in what manner any

money authorised to be expended, and the costs of any transaction, are

to be paid or borne, and as to the incidence thereof between capital

and income:

Provided that, notwithstanding anything to the contrary in the

instrument (if any) creating the trust, the Court, in proceedings in

which all trustees and persons who are or may be interested are parties

or are represented or consent to the order, may make such an order

and may give such directions as it thinks fit to the trustee in respect of

the exercise of any power conferred by the order.

…

(4) An application to the Court under this section may be made by the

trustees, or by any of them, or by any person beneficially interested

under the trust.

[24] The wording used in s 64 permits the Court to make an order empowering a

trustee to enter into a transaction regardless of whether or not the trust deed already

provides the trustee with that power. The Court’s power under the first part of s

64(1) is subject, however, to any contrary intention expressed in the instrument

creating the trust.

[25] The proviso to the section permits the Court to make an order even where the

trust instrument expresses a contrary intention. It may only do so, however, where

all persons who may be interested in the proposed transaction are parties to the

application, or where they are represented or consent to the order sought. The Court

may therefore make an order notwithstanding the absence of consent by an interested

party so long as that party is either present or legally represented at the hearing.

[26] Whether or not the trust instrument already contains the power sought, the

Court must either be of the opinion that the proposed transaction is expedient in the

management or administration of any property vested in the trustee, or that it is in

the interests of all persons beneficially interested under the trust. Where the

instrument already provides the trustee with the power sought, the Court must also

be satisfied that it will be “inexpedient or difficult or impracticable” for the trustee to

effect the transaction without the assistance of the Court.

[27] As counsel for the applicants points out, the courts have interpreted s 64

liberally and have approved a wide variety of transactions. The courts have been

prepared to approve the sale of property despite a specific prohibition in the trust

instrument or the refusal of consent by a person whose consent was required for the

sale. Recent examples of situations in which the sale of land owned by trustees has

been approved are Public Trustee v Attorney-General,2 and Re Powell.

3

Does the trust deed contain a contrary intention?

[28] There is nothing in the deed creating the trust to suggest that the trustees are

not permitted to sell trust property. Rather, Clause 10 of the trust deed provides:

10. The trustees shall have power to make or vary or sell any investment

and to engage in any transaction or dealing on behalf of the trust fund as it

could do if it were the beneficial owner of the trust fund absolutely entitled

thereto.

[29] Counsel for the applicants expressed a concern that clause 10 may not

provide Mengha Trustees with an express power to sell the Awanui property. The

wording used in Clause 10 is, however, plain and unambiguous. It permits the

trustee to sell any investment, and to engage in any transaction or dealing on behalf

of the trust fund as if the trustee was the beneficial owner of the fund. On its face,

therefore, the clause provides the trustee with very wide powers to sell and otherwise

deal with all trust assets.

[30] The only basis upon which it could be argued that the clause does not

authorise the sale of the Awanui property is that the property does not constitute an

2 Public Trustee v Attorney-General HC Wellington CP 66/00, 4 July 2000.

3 Re Powell (2000) NZFLR 269.

“investment” in terms of the clause. The strongest argument in support of this

proposition flows from Clause 1.16 of the trust deed, which provides:

1.16 “the Trust Fund” means:

(i) the Settlement Sum;

(ii) any further or additional property that a person, company or

corporation may donate to assign to transfer to or vest in or cause to

be vested in the Trustee to be held upon the trusts and subject to the

powers and provisions of this Trust;

(iii) any other property which may from time to time be held by the

Trustee upon and subject to the trusts herein contained;

(iv) the money, investments and property of every description for the time

being and from time to time representing the property referred to in

sub-clauses (i) to (iii) hereof; and

(v) any income of the Trust Fund accumulated by the Trustee pursuant to

the powers so to do hereinafter contained.

(Emphasis added)

[31] It could be argued that Clause 1.16(iv) distinguishes between different types

of trust assets, and that the term “investment” in Clause 10 does not include “money”

and “property” as those terms are used in Clause 1.16. This might provide a basis,

albeit a tenuous one, for a submission that real property falls outside the ambit of the

power to sell investments under Clause 10.

[32] I consider that the wording used in Clause 10 is sufficiently wide to permit

Mengha Trustees to sell trust assets, including any farm property that it might own.

