Kain v Hutton [2007] NZCA 199 (22 May 2007) · [5] Mr and Mrs Couper senior also had a daughter, Mrs JR Kain, who died in 1986. She was married to Mr GT Kain (the fifth respondent

Kain v Hutton [2007] NZCA 199 (22 May 2007) Last Updated: 16 June 2007

IN THE COURT OF APPEAL OF NEW ZEALAND

CA237/03CA271/04

[2007] NZCA 199

BETWEEN GEORGINA KAIN, GEORGE HARRY COUPER KAIN, GEORGE CHARLES KAIN, GEORGE THOMAS CARLTON KAIN AND GEORGE MICHAEL KAIN Appellants

AND JONATHON RHODES HUTTON First Respondent

AND WILLIAM ALEXANDER XAVIER COUPER Second Respondent

AND ANNETTE ELIZABETH COUPER Third Respondent

AND WAYNE KEITH STARTUP Fourth Respondent

AND GEORGE THOMAS KAIN Fifth Respondent

AND MARY HUTTON Sixth Respondent

CA4/05

AND BETWEEN GEORGE THOMAS KAIN, GEORGE CHARLES KAIN AND GEORGE THOMAS CARLTON KAIN AS TRUSTEES Appellants

AND JONATHON RHODES HUTTON First Respondent

AND WILLIAM ALEXANDER XAVIER COUPER Second Respondent



CA267/05

Page 1 of 60Kain v Hutton [2007] NZCA 199 (22 May 2007)

25/10/2008http://www.nzlii.org/nz/cases/NZCA/2007/199.html

AND BETWEEN WILLIAM ALEXANDER XAVIER COUPER Appellant

AND GEORGINA KAIN, GEORGE HARRY COUPER KAIN, GEORGE CHARLES KAIN, GEORGE THOMAS CARLTON KAIN AND GEORGE MICHAEL KAIN First Respondents

AND JONATHON RHODES HUTTON Second Respondent



AND GEORGE THOMAS KAIN Fifth Respondent

Hearing: 22 May - 1 June 2006

Court: Glazebrook, Hammond and Robertson JJ Counsel: W M Wilson QC, J S Kos and S P Rennie for Appellants in CA237/03 and CA271/04 and for First Respondents in CA267/05 J V Ormsby for Appellants in CA4/05 M R Camp QC and R J B Fowler for Second Respondent in CA237/03, CA271/04 and CA4/05 and for Appellant in CA267/05 T C Weston QC and J Costigan for First, Third and Fourth Respondents in CA237/03, CA271/04 and CA4/05 and for Second, Third and Fourth Respondents in CA267/05 R A Osborne for Third and Sixth Respondents in CA237/03 and CA271/04 R B Stewart QC for the Kain grandchildren (apart from Mr and Mrs Hutton's children)

Judgment: 22 May 2007 at 4pm

A The appeals in CA237/03 and CA271/04 are dismissed. B The appeal in CA4/05 is dismissed. C The appeal and cross-appeal in CA267/05 are dismissed. D The cross-appeals in CA271/04, CA4/05 and CA267/05 are allowed to the extent set out at [300] and [301]. Otherwise they are dismissed. E The parties have leave to file submissions on costs and on the form of judgment for the first, third and fourth respondents in CA271/04 in accordance with the timetable set out at [302]. ____________________________________________________________________

REASONS OF THE COURT

(Given by Glazebrook J)

JUDGMENT OF THE COURT



Table of Contents

Para No Introduction [1]

The families [2]

The trusts [6]

Summary of High Court judgments [7]

The appeals and cross-appeals [13]

The issues [18]

Should the conditional appointment of the Te Mata trust land to Mrs Mary Hutton have been held to be invalid? [19]

Background [19]

Judge’s findings [21] Submissions on appeal [23] Issues on appeal [25] Was there a continuing link between the invalid resettlement and the appointment? [26] Was the appointment tainted by improper motives? [35] Was the appointment revocable so as to enable Mr WAX Couper to exert control? [41] Conclusion [45]

Should the resettlement of the Mangaheia trust have been declared invalid? [46]

Background [46] Terms of the old trust as to income and capital [50] Power of advancement [56] Resettlement documentation [59] Contentions before the High Court [62] The High Court judgment [63] Contentions on appeal [72] Issues [76] Can the trustees rely on clause 4 of the trust deed? [77] If not, was Mrs AE Couper entitled to capital? [86] Was the consent of the Kain children required? [89] Was the resettlement excessive? [92] Can the resettlement be impeached on the ground of bad faith or unreasonableness? [96] Conclusion [101]

Was the resettlement of the Ponui Station shareholding a fraud on the power and, if so, should the shareholding have been returned to the old or to the new Mangaheia trust? [102]

The High Court judgment [102]



Contentions of the parties [106] Legal principles relating to fraud on a power [108] Was there a fraud on the power in this case? [114] Conclusion [123]

Should the trustees of the Richmond trust have been granted specific performance of the transfer of 51% of Hikanui Station? [124]

Background [124] The High Court judgment [126] Contentions on appeal [129] Issues [130] Was there a binding agreement? [131] Does estoppel arise? [136] Was there a perfected gift? [137]

Are the trusts entitled to damages for knowing receipt equal to the profit made with regard to Greenlees Farm and Pinecroft Farm? [139]

Introduction [139] Further background [142] High Court judgment [148] Discussion [153]

Was the farming company transaction a breach of trust and, if so, should an inquiry into damages have been ordered? [167]

Contentions on appeal [167] Background [168] High Court judgment [185] Difficulties with the Kain children’s submissions [190] Conclusion [199]

Should the three trustees have been held responsible for the continued intermingling of trust funds? [201]

Was there a failure to distribute the vested trusts, and, if so, should there be an inquiry into losses suffered? [205]

Issues [205] Specific difficulties with distribution [207] Role of Mr WAX Couper [213] General difficulties with distribution [214] Was there any loss? [218]

Should the 2002 consent order have been set aside? [219]

Background [219] Contentions on appeal [226] Issues [229] Were the Kain children forced to agree? [230] Does there have to be a positive benefit? [232]



Should the adult grandchildren have been represented? [234]Should the infant grandchildren have been separately represented? [236] Was the Wellwoods transaction disadvantageous? [239] Should the Wellwoods price be further adjusted? [241]

Was the failure to make distributions to grandchildren a breach of trust? [242]

Contentions [242] Discussion [243]

Should the trustees have been removed for breach of trust? [248]

High Court judgment [248] Contentions of the parties [260] Discussion [265]

Should judgment have been entered for the three trustees? [281]

High Court judgment [281] Contentions of the parties [283] Discussion [285]

Should the Judge have restrained Mr WAX Couper from exercising his power to appoint new trustees? [288]

Should the costs awards be disturbed? [291]

Some final observations [296]

Result and costs [299] APPENDIX Family Tree

Introduction

The families

[1] These appeals concern a family dispute over the administration of a number of trusts. In this introduction, we provide a brief description of the families and trusts involved and the High Court judgments under appeal. We then isolate the issues we need to address in the various appeals and cross-appeals.

[2] The families in question are the Kains, the Coupers and the Huttons. A family tree is set out in the appendix to this judgment.

[3] The first relevant generation of these families is that of Mr ED Couper and his wife, Mrs HR Couper, who farmed in the Hawkes Bay area from about 1920. They died in 1976 and 1989 respectively.

[4] Their son, Mr WAX Couper, is the second respondent in the main appeal (CA271/04). In 1989 Mr WAX Couper married Mrs AE Couper, the third respondent in the main appeal. They separated in 2003 but remain on good terms. Mrs AE Couper has four adult daughters of a previous marriage.



The trusts

Summary of the High Court judgments

(a) Te Mata trust: The Judge held that the purported resettlement of this trust in 1999 was invalid but declared that the conditional appointment of

[5] Mr and Mrs Couper senior also had a daughter, Mrs JR Kain, who died in 1986. She was married to Mr GT Kain (the fifth respondent in the main appeal). There are six children of that marriage, Mr Michael Kain, Mr Tom Kain, Mr Harry Kain, Ms Georgina Kain, Mr Charles Kain (the appellants in the main appeal and referred to in this judgment as the Kain children) and Mrs Mary Hutton (the sixth respondent in the main appeal). All but Mr Tom Kain and Ms Georgina Kain have children of their own.

[6] The trusts in question are two estates and some 15 family trusts settled variously by Mr and Mrs Couper senior, Mrs JR Kain and Mr WAX Couper and/or their respective spouses. The trusts are usually named after the farm they own and are, on the whole, discretionary trusts. The Kain children, Mrs Hutton, and, in some cases, their respective children are beneficiaries of most of those trusts. A full description of the trusts is included in Panckhurst J’s judgment of 3 December 2004 – Kain v Hutton HC CHCH M198/00 3 December 2004 at [17] - [24].

[7] There are three judgments of Panckhurst J that are under appeal – a judgment of 13 November 2003 (now reported as Kain v Hutton [2004] 2 NZLR 318 (HC)), the 3 December 2004 judgment referred to at [6] and a judgment of 18 November 2005 (Kain v Hutton HC CHCH M198/00 18 November 2005).

[8] In his decision of 13 November 2003, Panckhurst J gave directions designed to resuscitate a consent order that had been made in 2002. These directions were aimed at upholding the essence of that order, despite the non-implementation of some of its terms. Even if time had been of the essence with regard to the performance of the obligations under the consent order, the Judge considered that the Kain children had been responsible for the delays. The terms of the consent order were confirmed again in his judgment of 3 December 2004, with the modification that, if Mrs Hutton elected to acquire land currently held by the Wellwoods trust, the valuation date was changed to 21 days from the date of the judgment.

[9] Also in that 3 December 2004 judgment, Panckhurst J made an order removing Mr WAX Couper as trustee of the five trusts of which he was a trustee. He held further that Mr Hutton, Mrs AE Couper and Mr WAX Couper’s accountant, Mr Startup (the fourth respondent in the main appeal), should be replaced as trustees. Mr Hutton, Mrs A E Couper and Mr Startup had from 1999 become the trustees of a number of the trusts and are referred to as the three trustees in this judgment. Although Panckhurst J held that grounds for removal of Mr WAX Couper and the three trustees for breach of trust had not been made out, he considered that their replacement was required because of the level of hostility between the present trustees and the beneficiaries. He held that it was not appropriate for Mr WAX Couper to appoint the replacement trustees and that it was expedient for the Court to intervene. However, the power to restrain Mr WAX Couper’s powers of appointment was reserved for further consideration in order to allow the appointment of a professional trustee.

[10] There were a number of individual transactions challenged by the Kain children. Panckhurst J made the following findings in his 3 December 2004 judgment:



capital to Mrs Hutton in April 2000 was valid.(b) Ponui shareholding: The Judge held that the appointment of the Ponui Station Ltd shareholding, formerly held in the Mangaheia trust, to Mrs AE Couper, coupled with her settling that shareholding on the Annette Couper Ponui trust, was a fraud on the power. (c) Mangaheia trust: The Judge held that the resettlement of the remaining assets on a new Mangaheia trust was valid. (d) Hukanui: The Judge held that the Richmond trust should not be granted specific performance of a transfer of 51% of Hukanui Station and, accordingly, that Mr WAX Couper remained the owner of that interest. (e) Greenlees and Pinecroft: The Judge held that Greenlees Farm, Pinecroft Farm and Ponui Station were owned by Lybster Holding Company Ltd, Bideford Farms Ltd and Ponui Station Ltd respectively. Accounting adjustments were, however, ordered in favour of the trusts with regard to those three pieces of land. (f) Farming company: In 1999 a farming company owned by Mr WAX Couper was formed to take over the farming operations. The Judge made orders relating to the unwinding of that transaction in accordance with the report of the Court appointed expert, Mr Graham.

The appeals and cross-appeals

[11] In his judgment of 18 November 2005, Panckhurst J refused to order an inquiry into damages in relation to the farming company transaction as the Kain children had failed to make an application under r 418 of the High Court Rules for an order that this issue should be heard separately. The matter should therefore have been argued at the substantive hearing. Although this meant that Mr WAX Couper and the three trustees should have had judgment in their favour on this issue, Panckhurst J considered that the Court could not recall the 3 December 2004 judgment in order to do this as it had already been sealed.

[12] Also in the 18 November 2005 judgment, Panckhurst J determined that the Ponui Station Ltd shareholding should be restored to the old Mangaheia trust and made various costs orders, including the award of indemnity costs out of the trust assets in favour of the three trustees.

[13] The main appeals are brought by the Kain children. They appeal against the decisions of Panckhurst J of 13 November 2003 (CA237/03) and 3 December 2004 (CA271/04). The Kain children also cross-appeal against the judgment on costs dated 18 November 2005 (CA267/05). The Kain children challenge the findings of Panckhurst J on the basis that he should have found numerous breaches of trust, including entering into the farming company transaction, the failure to make distributions from the trusts, the failure to halt the intermingling of trust funds, the failure to distribute vested trusts, the appointment of assets of certain trusts and the resettlement of certain trusts. They also maintain that the Judge should have ordered an inquiry into damages for breach of trust, particularly in relation to the farming company transaction and that he should have restrained Mr WAX Couper from appointing trustees. The Kain children also challenge the findings upholding the various discrete transactions and the 2002 consent order. Further, the Kain children challenge the award of indemnity costs to the three trustees and say that full indemnity costs in relation to the litigation should have been ordered against those three trustees and Mr WAX Couper personally.

[14] Mr Tom Kain, Mr Charles Kain and their father Mr GT Kain (referred to in this judgment as the Kain trustees) have also brought an appeal in their capacity as



The issues

(a) Should the conditional appointment of the Te Mata trust land to Mrs Mary Hutton have been held to be invalid? (b) Should the resettlement of the Mangaheia trust have been declared invalid? (c) Was the resettlement of the Ponui shareholding a fraud on the power, and if so, should the shareholding have been returned to the old or to the new Mangaheia trust? (d) Should the trustees of the Richmond trust have been granted specific performance of the transfer of 51% of Hukanui Station? (e) Are the trusts entitled to damages for knowing receipt equal to the profit made with regard to Greenlees Farm and Pinecroft Farm? (f) Was the farming company transaction a breach of trust and, if so, should an inquiry into damages have been ordered? (g) Should the three trustees have been held responsible for the continued intermingling of trust funds? (h) Was there a failure to distribute the vested trusts, and if so, should there be an inquiry into losses suffered? (i) Should the 2002 consent order have been set aside? (j) Was the failure to make distributions to grandchildren a breach of trust? (k) Should the trustees have been removed for breach of trust? (l) Should judgment have been entered for the three trustees? (m) Should the Judge have restrained Mr WAX Couper from exercising his power to appoint new trustees? (n) Should the costs awards be disturbed?

Should the conditional appointment of the Te Mata trust land to Mrs Mary Hutton have been held to be invalid?

Background

trustees of several of the trusts. They appeal (CA4/05) against a number of aspects of Panckhurst J’s decision of 3 December 2004.

[15] The three trustees, on the other hand, cross-appeal against Panckhurst J’s refusal to enter judgment for them with regard to the alleged breaches of trust and the inquiry into damages belatedly sought by the Kain children (CA271/04 and CA267/05). They support the Judge’s decision on costs.

[16] The three trustees also cross-appeal in their capacity as trustees against the Judge’s findings of fraud on a power with regard to Ponui Station Ltd (CA271/04) and against the Judge allowing the Kain trustees to advance certain arguments with regard to the Mangaheia resettlement(CA4/05). As they are no longer trustees, however, the three trustees left the submissions on these cross-appeals (to the extent they are still relevant) to be advanced by Mr WAX Couper and Mrs AE Couper.

[17] For his part, Mr WAX Couper supports (CA271/04) the three trustees’ cross-appeal with regard to the Ponui shares but, if that cross-appeal does not succeed, he appeals (CA267/05) against the decision of Panckhurst J of 18 November 2005 returning that shareholding to the old Mangaheia trust. He otherwise supports the Judge’s findings.

[18] We propose to deal with the questions arising in these appeals and cross-appeals in the following order:



Judge’s findings

Submissions on appeal

Issues on appeal

[19] The Te Mata Property trust was settled by Mrs HR Couper on 31 January 1974. Clause 2 of the trust deed gave Mr WAX Couper "the free use, income, occupation and enjoyment" of the trust fund during his lifetime or until the date of distribution, 21 December 2022. Clause 4 provided that the capital of the trust fund was to be held for the children of Mr WAX Couper and Mrs JR Kain living at the date of distribution in such shares and proportions and upon such conditions and with such restrictions and in such manner as Mr WAX Couper shall by deed appoint.

