IN THE MAORI LAND COURT OF NEW ZEALAND … · OF NEW ZEALAND . WAIKATO-MANIAPOTO DISTRICT . 1 WAIKATO MANIAPOTO MB 25 . A20090006783 . ... settlement then the whole of …

PENI V PAHI MLC A20090006783 18 January 2010

IN THE MAORI LAND COURT OF NEW ZEALAND WAIKATO-MANIAPOTO DISTRICT

1 WAIKATO MANIAPOTO MB 25 A20090006783

UNDER Sections 231 and 238 of Te Ture Whenua

Māori Act 1993 IN THE MATTER OF Tiroa E Block and Te Hape B Block

BETWEEN HARDIE PENI

Applicant

AND MURDOCH PAHI, RICHARD JONES, WAYNE APERIHAMA FRASER, WEO GLEN ALAN MAAG, PHILLIP NGAWHIRA CROWN, AND ALOMA KAHURANGI MARAE SHEARER Respondents

Hearing: 7 December 2009 (Heard at Te Kuiti)

Appearances: Mr Spencer Webster for the Applicant Mr Aidan Warren and Mr Glenn Tootill for the Respondents

Judgment: 18 January 2010

RESERVED JUDGMENT OF JUDGE S TE A MILROY

Introduction

[1] Hardie Peni (“the applicant”) filed an application under s 231 and s 238 of Te

Ture Whenua Māori Act 1993 for review of trust and for enforcement of the

obligations of the trust. The original application was filed on 17 April 2009. An

amended application was filed on 26 June 2009 giving further particulars of the

allegations and issues the applicant wished to raise before the Court. Judicial

conferences were held either in person or by telephone and, as a result, various issues

1 Waikato Maniapoto MB 26

were dealt with by way of direction to the trustees, to be followed in due course by

further applications by the trustees.

[2] The following issues remain:

a) Whether payment by Kelvin Stanley to one of the trustees, Weo

Maag, of $2,000.00 was improper or imprudent or in breach of trust;

b) Whether sale of trust property at 623 Puketawai Road, Otorohanga

was at a gross undervalue, and the process in selling the property was

flawed and not best practice;

c) Whether the establishment of the position of Executive Trustee was ill

conceived and carried out in a flawed manner and in contravention of

clause 40(e) of the Trust Order.

Background

Sale of Trust Property

[3] Tiroa E and Te Hape B Trusts owned a farm property at Puketawai Road,

Otorohanga (“the farm”). The farm was general land and did not form part of the

corpus lands. It became surplus to requirements and an agreement for sale and

purchase was entered into on 16 August 2006 to sell the farm to the Scott Family

Trust (“the purchaser”) for $5,000,000.00. The area sold to the purchaser was

256.2429 hectares less an area of 3,115 square metres which was to be subdivided

off. If the new title for the 3,115 square metres was not available on date of

settlement then the whole of the land was to be transferred to the purchaser with

subdivision to take place afterwards at the vendor’s cost. Once the new title for the

3,115 square metres was issued the purchaser was to transfer the title to the vendor.

[4] A house was situated on the area of 3,115 square metres, and this house and

the land (“the house property”) was sold to Kelvin Stanley.


[5] Neither the purchaser of the farm, nor the trusts wished to continue owning

the house. Prior to the sale of the house property the trusts advertised for tenders for

removal of the house in the Waitomo News and the Waikato Times in November

2005. No tenders were received.

[6] Previously the trusts had received a letter from Jack House Transit Limited

dated 31 October 2003 indicating that the house was of no interest to them and

suggesting that it be bulldozed.

[7] A letter dated 29 April 2004 addressed to the trustees from Harcourts Real

Estate agency gave an indicative market price of $90,000.00 to $110,000.00 for the

house property.

[8] In March 2006 an inspection of the house was made by Mac Waretini, a

builder with 30 years experience. By letter dated 14 March 2006 to the trusts Mr

Waretini stated that he found the house in extremely poor condition. Mr Waretini

advised against spending money on repairs and recommended that the local fire

brigade be contacted to demolish it as part of their practice nights.

[9] A market value of the entire farm including the buildings, was undertaken by

Doyle Valuations in June 2006 (“the Doyle valuation”). The valuation report set the

current market value for the whole farm, including the house, at $4,835,000.00,

being $20,000.00 per hectare. The value specified in the report for the house and

garage was $33,042.00. Doyle Valuations did not internally inspect the house in

2006.

[10] Mr Stanley approached Mr Maag to assist him to purchase the house from the

trusts. A letter dated 27 July 2006 signed by Kelvin Stanley was sent to the trustees

and offered the sum of $15,000.00 including GST for the house. Mr Maag prepared

the letter for Mr Stanley.

[11] On 26 May 2006 the trustees met to consider the sale of the house. The

minutes of the meeting show that Mr Maag advised the other trustees that he was

approached by Mr Stanley for the purchase of the house. Mr Maag further advised


that Mr Stanley was one of the recipients of the Maraeroa C Home Loan Pilot

Scheme and that Mr Stanley would have to pay for the surveying, subdivision, water

supply, parks and reserves expenses and any extra costs. One of the trustees, Aloma

Shearer indicated that she would like a land valuation on the property and

subdivision information to be obtained. Mr Maag agreed to contact the local council

regarding approval for subdivision. The trustees then resolved to agree in principle

to sell the house plus up to an acre of land to Mr Stanley. The offer was to close on

28 July 2006. Mr Maag moved the resolution and the applicant Mr Peni, seconded

it.

[12] On 28 July 2006 the trustees held another meeting at which it was resolved

that the trustees receive and adopt Mr Stanley’s offer of $15,000.00 including GST

for the house. The resolution was moved by Aloma Shearer and seconded by the

applicant. The agreement for sale and purchase between the trustees and Mr Stanley

provided for an area of 3,115 square metres.