The trust deed therefore already contains the power that Mengha Trustees seeks in

order to complete the sale of the Awanui property. It is therefore necessary to

determine whether the sale of that Awanui property is expedient in the management

or administration of the trust, or whether it would be in the best interests of the

persons beneficially interested under the trust.

Is it expedient in the management or administration of the Mengha Trust for the

Awanui property to be sold?

[33] In this context, counsel for the applicants has referred me to the following

passages from Garrow and Kelly Law of Trusts and Trustees,4 where the learned

authors state:

Nevertheless, before making an order, the Court must be satisfied that the

transaction in question is expedient for the trust as a whole, and not merely

in the interests of one beneficiary. The same view has been expressed in

rather more detail in Dawson, where it was held that the word “expedient”

did not require the Court to be satisfied that the transaction would be

expedient or advantageous to each and every beneficiary considered

separately, but that the Court must take into account the interests of all the

beneficiaries and upon a broad and commonsense view be able to conclude

that the proposed transaction could fairly be said to be expedient for the trust

as a whole. The words “or would be in the best interest of the persons

beneficially interested under the trust” did not appear in the section at the

time when these decisions were given, and their effect can only be to enlarge

the jurisdiction.

[Footnotes not included]

Factors underlying the decision by Mengha Trustees to sell the Awanui property

[34] The history of the trust assumes some importance in this context. During the

hearing on 13 December 2013, Mr Titford confirmed that the trust had earlier sold

three farms before it purchased the Awanui and Kaikohe properties.

[35] After the trust acquired the Awanui property in 2002, Mr Titford assumed

responsibility for farming that property for the next eight years. He and his family

lived on the property during that period. Mr Titford’s role as farm manager ceased

after he was arrested in November 2010 on several serious charges. These included

alleged offending of a sexual and/or violent nature against Ms Cochrane and his

children. At that point Mr Titford became subject to bail conditions requiring him to

live away from Northland. As a consequence, Mengha Trustees had no option but to

arrange for a succession of managers to farm the Awanui property.

[36] Following a jury trial in the District Court at Whangarei in September 2013,

Mr Titford was convicted on a total of 29 charges including rape, threatening to kill,

4 Garrow and Kelly Law of Trusts and Trustees (7

th ed, Lexis Nexis Wellington 2013) at [20.27].

arson and attempted arson. On 20 November 2013, he received an effective sentence

of 24 years imprisonment.5 As a consequence, it is clear that Mr Titford will not be

able to farm the Awanui property himself for a very long period. The trust clearly

anticipated from the outset that Mr Titford was to be the person primarily

responsible for farming the property. His inability to perform that role means that

one of the most important factors underpinning the trust’s original decision to

acquire the property has now gone.

[37] The Awanui property also currently faces a number of pressing issues. The

most immediate of these is that on 25 November 2013 the mortgagee, SBS Bank,

issued a notice of demand requiring Mengha Trustees to pay approximately $80,000

on or before 31 December 2013. The bulk of this sum is made up of rates arrears of

approximately $70,000. Mengha Trustees may not have the ability to meet this

payment in full by 31 December 2013, and is therefore at risk of defaulting on its

obligations under the mortgage after that date. Should that occur, the mortgagee

may take steps to sell the Awanui property using its power of sale under the

mortgage.

[38] Secondly, Mengha Trustees has had ongoing issues with the Northland

Regional Council regarding capital works that the trust needs to undertake in order to

comply with its obligations under the Resource Management Act 1991. Mengha

Trustees has been able to enter into a compromise arrangement with the Council, and

the Council has withdrawn an abatement notice that it had issued. Ms Tarasiewicz

believes that these works will ultimately require a capital outlay of up to $200,000.

[39] Other work also needs to be done around the property that will require

significant capital expenditure. The magnitude of this can be gauged from the fact

that the purchaser under the agreement for sale and purchased has told Ms

Tarasiewicz that it proposes to spend approximately $800,000 on the property if the

sale proceeds.

[40] The trust does not currently have the ability to undertake such capital works

without obtaining further funding from its mortgagee. Ms Tarasiewicz said in

5 R v Titford DC Whangarei CRI-2010-029-1480 20 November 2013.

evidence that the mortgagee has been “nervous” about the situation since Mr Titford

was convicted and imprisoned. It holds no personal guarantees, and has made it

clear to Ms Tarasiewicz that it would like to be repaid. Although Ms Tarasiewicz

conceded that the mortgagee might be prepared to provide further funding if she

provided a personal guarantee, she is understandably unwilling to expose herself to

personal liability in that way.

