Lee v Torrey

• Jurisdiction: New Zealand
• Judge: Faire J
• Judgment Date: 04 September 2015
• Neutral Citation: [2015] NZHC 2135
• Docket Number: CIV-2013-404-3479
• Court: High Court
• Date: 04 September 2015

Under the Trustee Act 1956

Under Part 18 of the High Court Rules the Trustee Act 1956

Under Part 18 of the High Court Rules

Between

Mathew Ronald Lee

First Plaintiff

and

The Public Trust

Second Plaintiff

and

Donna Marie Torrey And William Farmer Folwell

Defendants

[2015] NZHC 2135

Court:

Faire J

CIV-2013-404-3479

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Claim for breach of trust and removal of trustees and the appointment of the Public Trust in their place — the plaintiffs were a discretionary beneficiary and the Public Trust itself — the settlor had established a trust of which she and the first defendant were the trustees — the first defendant resigned as a trustee but remained a discretionary beneficiary and the executor of the settlor's will — the will gave her the power to remove and appoint trustees of the trust — on the settlor's death, she removed the solicitors' trustee company as trustee and appointed herself and her husband (the second defendant) as replacement trustees — the trustees then distributed the majority of the trust property to the trustees' personal accounts — a portion of the money was lost to an internet scam — consideration of whether there was duty on trustees to act reasonably — failure to keep financial records and file tax returns — the nature of a discretionary beneficiary's interest in the trust property— whether the trustees had a duty to act impartially — whether the trustees had exercised a power of distribution in favour of the first defendant — whether there had been a breach of the rule against self-dealing — whether the trustees were liable to replace the money and interest on that sum — whether the Court had any powers to direct that an advance be made to a discretionary beneficiary.

Counsel:

MG Locke for plaintiff

GL Stanton for defendants

JUDGMENT OF FAIRE J

This judgment was delivered by me on 4 September 2015 at 4:15 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Contents

Background	[1]
The estate
The deceased's chattels	[21]
The vehicle	[22]
Distributions and accounts of the trust	[23]
Distributions into personal accounts	[24]
Distribution to Ms Yardley	[28]
Distribution to Brennan Lee	[29]
The internet scam	[31]
Distribution to the first plaintiff	[34]
Current position of the trust	[36]
The defence	[37]
The trust deed	[38]
The will	[43]
Evidence of settlor's intentions	[46]
Evidence surrounding the first defendant's retirement as trustee	[63]
Issues	[67]
Is a discretionary beneficiary entitled to property of the trust; and if so, what is the nature of that interest?	[69]
What are the obligations of trustees of a discretionary trust?
Fiduciary duties of trustees	[74]
Duty to act reasonably	[78]
Duty to act impartially	[86]
Duty to act prudently and responsibly	[89]
How should the trustees exercise the powers given to them under the trust deed?	[93]
What are the principles of trustees' liability?	[115]
What is the effect of a liability exclusion clause?	[126]
What is the Court's jurisdiction to remove and appoint trustees?	[130]
Does the Court have any powers to direct an advance to be made to a discretionary beneficiary?	[139]
Reinstatement of trust fund	[140]
Result	[147]

Background

1 The first plaintiff is one of two children of the late Ms Pamela Dawn Lee, who died on 2 June 2007. Both sons of the deceased lived for a significant period of their lives with their maternal grandmother. The evidence is that the deceased and her mother did not get on. The first plaintiff's brother, Brennan, had a poor relationship with his mother. The extent of that was identified by the fact that he took out a protection order against his mother, the deceased, and made it clear that he did not want any contact with her.

2 The first plaintiff, unlike his brother, says that he had a good relationship with his mother, particularly in the last years of her life.

3 The deceased settled, by deed dated 16 June 2005, a trust known as the PD Lee Trust. The other parties to the deed, who were the trustees of the trust, were the deceased herself and the first defendant, Ms Donna Torrey, now Ms Donna Folwell.

4 I will set out in greater detail the terms of this trust shortly.

5 On the day that the trust deed was signed, the late Ms Lee transferred a property she owned at 31 Freyberg Road, Ruawai to the trust. The trust paid for the purchase by signing a deed of acknowledgement of debt in favour of the late Ms Lee for $105,000.