[13] Evidence from the LINZ records was presented during the hearing of the

transactions in relation to the particular block of land on which the house was

situated. The block is called Te Kuiti 2B26A Block, comprising 7.5294 hectares

more or less, and making up a part of the total farm property sold to the Scott Family

Trust. The historical search copy of the Computer Freehold Register, Identifier SA

258/206 shows a transfer to the then trustees of Tiroa E and Te Hape B on 26

January 2005. There was a transfer to the Scott Family Trust on 3 January 2007. A

caveat by Mr Stanley was registered on 16 March 2007. On 27 May 2008 a consent

notice pursuant to s 221 of the Resource Management Act 1991 was registered on

the withdrawal of Mr Stanley’s caveat. Simultaneously titles were issued for Lot 1

DP 396746 and Lot 2-3 DP 396746. The transfer of Lot 1 to Mr Stanley was also

registered at the same time.

[14] Mr Stanley proceeded to sell the house to Mr Driver. When Mr Stanley listed

it for sale with Harcourts their website gave a land value of $50,000.00 and

improvement value of $95,000.00. The valuation date was shown as 1 September

2007. The area is shown as 5,018 square metres. The house was also listed in the

accounts of the trust well above the figure stated in the Doyle valuation.


[15] Although Lot 1 DP 396746 has an area that is greater than the 3,115 square

metres agreed to be sold to Mr Stanley, neither the respondent trustees nor Mr Peni

was able to enlighten the Court as to the reason for the increase in the area. The

trustees were adamant that as far as they were concerned the area involved was 3,115

square metres. Their assumption was that extra area may have been required to

comply with resource consent requirements relating to access onto Puketawai Road

which was required for the new lot.

[16] On 30 August 2006 the trustees received a letter from Mr Stanley thanking

them for allowing him to purchase the house.

Allegations against Weo Maag

[17] Some months after completion of the sale Mr Maag states that Mr Stanley

approached him and placed something in his jacket pocket. On taking it out it was

money amounting to $2,000.00. Mr Stanley told Mr Maag that it was for helping

him to obtain the house. Mr Maag says that he told Mr Stanley that he could not

accept the money for his assistance with the house as he did not wish it to be

misconstrued. However, Mr Maag said that he would accept the money on the basis

that Mr Stanley purchased a rimu table which Mr Maag estimated at the value of

around $2,000.00.

[18] Mr Maag says that the arrangement was that Mr Stanley was to let him know

when the table was to be moved into the house, but instead Mr Stanley rented the

house out, and later sold it in May 2009 for $110,000.00.

[19] Mr Maag’s evidence was that the rimu table remains in his workshop. He

says he did not bring the transaction to the attention of the other trustees as it was not

part of the trust business but rather a matter between himself and Mr Stanley. Mr

Maag emphasised that he did not receive the $2,000.00 to “make the deal happen”

although, during cross-examination, he accepted that Mr Stanley probably did see

the payment that way.


[20] Allegations regarding Mr Maag were made at a board meeting on 3 April

2009 when Edward Moana, also known as Edward Emery, was invited to the

trustees’ meeting to explain why he was occupying a house on one of the trusts’

farms without proper permission. The trustees wanted Mr Moana to remove himself

from the house and enter into a proper process for securing the right to occupy one of

the trusts’ houses.

[21] Mr Moana made allegations that Mr Maag had received a “backhander” from

Mr Stanley. The Chair of the trusts asked Mr Maag to explain the allegations. At

that stage Mr Maag said that he had received the $2,000.00 for a table he had sold to

Kelvin Stanley.

[22] The applicant went to see Mr Moana, at the invitation of the Chair, to try to

facilitate a resolution of the unauthorised occupation. Mr Stanley was present at the

meeting with Mr Moana and the allegations against Mr Maag were further discussed.

Both Mr Stanley and Mr Moana wrote to the trustees by letters dated 7 April 2009

informing the trustees of the allegations.

[23] It is fair to note that Mr Moana, Mr Stanley and another person have

allegedly gained entry onto Tiroa Station without permission, and have been

formally charged by the Police with illegal hunting, being unlawfully on the

property, and unlawful possession of a firearm. In addition, Aloma Shearer’s

evidence is that the trustees have asked the Police to take an active role in policing

the trust lands because amongst other things Mr Moana has threatened contractors

and staff.

[24] Although Mr Stanley filed an affidavit, he did not appear at the hearing.

Counsel for the applicant accepted that as a result of Mr Stanley’s non-appearance

the Court could give little weight to his affidavit, but that Mr Maag’s own

admissions raised issues as to whether he had conducted himself properly as a

trustee.


[25] Mr Maag’s evidence was that he spent his own time assisting Mr Stanley

with all the legal/compliance issues in relation to gaining title to the property,

including assisting Mr Stanley with resource consents.

Executive Trustee Position

[26] The minutes of the trustees’ meeting held on 1 December 2006 indicate that

the position of “team co-ordinator” was required but that it was to be an interim

position for three months from 1 December 2006, at which point the position was to

be reviewed. The minutes also state that the position was to be known as

“kaiwhakamana”.

[27] Mr Maag was appointed as kaiwhakamana (later changed to executive

trustee). The purpose of the position is to co-ordinate the activities of the trustees

and to meet with the farm managers and other agencies to form a conduit between

the office of the trusts and the trustees. The executive trustee assists with staff

placements, staff retention and also identifies areas for cost savings and efficiencies

(from AGM minutes dated 23 November 2008).