[41] Thirdly, Mr Titford has been extremely critical of the manner in which Ms

Tarasiewicz has run the Awanui property. He has threatened on numerous occasions

to take action against her for substantial losses he believes the trust has suffered as a

result of her mismanagement of the property. There is every reason to expect

ongoing conflict between Mr Titford and Ms Tarasiewicz in respect of issues

relating to the Awanui property in the event that the property is not sold.

[42] These factors, all of which relate to the management and administration of

the Awanui property, have prompted Mengha Trustees to decide that it should sell

the Awanui property. This would enable the mortgage to be cleared, and other trust

debts to be paid. One of these is the debt owing to the Official Assignee.

Mr Titford’s argument

[43] Mr Titford points out that the trust was only able to acquire the Awanui

property using monies that he accumulated through an inheritance and the work that

he put into developing and improving earlier properties owned and sold by the trust.

He also says that the Awanui property was originally worth approximately $6.8

million, and that the mismanagement of the property by Ms Tarasiewicz has

contributed to its rapid diminution in value over recent years. He says that the

proposed sale is at a “fire sale” price, and that it will result in the trust losing the

ability to recoup its losses by developing and improving the property in the future.

[44] Mr Titford does not consider that it is necessary to outlay significant capital

expenditure on the Awanui property. He believes Mengha Trustees should convert

the property to a beef unit, and thereby avoid the need to upgrade the cowshed and

effluent facilities that are at the heart of the problems with the Council.

[45] Mr Titford also believes Mengha Trustees should give consideration to

continuing with a subdivision of the Kaikohe property. He believes this would

release significant equity, and this could be used to repay some of the debt presently

owed to the mortgagee.

Decision

[46] Although Mr Titford clearly does not agree, I consider the factors relied upon

by Mengha Trustees to be compelling when viewed in combination.

[47] There is no way, in my view, to avoid the need for significant capital to be

invested in the Awanui property regardless of the nature of the farming operation

that is to be carried on in the future. Whilst conversion from dairying to beef

production may resolve some of the outstanding issues, it would also inevitably

require a considerable capital outlay to effect. The trust cannot meet this from

cashflow, and it will not be able to obtain a further loan without the support of a

personal guarantee. It is highly unlikely, in my view, that any person who might be

an acceptable guarantor to the mortgagee would be willing to assume personal

liability for the trust’s liabilities in that way. I also regard the proposal to subdivide

the Kaikohe property as being fanciful given Ms Tarasiewicz’s evidence that she is

presently “trespassed” from that property, and has no current knowledge of what is

occurring on it.

[48] The only realistic way in which the present problems can be resolved is

through the sale of the Awanui property in order to repay outstanding debt. It

follows that I am satisfied that it is expedient in the management and administration

of the Mengha Trust for the Awanui property to be sold.

[49] In case I am wrong on that point, I will briefly consider whether it is in the

interests of all beneficiaries for the Awanui property to be sold.

Is the sale of the Awanui property in the interests of all beneficiaries?

[50] The only beneficiaries who contend that the sale of the property would not be

in their interests are Mr Titford and, through Ms Thomas, Leo.

[51] The argument for Leo relies upon the same grounds as the argument for Mr

Titford. Not surprisingly given Leo’s age, Ms Thomas does not contend that the sale

of the property will deprive Leo of the opportunity to farm it. It will be many years

before he will be in a position to decide whether he wishes to take up farming as an

occupation, let alone whether he wishes to farm the Awanui property.

[52] Mr Titford’s current circumstances mean that he cannot realistically argue

that the sale of the property will prevent him from farming the property in the future.

His present circumstances mean that his prospects of returning to farm the property

in the foreseeable future are negligible.

[53] The only realistic argument that Mr Titford can advance is based on his

perception that the sale of the Awanui property will result in a capital loss that may

be avoided if the property is farmed wisely in the future. That loss will never be

recouped if the property is sold at this point.

[54] In my view there are several flaws in Mr Titford’s reasoning regarding this

issue. First, I have not seen any evidence to support Mr Titford’s assertion that the

Awanui property has ever been worth $6.8 million. Secondly, the argument

proceeds on the basis that the farm is likely to increase markedly in value in the

future. There is no evidence to support that proposition. The valuer who gave

evidence at the first hearing saw no reason to anticipate a significant spike in

Northland farm prices in the near future. Thirdly, the value of the property could

only improve significantly if major capital expenditure was undertaken. For the

reasons set out above, that is not a realistic prospect.

