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Appointment & Removal Of Trustees Must Be For A Proper Purpose

16 November 2014

The trustees of a typical Family Trust can decide which of the beneficiaries should benefit from the Trust, and when and how they should benefit. Thus the person with the power to hire and fire the trustees has a degree of control over the Trust. The exercise of that power can be challenged if it is not used properly. Such a challenge was made in Harre vClark.

 

Harre v Clark [2014] NZHC 2533

Harre v Clark is a case about who should control the sale of a 29 hectare property owned by a Family Trust formed by Mrs Harre. Mrs Harre had been associated with the land all her life and it had been in her family since 1860. Mrs Harre had farmed the land with her husband for many years.

As Mr Harre neared the end of his life a family meeting was held. There was a general feeling that the land should be sold.  Mrs Harre’s daughter, Lynette, and Mr Lucas, a solicitor, were the trustees. They arranged for an auction of the land to take place. Shortly before the auction, Mrs Harre’s son Roderick and daughter Andrea put forward a purchase proposal. The trustees cancelled the auction. Soon after, Mrs Harre exercised her power of appointment under the Trust Deed and appointed Roderick and herself as trustees and removed Mr Lucas, and later Lynette, as trustees.

Mrs Harre and Roderick issued Court proceedings claiming an order vesting the land in them. Lynette and Mr Lucas counterclaimed that Mrs Harre’s appointment of herself and Roderick and removal of Mr Lucas was invalid as it had been done for improper purposes - to enable Mrs Harre to continue to have the use of the Trust’s land and to connive with Roderick for him (and possibly Andrea) to acquire the land at below market value to keep it in the family.

The judge ordered the land to be vested in Mrs Harre and Roderick. The judge found that Lynette and Mr Lucas had not established that Mrs Harre had exercised the power of appointment for an improper purpose. Mrs Harre’s dominant purpose was to take control of the sale of the land in the best interests of all beneficiaries. There was no evidence that her purpose was to continue to have the use of the land herself.  The Judge found that Mrs Harre and Roderick were aware of their obligations under the Trust Deed and would act in the best interests of the beneficiaries. Mrs Harre had removed Lynette and Mr Lucas 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. She wanted to keep at least some of the land in the family but there was no evidence that she would allow beneficiaries to purchase at below the market price or that Roderick would misuse his position to acquire the land at an undervalue.

 

Exercise of power not to be taken lightly

Anyone holding the power to appoint and remove trustees must be aware that the power must be exercised in good faith for a proper purpose in the best interests of the Trust and the beneficiaries as a whole. Before exercising the power they are well advised to take appropriate legal advice.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles.  Keep an eye out for next month’s column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.