[28] The Chair of the trusts has responsibility for ensuring the proper performance

of the executive trustee. The evidence from the trustees was that the executive

trustee is performing a management role, and while the executive trustee may make

recommendations to the trustees, it is over to the trustees to make governance

decisions.

[29] There is a position description for the executive trustee role and a salary is

paid. The position was not publicly advertised. Mr Maag was appointed to the

position based on work he had already completed in his capacity as a trustee. Mr

Maag did not take part in any vote regarding the appointment.

[30] The minutes of the trustees’ meeting held on 27 September 2008 indicate that

there was discussion regarding the kaiwhakamana position – that the position was to

be continued and that it be changed to that of an executive trustee. A resolution was

passed accordingly.


[31] The applicant first expressed concern regarding the proposal to appoint Mr

Maag as a manager in a letter dated 24 October 2006 to the Chair of the trustees. In

the letter he stated that he opposed the proposal for the following reasons:

“1. …an overlap of governance and management roles and responsibilities;

2. Trust policy for all employed positions including contractors was to be tendered or advertised;

3. No job description, objectives, goals, desired outcomes or genuine need;

4. The person must have ability to communicate at all levels;

5. Must be analytical and be computer literate;

6. Clearly demonstrate and able to understand compliance issues;

7. Conflict of interest;

8. Other.”

[32] In the same letter the applicant went on to say that:

“This is not a criticism or personal attack against Weo…”

[33] The applicant wrote again on 1 December 2008 to the Chair of the trusts

advising that he considered the appointment of Mr Maag to the position of

kaiwhakamana/executive trustee as outside the terms of the trust order and illegal

and that he considered that Mr Maag ought to resign immediately. He also requested

that:

“The parties involved that drove the appointment of Weo to the position of kaiwhakamana and executive trustee tender their resignations effective immediately.”

[34] In the letter the applicant required the Chair to action the matter immediately

and gave the Chair five working days to address the matters. The applicant indicated

that failure to do so would force the applicant to approach the Māori Land Court for

directions and for removal of trustee.

[35] On 2 December 2008 Aloma Shearer sent an e-mail to the trustees indicating

that she wished to move a vote of no confidence in the applicant as vice-chair. She

states in her evidence that the applicant’s actions in respect of the executive trustee

position prompted her motion of no confidence.


[36] The evidence before the Court indicates that there is a division in the trustees

between the applicant and the other trustees, particularly trustees Shearer, Maag,

Jones and Fraser. These differences seem to have been exacerbated over the past

year or so, with the applicant taking the view that his proposals for development of

the trusts’ assets receive little support, while the other trustees’ proposals tend to be

adopted (see paragraph 41 of the Peni brief).

Submissions for the Applicant

[37] The applicant alleged that Mr Maag had breached fundamental duties which

require that trustees must not let personal interests conflict with their duty to the

beneficiaries, and that they must not undertake the position of trustee for personal

profit or gain. In receiving and retaining the sum of $2,000.00 from Mr Stanley, Mr

Maag breached these duties.

[38] In the applicant’s view the transaction can only be construed as either an

agreement to preserve Mr Stanley’s position as preferred purchaser, which Mr Maag

did; or the payment of commission or a gift to Mr Maag for assisting with the

purchase.

[39] The applicant submitted that in either case there was a breach of trust because

the payment was only possible because of Mr Maag’s position as trustee. Mr

Stanley did not intend to purchase a table – he was only interested in purchasing the

house property from the trust.

[40] The applicant further argued that such a commission or gift is effectively a

payment for Mr Maag’s work as a trustee. Mr Maag’s duty was to ensure the trust

received the best possible return on the sale of the property so that the beneficiaries

ought to have received the full $17,000.00. Instead of that Mr Maag retained

$2,000.00.

[41] The applicant went on to say that the sale of the table for $2,000.00 was a

sham to conceal the true nature of the transaction. There is no evidence that Mr


Stanley wanted a table. Mr Maag admitted that he proposed the transaction due to

his discomfort at receiving $2,000.00 as a gift from Mr Stanley.

[42] Counsel went on to submit that even if Mr Stanley was purchasing a table

there was no difference in terms of Mr Maag’s duty to the beneficiaries. The

purchase only arose because of Mr Maag’s position as trustee.

[43] The applicant therefore seeks an order directing Mr Maag to pay the trust

$2,000.00 and that the Court consider the removal of Mr Maag as a trustee.

[44] The applicant also contended that the other trustees did not seek to

investigate or take any advice on the matter and appear to have misunderstood Mr

Maag’s position in receiving the money. In the applicant’s view this highlights the

problem of overlapping governance with management – the majority of trustees lack

the independence and ability to consider the issues relating to Mr Maag in an

objective manner.

[45] In respect of the sale to Mr Stanley the applicant alleged that it was improper

because the process was flawed and not best practice, and the property was sold at

well below market value, thus representing a loss to the beneficiaries. No valuation

of the house property was sought and no marketing of the property occurred.

[46] The applicant says that it is stretching credibility to suggest that a four

bedroom house on a land area of over 3,000 square metres cost only $15,000.00.

The various estimates and the valuation show the dwelling was valued at well above

the $15,000.00 price. Mr Stanley sold the property at $110,000.00 in 2009 – the

time lapse does not support such a steep increase in value. The transaction may also

give rise to gifting and tax implications for the trust.

[47] The relief sought by the applicant is that the Court direct the trustees to

provide a report to the beneficiaries on the sale and to seek directions from the

beneficiaries accordingly. The trustees also ought to be directed to take appropriate

advice on any tax implications.


[48] In respect of the executive trustee position the applicant is of the view that

the position is effectively that of CEO. The applicant considers that governance and

management should be separated to ensure that decisions and decision-making

processes are robust and to ensure there are proper accountability mechanisms in

place in respect of what is now a multi-million dollar business.