[55] Fourthly, Ms Tarasiewicz has no ability to farm the Awanui property in a

“hands on” manner. As she candidly acknowledges, she is an accountant and not a

farmer. In addition, the property is situated some considerable distance away from

Whangarei, where Ms Tarasiewicz conducts her accountancy practice. For that

reason she is unable to visit the property regularly. Retention of the property will

therefore inevitably require the trust to continue to run the farming operation on the

Awanui property using a farm manager. I consider, however, that any improvement

and development of the property in the manner envisaged by Mr Titford would

require constant efforts by a person dedicated to that cause. In Mr Titford’s absence,

there appears to be no other candidate for that task.

[56] Viewed objectively, therefore, I do not see how retention of the Awanui

property is realistically in Mr Titford’s interests. He obviously believes that the

property has declined in value and condition since he was required to leave it in mid-

2010. There can be no guarantee that the same trend, if indeed it is a trend, will not

continue over the next eight or so years whilst Mr Titford remains in prison. For that

reason his interests, in common with the interests of the other beneficiaries, must

surely be advanced by the sale of the property at this point.

Is it inexpedient, difficult or impracticable for the Awanui property to be sold

without the assistance of a Court?

[57] The applicants contend that, in the absence of orders made by the Court, Mr

Titford may endeavour to thwart the proposed sale. He may, for example, apply to

this Court for injunctive relief, or for review of Mengha Trustees’ decision under

s 68 of the Act. Either would require the Court to consider the same issues it is now

required to determine. Secondly, Mr Titford may take other steps to prevent the sale

from being completed.

[58] As noted above, the trust deed vests in the Principal the power to remove and

appoint trustees. The trust deed named Ms Cochrane (under her married name Susan

Titford) as the original Principal. By virtue of Clause 9.3(iii) of the deed, however,

the Principal is automatically removed if he or she is declared bankrupt. Ms

Cochrane was declared bankrupt on 14 August 2007. At that point Mr Titford and

Ms Cochrane signed a resolution purporting to appoint Mr Titford as Principal to

replace Ms Cochrane. Mr Titford relies on this document as confirming that he was

validly appointed as Principal under the trust deed.

[59] The applicants are concerned that Mr Titford may purport to exercise his

powers as Principal to remove Mengha Trustees and then appoint a new trustee

whom he believes will be sympathetic to his cause. The new trustee may then refuse

to complete the sale of the property to the purchaser under the agreement for sale and

purchase.

[60] The applicants are also concerned that Mr Titford may encourage others who

sympathise with him to take steps to harass or physically prevent the purchaser from

taking possession of the property. That would not normally pose a risk, but the

circumstances surrounding the present case are anything but normal. The manner in

which those associated with Mr Titford appear to have effectively excluded Mengha

Trustees from being able to gain access to the Kaikohe property provide an example

of the type of issues that remain a concern with the proposed sale of the Awanui

property.

[61] During the hearing, I asked Mr Titford whether he proposed to take any steps

that might prevent the sale from proceeding. He responded by saying that he will do

whatever he has to do once he receives the Court’s decision. That comment may

have a variety of meanings, but it certainly includes the possibility that he may seek

to derail the proposed sale in any way that he can.

[62] Although an order under s 64 could not of itself prevent Mr Titford and/or his

sympathisers from taking steps, it would send the strongest possible signal that

Mengha Trustees is selling the Awanui property lawfully and with the backing of the

Court. In that way an order would deter those who may be tempted to try to disrupt

the sale process. Such persons will know that the Court will take whatever steps

may be necessary to ensure that its orders are implemented.

[63] I am therefore of the opinion that it will be inexpedient, difficult or

impracticable for Mengha Trustees to effect the sale of the Awanui property without

the assistance of the Court.

Conclusion

[64] The applicants have succeeded in establishing the necessary grounds for the

Court to make an order under s 64 of the Act. The only remaining issue is whether

the Court should exercise its discretion in their favour.

[65] Counsel appointed to assist the Court raised three issues that he suggested

may cause the Court to hesitate to make an order under s 64 in the present case.

First, he submitted that the principles applied by the Court of Appeal in Banicevich v

Gunson6 suggest that the Court should take a cautious approach when applying s 64.