[20] The first trustees of the trust were Mr WAX Couper’s solicitors, Mr MacCallum and Mr Smith. In early 1999 these trustees retired and the three trustees, Mr Startup, Mr Hutton and Mrs AE Couper, were appointed as the new trustees. Contemporaneously, they resolved to resettle the trust fund on a new trust with Mrs Hutton as primary beneficiary and with Mrs AE Couper, Mrs Hutton, her children, grandchildren, great-grandchildren, and nephews and nieces as discretionary beneficiaries. Some time in April 2000, Mr WAX Couper appointed the Te Mata land to Mrs Hutton in the event that the resettlement failed.

[21] In his 3 December 2004 judgment, Panckhurst J held that the purported resettlement of the trust in 1999 was invalid because the prior appointment of capital on Mrs Hutton by deed was required. This was not done and, in any event, was not done in the proper form. The Judge also held the resettlement to be invalid because it was outside of the type of resettlement approved in Pilkington v Inland Revenue Commissioners [1964] AC 612 (HL). In his view, the purported resettlement was a complete redefinition of the terms of trust rather than a resettlement ancillary to an appointment of capital. The resettled trust removed Mr WAX Couper’s life interest and the Kain children’s contingent and defeasible interests in capital. New beneficiaries (in particular Mrs AE Couper) were added.

[22] Panckhurst J, however, made a declaration that the April 2000 appointment of capital to Mrs Hutton was valid. He held, on the basis of In re Bransbury’s Will Trusts, Grece v Bransbury [1954] 1 WLR 496 (Ch), that the power of appointment was able to be exercised conditionally and that, while Mrs Hutton and Mr WAX Couper shared common views, there was no evidence of any prior agreement in relation to the future of the land. There was thus no fraud on a power. He held further that the appointment was irrevocable.

[23] The Kain children submit that the Judge was wrong to uphold the conditional appointment of the Te Mata trust land to Mrs Hutton. They contend that the appointment was tainted by the earlier invalid resettlement of the Te Mata trust and the personal desire on the part of Mr WAX Couper to keep the land as farmland, in particular through a long-term lease to Montana which Mrs Hutton condoned.

[24] In the alternative, they argue that the appointment was tainted by improper motives, including to tie up the land as farmland and to benefit Mrs AE Couper. The Kain children also contend that the deed appointing Mrs Hutton was not an irrevocable appointment. They submit that the obvious reason to make the appointment revocable was so that Mr WAX Couper could hold Mrs Hutton to her bargain and thus exercise control over the Te Mata land.



(a) Whether there was a continuing link between the invalid resettlement and the appointment; (b) Whether the appointment was tainted by improper motives; and (c) Whether the appointment was revocable so as to allow Mr WAX Couper to exert control.

Was there a continuing link between the invalid resettlement and the appointment?

[25] The issues therefore for this section are:

[26] To the extent that the earlier resettlement was invalidated by the failure to meet the technical requirements of appointment of capital, this cannot taint the later appointment. There is no suggestion of a failure to meet those technical requirements with regard to the second appointment. Equally, the fact that the resettled trust was held to be outside the type of resettlement contemplated in Pilkington cannot taint the later appointment which was an outright appointment with no trust involved.

[27] That leaves what appears to be the main concern of the Kain children with regard to the earlier invalid resettlement; the lease of trust land to Montana under which Montana was to develop and use the land for viticulture. This lease had been entered into on 11 June 1998. It covered about 56 hectares (138 acres) for a term of 32 years with a right of renewal for a further period of 30 years after the expiry of the initial term. The term extended beyond the vesting date of the trust.

[28] The Judge held that the lease to Montana was a major incentive to resettle the trust. He, however, made no findings on whether the lease was in breach of trust. Nor did he make any findings on whether the link between the resettlement and the lease invalidated the resettlement. We consider that this was because no such findings could properly be made. Entering into the Montana lease was a legitimate business decision which the courts will not second-guess. It was thus not a breach of trust. Nor could it have invalidated the resettlement.

[29] It is clear from the documentation and the findings of the Judge that, although the lease was initially not to extend beyond the vesting date of the trust, the lease proposal changed totally in character from a position where the trust took the development risk to where it had none. Mr Hutton’s evidence was that Montana was not prepared to accept the term originally proposed if it was to take on the development risk.

[30] Lurking behind the Kain children’s contentions seems to be a suggestion that the trustees acted improperly because subdivision of the Te Mata land for residential purposes was a better business proposition. Mr Hutton’s evidence, however, was that viticulture was currently the best use of the land and that the Montana lease provided a good safe return for the trust. He had not been in favour of the trustees undertaking the development of the land for viticulture as he considered it too risky. He also said that the current zoning precludes subdivision of the land leased by Montana and that this was likely to remain the case for the foreseeable future. Mrs Hutton confirmed his evidence in this regard. In her view, the remainder of the Te Mata land (there is about 290 acres in total including the land leased to Montana) may be subdividable but that land has no view. This remaining land was of course not subject to any lease except for a four-year lease of about two acres to another party. There was no evidence led countering the evidence of the zoning of the Te Mata land.

[31] Even had there been evidence that subdivision of the Montana land was possible, the focus of trustees must be on prudently managing and investing the trust’s assets. The duty to act in the best interests of the beneficiaries is a holistic one



Was the appointment tainted by improper motives?

(a) a disposition beyond the scope of the power by the donee, whose position is referable to the terms, express or implied, of the instrument creating the power; and (b) a deliberate breach of the implied obligation not to exercise that power for an ulterior purpose (this is what distinguishes a fraudulent use of a power from an excessive use).

(a) where the appointment is made pursuant to an antecedent agreement

which involves considerations of the trust’s purpose, diversity of investment, risk management and a balance between capital growth and income yield – see Trustee Act 1956 s 13E, Heydon and Lemming Jacobs’ Law of Trusts in Australia (7ed 2006) at [1817], Hanbury and Martin Modern Equity (17ed 2005) at [18-015] and Cowan v Scargill [1985] Ch 270 at 287 (Ch). These considerations may well conflict with profit maximisation. Subdivisions are generally risky, subject to long delays, require substantial investment of capital and are of uncertain outcome. The trustees could not be criticised for rejecting such an undertaking in favour of a more stable long-term return with minimal risk, such as the Montana lease offered.

[32] The one aspect of the Montana lease that is of some concern is that it was signed by Mr WAX Couper on 11 June 1998 before the appointment of the three trustees as trustees of the Te Mata trust. It was explained in a letter dated 29 May 1998 from Chapman Tripp to the solicitors acting for Montana, that Mr WAX Couper was to sign the lease because one of the then trustees was overseas and one was contemplating retirement but that the trustees would confirm the lease later. It appears, however, that the existing trustees were not in favour of a lease lasting beyond the vesting date of the trust. There is nothing, however, to suggest that they had instructed Mr WAX Couper not to sign the lease.

[33] The three trustees were only formally installed in early 1999, although Mr Hutton had signed his consent to act as a trustee two days before the lease was entered into, with Mr Startup and Mrs AE Couper signing theirs in July 1998. There is no doubt, however, that the three trustees ratified the lease and, indeed, they signed a replacement lease later in 1999. In addition, as it was a legitimate (and prudent) business decision to enter into the lease, we do not consider that Mr WAX Couper can be criticised for asking the old trustees to resign so that the lease could proceed. The only criticism is that this should preferably have occurred before the lease was entered into.

[34] As the Montana lease was entirely proper, it would not have provided grounds for setting aside the resettlement. It cannot, therefore, have had any continuing effect on the appointment to Mrs Hutton. For completeness, we note that this conclusion cannot be affected by the fact that Mrs Hutton signed an acknowledgement before the resettlement that no breach of trust would arise from the trustees retaining the Te Mata property. This was no more than a sensible precaution to preclude later challenge and, as it happens, a statement of fact.

[35] The Kain children allege that the appointment was tainted by improper motives and thus that there was a fraud on the power of appointment. There are two basic elements in a fraudulent exercise of a power – see Thomas Powers (1998) at [9–02]:

[36] There are three main grounds upon which an exercise of a power may be held to be fraudulent – see Thomas Powers at [9–20]:



between the donee and the object whereby a non-object is to benefit; (b) where the appointment is made for a corrupt purpose; or (c) where the appointment is made for purposes foreign to the power.

Was the appointment revocable so as to enable Mr WAX Couper to exert control?

The Appointor [sic] has been advised that doubts have arisen as to whether the resolution referred to in Background [recital] B [to resettle the Trust] validly effected a resettlement of the 1974 Te Mata Property Trust Deed, with the result that the Appointer still holds the Power of Appointment.

1. Subject to clause 2, the Appointor [sic] revocably appoints the capital of the trust fund of the 1974 Te Mata Property Trust to the Beneficiary [Mrs Hutton], if she is living at the date of distribution defined in the 1974 Te Mata Property Trust Deed, namely 21 December 2022, or such earlier date as may be appointed as the date or dates of distribution by the Trustees of the 1974 Te Mata Property

[37] Panckhurst J (after seeing and hearing the witnesses) was not persuaded that there was any prior agreement between Mrs Hutton and Mr WAX Couper, although there was a coincidence in views as to the use of the land and the wish to keep it as farmland. We have not been pointed to anything to show that that conclusion was wrong.

[38] Even had there been a prior agreement on the Montana lease, however, there is nothing improper in this. Entering into the lease was a legitimate and prudent business decision that the courts will not second-guess. It thus cannot found an allegation of improper motive. In any event, the Montana lease had already been entered into at the time of the appointment. As to the wider allegation of wishing to tie up the land as farmland, a desire in the context of a family farming trust to ensure long-term use as farmland so that the land is available for future generations cannot be deemed an improper motive.

[39] This leaves the alleged desire to benefit Mrs AE Couper. One of the main reasons the resettled trust was held to be invalid was the very different nature of the resettled trust and, in particular, the inclusion of Mrs AE Couper as a beneficiary. The Judge, however, found that there was no prior agreement between Mrs Hutton and Mr WAX Couper with regard to the use of the land and we have upheld that finding. There is no doubt that Mr WAX Couper hoped that Mrs Hutton would allow Mrs AE Couper (if she survived him) to remain in the homestead (although Mrs AE Couper’s evidence was that she did not in fact wish to do so and hoped eventually to convince her husband of that). Mr WAX Couper’s hopes relating to the homestead, are not, however, sufficient to create a fraud on a power – see at [111] below.

[40] In any event, the ability to remain in the homestead was a very minor benefit for Mrs AE Couper and quite different from her proposed status as an added beneficiary of the resettled Te Mata trust (where, conceivably, she could have benefited from all of the assets of the trust). Mr Wilson QC, in questioning Mr Hutton on behalf of the Kain children, said that he did not believe that anyone was questioning Mrs AE Couper’s ability to remain in the homestead. Mrs AE Couper’s right to remain in the Te Mata homestead was contained in the 1995 super-trust deed (see at [169] below).

[41] There remains the question of whether the appointment was revocable. Recital C of the Deed of Appointment, stated:

[42] The operative clauses of the deed stated:



Trust Deed, absolutely.

2. If the Appointor [sic] is advised by the Trustees of the New Te Mata Property Trust that the resettlement of the 1974 Te Mata Property Trust on the New Te Mata Property Trust is valid and effective from a date preceding the date of this deed, the exercise by the Appointor [sic] of the Power of Appointment under this deed shall be void and of no effect.

Conclusion

Should the resettlement of the Mangaheia trust have been declared invalid?

Background

[43] The Kain children submit that the revocable nature of the deed suggests that there was a prior agreement between Mrs Hutton and Mr WAX Couper, enforceable through the power of revocation. We have already upheld Panckhurst J’s conclusion that there was no such prior agreement. There is nothing in the deed itself or in any other document of which we are aware to suggest that this conclusion was wrong. As the alleged prior agreement relates to the long-term use of the land (and Mr WAX Couper is now 80 years old) and to Mrs AE Couper’s use of the homestead after Mr WAX Couper’s death, it is difficult to see how possible revocation by Mr WAX Couper would be an effective sanction. Further, the meaning of the word "revocably" in the deed and the alleged reason for its inclusion was not put in cross-examination to either Mr WAX Couper or Mrs Hutton.

[44] In any event, we consider that Panckhurst J was correct to hold that the appointment is irrevocable. In our view, the term "revocably appoints" in clause 1, while it could have been more happily worded, is used to deal with the fact that the appointment was conditional on the resettlement being invalid. Clause 1 is subject to clause 2. The word "revocably" is used in clause 1 to accommodate clause 2 which renders the appointment of no effect should the resettlement be upheld. That this was the purpose of the deed is clear from Recital C. There has been no attempt to revoke the appointment and Mr WAX Couper accepts that it is irrevocable.

[45] For the above reasons, we consider that Panckhurst J was correct in upholding the appointment of the Te Mata trust capital to Mrs Hutton.

[46] Mr WAX Couper settled his shareholding in Mangaheia Station Ltd upon the Mangaheia trust under a trust deed dated 3 June 1981 (the old trust). Mr WAX Couper was the initial trustee, but subsequently his solicitor, Mr Smith and his investment advisor, Mr Dixon, were appointed as long-term trustees of the trust. In 1997 the farm known as Ponui Station was purchased by a newly-formed company, Ponui Station Ltd. The shares in that company were held by Mr Dixon and Mr Smith in their capacity as trustees of the old Mangaheia trust. In July 1999, Mr Dixon and Mr Smith retired as trustees and Mr WAX Couper appointed Mr Hutton, Mr Startup and Mrs AE Couper as trustees of the old trust. The assets of the old trust were then resettled on two newly-established trusts.

[47] By appointment and distribution, the shareholding in Ponui Station Ltd was transferred to Mrs AE Couper and she established the first of the new trusts, the Annette Couper Ponui trust. Its trustees are Mr Hutton and Mr Startup and Mrs AE Couper. The beneficiaries are Mrs AE Couper, her children, remoter members of her family, their spouses or de facto partners and other persons appointed by Mrs AE Couper as beneficiaries within terms of the deed. We deal with this



Terms of the old trust as to income and capital

Power of advancement

appointment in the next section of the judgment.[48] The balance of the assets of the old trust, in particular the Mangaheia Station

shares, were resettled on a new Mangaheia trust. The trustees of that trust are also Mr Hutton, Mr Startup and Mrs AE Couper. The beneficiaries are Mrs AE Couper and her daughters, Mrs Hutton and the grandchildren of the late Mrs JR Kain. In this section of the judgment we discuss this resettlement.

[49] We begin with an analysis of the relevant terms of the trust deed, the deed of resettlement and the resettled trust. We then summarise the submissions of the parties before the High Court and the High Court judgment. Finally, the issues on appeal are isolated and dealt with.

[50] Clause 2(a) of the old trust deed deals with income. The first part of that clause contains a power, at the trustees’ discretion, to pay income to or for the benefit, education, maintenance, support or advancement of certain people, including the children and grandchildren of Mrs JR Kain, and any wife, child or grandchild of Mr WAX Couper.

[51] Under the second part of the clause, Mr WAX Couper’s wife receives up to $8,000 of the income per annum unless the trustees have otherwise paid the income out under their power of appointment. Mrs AE Couper therefore has a vested but determinable right to income under the old trust.

[52] The second part of the clause also provides that, if Mr WAX Couper has no wife or child, then the children of Mrs JR Kain receive the income, provided they are living on the last day of the financial year. Their interest is determinable if the trustees exercise their power of appointment in the first part of the clause. Therefore, the Kain children and Mrs Hutton also have a contingent but determinable right to the income of the old trust.

[53] The next part of clause 2, including paragraphs 2(b) – (d), provides a power for the trustees to invest and accumulate unallocated income and to create reserves (both of which are added to the capital of the trust). The trustees have the power to resort to the accumulations of the preceding years and pay it to the beneficiaries who are living at the time. Clause 2(d) requires the trustees to determine the amount of income each year available for distribution.

[54] Under clause 4 of the deed, the capital of the trust is payable at the discretion of the trustees, up to the date of distribution (30 June 2050), to any one of the wife of Mr WAX Couper, his children (born on or before 30 June 2000 and who attain the age of 25 years) and the children of Mrs JR Kain as are living at the date of distribution. The trustees are empowered to advance the date of distribution in relation to the whole or any part of the trust fund.