[49] The development plans for the trust involve substantial investments and the

applicant believes that the current structure does not serve the best interests of the

beneficiaries.

[50] The applicant considers that proper job sizing and a proper job description

ought to have been ascertained before the appointment was made, the position ought

to have been publicly advertised, and the kaiwhakamana position was only intended

as an interim position.

[51] The applicant submitted that trustees should test a CEO’s advice and that,

even though a trustee can be employed by the trust pursuant to clause 40(e) of the

Trust Order, due process needs to be followed in order to manage any conflicts.

Thus the executive trustee should not take part in discussions or vote in relation to

his own employment.

[52] The applicant seeks a variation to the trust order disqualifying trustees from

being employed or, in the alternative, a direction from the Court that the trustees

seek the views of the owners on whether the trust order ought to be varied to

disqualify trustees from being employed, and if so in what circumstances. The

applicant also seeks a direction that the trustees conduct a transparent and

contestable process for appointing a chief executive and other staff.

[53] The applicant also suggests that governance advice should be sought to assist

the trustees to determine the best possible structure and governance/management

arrangements for the trusts.


Submissions for the Respondent Trustees

[54] The trustees submitted that Mr Peni had approached the matters at issue in a

manner that showed Mr Peni was intent on having Mr Maag removed as a trustee.

Mr Peni filed his original application before the trustees had a chance to formally

address the letters sent by Mr Stanley and Mr Moana. Mr Peni requested an urgent

meeting on 11 April and again on 17 April 2009. When the Chair advised that two

of the trustees would not be able to be present and that the matter could be raised at

the trustees’ meeting of 24 April 2009, Mr Peni proceeded to file the application in

Court.

[55] Mr Peni also laid a complaint against Mr Maag with the New Zealand Police,

asking the Police to assess whether criminal charges could be laid. By letter dated

24 July 2009 the Police stated that they were unable to substantiate the allegations

made against Mr Maag. The trust has incurred significant legal costs in defending

and responding to allegations which could have been dealt with internally or by way

of a joint application to the Court seeking directions.

[56] In respect of the sale of the Stanley property the trustees submitted that if

there is any liability for failure to realise a fair market value for the Stanley property,

Mr Peni is equally liable on the basis that he is a trustee and supported the sale by

seconding resolutions made by the trustees in regards to the Stanley property.

[57] The sale was effected without the involvement of a real estate agent so that

commission fees were saved. All the costs relating to survey, subdivision and the

issue of a title to Mr Stanley were borne by Mr Stanley.

[58] The property sold to Mr Stanley was an area of 3,115 square metres. The

property sold by Mr Stanley was for a greater area of 5,018 square metres.

[59] The trustees further submitted that the information they had from Jack House

Transit Limited in 2003 and from Mr Waretini in 2006 gave clear indications that the

house was not in good condition, and this was supported by the lack of tenders for


removal of the house. The trustees also received the Doyle valuation in June 2006,

which valued the house, without internal inspection, at $33,042.00.

[60] The trustees argued that it was reasonable to infer that all the trustees saw the

sale to Stanley as an opportunity to increase the overall value of the sale of the farm

property, given that the offer on the farm was significantly above market valuation.

[61] In the trustees’ view, without expert valuation evidence that could address the

various different factors to be taken into account when assessing the value of the

house property as sold to Mr Stanley, the Court cannot make a finding of fact that

the property was sold under value.

[62] The trustees accepted that their duty to act with due care and diligence might

have prompted them to obtain an independent valuation for the house property or to

obtain directions from the Court. However, all trustees agreed to the sale, they had

looked at other options without success, the overall value of the sale of the farm and

the house property exceeded the Doyle valuation by $180,000.00 and the properties

were surplus to requirements.

[63] The land was not corpus trust land so the trustees were not obliged to ensure

that shareholders had the opportunity to acquire the house. However, Mr Stanley’s

mother is a shareholder in both Tiroa E and Te Hape B and the trustees saw this as

an opportunity to assist a member of the preferred class of alienees who would then

be able to make use of housing assistance from a neighbouring Māori incorporation.

[64] The shareholders have not raised any concerns in relation to the sale of the

farm at previous annual general meetings but the respondents would abide by any

direction from the Court to place the matter before the shareholders.

[65] In relation to the allegations against Mr Maag the trustees accepted that they

must not profit from their role. Key facts relied on by the trustees are that the money

was not received to “make the deal happen”. While Mr Stanley gave the gift for

assistance given to him in relation to the purchase of the house, the work included

surveying and subdivisional matters which were contractually the responsibility of


Mr Stanley. Mr Maag was not legally or morally required to assist Mr Stanley but

he chose to do so as a personal choice. Mr Maag was not kaiwhakamana at the time

and he did the work as a favour over and above any obligation he had as a trustee or

employee of the trust. The trustees therefore submitted that Mr Maag had not

received the money in his capacity as trustee.

[66] The trustees say that the timing and context of the allegations three years

after the alleged payment, when Mr Moana and Mr Stanley have criminal charges

outstanding against them in respect of activities which took place on the trusts’

property, raise questions as to the motive and reliability of the evidence.

[67] The trustees submitted that there was no evidence that Mr Maag coerced or

forcefully recommended his fellow trustees to proceed with the sale or to accept the

price offered by Stanley. Two meetings were held to discuss the issue and the

majority of trustees had supported the proposal.

[68] Mr Maag has never denied receiving the money and offered to stand down as

a trustee, which was objected to by all trustees save Mr Peni. Mr Maag is also

prepared to repay the $2,000.00 to Mr Stanley or the trust.