In particular, he submitted that the Court should not act in a manner that effectively

rewrites the terms of the trust deed.

[66] I accept that the Court should not exercise its powers under s 64 in that way.

The order that Mengha Trustees seeks does not, however, alter the terms of the trust

deed in any way at all. The trustee accepts that, if the Awanui property is sold, the

sale proceeds will need to be applied in accordance with the terms of the trust.

[67] In Banicevich v Gunson the High Court had made orders under s 64 in

respect of a trust created under a will. The will gave the testator’s daughters a life

interest in two baches situated on a coastal farm property. The testator’s two sons

received the shares in the company that owned the farm. The High Court made

orders under s 64 authorising a subdivision of the farm so as to provide the daughters

with freehold titles in respect of the baches. The Court of Appeal set the orders

aside, inter alia, on the basis that s 64 did not give the Court the power to effectively

rewrite the terms of the trust created by the will. The facts in that case are obviously

very different to those in the present case.

[68] Secondly, counsel appointed to assist the Court pointed out that s 65 of the

Act, which previously gave the Court the power to direct the sale or lease of trust

property, was repealed by an amendment to the Act in 1960. He suggested that the

repeal of the section suggested that the Court no longer has the power to make the

order the applicants seek.

[69] I do not accept this submission. As counsel for the applicants points out, the

Trustee Amendment Act 1960 repealed s 65 and enacted s 64A. It also made

substantial amendments to s 64.7 In effect, the amendments split the Court’s existing

powers under s 64 between s 64 and the new s 64A. Section 64 provides the Court

with the ability to make orders in relation to transactions involving trust assets,

whereas s 64A permits the Court to vary the substantive provisions of trust

instruments. Both of those powers were previously contained in s 64. The liberal

6 Banicevich v Gunson [2006] 2 NZLR 11 (CA).

7 Trustee Amendment Act 1960, ss 8(2), 9(1) and 9(2).

manner in which the courts have applied s 64 demonstrates that, although the Court

may not have the express power to direct the sale of trust assets, it certainly has the

ability to authorise trustees to sell or otherwise dispose of trust assets.

[70] Thirdly, counsel submitted that such an order would effectively ignore Mr

Titford’s status under the trust deed as the Primary Beneficiary. There is nothing in

the deed, however, to suggest that Mr Titford’s views should override those of the

trustee, or that his views in relation to the manner in which Mengha Trustees should

exercise its powers should be given greater weight than those of other beneficiaries.

The fact that he is the Primary Beneficiary certainly does not override the Court’s

obligation to make a decision that is in the interests of the beneficiaries as a whole.

[71] The only factor that might dissuade the Court from making an order relates to

the price for which Mengha Trustees proposes to sell the Awanui property. The

Court might not be prepared to lend its assistance to the proposed sale if it was not

satisfied that Mengha Trustees had obtained a fair price for the property. In the

present case, however, Mengha Trustees obtained a valuation of the Awanui

property in May 2013. This recorded that the property needs considerable work to

be done to it. The condition of the buildings on the property was described as being

no more than fair. The valuer also observed, however, that the property may attract a

premium because it is situated on the coast and thereby enjoys unique physical

characteristics, including the ability to access the island across the causeway. These

factors prompted the valuer to ascribe a value of $1.85 million to the property. The

proposed sale price of $2.21 million is obviously well in excess of that figure.

[72] Taking all these matters into account, I am satisfied that it is appropriate to

make the order that Mengha Trustees seek.

Application for vesting orders

[73] All of the titles to the Awanui property are currently in the name of Ms

Cochrane or the Official Assignee. Mengha Trustees seeks an order that the titles to

the Awanui property be vested in it so that it can complete the proposed sale of the

property.

[74] Mengha Trustees relies in this context on s 52 of the Act, which provides as

follows:

52 Vesting orders of land

(1) Subject to the provisions of subsections (2) and (3) of this section, in

any of the following cases, namely—

(a) Where the Court appoints or has appointed a trustee of any land

or interest therein, or where a trustee of any land or interest

therein has been appointed out of Court under any statutory or

express power:

…

the Court may make an order (in this Act called a vesting order) vesting the

land or interest therein in any such person in any such manner and for any

such estate or interest as the Court may direct, or releasing or disposing of

the contingent right to such person as the Court may direct.

...

[75] Given that Mengha Trustees was appointed as trustee of the Mengha Trust by

order of this Court, jurisdiction exists to make the order that it seeks.