[55] In default of appointment by the trustees, the capital is to be divided into three equal parts with two thirds going to Mr WAX Couper’s children equally and one third to Mrs JR Kain’s children. If Mr WAX Couper has no issue, Mrs JR Kain’s children receive all the capital. The Kain children and Mrs Hutton, as a result, have a contingent interest in the capital of the trust – see In re Spencer, Lloyds Bank Ltd v Spencer [1935] Ch 533 at 536 (Ch) and Johns v Johns [2004] 3 NZLR 202 at [45] (CA). This interest is, however, determinable if the power of appointment in the first part of the clause is exercised.

[56] Clause 7(bb) of the old Mangaheia trust deed empowers the trustees to exercise the



To exercise the statutory powers of maintenance and advancement contained in the Trustee Act, 1956 PROVIDED ALWAYS AND IT IS HEREBY DECLARED that Section 41 of the said Act and its application to the powers of the Trustees under these presents shall be construed in all respects as if the proviso in paragraph (a) of the said Section 41 were omitted.

A trustee may at any time or times pay or apply any capital money or other capital asset subject to a trust, for the maintenance or education (including past maintenance or education), or the advancement or benefit, in such manner as he may in his absolute discretion think fit, of any person entitled to the capital of the trust property or of any share thereof, whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event, or subject to a gift over on his death under any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion, and any such payment or application may be made notwithstanding that the interest of that person is liable to be defeated by the exercise of a power of appointment or revocation, or to be diminished by the increase of the class to which he belongs ...

(c) no such payment or application shall be made so as to prejudice any person entitled to any prior life or other interest, whether vested or contingent, in the money or asset paid or applied unless that person is in existence and of full age and consents in writing to the payment or application, or unless the Court, on the application of the trustee, so orders.

Resettlement documentation

A. Pursuant to a Deed of Trust dated 3 June 1981 ("Old Trust Deed") WILLIAM ALEXANDER XAVIER COUPER as the Settlor established the Mangaheia Trust ("Old Trust") which holds amongst other assets all the shares in Mangaheia Station Limited. B. The Old Trust is a discretionary trust, and the Trustees at the date of distribution have the power to determine the respective shares that the ultimate beneficiaries will share, if at all, in the trust property. C. The Old Trust provides that the statutory powers of maintenance and advancement contained in the Trustee Act 1956 apply, provided that the proviso in section 41(a) is omitted. D. The Trustees in reliance on the decision in Pilkington v IRD [sic] [1964] AC 612 have determined to resettle the trust fund in the New Trust principally for the benefit of ANNETTE COUPER and the grandchildren of JANET RICHMOND KAIN, who are discretionary beneficiaries under the Old Trust.

statutory powers of maintenance and advancement contained in the Trustee Act 1956 but removes the limitation upon the extent of advancement contained in s 41(a) of that Act. It provides that the trustees have the power:

[57] Section 41 of the Trustee Act provides:

[58] The statutory power of advancement in s 41 is subject to three provisos. As indicated above, the first in paragraph (a) is omitted. The second is of no relevance. The third provides:

[59] Turning to the new trustees’ actions on 19 July 1999 in resettling the trust, the recitals of the deed poll state:



In pursuance of the powers of the Trustees under the Old Trust Deed to resettle the trust fund, the whole trust fund is hereby transferred to, and resettled in, the New Trust constituted under the trust deed dated 19 July 1999.

Contentions before the High Court

The High Court judgment

[60] The operative part of the deed poll then provides:

[61] The new Mangaheia trust has as its discretionary beneficiaries: Mrs AE Couper (the final beneficiary), her children, Mrs Hutton and any grandchildren of Mrs JR Kain. The trust permits the trustees to pay or apply income or capital to one or more of the discretionary beneficiaries or, in the alternative, to appropriate income or capital to one or more of the discretionary beneficiaries contingently on reaching a specified age, or the happening of a specified event. If the final beneficiary is not living on the vesting day of the trust, the grandchildren of Mrs JR Kain will take as final beneficiaries in equal shares.

[62] In the High Court the Kain children argued that the resettlement of the remaining assets (after the resettlement of the Ponui shares) of the Mangaheia trust was invalid. They contended:

(a) that the resettlement was based on the statutory power of advancement in s 41 of the Trustee Act, which power was not available in relation to Mrs AE Couper because she was not a person entitled to the capital of the old Mangaheia trust;

(b) that the resettlement required the consent of the Kain children which was not obtained;

(c) that the resettlement was a purported unlawful delegation by the trustees of their powers under the old trust to themselves as trustees of the new trust, in particular because the old trust did not confer a power to benefit some persons comprised in the new class of beneficiaries; and

(d) that the trustees in reaching the requisite decisions acted under the direction of Mr WAX Couper and in bad faith or unreasonably.

[63] As to the contention set out at [62](a), the Judge held that Mrs AE Couper was a person entitled to the capital of the old Mangaheia trust, although her entitlement was contingent on her living to the date of distribution and susceptible of being defeated under the powers of appointment contained in clause 4 or clause 7(bb) of the deed.

[64] With regard to the question of consent (see at [62](b) above), Panckhurst J held that the reasoning of Simonds J In re Beckett’s Settlement, In re Beckett (Deceased), Eden v Von Stutterheim [1940] Ch 279 at 285 - 286 (Ch) indicates the correct approach. Panckhurst J said that, while it may be that Simonds J’s reasoning is based on instinctive and pragmatic considerations, the decision has been accepted as authoritative for many years - see for example Underhill and Hayton Law Relating to Trusts and Trustees (16ed 2003) at 725. He saw no reason to differ from that view and he was unpersuaded that someone who takes income by default should be regarded as being in any better position than a discretionary income beneficiary. For these reasons he rejected this ground of challenge.

[65] With regard to improper delegation (see at [62](c) above), Panckhurst J noted that it is settled law that the statutory power of advancement, here specifically imported into the deed by clause 7(bb), enables trustees to settle property on new



It is true that, if this settlement is made, Miss Penelope’s children, who are not objects of the power, are given a possible interest in the event of her dying under 30 leaving surviving issue. But if the disposition itself, by which I mean the whole provision made, is for her benefit, it is no objection to the exercise of the power that other persons benefit incidentally as a result of the exercise.

This does not, however, allow a trustee to act on a whim. Rather, the trustee’s discretion must be exercised in accordance with the purpose for which it was conferred. It must not be exercised irresponsibly, capriciously or wantonly, as such conduct would not fulfil the required good faith and real and genuine consideration the exercise demands. Trustees must inform themselves, before making a decision, of matters that are relevant to the decision. (Footnotes omitted)

trusts. This was confirmed by the House of Lords in Pilkington. He said, however, that, where there is an advancement into a new trust, its terms must be reflective of the terms of the old trust. Otherwise, a proper exercise of the power of advancement may become an improper delegation of trust.

[66] Panckhurst J recognised, however, that the advancement trusts need not be completely analagous or identical to those of the original trust. An exercise of a power of appointment which incidentally benefits not only the recipient, but potentially creditors, a spouse, or issue of the appointee, is not bad on that account. For example in Pilkington, Viscount Radcliffe observed at 636:

[67] Mrs AE Couper’s children were not objects of the old Mangaheia trust but were included as discretionary income and capital beneficiaries of the resettled trust. It seemed to the Judge that this could be viewed in two ways. Either that aspect of the resettlement was excessive and of no effect, or the inclusion was no more than an incident of the resettlement upon Mrs AE Couper herself and therefore authorised in terms of the incidental benefit principle recognised in Pilkington’s case. In his opinion the former is the correct view. Mrs AE Couper’s children represented an addition to the class. Their inclusion is not a necessary corollary of the resettlement or, as in Pilkington, an incidental addition to the class of lineal descendants. This was the only respect in which the resettlement exceeded proper bounds. The Judge, however, considered this point answered by clause 7.1 of the new trust deed, which enables the settlor to remove Mrs AE Couper’s children from the class of discretionary beneficiaries.

[68] As to the contentions set out at [62](d) above, the Judge did not reach a definitive conclusion on whether the three trustees in exercising both their powers of appointment and advancement deferred to Mr WAX Couper. He did note, however, that there was little in the way of evidence to indicate that independent inquiry and thought played a part, although Mr Hutton and Mr Startup in particular say that they were not overwhelmed by Mr WAX Couper’s wishes in relation to the matter. The Judge, however, rejected the contention that the three trustees were acting in bad faith.

[69] In considering this aspect of the case, the Judge found the discussion in Dal Pont and Chalmers Equity and Trusts in Australia (3ed 2004) at [23.260] helpful. After noting that modern trust instruments invariably confer wide discretions upon trustees, the authors continued:

[70] The Judge noted that, in the subsequent discussion, the authors grapple with the difficult topic of when it is appropriate for a court to interfere with a decision of trustees. Where a discretion is at large, its exercise in a particular way will frequently be unimpeachable. But where it is established that there has been no



Contentions on appeal

Issues

proper consideration of the issues or that the trustees have acted for an ulterior motive, then review of their decision is warranted. The Judge noted, however, that, in the case of In re Hastings-Bass (Decd), Hastings-Bass v Inland Revenue Commissioners [1975] Ch 25 at 41 (CA), the English Court of Appeal held that, before review of trustees’ decision was justified on the grounds of inadequate consideration of the subject-matter, it needed to be clear that, had the trustees approached their task more diligently, there were relevant considerations which would have affected the ultimate decision or that there were irrelevant considerations which ought not have been taken into account. In other words, any failure to inquire must have affected the outcome.

[71] With these principles in mind the Judge considered that the Kain children had not met the onus of demonstrating bad faith. Mrs AE Couper is the principal or final beneficiary of the new trust. Not only was she an object of the old trust, but as Mr WAX Couper’s wife of about ten years (as at 1999), it was not surprising that a decision should be taken to make provision for her. The Judge recognised that, at the same time, the Kain children’s contingent rights to income and capital were removed but he considered this outcome had to be assessed in the overall context. In particular, he noted that the Kain children remain beneficiaries of other trusts. In these circumstances the Judge was not persuaded that this was a clear situation in which it is appropriate for the Court to intervene.

[72] The Kain children and the Kain trustees submit that Panckhurst J was wrong to uphold the resettlement. Their arguments replicated the arguments in the High Court. Their main argument was that there was no power to resettle the trust under s 41 of the Trustee Act. In their submission, the trustees specifically proceeded under s 41 of the Trustee Act and not clause 4 of the trust deed and therefore the requirements in s 41 had to be met. The arguments that the resettlement was not in good faith and that there was excessive delegation were not abandoned.

[73] Mr Stewart QC, for the Kain grandchildren, supported the submissions of the Kain children and the Kain trustees on this issue and argued that the assets should revert to the old trust. While the new Mangaheia trust included the Kain grandchildren as income and capital beneficiaries (rather than just mere discretionary income beneficiaries under the old trust), this was offset by the exclusion of their parents as beneficiaries of the new trust.

[74] The position of Mr WAX Couper, Mrs AE Couper and Mrs Hutton is that the Judge was correct to uphold the resettlement for the reasons given by the Judge. If that is not accepted, they argue that the resettlement was legitimately undertaken pursuant to clause 4 of the trust deed. In their submission, the reference in the recitals of the deed poll to s 41 and to Pilkington are surplusage. Clause 4 gives the trustees all the powers needed to choose to settle on Mrs AE Couper and to do so via resettlement. There is also the power to advance the date of distribution. That is clearly what the deed poll does.

[75] Finally, Mr WAX Couper, Mrs AE Couper and Mrs Hutton do not accept that the resettlement was excessive or made in bad faith. They say that the Court should uphold the resettlement as being a proper exercise of the trustees’ powers, even if there was a defect in form.

[76] The issues that arise are therefore:



(a) Can the trustees rely on clause 4 of the trust deed?

(b) Was Mrs AE Couper entitled to capital under the old trust? (c) Was the consent of the Kain children required to ensure the validity of the resettlement? (d) Was the resettlement excessive? (e) Can the resettlement be impeached on the ground of bad faith or unreasonableness?

Can the trustees rely on clause 4 of the trust deed?

the Trustees shall stand possessed of the capital of the trust fund until the arrival of the date of distribution hereinafter defined UPON TRUST for such of them the wife of the said William Alexander Xavier Couper [and children of Mr WAX Couper and Mrs JR Kain]...or to any one or more of them to the exclusion of the others or other of them and in such shares and proportions and in such manner as the Trustees in their or his absolute discretion shall think fit ... (emphasis added)

the date of the distribution shall be the 30th day of June 2050 ... PROVIDED HOWEVER that the Trustees in their discretion if they think fit so to do may from time to time by Deed appoint a date or successive dates of distribution of the whole or any part or parts of the trust fund earlier than the date aforesaid and any such date or dates of distribution so appointed shall then become the date of distribution of the whole or any part or parts of the trust fund as by the said Deed or Deeds so appointed for the purposes of clause 4...

AND PROVIDED THAT before any beneficiary shall be entitled to take any share or shares under this provision he or she as the case may be shall be required to bring into hotchpot any capital of the trust fund already vested in him or her by resolution of the Trustees (emphasis added).

[77] The first part of clause 4 is a power of appointment. Under this limb the trustees may, at their discretion, pay capital to certain people including Mr WAX Couper’s wife. It says:

[78] The trustees also have the power to advance the date of distribution in whole or in part. The second paragraph of clause 4 provides:

[79] The ability for the trustees to advance capital is further emphasised by another part of clause 4 which states that:

[80] In our view, if resettlement (as against outright appointment of capital) was contemplated under clause 4, the wording set out at [78] would have contemplated not only an absolute appointment but a recognition that the funds could also be held for the benefit of the appointee. See for example the wording in the case of In re Pauling’s Settlement Trusts, Younghusband v Coutts [1964] Ch 303 at 332 (CA). Further, the words in clause 4 "already vested in him" (see at [79] above) do not take account of the possibility of the capital being resettled in a new trust as against an absolute appointment.

[81] The question remains as to whether the words "in such manner" permit resettlement (see at [77] above). In Re Morris’s Settlement Trusts, Adams v Napier [1951] 2 All ER 528 at 532 – 533 (CA), it was held that the words "in such



manner" were not sufficient to permit resettlement on a discretionary trust. In that case appointments had been made that were subject to forfeiture in certain circumstances as a protective measure against bankruptcy. The appointment purported to create a discretionary trust for the benefit of an appointee and his issue in the event of forfeiture whereby the trustees had an uncontrolled discretion to pay to them all or part of such income as they, in their absolute discretion, thought fit. While the provisions relating to forfeiture were not challenged, the imposition of the discretionary trust was held to be invalid. In that case, the power was similar to the one in clause 4 in that it was an absolute power to select, within a range of persons, those who were to receive the trust fund and in what proportions.

[82] This means that the trustees could not resettle the trust relying merely on clause 4 of the old Mangaheia trust deed. We consider, however, that they could exercise the power of appointment and advancement under clause 4 of the old trust deed by resettling the property on another trust as long as that occurred with the consent of the sui juris object of the power, Mrs AE Couper. While this point was not specifically dealt with, her evidence shows that she was supportive of what was done – see at [118]. She was also a trustee at the time.

[83] It is true that clause 4 was not mentioned by the trustees in the deed poll. The question, however, is whether what was done was within the trustees’ powers under the deed and not whether the powers in the deed that they specifically relied on were the correct powers. If the power undoubtedly exists, the validity of its exercise cannot be negated merely because it was not specifically relied on – see for example Collins v AMP Superannuation Ltd (1997) 147 ALR 243 at 247 (FCA). Merkel J held that an incorrect or incomplete description of the power exercised is not fatal if the intention to exercise the power is otherwise clear. He referred to Farwell, A Concise Treatise on Powers (1874) and In re Eardley Wilmot (1861) 29 Beav 644; 54 ER 777. In that case the Judge held that, although the will contained an inaccurate and incomplete description of the power of appointment, the testator intended to dispose of it and it was not to fail merely because the will did not properly describe the instrument from which the power was derived. However, Merkel J held that it is a very different situation where the exercise of the power relies on a head of power which is materially different from the power conferred.

[84] We do not consider that the power specifically relied on in the deed poll (s 41) is materially different to clause 4. Both clause 4 and s 41 give the trustees an absolute discretion to advance capital. It is true that s 41 requires that the person to whom the capital is advanced must already be entitled to the capital or any share, either absolutely or contingently and that the consent of those with prior interests must be sought. Clause 4, however, contains no such requirements. The trustees should not be held to a higher standard than what was agreed in the deed. The mere fact that the trustees failed to refer to the correct power in the deed poll cannot curtail the trustees’ powers. It is also relevant in this regard that the resettlement could have been achieved in the same manner as the Ponui shares were resettled, with the new trust being settled by Mrs AE Couper personally. There is every reason to suppose that Mrs AE Couper would have co-operated in such a resettlement.