[69] The trustees maintain that the process they undertook in establishing the

executive trustee position was proper, prudent and in accordance with the trust order,

but they accept that there is some merit in revisiting the question of whether it is

appropriate for a trustee to hold the position and they are prepared to seek direction

of the shareholders.

[70] However, the trustees emphasised that Mr Maag was appointed as

kaiwhakamana based on the work he had completed in his capacity as trustee, and

Mr Maag did not take part in any votes regarding his appointment. The trustees

further submit that there is no evidence that Mr Maag has been placed in a conflict of

interest position since taking on the role and that his remuneration was negotiated

directly with the Chair. There is no evidence that Mr Maag has too much influence

over the other trustees due to being in the executive trustee position. No issues have

been raised about Mr Maag’s performance as executive trustee.


[71] The trustees consider that they should have the opportunity to appoint a

trustee as an employee in the capacity of CEO in appropriate circumstances. Factors

in support include:

a) The cost of advertising and undertaking a public

interview/appointment process;

b) The CEO must have an intimate understanding of the trust business

(hence the decision to employ Mr Maag);

c) A trustee has obviously been nominated and supported by

shareholders and approved by the Court, and therefore there is already

an existing basis for trust, transparency and consistency in the

appointment of such a person as CEO;

d) The trustees accept that the views of the shareholders are important

but no shareholder has raised concerns about Mr Maag’s appointment.

Law

[72] Section 231 of Te Ture Whenua Māori Act 1993 provides as follows:

[231 Review of trusts

(1) The trustees or a beneficiary of a trust (other than a kai tiaki trust) constituted under this Part may apply to the Court to review the terms, operation, or other aspect of the trust.

(2) There can be no more than 1 review of a trust within a period of 24 consecutive months.

(3) The Court may, on any review,—

(a) confirm the trust order for the trust without variation; or

(b) exercise its powers under section 244; or

(c) terminate the trust if the Court is satisfied that there is a sufficient degree of support for termination among the beneficiaries.]

[73] Pursuant to s 237 of Te Ture Whenua Māori Act 1993 the Māori Land Court

also has all the powers of the High Court in respect of ahu whenua trusts, including


an extensive supervisory jurisdiction – see for instance Proprietors of Mangakino

Township v The Māori Land Court & Anor (CA 65/99, 16 June 1999, Wellington).

[74] Section 238 of Te Ture Whenua Māori Act 1993 empowers the Court to

require any trustee to report to the Court on any matter relating to the administration

of the trust or the performance of the trustees’ duties, and to enforce the obligations

of the trust in respect of any trustee.

[75] The law relating to these sections was discussed in Marino - Repongaere 4G

(Part) (2004) 34 Tairawhiti Appellate Court MB 98 (34 APGS 98). At folio 101 of

that case the Court said:

“The Court of Appeal underscored the broad powers of the Māori Land Court in respect of trusts in the important judgment The Proprietors of Mangakino Township v The Māori Land Court & Anor (CA 65/99, 16 June 1999, Wellington). In the decision it was noted that the Court has a guardianship role to play in respect of trusts (per Blanchard J at pp 9-10) and that it “…is expressly given in s 237 in respect of any trust to which Part XII applies ‘all the same powers and authorities as the High Court has (whether by statute or by any rule of law or by virtue of its inherent jurisdiction) in respect of trusts generally’. In other words – it is to have the most extensive supervisory powers.”

In the context of trustees’ duties, it is basic trust law that trustees may not profit from that office: Robinson v Pett (1734) 3P Wms 249. Where a profit has been made trustees must then account to the trust for that unauthorised retention of trust capital: in re Macadam [1945] 2 All ER 644. While there is specific statutory authority enabling the Court to grant relief per section 73 of the Trustee Act 1956, it is not lightly given: in re Tauhara Middle 4A2B2 C–Opepe Farm Trust (1996) 68 Taupo MB 27. The onus lies with the trustees to establish that they have acted honestly and reasonably. They must, however, be excused for omitting to seek directions from the Court. It is also well settled that there are exceptions to the general principles including the power of the Court to authorise remuneration or other pecuniary gain where that is appropriate, per section 72 of the Trustee Act 1956. Trustees are also entitled to reimbursement of expenses properly incurred in the exercise of that office: in re O’Donoghue [1998] 1 NZLR 116. However the overarching principle is that trustees must act gratuitously and must not profit from their role: Peach v Jagger (1910) 30 NZLR 423.”

[76] The duty not to profit from a trusteeship exists to ensure that the desire for a

personal profit does not cause the trustee to forget or pay insufficient attention to the

trustee’s loyalty to the beneficiaries.

[77] An example of the strictness of the duty is the case Boardman v Phipps

[1967] 2 AC 46 in which it was held that although a trustee acted with utmost

integrity and considerably increased the value of shareholding held by the trust in a

company, he had come into information about the company in his capacity as trustee.


The trustee was made to account to the trust for profits made when he sold his own

shares in the company.

[78] In relation to dealings with trust property a trustee must not exercise powers

or discretions in breach of the trustee’s duty of care. A trustee owes a general duty

to take the care of an ordinary prudent businessman in managing his own affairs:

Speight v Gaunt [1883] 22 Ch.D 727 (CA).

[79] A trustee must also, of course, act in good faith. However, as Lord Halsbury

said in Hutton v West Cork Railway Co (1883) 23 Ch.D 654, at 671:

“Bona fides cannot be the sole test, otherwise you might have a lunatic conducting the affairs of the company, and paying away its money with both hands in a manner perfectly bona fide yet perfectly irrational.”