[76] All parties other than Mr Titford and Ms Thomas support the making of

vesting orders under s 52 of the Act. They submit that such orders are necessary to

enable the sale to proceed. Mr Titford and Ms Thomas oppose the orders being

made, but their opposition is based on the same grounds as those on which they

oppose the making of orders under s 64 of the Act.

[77] Mengha Trustees will not be able to complete the sale of the Awanui property

until such time as it is in a position to transfer the property to the purchaser under the

agreement for sale and purchase. It will not be in that position until it is the

registered proprietor on all the titles that comprise the Awanui property. It is also

entitled to be registered as proprietor because it has replaced Ms Cochrane as the

trustee of the Mengha Trust. The only reason Mengha Trustees is not presently

recorded as the registered proprietor on those titles is that the transfer to it from Ms

Cochrane has not been able to be registered because of caveats and charging orders

registered against the titles by Mr Titford and the Official Assignee.

[78] I am satisfied it is appropriate that this Court now exercise its powers under

s 52 to make the orders sought.

Removal of Mr Titford as the Principal of the trust

[79] Counsel for the applicants submits that there is a real issue as to whether or

not Mr Titford has been validly appointed as Principal. He points out that Clause 9.3

(iii) of the trust deed requires a meeting of all beneficiaries to be held for the purpose

of appointing a new Principal. That decision then requires a unanimous resolution of

all the Primary Beneficiaries.

[80] The trust deed contains a very wide range of beneficiaries. In addition to

Primary and Secondary Beneficiaries, the deed also provides for Tertiary

Beneficiaries as follows:

TERTIARY BENEFICIARIES: (a) Any corporation in which any of the

beneficiaries is registered as the

holder of at least one share or has a

beneficial interest in at least one

share;

(b) The Trustee of any Trust at least one

beneficiary of which (as the term

beneficiary is described or defined

in such Trust) is a beneficiary of this

Trust;

TERTIARY BENEFICIARIES: (c) The Trustee of any charitable Trust

and any person, officer or governing

body acting as Trustee, Officer or

Governor of any Society, Authority,

Institution, Church, religious group

or entity which at the time of

distribution of income, or capital

from the Trust is to be made is

exempt from income tax under the

provisions of the Income Tax

Assessment Act 1936 or if at such

time a gift of money thereto is

deductible against accessable

income of the donor by virtue of the

Income Tax Assessment Act 1936;

(d) Such persons appointed from time to

time by the Principal under Clause

6.

[81] The range of potential Tertiary Beneficiaries is obviously extremely wide.

Counsel for the applicants contends that there is no evidence to suggest that a

meeting attended by Primary, Secondary and Tertiary Beneficiaries was ever held.

As a consequence, counsel for the applicants submits that Mr Titford cannot

establish that he was validly appointed as Principal.

[82] This argument may well have merit, but I do not have the benefit of detailed

evidence regarding the circumstances in which Mr Titford allegedly came to be

appointed as Principal under the trust deed. I do not, however, consider it necessary

for present purposes to determine the validity of Mr Titford’s appointment as

Principal. This flows from the fact that the applicants’ real concern is that Mr

Titford may attempt to use his powers as Principal to remove Mengha Trustees as

trustee, and to appoint a new trustee who will be sympathetic to his cause. I accept

that the applicants have reasonable grounds for their concern, but I consider that it

can be addressed in a manner that does not require the validity of Mr Titford’s

appointment to be determined.

[83] As counsel for the applicants reminded me, the Court has an inherent

supervisory jurisdiction to ensure that the terms of a trust are properly carried out.

Recent examples of cases in which the Court has removed trustees using this

jurisdiction are Clifton v Clifton,8 Davidson v Israel,

9 and Mudgway v Slack.

10 As

Allan J explained in Morris v Sumpter,11

the inherent supervisory jurisdiction is

derived from the Court’s powers in equity to supervise trusts for the welfare of

beneficiaries. In Miller v Cameron, Dixon J explained the rationale for the

jurisdiction as follows: 12

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 trust and a faithful and sound exercise of

the powers conferred upon the trustee. 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

8 Clifton v Clifton HC Auckland CIV-2004-404-4185, 5 November 2004.

9 Davidson v Israel [2012] NZHC 631.

10 Mudgway v Slack HC Auckland CIV-2010-404-2058, 26 July 2010.

11 Morris v Sumpter HC Auckland CIV-2004-404-3060 6 April 2005 at [52].

12 Miller v Cameron (1936) 54 CLR 572 at 580.

unless circumstances exist which afford ground upon which the jurisdiction

may be exercised. But in a case where enough appears to authorise the court

to act, the delicate question of 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.