[85] We thus accept the submission that the trustees were entitled to rely on clause 4 of the old trust deed and can be regarded as having done so, with Mrs AE Couper consenting to the manner of appointment. This means that Panckhurst J was correct to uphold the resettlement. For completeness, however, we move on to discuss whether the resettlement complied with s 41, should it, contrary to our view, have been necessary for the trustees to rely on that section.



If not, was Mrs AE Couper entitled to capital?

Was the consent of the Kain children required?

[86] Under s 41, the application of capital must be for the advancement or benefit of a person entitled to the capital or a share of capital. We accept the Kain children’s submission that Mrs AE Couper does not have an interest in the capital under the old Mangaheia trust. She merely gains capital "in such shares and proportions and in such manner as the Trustees in their or his absolute discretion shall think fit" and they can exclude her if they wish – see at [77] above. This means that Mrs AE Couper is merely a discretionary beneficiary of the trust as regards its capital. It is well settled that a person who is the object of either a discretionary power or a power of appointment does not have a legal interest in the capital of a trust. See Attorney-General v Farrell [1931] 1 KB 81 at 100 – 101 (CA), In re Beckett’s Settlement at 282, Gartside v Inland Revenue Commissioners [1968] AC 553 at 607 per Lord Reid, and 617 – 618 per Lord Wilberforce (HL), Hunt v Muollo [2003] 2 NZLR 322 at [11] (CA), Johns v Johns at [31], Nation v Nation [2005] NZFLR 103 at [74] (CA), Keats v Keats [2006] NZFLR 470 at [18] – [19] (FC) and Thomas Powers at [2-79].

[87] Under the new Mangaheia trust, however, Mrs AE Couper is the final beneficiary. This means that, absent earlier allocation of capital to any discretionary beneficiary (including Mrs AE Couper), she receives the capital of the trust subject to her living until the vesting date of the trust (being 30 June 2050 or any earlier date set by the trustees). Thus she has a contingent, defeasible interest in the capital of the new trust.

[88] The trustees had the power under clause 4 of the old trust deed to allocate capital to her under the old trust. Although that step was not specifically taken, in our view, Mrs AE Couper’s status as final beneficiary in the new trust can be regarded, under the principles set out at [83] above, as having been achieved by first using the clause 4 powers in the old trust deed. This means that Mrs AE Couper would have had the requisite interest in the old trust to allow the s 41 advancement powers to be used.

[89] We accept the Kain children’s and the Kain trustees’ submission that consent to the resettlement by the Kain children and Mrs Hutton would have been required under s 41(c) of the Trustee Act. As noted above at [55], they have a contingent but determinable right to the income of the trust. They thus have a prior interest in terms of s 41(c).

[90] It is true that In re Beckett’s Settlement (at 285 - 286) is authority for the proposition that the consent of mere discretionary beneficiaries is not required. This is on the policy grounds that a requirement to gain the consent of discretionary beneficiaries, who have no concrete basis for receiving under the trust, would unduly fetter the discretion of the trustees. Unlike Panckhurst J, we consider that there is a difference between default beneficiaries and discretionary beneficiaries. Not all contingent and determinable interests are as remote as in the present case. There are many cases of contingent and determinable interests where the beneficiary is very likely to receive the interest.

[91] In this case, however, we consider that the Kain children’s interest was so remote that the Court would have been entitled to use its powers under s 41(c) to endorse the resettlement even without consent. Not only was a wife of Mr WAX Couper in existence but the Kain children’s income interest (as well as any contingent interest in capital) could be defeated altogether by an outright appointment of capital under clause 4. There were also the powers to reserve and accumulate



Was the resettlement excessive?

Can the resettlement be impeached on the ground of bad faith or unreasonableness?

(a) The trustees exercised the discretion to resettle the very day they were appointed. The discretion was evidently exercised in accordance with the wishes of Mr WAX Couper, who appointed the trustees and initiated the resettlement. There is no evidence either of independent advice or of time available to take independent advice. (b) Of the three trustees, one (Mrs AE Couper) exercised the discretion in favour of herself and her children, and one (Mr Hutton) exercised the discretion in favour of his own wife and children; (c) There is no evidence that the trustees considered the scheme of the old trust deed (which divided capital two-thirds to the children of Mr WAX Couper and one-third to the children of Mrs JR Kain). Further, the Kain children have been cut out as beneficiaries of other trusts; (d) There is no evidence that the trustees undertook a proper survey of the

income referred to above at [53]. The refusal of the court to exercise its powers under s 41(c) to dispense with consent would, in our view, have unduly restricted the trustees’ discretion to use the s 41 power of advancement when a clause 4 appointment had been made.

[92] Panckhurst J held that the resettlement was excessive insofar as it related to the adding of Mrs AE Couper’s daughters as beneficiaries – see at [67]. We differ from Panckhurst J’s reasoning and conclusion in this regard.

[93] In Pilkington, the House of Lords held that a statutory power analogous to s 41 of the Trustee Act allowed resettlement on another trust without infringing the rule against delegation. The real question is whether the resettled trust is for the benefit of the object of the advancement power (in this case Mrs AE Couper) – see Garrow and Kelly Law of Trusts and Trustees (6ed 2005) at [23.17.8] and Butler Equity and Trusts in New Zealand (2003) at 216. In this regard, the term "benefit" is not restricted to direct benefits but can also include the fulfilment of the moral obligations of the object – see X v A [2006] 1 WLR 741 at [45] (Ch). However, that case held that it must be the fulfilment of an obligation that the beneficiary would otherwise have to discharge out of his or her own resources.

[94] Under these principles, the inclusion of Mrs AE Couper’s children as beneficiaries must be unobjectionable, as she owes a clear moral duty to them. We acknowledge that the beneficiary’s issue in the Pilkington case were included as default beneficiaries in the event that the object of the power of advancement died before reaching 30, but we consider that the question of whether a trust is for the benefit of a person must be assessed in the context of modern conditions where discretionary trusts like the new Mangaheia trust are the norm.

[95] The inclusion of Mrs Hutton and the Kain grandchildren as possible beneficiaries may be more problematical in this regard, particularly as the Kain grandchildren were not possible capital beneficiaries of the old Mangaheia trust. However, Mrs Hutton was a possible object of the clause 4 power of appointment. There is also nothing to suggest that Mrs AE Couper did not feel a moral obligation to her husband’s family, and no one has challenged the inclusion of the Kain grandchildren as beneficiaries in the event that the resettlement is upheld.

[96] The arguments of the Kain children and the Kain trustees on bad faith and/or unreasonableness are as follows:



beneficiaries and their needs. The discretion was exercised in favour of persons who arguably needed benefits the least (eg Mrs Hutton) to the detriment of extant beneficiaries who needed benefits the most (e.g. Mr Charles Kain). It was also exercised in favour of a new class of beneficiaries (Mrs AE Couper’s children, who were not beneficiaries under the old trust); (e) There is no evidence that the trustees properly considered the value of the assets being advanced (i.e. the size of the trust fund) to consider how it should be allocated. Nor did they consider the liabilities of the trust; and (f) The entire context – involving the appointment of trustees, disputes between family members, revision of other trusts, the withholding of vested trust entitlements and the withholding of information – necessitated a conservative and prudent approach being taken by the new trustees. It is alleged that Mr WAX Couper was, in particular, hostile towards the beneficiaries.

(a) The discretion was exercised on the day of appointment but the circumstances were well known. Mr Startup had undertaken a total survey of the Couper/Kain trusts and the information had been forwarded to Mr Hutton in February 1998. Undoubtedly both men had the accounts for all of the trusts; (b) Mrs AE Couper exercised the discretion for herself but, as Panckhurst J recognises, she was an object of the old trust. It is said that Mr Hutton exercised the discretion in favour of his wife and children but the structure of the new trust clearly favours Mrs AE Couper. The Judge was entitled to focus on the wish to make proper provision for Mrs AE Couper as the central consideration for the trustees when making decisions in relation to the Mangaheia trust; (c) The scheme of division of the old trust is noted but that was only the position in default of appointment. It cannot therefore inhibit an apportionment or resettlement. The Kain children’s arguments gloss over the breadth of the trustees’ discretion. The Kain children being cut out of other trusts can only refer to the nomination of Mrs Hutton (one of those children) for the Te Mata land. The Kain children continue as beneficiaries of the other trusts; (d) The concentration on Mrs Hutton is unwarranted. The focus should be on Mrs AE Couper who, as Mr WAX Couper’s wife, can only ever benefit under this trust and not the others. There is every reason to believe the trustees knew the order of past assistance and the certainty of receipt from vested trusts. The Kain children may also in the future receive major benefits from other trusts. There is, in any event, no evidence (only assertion) of financial hardship suffered by any of the Kain children before the Court; (e) There is no reason to believe that the trustees did not have a working knowledge of the value of all trusts and therefore the relative size of the trust fund. No provision for liabilities was made but no liabilities have been identified, therefore this argument is not relevant; and (f) The family dispute makes provision for Mrs AE Couper even more understandable. On no reasonable view of matters was it inappropriate for provision to be made through the Mangaheia trust for the settlor’s own wife from the one significant trust settled by him which identified his wife as a

[97] Responding to the particular points made, Mr Camp QC (on behalf of Mr WAX Couper) and Mr Osborne (on behalf of Mrs AE Couper and Mrs Hutton) submit:



discretionary beneficiary. To the extent that the primary intention might fall away through the death of Mrs AE Couper and her daughters or otherwise, it was sensible to make secondary provision for Mrs Hutton (who at that stage was seen as being behind her brothers in benefits from the trusts) and the Kain grandchildren.

Conclusion

Was the resettlement of the Ponui Station shareholding a fraud on the power and, if so, should the shareholding have been returned to the old or to the new Mangaheia trust?


[98] Mr Camp and Mr Osborne also contend that Mr WAX Couper and the three trustees were prejudiced at trial by the lack of explicit pleading of the details of the failures advanced. The pleading simply said that the trustees did not act in good faith or reasonably. Had the pleading been properly explicit, the detailed allegations would have been the subject of extensive evidence. Mr Camp also contends that there was inadequate cross-examination of the trustees. In the High Court, there was not even a challenge in cross-examination, for example, to the levels of knowledge of Mr Startup or Mr Hutton as to the situation of the trusts.

[99] In our view, the points made by Mr Camp and Mr Osborne largely answer the points raised by the Kain children. To the extent they do not, we accept that this may result from the lack of explicit pleading of those points in the High Court and therefore the lack of evidence directed to those points.

[100] In any event, we agree with Panckhurst J for the reasons he stated that, even if some of the Kain children’s and Kain trustees’ points had validity, they do not reach the high threshold required before a court will intervene in an absolute discretion contained in a trust deed. In this regard, as well as the material referred to by Panckhurst J (see above at [69] - [70]) we refer to Dal Pont and Chalmers at [23.265], Garrow and Kelly at 19.3. See also Craddock v Crowhen (1995) 1 NZSC 40,331, 40,337 (HC), and Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896 (HL). In particular, we accept that the desire to benefit Mrs AE Couper, in the context where this is one of the few trusts where she is able to benefit, was an entirely proper decision for the trustees (and indeed they may even have been open to allegations of capriciousness had they not done so).

[101] For the above reasons, we consider that Panckhurst J was correct to uphold the Mangaheia resettlement, although our reasoning differs from his.

[102] As indicated above at [47], in July 1999 the shares in Ponui Station Ltd were appointed to Mrs AE Couper. Contemporaneously, she settled them on a new trust (the Annette Couper Ponui trust) for herself, her children and remoter relatives. Panckhurst J, in his 3 December 2004 judgment, held that this was a fraud on a power, as there was a prior agreement to benefit non-objects of the trust – in particular, Mrs AE Couper’s daughters – see at [36](a) above.

[103] Panckhurst J held that there was nothing to suggest that Mrs AE Couper exercised genuine freedom of choice in resettling the shares on the new trust. He considered the conclusion that there was a closely co-ordinated scheme to benefit non-objects of the trust inescapable. For Panckhurst J, it was the temporal link between the partial distribution and resettlement of the shares that was important. He said:



New trustees were appointed to the old trust. The partial distribution immediately followed. Resettlement of the shares on the Annette Couper Ponui Trust was contemporaneous. Moreover, the same trustees were appointed to that trust. In these circumstances there is nothing to suggest that Mrs Couper exercised genuine freedom of choice in resettling the shares on the new trust. To the contrary, the documentary evidence points in one direction, to a scheme in which the distribution was dependent on the resettlement.

As previously advised the partial distribution of the current (old) Mangaheia Trust to Annette [Mrs AE Couper] should occur before the resettlement of that Trust. As a first step Messrs Smith and Dixon need to retire and the new trustees need to be appointed who then make the partial distribution to Annette. The new trustees must complete the deed of partial distribution by inserting the appropriate date in recital E and clause 1. Annette sells the shares to the new Ponui Trust for fair value (to be inserted in the share transfer).

Contentions of the parties

Legal principles relating to fraud on a power

[104] The main documentary evidence relied on by Panckhurst J was a letter from Mr Wares of Sainsbury, Logan & Williams dated 19 July 1999. The Judge held that the interconnection between the partial distribution and the establishment of the Annette Couper Ponui trust is put beyond doubt by this letter, which shows that the steps were to occur together and that the partial distribution was to precede resettlement of the remaining assets upon the new Mangaheia trust. That letter said, in relevant part:

[105] In his judgment of 18 November 2005, Panckhurst J determined that the Ponui Station Ltd shareholding should be restored to the old Mangaheia trust as the trustees could not have intended to resettle that shareholding into the new Mangaheia trust as they thought that they had already disposed of the shares.

[106] Mr WAX Couper, in his submissions on the cross-appeal on this issue, argues that the Judge erred in finding that the appointment of the Ponui shareholding on Mrs AE Couper and the settlement on the Annette Couper Ponui trust was unlawful. This is also supported by Mr Osborne on behalf of Mrs AE Couper and Mrs Hutton. In the alternative, Mr WAX Couper appeals against the decision to restore the Ponui shareholding to the old Mangaheia trust. He contends that it should have been transferred to the resettled new Mangaheia trust.

[107] The Kain children and the Kain trustees support the Judge’s decision that the appointment was a fraud on the power because it was a product of an antecedent agreement to benefit non-objects of the power of appointment. The Kain trustees argue further that the power was exercised fraudulently because it was designed to take assets out of reach of the Kain children, who were predominantly the objects of the power. Both the Kain children and the Kain trustees also support the Judge’s conclusion that the shares should be returned to the old Mangaheia trust. They submit that the trustees can have had no intention to resettle the Ponui shares on the new Mangaheia trust as they thought they were no longer held in the old trust.

[108] The various categories of fraud on a power are discussed above at [36]. The main contention of the Kain children and the Kain trustees is that the exercise of the



Was there a fraud on the power in this case?

power was fraudulent because of the intention to benefit non-objects of the power - see at [36](a). The supplementary argument of the Kain trustees is that it was for a purpose that was foreign to the power as it was not in accordance with the provisions of the old Mangaheia trust which was for the benefit of the Kain children.

[109] To establish a fraud on a power under the former head, it is necessary to establish that the appointer had an antecedent intention or agreement by which the appointment and resettlement was intended to benefit non-objects – see Thomas and Hudson, The Law of Trusts (2004) at [19.14]. If the appointer’s purpose is to effect distribution amongst persons who are not objects of the power, the appointee merely being a conduit, the appointment cannot be supported – see In re Crawshay Decd, Hore-Ruthven v Public Trustee [1948] Ch 123 (CA).

[110] The other related argument of the Kain children is that the trustees’ powers were used for a purpose foreign to the power. As stated in Thomas Powers at [9-35], the purpose of a settlement is to benefit the objects within the range of the power. If the power is exercised for a purpose outside of that power, this prejudices the beneficiaries who would be entitled to receive but for the exercise of the appointer’s unauthorised purpose. However, there must a "deliberate defeating" of the donor’s intention as this is the element which differentiates a fraud on a power from a mere excessive exercise of power.

[111] It is not, however, enough that the appointer hopes that the appointee will dispose of the appointed property to benefit non-objects – see In re Crawshay at 135. If the appointer intends to appoint property no matter what disposition the appointee makes, then there is no fraud on the power - see Thomas Powers at [9-23]. If the recipient has genuine freedom of action and wishes to benefit non-objects then the exercise of the power to appoint would also be upheld – see In re Marsden’s Trust (1859) 4 Drewry 594; 62 ER 228.