6 On 20 June 2005, Ms Lee made her last will. I will refer to the terms of that will later in this judgment.

7 On 13 July 2005, the late Ms Lee entered into a relationship property agreement with her partner, Mr John Booth. In that agreement the parties agreed that all property bought by them jointly would be owned as tenants in common, and all property bought separately would be owned separately.

8 On 5 September 2005, the late Ms Lee and Ms Folwell, as trustees of the PD Lee Trust, signed an agreement to purchase 18 Porritt Street, Ruawai for $120,000.

9 On 16 January 2006 Ms Folwell retired as trustee of the PD Lee Trust. This was done by way of a deed signed by Ms Folwell, the deceased and the proposed new corporate trustee, PAG Trustee Ltd, whose sole director and shareholder was the deceased's solicitor. The deed records that Ms Folwell wished to retire and be discharged from all trusts and powers contained in the deed of trust. The document also records that the deceased, as the person who has the power of appointment of new trustees under the deed of trust, appoints PAG Trustee Ltd in place of the first defendant to act with the deceased as continuing trustees of the trust. The usual clauses which appear in deeds of retirement are contained in the document and do not need further reference.

10 The conveyancing to record the new position was then undertaken so that 18 Porritt Street, Ruawai was registered in the name of the new trustees.

11 On 16 June 2006, the deceased made a forgiveness of debt in favour of the trust, which resulted in a balance of $51,000 owing to the trust.

12 Of some significance in this case is that upon Ms Folwell retiring as trustee, the deceased made no change to her will. The will named Ms Folwell together with Dianne Franich as the executors and trustees of the estate. In addition, the will gave Ms Folwell the power to appoint a new trustee or trustees to the PD Lee Trust. The resulting position was that at the time of the deceased's death, Ms Folwell was not a trustee of the PD Lee Trust (and had not been for approximately 18 months) but had the power to appoint herself and anyone else as a trustee, as well as the power to remove any existing trustees.

13 On 16 January 2007, the PD Lee Trust entered into a sale and purchase contract whereby 18 Porritt Street, Ruawai was sold for $168,000. The sale resulted in a net proceeds figure of $157,156.06 following the settlement, which took place on 1 February 2007. The solicitor's settlement statement shows $157,156.06 was paid into the trust's bank account on 1 February 2007.

14 The first plaintiff gave evidence of unhappiness in his deceased mother's life, which included an abusive relationship with her partner and the fact that she had spent some time in a women's refuge. He said that his mother suffered from cancer in the last years of her life. He said that he believed that was why the PD Lee Trust was set up. He said at the time he did not know that his mother had cancer or that she was sick, but that she did tell him at the time the trust was set up that she was leaving everything to him.

15 A coroner's finding, delivered on 20 November 2007, found that the late Mrs Lee died as a result of suicide from an overdose of medication and, more specifically, dextropropoxyphene and zopiclone.

16 Following the deceased's death, the deceased's solicitors prepared an application in the name of the deceased's executrices and trustees of her will, Ms Folwell and Ms Franich, for a grant of probate in respect of the will that had been signed by the deceased on 20 June 2005. Probate was duly granted on 27 July 2007.

17 The deceased's estate was relatively small, having regard to the fact that she had commenced a gifting programme in favour of the PD Lee Trust. It is not clear, on the evidence adduced to me, whether certain chattels, including a motor vehicle (allegedly worth up to $88,000 in total) were owned by the deceased or by the trust. The probability is that both were owned by the deceased as there is no evidence of any document recording the transfer of either the car or the chattels to the trust in the deceased's lifetime.

18 The deceased's solicitors completed a statement of assets and liabilities of the estate of the deceased at the date of her death, but did not include in it any reference to chattels including her car. The document is confined solely to the financial position between the deceased and her trust and liabilities which the deceased and, in particular, her estate, had incurred at the date of death. That position revealed a debt owed by the trust to the deceased of $51,000, plus an insurance refund of $83.51, a funeral grant of $600, and cash in a purse of $1.30; thereby making a total debt owed to the deceased of $51,684.81. The estate had incurred liabilities, including funeral expenses and other matters, which I need not detail, but which total $8,257.80. Of those liabilities, $7,572.99 was met by the payment from the trust to the estate. The balance of the liabilities was covered by the insurance refunds, funeral grant and cash in the purse. The important part of all of this, however, is that, and leaving aside the question of the...