[80] The other relevant duty of trustees is the duty to invest. In Equity and Trusts

in New Zealand (2nd Edition, A Butler editor, 2009) the duty is described at para

8.2.2, page 218 as follows:

“A fundamental proposition, which has been repeatedly affirmed by the courts, is that trust investment law is conduct-oriented not results-oriented. As Thomas J stated in Jones v AMP Perpetual Trustee Co NZ Ltd [1994] 1 NZLR 690 (at page 706):

‘[I]t is clear that a trustee is neither an insurer nor guarantor of the value of a trust’s assets and that the trustee’s performance is not to be judged by success or failure, that is, whether he or she was right or wrong. While negligence may result in liability, a mere error of judgment will not.’

All a trustee is accountable for is the way in which he or she has exercised his or her powers, not for legitimate risks, or the effect of market forces or other imponderables on the trust funds. A trustee will never be accountable just because the trust has lost money; it must be shown that that loss occurred due to the trustee’s improper conduct (for example, negligence or unauthorised investment).” [Footnotes omitted].

[81] Section 13B of the Trustee Act 1956 requires a lay trustee to exercise “the

care, diligence and skill that a prudent person of business would exercise in

managing the affairs of others.” A higher standard is imposed upon professional

trustees under s 13C.

[82] The duty to invest prudently requires trustees to seek advice on matters

outside the trustees’ area of expertise, such as valuation of property. The trustee


must also follow the advice only if he or she thinks it to be sound advice given by

competent advisers. Trustees must consider potential alternative courses of action

and assess the reliability of the information given by the advisers.

[83] Finally the trustees of Tiroa E and Te Hape B trusts have a power to sell any

property of the trust other than the corpus lands (as set out in clause 17 of the trust

orders). Pursuant to s 28 of the Trustee Act 1956 the trustees may obtain a valuation

of any property. Under s 14(6) of the Trustee Act 1956 a trustee who sells land shall

not be guilty of a breach of trust by reason of any inadequacy of the amount or value

of the sale price if the trustee has ascertained the value of the land pursuant to s 28

and the sale price is not less than the value set out in the valuation.

Discussion

[84] I will deal with the three issues before the Court in the following order:

a) Allegations against Mr Maag;

b) Sale of farm property;

c) Executive trustee position.

Allegations against Mr Maag

[85] An allegation that a trustee has received a “kick back” to ensure a deal that is

favourable to one of the parties to the transaction is a serious allegation and needs to

be treated as such by the other trustees. The trustees received formal notification of

the allegations by letters from Mr Moana and Mr Stanley on 14 April 2009. Mr Peni

had requested urgent meetings on 11 April and 16 April 2009, with a trustee meeting

scheduled for 24 April 2009. I note that the Chair declined to convene the urgent

meetings because two trustees were not available. The application was filed with the

Court on 17 April 2009.


[86] Given the historical nature of the allegations, and the current allegations

against Mr Moana and Mr Stanley, Mr Peni’s filing of the application does seem

hasty. I consider it reflects Mr Peni’s dissatisfaction with the other trustees’

performance, and an isolation from the other trustees which seems to have led him to

take this unilateral action.

[87] Nevertheless Mr Peni was rightly concerned about the allegations and they

undoubtedly warranted prompt investigation by the trustees.

[88] I accept Mr Maag’s statements that the gift of $2,000.00 was made after the

agreement for sale and purchase was entered into, and that it was by way of a koha to

show Mr Stanley’s gratitude for the extra efforts Mr Maag had made to assist Mr

Stanley to purchase the house. I do not believe that the offer of payment was made

prior to the sale agreement to induce Mr Maag to help Mr Stanley to be the preferred

purchaser for the property. I base this view on Mr Maag’s own evidence, but also on

other surrounding circumstances.

[89] Mr Maag was tasked with finding a purchaser for the whole farm, which had

become surplus to requirements. All the trustees including Mr Maag, were aware

that the house had failed to attract any tenders for its removal, and the trustees’ view

of the house would have been conditioned by the letters from Jack House Transit and

Mr Waretini. These facts seem to suggest that had anyone appeared wishing to

purchase the house, the trustees would have needed no inducement to begin

negotiations with that person. Quite the opposite.

[90] The agreement to sell to Mr Stanley was on the basis that he would be

responsible for all costs related to survey, resource consent and obtaining title. It is

not surprising that, given the assistance Mr Maag then gave with those matters, when

there was no obligation upon him to do so, Mr Stanley was prompted to make a gift

to Mr Maag. I also consider that Mr Maag was well aware that he could not accept a

gift for his work as a trustee, but that he considered the table sale a proper sale,

because he believed the assistance he gave Mr Stanley was outside his role as a

trustee.


[91] However, applying the law as set out in Boardman v Phipps, Mr Maag could

not receive the $2,000.00 on his own behalf. As he himself accepted, Mr Stanley’s

motive in paying him this sum was purely in relation to Mr Maag’s efforts with the

subdivision of the house. That activity only came about because the trustees,

including Mr Maag, wished to sell off this property, and proceeded to do exactly

that. Thus Mr Maag must account to the trust for the “profit” which came to him as

a result of that transaction.

[92] I note that the duty not to profit from a trusteeship applies regardless of how

honestly or fairly the trustee has acted or how much the trust may have benefited by

the trustee’s actions. Had I come to the view that Mr Maag’s actions were as a result

of an inducement offered by Mr Stanley prior to the sale agreement or that Mr Maag

thought the payment was for securing the sale agreement, in favour of Mr Stanley,

then I would also have to consider his removal as trustee. I am prepared to give him

the benefit of the doubt, especially considering the source and the circumstances in

which these allegations came to light and the likelihood that the nature and colour of

the transaction may well have been exaggerated as a result. That said, Mr Maag

must also accept that unless trustees adhere to high standards of loyalty to the trust

and the beneficiaries both in the core business of the trust, as well as in matters that

may seem only peripheral to the trust’s activities then they will be held liable and

removal is a distinct possibility. It is not sufficient to rely on honesty and good

intentions to protect a trustee from liability. Rather a trustee must be vigilant and

proactive in protecting the beneficiaries’ interests at all times.