[112] The appointment to an object of a power coupled with a contemporaneous settlement by that object on a non-object does not automatically invalidate the appointment. There is a line of English and Irish cases that establish that the courts are willing, in the absence of evidence of an antecedent agreement, to view such a settlement as two distinct transactions – Thompson v Simpson (1841) 1 Dr & War 459 at 487; Goldsmid v Goldsmid (1842) 2 Hare 187; 67 ER 78 at 82; Daniel v Arkwright (1864) 2 H & M 95; 71 ER 396 at 400; and In re Foot and Purdon’s Estate [1910] 1 IR 365 at 368. The first transaction is seen as an absolute appointment to the object of the trust. The second transaction, the appointment by the object, is seen as having been made by operation of his or her own free will. See also Birley v Birley (1858) 25 Beav 299; 53 ER 651 at 654 per Romily MR.

[113] The establishment of a fraud on a power hinges on the state of mind of the appointer at the time the appointment was made – see In re Wright, Hegan v Bloor [1920] 1 Ch 108 at 121 (Ch). Fraud must be proved. Suspicion is not enough – see Henty v Wrey (1882) 21 Ch 332 at 354 (CA). The burden of proof lies on the person seeking to avoid the transaction – see Thomas Powers at [9-59], Askham v Barker (1853) 17 Beav 37; 51 ER 945, 952 – 953, and Re Wright at 113. The standard of proof is the ordinary civil standard. However, where the applicants seek to prove that there has been a fraud on a power, the evidence must be strong. This is on the principle that the more serious the allegation, the less likely it is to have occurred - see Z v Complaints Assessment Committee [2007] NZCA 91.



It was Tom [Mr WAX] Couper’s wish as he expressed it to me, that I should be the principal beneficiary of the (old) Mangaheia Trust. He told me he wished to ensure that I had some certainty after he had gone. Mangaheia was one of the few trusts that provided for Tom’s wife to be a beneficiary. It was not my idea that I be benefited in this way. However, I did think it was appropriate that provision was made for me and my daughters, and during the period leading up to the resettlement no one suggested that it was not.

[41] This exercise was not undertaken as a distinct, or separate advance to [Mrs Wong] or in the "hope" that [Mrs Wong] would benefit a non-object. The exercise was already constrained by a preconsidered course of action which also avoided [Mrs Wong] having

[114] We do not consider that Panckhurst J’s conclusion that there was a fraud on a power with regard to the appointment of the Ponui shares can be sustained.

[115] First, there is both a pleading and an evidential difficulty, particularly with the assertion of an antecedent agreement to benefit non-objects. While both aspects of the Mangaheia settlement were challenged, there was no explicit pleading of a fraud on the power. This leads to the evidential difficulty. As noted by Panckhurst J, Mrs AE Couper was not cross-examined on whether there was a binding scheme to benefit non-objects of the trust. Nor were the other trustees, Mr Hutton and Mr Startup. The only evidence on the Ponui resettlement was that of Mr Hutton and Mr Startup in examination in chief (largely directed to whether Mr WAX Couper had directed the resettlement) and the documentary evidence.

[116] Secondly, we do not, in any event, consider that the documentary evidence relied on by the Judge can sustain an inference of prior agreement. Mr Wares’ letter (see at [104] above) simply establishes the contemporaneous nature of the transactions. This is insufficient by itself to sustain a finding of fraud on a power - see at [111] above. Further, it does not prove the state of mind of the appointers (in this case Mr Hutton and Mr Startup) and it is their state of mind that is in issue – see at [113] above.

[117] There was some evidence of Mr WAX Couper’s intentions. He stated that he was seeking to provide for his wife and his stepdaughters and that he had raised this with the trustees. However, although Mr WAX Couper may have been heavily involved, Panckhurst J did not go so far as to hold that the trustees gave no separate consideration to the resettlement. Thus Mr WAX Couper’s intentions are not conclusive.

[118] Even if Mr WAX Couper was driving the distribution of the Ponui shares to Mrs AE Couper and wanted to provide for his stepdaughters, however, this does not prevent Mrs AE Couper from exercising genuine freedom of action in deciding to resettle the Ponui shares on the Annette Couper Ponui trust. To the extent her evidence deals with that question, Mrs AE Couper appears to have been the passive recipient of the benefits under the trust, but she does seem to have wanted provision to be made for her daughters. She said:

[119] In coming to his conclusion about fraud on a power, Panckhurst J relied heavily on this Court’s decision in Wong v Burt [2005] 1 NZLR 91 (CA). In that case a capital distribution was made to Mrs Wong so that she could gift the proceeds to her daughter’s trust for the benefit of her grandchildren, who were not beneficiaries under the trust. The children’s mother, Mrs Wong’s daughter, had been a beneficiary of the trust but she had died. This Court found that there was an overt and predetermined intention that the trustees would use their discretion to benefit Mrs Wong in order to benefit non-objects. Hammond J (giving the judgment of the Court) stated:



to resort to any assets under her control or direction to assist her grandchildren.... [42] In our view, this deliberate, and preconceived, device amounted to a fraud on the power. If [Mrs Wong] had simply been advanced the money out of the estate and had then exercised a genuine freedom of action to benefit the children ... that would not have been unlawful.

Conclusion

Should the trustees of the Richmond trust have been granted specific performance of the transfer of 51% of Hukanui Station?

Background

[120] In Wong, there was ample evidence of the intention to benefit non-objects beyond the "device" itself referred to by Hammond J at [42]. Indeed, the trustee gave direct evidence as to his intention to benefit non-objects. It is thus distinguishable from this case where there was no such evidence. As stated in Henty (see above at [113]), fraud must be proved by those alleging fraud and suspicion is not sufficient.

[121] In any event, in this case the Annette Couper Ponui trust has Mrs AE Couper as a possible beneficiary. It cannot be said therefore that its only purpose was to benefit non-objects. Indeed, the fact that Mrs AE Couper had the right under the trust deed to appoint additional beneficiaries, and the power to appoint and remove trustees and beneficiaries, suggests that the trust was effectively her trust and for her benefit. This should, under the principles discussed at [93] - [94], validate the appointment, given that Mrs AE Couper was a proper object of the power of appointment.

[122] Moving to the alternative argument of the Kain trustees that the appointment was a fraud on a power because it was made to shut out the Kain children who were the primary objects of the power of appointment, we do not consider that this has any validity. Mrs AE Couper was a possible beneficiary of the power of appointment under clause 4 of the old deed. The trustees had an absolute discretion to appoint any one of the beneficiaries to the exclusion of all others under clause 4. For the reasons given in relation to the Mangaheia resettlement, we do not consider that this case reaches the high threshold where such a discretion would be interfered with - see at [100]. The desire to benefit Mrs AE Couper was indeed perfectly proper.

[123] In conclusion, therefore, the cross-appeal with regard to the Ponui shares must be allowed. The appointment to Mrs AE Couper was valid. Given this conclusion, we do not need to decide whether the shares should have been returned to the old or to the new Mangaheia trust.

[124] In 1989, Mr WAX Couper and Mrs AE Couper entered into a matrimonial property agreement whereby a 51% interest in Hukanui Station was transferred to Mrs AE Couper. Mrs AE Couper completed a purchaser’s declaration, as required by the Land Settlement Promotion and Land Acquisition Act 1952 (LSP). This was signed and dated only with the year 1990 but the declaration was not taken.

[125] Mrs AE Couper also signed a memorandum of transfer in relation to her 51% share in favour of the trustees of the Richmond trust. The transfer was dated 19 July 1989 and the consideration in that transfer document was recorded as $408,000. This transfer appears to have remained on file at Mr WAX Couper’s





Issues

(a) Was there a binding agreement?

solicitors who were also the solicitors for the Richmond trust. On that file there was an undated signed LSP application for a transfer of the land to Mr Springford, Mr Black and Mr Charles Kain (the trustees of the Richmond trust). It appears that Mrs AE Couper at some stage signed two debt forgiveness deeds, of $27,000 each, dated 1990 and 1991. Her signatures on those documents were not witnessed and they were not signed by the trustees. The Richmond trust deed was not finally completed until late 1992 when the final trustee, Mr Charles Kain, executed it.

[126] Panckhurst J held that the Richmond trust does not own a 51% interest in Hukanui Station and accordingly that Mr WAX Couper remains the owner of that interest. (Mrs AE Couper accepts that the matrimonial property agreement was never operative).

[127] The Judge was satisfied that initially Mr and Mrs WAX Couper held a plain and unequivocal intention to settle 51% of Hukanui Station on the Richmond trust. In 1989 they set about completing the documentation necessary to achieve that purpose. Delays occurred, largely on account of Mr Charles Kain’s failure to sign the deed for the Richmond trust until October 1992. Estate duty was abolished from 17 December 1992 by the Estate Duty Abolition Act 1993. At about that time, Mr WAX Couper instructed his solicitor, Mr Smith, to put the transaction on hold. Subsequently there was a failure to complete the transaction or resolve the matter in some alternative way and Mr and Mrs WAX Couper resiled from their earlier intention. In the meantime, Mr Springford prepared the accounts for the group as if the settlement on the Richmond trust had been completed.

[128] The Judge held that Mrs AE Couper did not enter into any contractual obligation to transfer the land to the Richmond trustees, although she intended to do so and signed a number of documents to that effect. Thus specific performance was not available. He also rejected the cause of action of equitable estoppel. He could find neither an unequivocal promise nor the necessary reliance. None of the original trustees gave evidence on those aspects. The most Mr Springford said was that, although he was aware of complications in relation to the transfer of the land to the trustees, he nonetheless prepared the financial accounts on the basis that the transaction had been perfected.

[129] The Kain trustees, the Kain children and the Kain grandchildren submit that Panckhurst J erred in finding that a 51% share in Hukanui station had not been transferred to the Richmond trust. They argue that Mrs AE Couper had agreed to this transfer and that the Richmond trustees are entitled to specific performance. If there were LSP problems, the Kain trustees argue that the sale should be validated. In the alternative, the Kain trustees submit that Mrs AE Couper is estopped from claiming the sale did not occur or that the transfer must be regarded as a perfected gift.

[130] The issues for this section, therefore, are:



(b) Does estoppel arise? (c) Was there a perfected gift?

Was there a binding agreement?

Does estoppel arise?

Was there a perfected gift?

[131] There is uncertainty as to the date of any agreement. The trust deed was not finally executed until 1992, the matrimonial property agreement was signed at some unspecified date in 1989, while the transfer relied on was executed on 19 July 1989.

[132] There was also uncertainty as to price. The earliest available accounts for the Richmond trust are for the 1994 and 1995 years. They were prepared by one of the original trustees, Mr Springford. The consideration appearing in those accounts and shown as a debt back to Mrs AE Couper was $23,923, the original cost price of the interest. The sum of $363,677 was set out as a property revaluation reserve, bringing up the carrying value of the land to $387,600 which was the government valuation as at 1989. This differs from the $408,000 shown in the transfer. Given the failure to show any agreement on the vital term of price, there can have been no contract.

[133] In addition, there is the issue of consent under the LSP. The Kain trustees submit that s 23(3)(d) of the LSP applied. This provides an exemption for transfers to trustees for the spouse, children or grandchildren of the vendor. The Richmond trustees are, however, trustees for a wider class that included the Kain children who did not have the requisite relationship to Mrs AE Couper. The exemption therefore did not apply.

[134] Further, it is by no means clear that LSP consent would have been given. Several of the Kain children had interests in farmland at the time. No evidence was directed as to how these interests would have affected the consent process. We are therefore unable to conclude that the failure to apply for LSP consent was a technical failure. This distinguishes this case from Hurrell v Townend [1982] 1 NZLR 536 (CA) where evidence that consent would have been forthcoming was led.

[135] For the above reasons, Panckhurst J was correct to hold that specific performance is not available.

[136] We agree with Panckhurst J for the reasons he gives that estoppel does not arise. No promise was made to the trustees and no unambiguous representations were made. No evidence was given by the trustees as to reliance, change of position or detriment.

[137] It appears from the documentation that the transaction was to be structured as a sale with a debt back. It also appears that the original intent was for the debt to be forgiven over a period of years at a rate that would not attract gift duty. Any gift therefore was intended to be through debt forgiveness. There was never any intention to gift the land.

[138] The whole point of structuring the transaction in that manner was to avoid a gift of the land and consequent gift duty. Mrs AE Couper had to remain free at any time to call in the loan to the extent it was still outstanding. In fact, the debt never eventuated (and thus was unable to be forgiven) because there was no sale. There



Are the trusts entitled to damages for knowing receipt equal to the profit made with regard to Greenlees Farm and Pinecroft Farm?

Introduction

Further background

can be no perfection of a gift never made and (in relation to the land) never intended to be made.

[139] Greenlees Farm was acquired in 1984 and is currently owned by Lybster Holdings Ltd. The shares in Lybster Holdings Ltd were held, at the time of the High Court hearing, by the three trustees as nominees for Mr WAX Couper, who regards these shares as a personal asset. A three-quarter share in Pinecroft Farm was acquired in two stages in 1991 and 1994 and is owned by Bideford Farms Ltd. The shares in Bideford Farms Ltd are held by Mr and Mrs WAX Couper in their personal capacities.

[140] The Kain children argue that, as trust property was used to purchase the Greenlees and Pinecroft farms, the trusts should be entitled to damages for knowing receipt equal to the profit made. Mr WAX and Mrs AE Couper contend that the adjustments ordered by the Judge (see at [150] - [152] below) are all that is required.

[141] In order to assess these submissions some further background is required.

[142] By 1980 over half of the present trusts had been formed and there was already a substantial farming operation which was under the day to day control of Mr WAX Couper. In 1981, Mr Springford became Mr WAX Couper’s accountant. At Mr Springford’s behest, a single business entity, the Couper Farming Partnership, was created to conduct the farming operation. We understand that this was thought to create certain taxation and GST advantages.

[143] The partnership profit was split between Mr WAX Couper (20%), four of the trusts (WAX Couper, Glendale, Mangaheia and Waitaha), the JR Kain Estate and the Waipuna Partnership. In turn, Mr Couper and those six entities paid land rentals and bailment fees for stock to other smaller trusts within the group according to the land and stock numbers contributed to the operation by them. For example, Mr WAX Couper paid rental to his father’s estate, and to the Hukanui, Richmond and Middle Road Block trusts. He also received a management fee (fixed at $20,000 per annum for many years) for his services in managing the farming operation.

[144] Trust entitlements (rental for leased land owned, bailment fees for stock, profit entitlements etc) were recognised by book entries which were carried through to the annual financial statements which Mr Springford prepared for the partnership and for each trust. Where particular trusts required finance it was provided from the partnership reserves, again recognised by book entries. Interest was not charged on current accounts. It appears, however, that the current accounts may have been taken into account in the profit split, which seems to have been done on the basis of total assets employed. This is indicated in Mr Graham’s first report dated 15 March 2004 at [7.3.1]. Panckhurst J commented that the cumulative effect of these arrangements was an ever-increasing complexity in relation to the group’s financial affairs.

[145] An aspect of trust administration was the use of assets belonging to trusts within the group to assist in the purchase of further properties. Additional land was



(a) approximately 70% of the purchase monies came from a bank loan, secured against Waitaha Station (belonging to the Waitaha trust). That loan was refinanced in 1988, with further trust properties (including Mangaheia and Te Mata) provided as security. (b) approximately 25% came from the Waitaha trust (directly), but sourced from the inter-entity current accounts of other trusts (including Mangaheia). Mr Graham had difficulty ascertaining the ultimate sources of these funds, noting:

The above simply serves as an example of how the inter entity loans and advances are effectively a "pot" of cash owned by a large number of trusts generated from trading profits earned by all of the farming entities.

(c) approximately 5% came from Mr WAX Couper himself (directly) but the intermingled accounting system meant that the ultimate source could not be ascertained.

High Court judgment

acquired in the 1980s and 1990s by utilising both current account advances from the partnership and by providing partnership or trust land as security. Mr Graham’s second report analyses the ultimate source of the funding of the farms purchased by Lybster and Bideford, so far as that was possible on the information then available.

[146] The source of the funds for the Lybster purchase of Greenlees farm was as follows:

[147] Funding for the purchase of Pinecroft farm by Bideford came from the Couper Farming Partnership. The partnership was in turn, in terms of the 1991 purchase, funded by National Bank lending facilities (secured against a number of other trust assets) and numerous inter-entity current accounts. In terms of the 1994 purchase, it was funded by the accruing cash from profits attributable to the various trusts.