[84] In the present case it is not necessary to exercise this particular power,

because the past or anticipated conduct of the trustee is not in question. Rather, the

problem relates to the manner in which Mr Titford may purport to use his assumed

power as Principal to remove Mengha Trustees and appoint a new trustee. A similar

issue arose in both Clifton and Mudgway. In those cases the Court had concluded

that it should remove the existing trustee, but recognised that that person could

effectively sidestep the Court’s order by exercising the power under the trust deed to

remove and appoint trustees. In each case, the Court went on to make a further order

vesting the power to appoint trustees in the new trustee. Paterson J explained the

rationale for taking this step in Clifton as follows:

[43] The court’s inherent jurisdiction to alter trusts has been restricted by

the House of Lords decision in Chapman v Chapman,13

as applied in Re

Ebbett.14

However, what is sought here is not, in my view, a variation of the

trust. As noted above, it is a variation of an administrative provision and not

an alteration of the trust itself. This trust was sanctioned by this court to

protect infant beneficiaries. In my view, the court must have a supervisory

jurisdiction to modify an administrative provision which has been shown can

be used in a manner which may be to the detriment of the infant

beneficiaries. The court, in its inherent jurisdiction, should intervene to

modify that administrative provision so that the interests of the infant

beneficiaries cannot be readily jeopardised. In the circumstances, I intend to

use the inherent jurisdiction of this court to modify this administrative

provision.

[85] The present case raises the same issue. I am satisfied there is a real risk that

Mr Titford may take steps in his capacity as Principal that may obstruct the proposed

sale of the Awanui property. It would be highly unfortunate if Mr Titford was to

attempt to remove Mengha Trustees and appoint a new trustee during the period

leading up to the sale of the Awanui property. That could jeopardise the sale, which

the Court has determined is in the interests of all beneficiaries. Mr Titford cannot be

permitted to exercise his power to remove and appoint trustees in a manner that

would be adverse to those interests.

13

Chapman v Chapman [1954] AC 429. 14

Re Ebbett [1974] 1 NZLR 392.

[86] I therefore propose to make an order that effectively removes the power to

remove and appoint trustees from Mr Titford. That power is henceforth to be vested

in Mengha Trustees. I propose to direct, however, that Mengha Trustees is not to

exercise those powers without first obtaining the leave of the Court to do so.

Result: Orders

[87] I make an order under s 64(1) of the Act granting Mengha Trustees the power

to complete the existing agreement for the sale and purchase of the Awanui property.

Mengha Trustees has leave to apply on a without notice basis should it require any

ancillary orders to complete that agreement.

[88] Mengha Trustees is authorised to use the proceeds of sale to repay the

mortgage, and to pay the costs associated with the sale of the Awanui property.

Thereafter it is authorised to use the balance of the sale proceeds to pay outstanding

debts, including the judgment debt owing to the Official Assignee. It shall then hold

the balance of the sale proceeds on interest earning deposit pending further order of

the Court.

[89] I make a further order under s 52 of the Act vesting the titles to the Awanui

property in Mengha Trustees.

[90] In exercise of the Court’s inherent power to supervise trusts, I make an order

removing the power to remove and appoint trustees from Mr Titford. That power is

henceforth vested in Mengha Trustees, but may only be exercised with the Court’s

leave.

Costs

[91] Counsel are to endeavour to reach agreement regarding the issue of costs.

Should that not be possible, brief memoranda (no more than five pages in length)

may be filed and I will determine that issue on the papers.

Future issues

[92] It is obvious that many issues remain to be determined in relation to the trust.

In particular, Mengha Trustees will need to consider how it proposes to use the funds

that will be realised by the sale of the Awanui property. The trustee is likely to seek

the Court’s approval before implementing its decision, and this issue may need to be

considered in conjunction with the relationship property proceedings that are

currently in the Family Court. Counsel may therefore wish to give consideration to

the possibility of transferring those proceedings to this Court.

Lang J

Solicitors:

Cor F Eckard Law Office, Whangarei

Cook Westenra Ltd, Whangarei

Meredith Connell, Auckland D M Shanahan, Whangarei