[93] There will be a direction at the end of this judgment for Mr Maag to pay the

sum of $2,000.00 to the trust.

Sale of Farm Property

[94] The essence of this issue is whether the trustees have, in breach of trust, sold

the house property to Mr Stanley for an undervalue. As already set out above it is

clear that the trustees wished to sell a trust investment, the farm property, for the best

price possible. To that end they obtained the Doyle valuation in June 2006, which

gave an overall value for the farm of $4,835,000.00. From the evidence, the


agreement for sale and purchase for the farm at $5,000,000.00 was made on 16

August 2006, while the agreement for sale and purchase of the Stanley house was

made on 9 October 2006. From the point of view of the trustees they achieved a

profit of $180,000.00 on a property which had become surplus to the trust’s

requirements. There is clearly no loss to the trust. What Mr Peni is really arguing is

that the profit could have been greater.

[95] There is no evidence before the Court as to the actual value of the land and

house at the time the house agreement was entered into by the trustees. I note that

there are a number of different ways such a valuation could have been done – for

example just on the basis of “as is where is”, on the basis of being subdivided out or

on the cost of bringing the house and property up to acceptable standards. The

applicant referred to the amount shown in the trust’s accounts for the house and also

to the value shown in the Doyle valuation. The books of account of any business

will show values for assets which do not necessarily bear any relationship to the

value of the asset if sold separately on the open market. I therefore cannot take into

account what the value in the accounts may have shown. In terms of the Doyle

valuation it is clear that that valuation was done on the farm property as a whole to

calculate the sum per hectare of the sale price, which was $20,000.00 per hectare

(including buildings). That is the normal means of establishing a valuation for a

farm property. I also accept the evidence that the Doyle valuation did not include an

internal inspection of the house. On the basis of the Doyle valuation the 3,115

square metres calculates out to being $6,200.00 in round figures.

[96] The applicant also pointed to the sale price that Mr Stanley achieved when he

sold the property in 2009. However, the Court must take into account the larger land

area involved in that sale, plus the costs in survey, resource consent and issue of new

title as well as the premium that attaches to a property once it is separated out from a

larger block. In this case, once the subdivision was completed this property became

a lifestyle block, and a premium attaches to that. Without expert valuation evidence

the Court is unable to establish that there has been any sale at an undervalue. All

that has been established is that the trustees may have been able to obtain more from

the sale of the investment, had they wished to undertake the time, cost and effort

involved in subdividing out the house property themselves and holding onto it until a


suitable or appropriate price could be obtained for it. That is a business decision,

and in this case the trustees chose to realise a reasonable profit on the farm property

as a whole in the short term rather than taking a longer term risk.

[97] Nevertheless, they could have considered reasonable alternative options,

including the option of obtaining a valuation for the house and land as a separate

unit. I note Ms Shearer’s evidence is that at the trustees’ meeting of 26 May 2006

when the issue was discussed, Ms Shearer advised that she would like a land

valuation on the property and subdivision information. Had the trustees obtained

that information but then come to the decision that the extra profit did not warrant

the extra effort or risk, then the trustees could not be criticised at all.

[98] However, the trustees were told at the May meeting that Mr Stanley was a

recipient of the Maraeroa C Home Loan Pilot Scheme. At the trustees’ meeting of

28 July 2006 there was further discussion about obtaining a letter of comfort from

the neighbouring incorporation, Maraeroa C, supporting the agreement with Mr

Stanley.

[99] Thus it appears that the trustees were influenced by the consideration that

agreeing to the sale to Stanley would give housing assistance to a child of a

beneficial owner. If Mr Stanley had been a beneficial owner himself then there

would have been no question that the trustees were entitled to take into account the

fact that entering into this transaction would give housing assistance as one of the

objects of the trust is “the better habitation or user of land by beneficial owners…”.

Mr Stanley is not a beneficial owner, so the trustees are not authorised to act in such

a way as to benefit Mr Stanley or any other wider class, such as the successors of

beneficiaries.

[100] In order to benefit a wider class the trustees would need to apply to the Māori

Land Court for an order varying the trust. For instance, the trustees may consider

applying for the power to apply income from the trust for Māori community

purposes under s 218 of Te Ture Whenua Māori Act 1993. Even then the trustees

would need to develop clear policies as to how trust income or other assets are to be

distributed for such purposes.


[101] In all the circumstances, while the process was not best practice because no

valuation of the house and land was sought and the trustees were influenced by

factors beyond the objects of the trust, it cannot be said that there was any loss to the

trust. I therefore decline to give the direction sought by the applicant, although the

trustees may consider that they should report to the beneficiaries regarding the sale

in any case in order to obtain the beneficiaries’ views as to a variation of the Trust

Order. In respect of the other direction sought by the applicant – that the trustees

take appropriate advice on any tax implications arising from the sale – I note that the

trust’s accountant advised the trust’s lawyers that there were no issues arising from

the sale of the land and house to Mr Stanley. Unfortunately the evidence is

insufficient to show exactly what information was given to the accountant and

therefore the basis for his view that there were no issues of concern. It would be

wise for the trustees to re-check the matter with their accountant and I will give a

direction accordingly at the end of the decision.

Executive Trustee Position

[102] The Tiroa E and Te Hape B trusts are, by anyone’s standards, large

businesses with a special character that attaches to Māori land trusts. In smaller

Māori land trusts the trustees are commonly beneficiaries, and they may also manage

the assets of the trust. The larger the trusts grow the more important it is that

trustees pay close attention to having clear, robust decision-making processes. In

larger businesses this usually means that governance is separated from management.