[148] Panckhurst J noted that the contention was that because the funding for Greenlees Farm was derived from the other trusts, Lybster’s legal ownership of Greenlees Farm is subject to beneficial interests in favour of particular trusts. This was set out at [145] - [151] of the Plaintiff’s amended statement of claim dated 21 May 2002. This allegation was not, however, pleaded in the second amended statement of claim. There was some reference to it in the outline of complaints provided by the Kain children in December 2003, in that the concern was expressed that "contrary to the indications in the 1995 deed" Mr WAX Couper asserted that he was the beneficial owner of the shares in Lybster which, if correct, meant that he had profited "at the expense of the trusts". However, there was no more direct assertion or claim based upon a constructive trust.

[149] In the Judge’s view, unconscionability had not been shown in relation to Lybster. The Judge noted that neither the circumstances of the purchase of the farm by Mr WAX Couper in 1984 had been analysed, nor had he been cross-examined on the subject. There was no suggestion that Mr WAX Couper was subject to fiduciary obligations at the time of the purchase. The only matters relied on for the imposition of a constructive trust were the advances to Lybster and the use of trust assets to secure external borrowings. The Judge held that this did not



(a) that until 1998 Lybster only paid interest to Greenlees Holding Company Ltd (not to the Waitaha trust and Mr WAX Couper); (b) that until 1998 Lybster received a rental of $140,000 - $150,000 per annum for Greenlees Farm, which was then reduced to $37,000 in order to bring it into line with market rentals for land of this type. In Mr Graham’s opinion, due to the excessive rent paid, there was a need to rework the Lybster accounts to reflect a fair market rent for the entire period back to 1985; (c) in the year 2000 Mr WAX Couper received a dividend from Lybster of $375,000 which apparently represented the difference between its rental income and interest paid. Mr Graham recommended that this dividend be reconsidered in light of the income and interest readjustments; and (d) the foreign exchange losses of $342,829 incurred by Greenlees Holding Company Ltd on its borrowings advanced to Lybster from the BNZ loan denominated in US dollars (which was secured against Waitaha Station) may well require consideration on behalf of the Waitaha trust (since Greenlees Holding Company Ltd is owned by that trust).

Discussion

suffice. [150] Panckhurst J pointed out that, to a large extent, the benefits which Lybster

received from other entities within the group at the time of the purchase, were recognised by the creation of requisite current account entries. To the extent that Lybster received further benefits as a result of the group accounting practices which prevailed at the time, it was still possible for adjustments to be made. This need had already been recognised by Mr Graham in his first report to the Court in which five issues were raised:

[151] The Judge considered that, once those issues were satisfactorily resolved, the concerns which gave rise to the constructive trust argument may in significant measure be removed.

[152] For the same reasons as in relation to Greenlees farm and Lybster, the Judge held that there was no basis for the imposition of a constructive trust in relation to Pinecroft Farm and Bideford, although, as recognised in Mr Graham’s report to the Court, there is a need for accounting adjustments to be made in order to recognise the funding contributions for the purchase of the farm.

[153] We consider that there are three difficulties with the Kain children’s claim for damages equal to the profit made. The first is a pleading and evidential difficulty, the second is the complication of the partnership arrangements, and the third relates to causation. We take these in turn.

[154] The Kain children accept the findings of the Judge that they cannot advance a constructive trust claim on the pleadings. They say, however, that the Judge should not have seen the issue as a simple choice between a constructive trust and the adjustment suggested by Mr Graham. He should have ordered damages equal to the profit made by Mr WAX Couper and consequently foregone by the trusts due to the trusts not having ownership of the properties in question.

[155] In our view, the claim for damages equal to the profit made is effectively the constructive trust claim in fancy dress. We do not think that the Kain children should be allowed to advance it, particularly for the first time on appeal. Further, the evidential difficulties referred to by the Judge (see at [149] above) apply



equally to the damages claim. Neither Mr WAX Couper nor Mrs AE Couper were actual trustees of the relevant trusts at the relevant time. It is thus accepted by the Kain children that the claim for damages equal to the profit made depends on an allegation that Mr WAX Couper was a trustee de son tort, or that he and Mrs AE Couper had knowingly received trust assets. The relevant allegations were not, however, put to Mr and Mrs WAX Couper. It is true that Mr Graham’s second report dealing with Lybster and Bideford was received on the seventh day of the trial after the conclusion of Mr WAX Couper’s evidence but no application for recall was made.

[156] The second difficulty with the damages claim is that the whole issue is complicated by the existence of the partnership. There was no written partnership deed and so the terms of the partnership need to be inferred from what documentation there is and what was done. What does appear clear is that the land was contributed by Mr WAX Couper and the relevant trusts as partnership capital - see the second paragraph of the memorandum of 3 May 1989 from Mr Springford on the proposed partnership. Depending on the partnership agreement, partnership assets normally do not belong to individual partners during the currency of the partnership. In that situation partners merely have a beneficial interest in the assets of the partnership at dissolution – see Lindley & Banks Partnership, (18ed 2002 with supplements up to 2005) at [19-08] - [19-09]. This is because, until dissolution, each partner is entitled to require the partnership assets to be applied for partnership purposes. This means that any security given over any of the farms was in fact security over the partnership assets rather than over the assets of any particular trust. It also means that any individual trust effectively had recourse to all of the partnership assets to recoup any losses should the security be realised. This significantly reduces the risk of giving security.

[157] It seems to have been part of the partnership arrangements that profits be retained in the farming operation to the extent possible. Profit shares, rental and bailment fees were recognised by journal entries rather than being paid out. Retained funds were used where needed for partnership purposes, both to sustain the farming operation and also to acquire more land. As recorded in Mr Graham’s first report at [8.2], no interest was paid on the current accounts. The exception appears to be where particular bank borrowings were applied to the purchase of land such as happened with the Lybster purchase of Greenlees farm. In that case, the arrangement appears to have been that Lybster was to pay the interest on that outside loan.

[158] It follows from what we have said that the arrangements relating to Lybster and Bideford were in fact in accordance with the partnership arrangements. Thus any breach of trust involved must relate to the entry into a partnership on such terms rather than the particular arrangements in relation to Lybster and Bideford, including the provision of security. We heard no argument on that point and there was little relevant evidence before the Court. There were, however, no doubt, business advantages in running the farms under one umbrella management system in a partnership format as well as the taxation advantages referred to at [142] above. Therefore, we suspect that it may have been difficult to have persuaded the Court that it should second-guess the decision to enter into the partnership.

[159] In our view, some of what can be seen as the more surprising features of the Lybster funding can be seen as a consequence of the partnership arrangements. For example, the above market rent (see at [150](b) above) might be explicable, at least in part, by the view that the entity taking the farming profit should at least pay a rental that covered the interest on the borrowings. With regard to the



foreign exchange loss (see at [150](d) above) we note that, at the time of the Lybster borrowing, loans denominated in a foreign currency were being widely promoted on the understanding that this provided cheap money - see for example Bank of New Zealand v Savril Contractors Ltd [2005] 2 NZLR 475 (CA). Foreign exchange risk was not well understood. Leaving the foreign exchange loss with the Waitaha trust therefore could thus be seen as bad commercial judgment rather than a knowing breach of trust.

[160] There are a number of related issues. Even though no interest was paid on current accounts, profit was seemingly allocated on the basis of total assets employed – see Mr Graham’s first report at [7.3]. If the calculation of total assets employed included the current accounts, then a positive current account would have led to an increase in the profit share and vice versa. This would mean that funds were not provided free of charge but effectively received an equity return. It would be difficult to argue that it was improper to provide funds on such terms. Even if that were not the case in relation to Lybster and Bideford, it must be remembered that Mr WAX Couper was the manager of the farming enterprise as well as a partner. Any low interest or interest free loans to him could legitimately have been viewed by the trustees as part of his remuneration (which appears to have been set at a low level). It may also have been seen as justified, in terms of the thinking prevailing at the time, because Mr WAX Couper had settled many of the assets on the various trusts and thus into the partnership, presumably with interest free funding.

[161] There would also be difficulties with the partnership structure in deciding on the proper method of allocating any resulting damages. Because of the way the partnership operated, it is likely to be a matter of luck where funds were derived from for any particular use. In these circumstances, it may be seen as arbitrary to attribute any damages to any particular trust even if the funds can nominally be traced back to that trust. Singling out the Lybster and Bideford transactions could also lead to inequities. We understand that other properties were acquired in the same manner. Similar damages might therefore be payable in relation to those other acquisitions and distortions could be introduced by dealing only with Lybster and Bideford.

[162] The Kain children had a tendency in some of their arguments before the Court to treat all of the trusts as trusts for the benefit of themselves and Mrs Hutton. This is misleading (although it does seem to have been the way the partnership and Mr Springford operated). The trusts do not follow a standard pattern and the provisions as to income and capital differ between the trusts. The trusts are in the main discretionary trusts where the trustees or the settlor have a power of appointment of one or more of the beneficiaries to the exclusion of others. Each trust therefore has to be viewed separately. It cannot be assumed that the ultimate beneficiaries are or will be the same in each trust and thus the trusts cannot properly be treated as one entity.

[163] The third difficulty with the damages claim is one of causation. The claim is predicated on the basis that, but for the alleged breaches of trust, the properties would have been owned by the trusts. There is, however, nothing to suggest that the properties were intended for the trusts which provided the finance rather than for Lybster and Bideford. That the understanding may have been that the farm properties would be settled on other trusts seems to us beside the point. Under this scenario, it was not the trusts which provided the finance which were destined to own the properties but different trusts, which cannot be treated as one entity for the reasons discussed above at [162]. Even without the alleged breaches, the financing trusts would not have owned the properties, although presumably the financing would have been on different terms (as reflected in the



Was the farming company transaction a breach of trust and, if so, should an inquiry into damages have been ordered?


Background

adjustments suggested by Mr Graham and ordered by the Judge). Causation of loss with regard to damages for loss of profits is thus not shown.

[164] In all these circumstances, we do not consider that there are grounds for interfering with Panckhurst J’s orders in relation to Lybster and Bideford. There may remain issues in relation to the appropriate accounting adjustments (which were not fully agreed by the experts at trial) but Panckhurst J reserved leave to apply should issues arise with the implication of Mr Graham’s report.

[165] In this regard, as well as issues with regard to the appropriate interest rate (where the whole of the partnership arrangements as outlined above will be relevant), there could be questions as to the appropriate level of Mr WAX Couper’s management fee in the relevant period. We are also unsure as to the extent to which Mr WAX Couper’s profit share might have been affected by the Lybster/Bideford arrangements (assuming that profits were allocated on the basis of total funds employed including any current account balances).

[166] There may also need to be an adjustment if any negative current account position on the part of Mr WAX Couper arises from activities associated with the trust/partnership assets. To the extent that any advances to Mr WAX Couper benefited the partnership and the trusts but were taken into account in reducing his profit share, some corresponding adjustment might be warranted. The profit allocations with regard to the 51% of Hukanui Station, the ownership of which is discussed above at [124] - [138], will also, we presume, have to be adjusted. Finally on this topic, in Mr Springford’s memorandum of 3 May 1989 at [4], it is suggested that Mr WAX Couper should carry a large part of the debt servicing of the group to reduce his annual income. (We do not comment on whether such an arrangement would have been tax effective). If instituted, this would likely have meant that his share of partnership income was artificially lowered by the allocation of a disproportionate amount of debt. Adjustments may need to be made to take this into account.

[167] The Kain children submit that the farming operation belonging to the trusts was transferred by Mr WAX Couper to the WAX Couper Farming Company (WCF) without the knowledge of the trustees. This was for the purpose of enabling Mr WAX Couper, in breach of trust, to have control of all trust assets and to appropriate all farming profits to himself. They say that the Judge should have made findings accordingly and, as well as ordering the unwind of the WCF transaction, he should have ordered an inquiry into damages suffered.

[168] Again, some further background is required. [169] In 1995, Mr WAX Couper, with the help of Mr Springford, developed a proposal

for the creation of a single trust which was to hold the properties and other farming assets for the benefit of the family into the future. Under this proposed arrangement, all the family land (including that of the vested trusts – see below at [205]) was to be brought together for the benefit of future generations. Mrs AE Couper was to have the right to live in the Te Mata homestead for life and adequate provision from the super-trust was to be made for the needs of Mr and



Mrs WAX Couper. Central to the proposal was Mr WAX Couper’s view that the farming enterprise existed to provide financial assistance to the current generation but that it should also be retained intact for the benefit of future generations.

[170] Mr Springford explained the proposal to each of the Kain children and to Mrs Hutton. A general consensus emerged. A deed of family arrangement was signed dated 18 May 1995 (and 24 April 1995 in the case of Ms Georgina Kain). The parties to it were the Kain children and Mrs Hutton as "the beneficiaries" and their father, Mr GT Kain and Mr WAX Couper as "the covenantees". The deed recorded the agreement that it was desirable for the capital assets of the various trusts and companies to be retained within the family through the medium of a new trust. To that end, the beneficiaries authorised the trustees of the various trusts and the directors of the various companies to sell their respective assets to the covenantees. A schedule to the deed listed the various family trusts and land-owning companies.

[171] Mr Springford returned to the Hawkes Bay with the signed deed but reported to Mr WAX Couper that, while the Kain children accepted the principle, they thought a company structure may be preferable to a single trust. Their proposal was that the farm properties be operated by a company of which the various trusts would be the shareholders. Mr WAX Couper remained of the view that a trust structure was best. In the event, the proposal did not progress any further. Instead, family divisions surfaced and any consensus which existed in 1995 dissipated. Interestingly, however, in their lists of issues provided to Panckhurst J before and at the beginning of the trial, the Kain children initially sought a return to the super-trust proposal.

[172] Even though the super-trust proposal did not proceed, all appear to have treated the farming partnership as having been dissolved from that point with the farming operations thereafter being managed through a trust, the Couper Farming Trust, although we understand that no trust deed was ever finalised. The operation was, however, run in the same manner as before. This included the method of allocating profits, although apparently the profit share for the 1998 year was not exactly in accordance with the earlier formula because it took into account considerations relating to taxation and past imbalances (see Mr Hadlee’s report of 29 May 2001 at [24] , discussed below at [182]).

[173] The next stage after the super-trust proposal was the formation of the farming company, WCF. This was incorporated in March 1999 with Mr WAX Couper as the sole shareholder. The original directors were Mr WAX Couper, Mr Startup and Mr Hutton but Mr Hutton resigned in 2003. Apart from the three trustees, none of the other trustees of the trusts were consulted on the setting up of WCF and, what is more, it was set up before the three trustees formally took up their positions as trustees of any of the trusts, apart from the Te Mata trust.

[174] The farming operation was transferred to WCF, seemingly with effect from 1 July 1998, and thereafter, it was conducted by that company – see Mr Graham’s first report at [7.2]. Under the new structure, the proposal was for a different profit share formula. All of the trusts were to be paid rental in relation to the land provided and bailment fees for stock. The farming profit, after payment of all expenses including rent and bailment fees, was to remain in WCF. In addition, Mr WAX Couper was given a much increased fee for his management services ($200,000).

[175] Initially Mr Hutton and Mr Startup set the rentals to be paid to the trusts using the farming tables published annually by Lincoln University – see at [52] of Mr Hutton’s affidavit 7 December 2000. They, however, decided to get third party confirmation, instructing a valuer, Mr Morice, for that purpose. The rentals he set



were in some cases higher and in other cases lower than those set by the trustees -see his letter of 16 October 2000. Mr Hutton stated that farm rentals had strengthened over the last twelve months as beef and lamb prices increased.

[176] Mr WAX Couper’s new accountant, Mr Startup, initiated these changes. Mr Startup’s evidence was that he had recommended the company structure for ease of administration and the protection afforded by limited liability. In a letter of 23 June 1999 to Mr WAX Couper, Mr Startup spoke of the need to centralise the farm management of all of the farms in order to maximise returns. He saw the company structure as consistent with this aim. In a letter of 1 November 1999 Mr Startup explained that the payment of sustainable market rentals to the trusts (which was the favoured option at that time) would enable the trustees to budget on that income flow, provide for the maintenance of their assets and allocate and pay income to the beneficiaries as they considered appropriate. He said that the past relationship of the trusts was based on an historical estimation of the net value of each entity involved in the group, which was becoming irrelevant as values changed or assets were acquired or sold. He also remarked in that letter about the difficulties he had faced in obtaining relevant documents, including trust minute books, copies of trust deeds and related documents. Mr Startup categorically denied in evidence that it was ever his intention that the company be incorporated to ensure that Mr WAX Couper benefited at the expense of the trusts – see at [24] of his witness statement.

[177] It does not appear, however, that the new profit sharing arrangements were finalised. Mr Startup, in a letter of 2 November 1999 which it appears was intended to be made available to the Kain children, stated that Mr WAX Couper and the trustees had been having discussions as to whether the income of the trusts should be solely related to the farming return, or whether it should be partly so and partly fixed, or whether it should be by way of a fixed market rental.

[178] The setting up of WCF had the support of Mr WAX Couper’s solicitor, Mr Wares. In a letter of 5 March 1999, he outlined the advantages he saw in a company structure. These essentially mirrored those set out by Mr Startup except for an additional benefit put forward by Mr Wares relating to the ease with which the farming operation could be transferred by transferring shares in the company. Further, he stressed that any market rentals to be paid would need to be acceptable to the Inland Revenue Department and the trustees. He also suggested rationalisation of the current accounts.

[179] Mr Hutton also considered the new arrangements to be appropriate. He thought that there was merit in the separation of the farming activity from the trusts and that it would reduce the risk profile of the trusts if they received a proper and consistent income for the use of their assets. He, however, hoped that the accounting baggage of the partnership would not be brought over into WCF. See his affidavit of 7 December 2000 at [50] and [55]. We also refer to his letter of 26 July 2000 to Mr Startup where he says that the trustees are endeavouring to pass the profits back to the trusts so that no beneficiary is worse off than they would have been under the previous regime. He also said that he was anxious to be more professional in establishing market rentals and said that it might be that WCF could not offer enough rental. If that were the case the it could be an unsatisfactory tenant. He was not, however, at that stage suggesting that the trusts should withdraw the land from WCF.

[180] In his evidence before Panckhurst J, Mr Hutton denied that the purpose of the farming company was to favour the company over the trusts. He said that it was designed to provide a better vehicle for running the farms and that the rental and livestock bailment fee proposal favoured the smaller blocks with higher land value. However, agreement was never reached on the method of allocating



High Court judgment

profits. Varying proposals had been put forward, including deciding on the appropriate rentals at the end of the farming year when they knew what sort of year it had been. He hoped that Mr Hadlee and Mr Graham would be able to sort it out.

[181] Mr WAX Couper in his evidence also denied that he had acted in bad faith over the formation of the farming company. Mrs AE Couper did not recall much involvement with WCF. She was not asked whether the company had been formed in bad faith with the intention of benefiting Mr WAX Couper.

[182] In November 2000, a chartered accountant, Mr Hadlee, was retained by the three trustees to report on certain financial aspects relating to the litigation. In a report of 29 May 2001, he suggested that the farming profits for 1999 and 2000 should be divided according to sheep ownership numbers as at 30 June 2000. This was because, in his view, the company profits for those years was largely attributable to the profits on disposal of the wool pile – see at [24] of his report. (The wool pile was an accumulation of wool, which amounted to about four and a half years annual wool production. It had been carried in the Couper Farming trust accounts and transferred to WCF at the cost of production.) For future years he considered the pure rental and bailment fee approach to be acceptable (based on independent valuations) – see at [33] of the report. He also suggested a methodology to deal with the current account problem.

[183] By 6 July 2001 his thoughts had progressed. In a further report, he suggested that, from 2001, shares in WCF be held by the trusts or other entities providing the livestock. This was instead of receiving bailment fees. Those entities would be entitled, in proportion to the number of livestock owned, to the farming profit after payment of land rentals – see at [31] of his report. Mr Hadlee denied in his evidence before the Court that his proposals, particularly relating to allocation of profits according to sheep ownership numbers for the 1999 and 2000 years, was motivated by a desire to benefit Mr WAX Couper at the expense of the trusts.

[184] As stated at [17] of the Kain children’s initial outline of complaint in the High Court, Mr Hadlee’s proposals did not find favour with the Kain children. In the end, agreement as to the appropriate profit share was never reached before the substantive hearing and only draft accounts were ever prepared for WCF.

[185] Panckhurst J considered it not altogether clear what the Court was required to decide in relation to WCF. (The general difficulties with isolating the issues and with the evidence are set out at [64] – [73] of the 3 December 2004 judgment.) With regard to WCF, the Judge noted that the Kain children, in identifying the issues for determination at trial, had said nothing about the unwind per se. However, they sought directions to the effect that all funds received or held by WCF be apportioned to the trusts entitled to them as determined by the court appointed expert, Mr Graham, with such apportionment to be subject to his supervision and direction. Other parties, in addition to certain specific directions relevant to individual entities, sought a direction that the experts implement the unwind proposals.

[186] The Judge noted that Mr Graham’s report to the Court contains a refined and developed updating of the proposals first tabled by Mr Hadlee. It reflects input from Mr Startup, Mr Hadlee and Mr Hardie (an expert appointed by the Kain children), as well as Mr Graham. The Judge noted that the major points to be drawn from Mr Graham’s report in relation to the appropriate basis for the division of the farming profits are:



(a) that there is a need to rework the allocation of farming profits to all contributing entities within the group (including Mr WAX Couper); (b) that profits will be allocated to such entities upon the basis of net assets contributed by them to the farming operation, whether in the form of land, stock or funds, or a combination of the three; (c) that the rework exercise will extend back to 1 July 1996; (d) that Mr WAX Couper remains entitled to a management fee for his services, whether at the rate paid over recent years or at a rate fixed by a valuation process; (e) that the value to be placed upon land contributed to the farming operation is still to be resolved (the present options being the rateable value of the land or market value as fixed by valuation); (f) that interest will not be payable upon current account balances since the reward for a contribution of funds (or payment for borrowing funds) will necessarily be reflected in the calculation of net assets contributed by each entity to the farming operation; (g) that Lybster Holding Company Ltd, Bideford Farms Ltd and Ponui Station Ltd should pay commercial rates of interest upon the funds they received to facilitate land purchases; and (h) that the Te Mata trust is to be treated as a special case since it receives separate income from Montana, but that the trust may be entitled to a profit share on account of the grazing land contributed by it to the farming operation.

(a) that there will be a single settlement process through a clearing account on a nominated day; (b) that a sum will be borrowed from an external source and paid into the clearing account in order to facilitate the settlement process; and (c) that before this exercise can be effected, resolution must be achieved in relation to the respective entitlements of all entities within the group (including individuals).

Difficulties with the Kain children’s submissions

[187] The further major aspect of the report concerns the unravelling of the web of inter-entity advances. As to this, the Judge noted that methodology first proposed by Mr Hadlee is still favoured. It contemplates:

[188] The Judge recognised that elements of the above process are still to be addressed, including the source of external funds and what securities will be made available to any external funder.

[189] Beyond noting the essence of the reallocation and unwind proposals, Panckhurst J considered that he could do no more than make a direction that Mr Graham is authorised to proceed with their implementation. Leave was reserved to him or to any of the parties to seek further directions, as required. Any professional trustee appointed was also authorised to use the leave reservation.

[190] The first issue with the Kain children’s contentions on appeal is that, on an analysis of the list of issues provided to the Judge before and at the beginning of the trial, the Judge was never asked to make a finding that the setting up of WCF was a scheme designed wrongfully to benefit Mr WAX Couper at the expense of the trusts - see at [185] above. Nor was he, apart from endorsing the Graham unwind proposals, asked in a timeous fashion to order an inquiry into damages.



(This point is discussed more fully at [281] - [287] below). The Kain children cannot complain that the Judge failed to make findings and orders that he was never asked to make.

[191] It would not be possible, in any event, for us to make a finding about the alleged illegitimate purpose of WCF for the first time on appeal when the Judge who heard and saw the witnesses did not. As noted above at [176], [180] and [181] respectively, Mr Startup, Mr Hutton and Mr WAX Couper denied in evidence that the WCF transaction was designed to benefit Mr WAX Couper at the expense of the trusts. The bare written record of evidence would not enable us to make an assessment of their credibility in this regard, although we note that the Judge said that he was generally favourably impressed with the evidence given by Mr Startup, and Mr Hutton – see further at [256] - [257]. Mr Startup and Mr Hutton also give credible reasons for preferring the company structure and the new profit sharing arrangement. Mr Hadlee (see at [183] above) also denied that his proposals were designed to benefit Mr WAX Couper. Indeed, it appears that his proposals for the profit sharing formula in the 1999 and 2000 years were motivated by a desire to deal with the wool pile (as Mr Graham accepted in his first report at [7.3.3]).

[192] The next difficulty with the Kain children’s submissions is that the only asset of the former partnership actually transferred to WCF (apart from minor chattels) was the wool pile. Mr Startup’s evidence was that he had transferred the wool pile to WCF at the carrying value in the accounts (i.e. the cost of production) as transfers had traditionally been done at carrying values. Mr WAX Couper’s position was that it was never intended that WCF should profit from the wool pile at the expense of the trusts and that, as soon as he had found out about the situation, he had agreed that the relevant profits belonged to the trusts. There is no adverse finding on this point by Panckhurst J.

[193] The next point is that there was nothing to stop Mr WAX Couper corporatising his farm management operations and seeking a higher management fee and/or a larger percentage of profits to reflect his management role. He would, of course, not have been able to force the trusts to accept the company as operator or require the trusts to enter into a different profit sharing arrangement. It would, however, have been legitimate for the trustees (taking a prudent view) to agree to a sure income stream from rental from the land and bailment fees for the livestock rather than a profit (or loss) share. Indeed, the trustees of the smaller trusts had so agreed under the profit sharing arrangements of the former partnership (see at [143] above). Merely agreeing to a different but legitimate profit sharing arrangement would not have been a breach of trust and thus it cannot have been a breach of trust for the three trustees to ratify the new WCF arrangements. It would also have been legitimate for the trustees to re-evaluate Mr WAX Couper’s remuneration better to reflect his contribution to profit and management services.

[194] This leads to the next difficulty. The new profit sharing arrangement does not appear to have been finally decided upon. There is evidence that the three trustees were exploring a number of options, including having the trusts own shares in the farming company – see at [183]. It is difficult to see the series of letters and reports on this topic as "window dressing" or "damage control" as the Kain children urged. Whatever Mr WAX Couper’s intentions may have been, they were not able to be carried into effect until the trustees agreed. In the absence of agreement, the previous profit sharing arrangement must have subsisted and, as we understand it, that will effectively be the position under Mr Graham’s unwind proposal.

[195] The previous arrangement had, however, never seen actual cash distributions of



Conclusion

Should the three trustees have been held responsible for the continued intermingling of trust funds?

profit and so it is difficult to see the WCF structure as having substantively changed the position of the trusts. It is difficult to see, too, that WCF gave Mr WAX Couper any more control over the assets than he had had as the only working partner in the partnership. It appears, for example, that, even under the partnership structure, all the farming operations were run through one bank account. Further, there is no suggestion that the assets have been mismanaged. Indeed, recent farming years have been very profitable.

[196] There is one area of legitimate criticism. The WCF transaction should not have been embarked on without consulting and getting the agreement of (at least) all the trustees of the trusts affected by the changes to the original profit sharing arrangement. Those affected were the profit sharing partners (as against those trusts which leased land to the partners). The three trustees ratified the arrangements after they became trustees of three of the profit sharing partners, the Waitaha, Glendale and Mangaheia trusts.

[197] This left the WAX Couper trust, the JR Kain Estate and the Waipuna partnership (the Kain trust and JR Kain Estate). The failure to involve the trustees of those trusts was a major failure, although whether it can properly be described as a breach of trust is questionable, given that Mr WAX Couper had control of the assets through his farm management operations, that he was trustee of a limited number of trusts, and that any new profit sharing arrangement was not finalised. We did not hear full argument on those points. Neither was the evidence properly directed to them. We are thus unable to comment further.

[198] In mitigation, too, a half share of Waipuna’s income (one of the entities not consulted) was Mr WAX Couper’s for life in any event. We also do not think that the WCF transaction can be isolated from the history of dealings, including the 1995 deed relating to the super-trust arrangements and the fact that the Kain children had at that time expressed a preference for a company structure, although we accept they had a different type of company structure in mind – see at [171].

[199] For the above reasons, we do not see any need to disturb or add to Panckhurst J’s orders relating to WCF.

[200] Mr WAX Couper accepts, as he must, that if, due to the use of WCF funds for his own or Mrs AE Couper’s purposes, there is a shortfall in WCF after the unwind, he will have to return those funds to WCF if he or Mrs AE Couper are not entitled to those funds under the unwind proposals. If difficulties arise in this regard, they can be dealt with under the leave reserved by Panckhurst J.

[201] The "intermingling" of trust funds is described at [142] - [145] above. The main issue is whether the three trustees acted quickly enough to unwind the intermingling of trust funds. There was (and is) no new intermingling alleged.

[202] The first point that needs to be made is that, as discussed above at [156] - [160], the intermingling was to a large extent a function of the partnership arrangements. The issue then is whether the partnership arrangements were legitimately entered into. If they were, then the intermingling, however undesirable, cannot have been a breach of trust.

[203] The next point is that the three trustees cannot in any event be accused of sitting



Was there a failure to distribute the vested trusts, and, if so, should there be an inquiry into losses suffered?

Issues

Specific difficulties with distribution

on their hands. They had concerns about the intermingling and do seem to have been trying to sort out a better structure – see at [175] - [178]. The intermingling had been many years in the making and any investigations were hampered by the lack of proper trust administration and records. The previous structure was so complicated and opaque that sorting it out could not be expected to be a quick process. There is also some legitimacy in the complaint that the three trustees were hampered by the refusal of the Kain children to engage fully in any discussions on these matters.

[204] An added complication is that in October 2000, in light of the allegations made against them, the three trustees provided an undertaking to the Court that, whether as trustees or directors of any relevant trust or company, they would not transfer any property or exercise any power of advancement or resettlement unless six weeks notice of their intention to do so was first given to the Kain children’s solicitors. We accept, as did Panckhurst J, that any further action was stultified by the litigation.

[205] The vested trusts involved are the Brookfields trust, the Kiwi Block, the Kain Reformed trust and the WAX Couper trust. There is no dispute that these trusts had reached the day for distribution and that the trustees had become bare trustees of the land. The Kain children accept that there was acquiescence in the non-distribution until 2000. Failure to distribute from 2000 is alleged and an inquiry into losses is sought.

[206] In this section we look first at the specific difficulties with distribution of the assets of the vested trusts. We then examine Mr WAX Couper’s role and the general difficulties with distribution. Finally, we examine whether there was any loss.

[207] There were specific issues with the distribution of a number of the trusts. With regard to the Brookfields trust, this was subject to an argument that the land had been appointed before vesting date to Mrs Hutton and Ms Georgina Kain equally. The argument was ultimately lost but, in our view, it was by no means a hopeless one. Mr GT Kain appears to have agreed orally to the appointment but then refused to sign a deed of appointment. Panckhurst J stated that this was a situation in which the contractual presumption that contractual liability was intended to be postponed until the execution of a formal agreement, was relevant. The importance of the decision, the value of the asset and the haste in drawing up the deed indicated that nothing was binding until the deed was signed. However, we note that there was no express requirement in the trust deed that appointments had to be made by deed.

[208] The Kiwi Block had been nominated to Mr Harry Kain. A letter from Chapman Tripp dated 20 October 2000 to the Kain children’s solicitors, recorded that the trustees had for some time been waiting for directions from the Kain children and Mr Harry Kain, in particular, as to what to do with this block. It also appears that Mrs Hutton objected to the release of the block until she received a formal commitment to the 1997 deed referred to below at [214]. She purported to cancel the deed on 15 November 2002 after failing to get unequivocal commitment from



Role of Mr WAX Couper

General difficulties with distribution

7. UNEQUAL ASSISTANCE

7.1 The parties to this Deed agree that there has been unequal assistance provided from the family’s South Canterbury and Hawkes Bay interests. The parties agree to work towards ascertaining a fair statement over the amounts received by each party and

her siblings and agreed to the distribution on 24 December 2002 – see the letter from Duncan Cotterill. The block was released shortly afterwards.

[209] The Kain Reformed trust held an undivided half share of Waipuna Station. The other half was owned by the ED Couper Estate and Mr WAX Couper had a life interest in that half. The vested undivided share would not have been able to be farmed independently and would only have been able to be sold at a discount. Mr Morice, in an affidavit dated 4 December 2002, said that in his experience fractional interests involve a discounting because the purchaser is not acquiring full control of the land. This discount can vary significantly depending on the particular circumstances of the land and the extent of the fractional interest.