[103] Where part of the trust assets include a trust business the arguments for

separation of governance and management are even stronger than usual, because the

trustees are dealing with assets that belong to the beneficial owners, and the trustees

are charged with the duties to act in those beneficial owners’ best interests, not to

allow a conflict of interest to arise and not to profit from their role as trustees.

[104] Thus the trustees need to properly investigate and consider investment

proposals so that the decisions of the trustees can stand scrutiny, both for the sake of

the beneficiaries and so that the trustees themselves can avoid incurring liability.

This suggests that a separation of the role of CEO from that of trustee is a safer


option than combining the roles. It is also difficult to see how a trustee can avoid

having a conflict of interest when negotiating for remuneration for the CEO position

with the Chair or other trustees. A CEO is not an administrative role where the job

specifications and the remuneration can be easily ascertained and measured against

similar administrative positions in the private sector or public service. A CEO may

be expected to help grow the business, and will expect to be remunerated based on a

number of factors, including the size of the business, the growth in profit,

comparisons with other similar businesses, and so on. The more the CEO benefits

the business the more he or she will expect to be paid. Any negotiations run around

payment run counter to a trustee’s duty not to profit from the trust and not to allow

the trustee’s interest to conflict with the beneficiaries.

[105] The position is similarly difficult when the CEO trustee’s performance is

poor. Rather than going through a process just to terminate the CEO’s employment

the other trustees might also have to seek removal of the trustee by the Court. The

fact that a clause in the trust order allows a trustee to be employed is not to say that

the employment of a trustee in particular circumstances is best practice. The trustees

need to think carefully each time they have to involve this clause. The clause is

commonly inserted to allow payment of professional trustees such as lawyers and

accountants whose knowledge of the trust’s affairs means the legal and accounting

affairs of the trust can be dealt with more efficiently. The type of work and rate of

remuneration for such professionals can also be reasonably easily measured against

the standards in the profession. A CEO position is somewhat different from that,

especially taking into account the entrepreneurial element in the job.

[106] I consider that there would have to be strong reasons to appoint a trustee as

CEO. The trustees in this case gave a number of reasons why the executive trustee

appointment was made (at para 71). Dealing with each one in turn my views are as

follows:

a) The cost of public advertisement and interviewing is balanced by the

cost of terminating the employment and removing an executive trustee

who turns out to be wrong for the job or for the changing nature of the

business. Conversely public advertisement and interviewing gives the


trustees the opportunity of seeing a range of candidates with levels of

skill which may differ from those of trustees;

b) While it is efficient to be able to appoint a CEO who already has

knowledge of the business, a trustee who wishes to be CEO can

always consider resigning as trustee to take up the CEO position.

This would avoid the conflicts mentioned above;

c) While the appointment of a trustee by the Court means that a person is

suitable as a trustee this is not the same thing as saying that a person is

suitable as a CEO. Nor, I have to say, is the appointment process

infallible. The usual methods of obtaining assurances as to a person’s

skills and character used by all employers are available to the trustees;

d) Beneficiaries’ views are important but the fact that to date no one has

raised concerns about Mr Maag’s dual role is not determinative.

Unfortunately beneficiaries can sometimes be the last to know when

something has gone wrong in a trust business, but they are the ones

who must carry the losses.

[107] Whether the appointment of a CEO to manage the business, while the trustees

attend to governance matters, is the right model for these particular trusts is not a

matter for this Court. A number of the existing trustees, and beneficial owners will

have knowledge of the difficulties that arose when a previous trustee undertook the

role of CEO.

[108] Both parties have indicated that there is merit in the suggestion that the

executive trustee position should be revisited. In the circumstances it would benefit

the trustees and the beneficiaries to obtain expert advice as to the best structure for

the trusts. Organisations such as the Federation of Māori Authorities and similar

entities may be able to recommend suitable advisers. Once advice as to the best

governance/management structure for this particular trust is obtained, the advice and

the comments I have made in this judgment should be put to the shareholders for


their views. The trustees can then return to the Court for further direction or

variation to the trust order as appropriate.

Directions

[109] In light of the conclusions I have drawn above my directions are as follows:

a) Mr Maag is directed to pay $2,000.00 to the trust, being the sum paid

to him by Mr Stanley;

b) The trustees are directed to make full disclosure to their accountant

and lawyer as to all the circumstances surrounding the sale to Mr

Stanley, including the Doyle valuation, the value of the house as

shown in the trust’s accounts, the amount of the sale price and any

other information requested by their accountant and to obtain tax

advice in respect of the transaction;

c) The trustees are directed to obtain expert advice in respect of the

business structure which would best suit the trusts’ circumstances

within four months of the date of this judgment. Trustees are then to

consider such advice and to develop proposals in regard to the

structure of the business to take to a general meeting of the beneficial

owners for consideration. Such a meeting is to be held within seven

months of the date of this judgment. The trustees are to report to the

Court on the result within two months after the date of the general

meeting. For the avoidance of doubt the trustees’ proposals to the

meeting of beneficial owners may include recommendations that are

different from the advice received from the advisers, but if so, the

trustees must disclose such differences to the beneficiaries and give

full reasons to the beneficiaries for the recommendation;


d) The trustees may return to the Court for clarification of these

directions or for further and other directions.

Pronounced in open Court at Hamilton at 2.45 pm on 18th January 2010.

S Te A Milroy JUDGE

Documents

IN THE MAORI LAND COURT OF NEW ZEALAND … · OF NEW ZEALAND . WAIKATO-MANIAPOTO DISTRICT . 1 WAIKATO MANIAPOTO MB 25 . A20090006783 . ... settlement then the whole of …