[210] There was the added complication of a loan first entered into in May 1994 and restructured in 1997, which was secured over Waipuna Station. This loan had been used by Mr Tom and Mr Charles Kain for business purposes. It is common ground that the granting of the security was in breach of trust, given that the half share in Waipuna Station had vested and the consent of the other beneficiaries had not been obtained.

[211] The WAX Couper trust held land in Mutiny Road. Any proceeds from any sale of this land due to Mr Charles and Mr Tom Kain would have been insufficient to cover the Waipuna loan. The WAX Couper trust land was worth $1.6m as at 2002 and Mr Tom and Mr Charles Kain owed some $700,000 on the Waipuna loan.

[212] With regard to all of the vested land, it is important, in any event, to note that Mrs Hutton would not have agreed to any sale and thus no sale would have been possible without court intervention. In addition, mortgages over undivided shares of the vested land would not have been possible, without the co-operation of all the siblings and the co-operation of Mrs Hutton would not have been forthcoming.

[213] Mr WAX Couper was not a trustee of any of the vested trusts, apart from the Brookfields trust. As indicated above at [207], there was good reason to "block" distribution of that land. It is not clear how he could have blocked distribution of the other trusts in a trustee capacity. His argument was in any event that he did not block distribution and this appears to be backed up by the correspondence - see for example the letter of Mr WAX Couper’s solicitor, Mr Wares, of 8 March 2000. The distribution proposal discussed in that letter, however, foundered because of the issues with the distribution (and in particular the Waipuna loan) discussed above.

[214] There were a number of general difficulties associated with the distribution of the vested trusts. The first was the so-called "deed of equality". This deed had been signed in 1997 by all the Kain children and Mrs Hutton at the time the Waipuna loan was restructured and further extended. Terms of the deed included:



working towards a position which would ensure, so far as practicable, that all parties are or will be treated equally."

9. FURTHER ACTS

9.1 Each party shall sign and deliver any documents and undertake any acts, matters and things which are reasonable required or requested by the other party to carry out and give effect to the intent and purpose of this Deed.

Was there any loss?

Should the 2002 consent order have been set aside?

Background

[215] Mrs Hutton’s view was (and remains) that the boys had received disproportionate shares of the family property (and she provided a schedule to the court, which she acknowledged was incomplete, showing such inequality). She therefore considered that the land that had vested should be used to address such inequalities in terms of the 1997 deed. While this should not have delayed distribution of the land (given that the trustees were not bound by the 1997 deed), it would clearly have added further complications to any sale of that vested land and certainly would have hindered any borrowings being secured over the distributed land.

[216] There is the further complication of a deed entered into in 1995 (which the Kain children had purported to cancel unilaterally) giving Mr WAX Couper first right of refusal over any trust land. (This deed was different from the super-trust deed discussed above at [169] - [171]).

[217] As a final general point, we note that the land was committed to the farming operations until 2000 with the acquiescence of the Kain children. We would have thought that they would have to have given reasonable notice before the properties could be removed from that operation.

[218] The Kain children seek an inquiry into damages since 2000 as a result of the failure to distribute the vested trusts. We have some difficulty in seeing what damages there could be. There appears no suggestion that the assets were mismanaged in the period. Indeed, we understand that the land increased considerably in value after 2000 and that the farming profits in that period were unusually high. If the land had been distributed earlier, it appears from the submissions that the desire was to sell it largely to fund this litigation, subject to the issues there would have been with Mrs Hutton over this. If the land had been sold, there would have been no share of either the increase in value or the profits.

[219] The substantive hearing of the Kain children’s claims in the High Court was vacated in July 2002 because of non-compliance with the hearing timetable and because of the pending decision of this Court on the application for the summary removal of the trustees. A further hearing in August was likewise vacated.

[220] In October 2002, an interlocutory hearing of an application for distribution of the vested trusts culminated in a consent order. In part, the consent order was intended to allow the distribution of the vested trusts and to secure funds to the Kain children to enable them to be represented at the substantive hearing.

[221] Under the consent order, Mr WAX Couper and Mrs Hutton were to acquire the




Mutiny Road land owned by the WAX Couper trust for $1.6m. Waipuna Station was to be sold. Half of the proceeds were to be paid to the E D Couper Estate. The other half of the proceeds were to be utilised to discharge the Waipuna mortgage and a separate debt of Mr Michael Kain’s, with the remainder divided into six equal shares for each of the siblings. Mrs Hutton’s share of Waipuna was set at $200,000, based on the same valuation exercise as for the Middle Road land, although in the event the Waipuna land sold for a greater sum and her share would have been $317,000.

[222] The consent order also provided for the Brookfields trust land to be sold with the proceeds provisionally distributed to Ms Georgina Kain and Mrs Hutton equally (the final position being dependant on whether or not the property had been appointed to them prior to the vesting date). Wellwoods was to be sold at valuation to Mrs Hutton and the proceeds divided into separate trusts for her children and those of Mr Charles Kain.

[223] In November 2002, the Kain children applied to set aside the consent order relating to the sale of the Middle Road land on the grounds that the valuation advice they had obtained was materially mistaken. In December 2002, a judgment was delivered refusing to set aside the order and holding that there had been no valuation mistake – see Kain v Hutton [2004] 2 NZLR 333n (HC).

[224] There was a further challenge to the consent order which resulted in Panckhurst J, in his judgment of 13 November 2003, making orders to refresh that order – see at [8] above. There remained difficulties with its implementation. This led to some directions being made by the Judge in his 3 December 2004 judgment designed to ensure its implementation. Relevantly for this appeal, in relation to the Wellwoods trust, the terms of the consent order were confirmed, but, if Mrs Hutton elected to acquire the land, the valuation date was set at 21 days from the date of the judgment.

[225] Also in his 3 December judgment, Panckhurst J held that the consent order was not tainted by the fact that the infant and adult grandchildren were unrepresented, save through the involvement of counsel representing their parents. The Judge held that he was satisfied that there was representation of the grandchildren in the sense that all the Kain siblings were parties to the proceeding and represented by counsel at the time of the consent order. He also noted that it was the consistent and considered view of the parties that there was sufficient representation by the parents.

[226] The Kain children argue that the consent order should have been set aside because they were forced to agree because they were being starved of funds for the litigation. This is different from their argument before the High Court which culminated in the 13 November 2003 judgment. Their argument at that stage was based on injustice arising from the delay in implementation of the order. As indicated above at [8], this was rejected by Panckhurst J on the basis that it had been the Kain children who caused the delays.

[227] The Kain trustees argue that the consent of all of the adult beneficiaries ought to have been obtained. They also argue that there is no power for the Court to vary a trust unless there is a positive advantage for the beneficiaries. This means the consent order should not have been made with regard to the Wellwoods trust and, in their submission, this taints the whole of the consent order.

[228] Mr Stewart, for the grandchildren, submits that the order should be set aside because the adult grandchildren were not represented and did not agree to the order. Further, the infant grandchildren were not represented and the Wellwoods



Issues

(a) Were the Kain children forced to agree? (b) Does there have to be a positive benefit? (c) Should the adult grandchildren have been represented? (d) Should the infant grandchildren have been separately represented? (e) Was the Wellwoods transaction disadvantageous? (e) Should the Wellwoods price be further adjusted?

Were the Kain children forced to agree?

Does there have to be a positive benefit?

transaction in particular was disadvantageous to them. If the above position is not accepted, Mr Stewart submits that the Wellwoods valuation date should be further varied to a date of 28 days from the delivery of the judgment of this Court.

[229] The issues, therefore, are:

[230] Consent orders of this kind are not easily disturbed. It needs to be demonstrated that it is in the interests of justice to withdraw the order – see Waitemata City Council v MacKenzie [1988] 2 NZLR 242 (CA), Phillips v Phillips [1993] 3 NZLR 159 at 172 (CA), Bullivant v ENZA Ltd [2001] 1 NZLR 498 at [12] - [13] (HC) and Stead v The ship Ocean Quest of Arne [1995] 3 NZLR 415 at 419 (HC).

[231] In this case, there is no evidence that the Kain children were forced to agree through financial pressure or otherwise. Even had there been such evidence we would not have set aside the order. The Kain children were represented by senior counsel at the time of the consent order. They were not under any disability. They agreed to the order (for whatever reason). They cannot now seek to withdraw that consent. The consent order also has to be viewed against the real difficulties in distributing the vested trusts, in particular because of the Waipuna loan – see at [210] - [211].

[232] The Kain trustee’s submission is that there has to be a positive benefit (and not just a lack of detriment) to beneficiaries before a court can endorse an arrangement of this kind. We doubt this is always the case, especially when the argument is framed in the stark form put forward by the Kain trustees. In any event, the benefit to the Kain children and grandchildren can be seen as the freeing up of funds to pursue litigation which could directly or indirectly be of benefit for the them. As to the children of Mr Charles Kain and those of Mrs Hutton, it was also of benefit to them to get access to money immediately rather than later and in a trust administered by their respective parents, particularly given the family difficulties between their respective parents.

[233] In any event, under the terms of the Wellwoods trust, the distribution date was 14 September 2009. The primary beneficiaries are the children of Mr Charles Kain, Ms Georgina Kain and Mrs Hutton. The default beneficiaries are the remaining grandchildren of Mrs JR Kain. All eight of Mr Charles Kain’s and Mrs Hutton’s children would have to die before the distribution date for the default provisions to apply (Ms Georgina Kain has no children). The possibility of the other grandchildren benefiting was thus exceedingly remote. It is also to be assumed



Should the adult grandchildren have been represented?

Should the infant grandchildren have been separately represented?

Was the Wellwoods transaction disadvantageous?

that Mr Charles Kain, Mrs Mary Hutton and Ms Georgina Kain, in agreeing to the consent order, accepted that no further children would be born to them before September 2009. In any event, there was power under the trust deed to bring forward the distribution date. There was thus no need to vary the terms of the trust to achieve the Wellwoods settlement.

[234] There is no evidence that the adult grandchildren did not know about the proceedings. They could have applied to have been joined had they wished to be heard. There is no evidence from the grandchildren that they considered that they were not being appropriately represented by the counsel for their parents. Indeed, the obvious implication to be drawn from them not seeking separate representation is that they considered that their interests were being adequately catered for through their parents.

[235] Further, there is no obvious conflict with the interests of the parents. As the consent order was designed in part so that their parents would receive funds for the litigation in which the grandchildren also had an interest as possible beneficiaries of some of the trusts, the order can be seen as of benefit to them. There is no separate detriment in the Wellwoods transaction, given the matters set out at [233] above.

[236] The reason for requiring representation of infants is not to confer absolute rights to representation but to ensure that adequate consideration is given to their interests and that proper argument is put forward on their behalf. If no harm can be shown from the lack of representation (including that relevant arguments were not put) then any resulting order would not be vacated – see in another context Fisher on Matrimonial and Relationship Property (looseleaf ed., last updated March 2007) at [18.82].

[237] In our view, there was no obvious conflict between the infant grandchildren and their parents in relation to the consent order. Indeed, Mr Stewart himself equated the interests of the grandchildren and their parents in his arguments before the Court, even with regard to a resettlement that arguably improved their position by making them possible capital as well as income beneficiaries of the new Mangaheia trust – see at [73] above.

[238] Further, the question of representation for the infant grandchildren had not been overlooked. Whether there should be separate representation for the grandchildren had been considered by the Judge on a number of occasions. As no such representation was ordered, the decision must have been that the infant grandchildren’s interests were adequately represented by their parents (except with regard to the Te Mata and Mangaheia trusts which were reserved for later consideration). We endorse Panckhurst J’s comments on this topic set out at [225] above.

[239] Mr Stewart’s submission on behalf of the grandchildren was that the Wellwoods land should not have been sold to Mrs Hutton (and certainly not at valuation) as it was in the best interests of the Wellwoods beneficiaries that it be retained. There was no evidence that it would have been clear at the time of the consent order



Should the Wellwoods price be further adjusted?

Was the failure to make distributions to grandchildren a breach of trust?

Contentions

Discussion

that the land should have been kept in the trust. Indeed, the evidence before the Court at the time of that order (see the affidavit of 24 October 2002 of Mr Gross, a valuer instructed by Mr Charles Kain) was that the current outlook for the pastoral sector suggested a stabilisation or ease in value levels over the next 12 - 18 month period. This was confirmed by him in an affidavit of 27 March 2003.

[240] In any event, there was a valuation date adjustment ordered in the 3 December 2004 judgment (even though it was the Kain children’s delays that had hindered the implementation of the order).

[241] Unlike Panckhurst J, we view the consent order as a package which includes Mrs Hutton’s possible purchase of Wellwoods (as well, for example, as the fixed share of Waipuna referred to at [221]). The price has already been adjusted and Mrs Hutton accepts that adjustment. We are not prepared to adjust it further.

[242] The Kain children and Mr Stewart on behalf of the Kain grandchildren complain that there were no distributions made to the grandchildren, apart from one or two of Mrs Hutton’s girls, despite there being a clear need for help with education. They assert bad faith and breach of trust, including a breach of the duty of impartiality.

[243] The first point to be made is that, under a discretionary trust, there is no right to distributions but only a right to be considered – see Gartside at 295 and Hunt v Muollo at [111]. Any duty of impartiality must be viewed against the limited rights of discretionary beneficiaries. The duty of impartiality does not preclude a trustee from making a discretionary decision that benefits one beneficiary and disadvantages other beneficiaries – see Dal Pont and Chalmers at [23.135] and Butler at [5.2.1(3)].

[244] Earlier the strategy (which of course has been very successful) involved the retention of profits within the farming operation and the acquisition of more land. The past appropriateness of this strategy does not seem to be under challenge. It is the failure to distribute during the period of stewardship of the three trustees that is challenged.

[245] There were, during the relevant time, a number of requests for assistance on behalf of Mr Charles Kain, Mr Michael Kain and Mr Harry Kain for their children’s education. Financial hardship was claimed. The three trustees did not ignore these requests but asked for further information on the financial position of the three Kain children who requested the assistance, which was never supplied – see the letter dated 20 October 2000 from Chapman Tripp. The three trustees were entitled to ask for this information and it provides an evidential basis for the proposition that they were prepared to comply with the duty to consider distributions – see at [243] above.

[246] The three trustees did continue distributions to at least one of the Hutton children and to Ms Georgina Kain and Mrs Mary Hutton. These sums appear to have been distributed via automatic payments that had been set up under the previous



Should the trustees have been removed for breach of trust?

High Court judgment

trustees. While the three trustees should probably have reviewed these distributions, they were not large sums and there was no evidence to suggest that, had such a review taken place, the distributions would have been deemed inappropriate. Merely continuing past practice cannot provide evidence of bad faith.

[247] The distributions to Mrs AE Couper’s children from the Ralston trust appear to have been funded by advances by Mr WAX Couper. He said in evidence that they were payments he made out of his personal funds and that the records should be corrected accordingly. The accounts seem to bear this out. In the circumstances, the amounts cannot sensibly be regarded as distributions and certainly provide no evidence of bad faith.

[248] Mr WAX Couper was trustee of five trusts. Panckhurst J held in his 3 December 2004 judgment that the removal of Mr WAX Couper as trustee for breach of trust was not warranted, but found that Mr WAX Couper was so out of sympathy with the beneficiaries of those trusts that his continuation in office was untenable.

[249] As for the three trustees, the Judge held that any failings did not reach the threshold to justify their removal. However, he considered that the case had been made out for the Court to appoint a professional trustee. The Judge took into account the fact that Mr Hutton had largely resigned from his trusteeships, that Mr Startup and Mrs AE Couper wanted to be replaced as soon as suitable replacements could be found, and the profound lack of sympathy between the three trustees and most of the beneficiaries. That appointment of a new trustee was, however, deferred to allow the parties to agree and approach a suitable trustee (and the Public Trust has since been appointed).

[250] In coming to the above decisions, the Judge distinguished between three different periods. The first was the period 1981 to April 1997 when Mr Springford acted as accountant for the group. Over these years Mr Springford played a central role both in relation to the trusts and the farming operation. Not only did he prepare the accounts but he was, in all other respects, a guiding hand as well. Importantly, the Judge did not consider the Kain children ever to have questioned aspects of the farming administration while Mr Springford was involved. To the contrary, they approved of his performance and criticised his removal. In Panckhurst J’s view, the argument for removal of the trustees seemed to overlook that dimension.

[251] The second period commenced with Mr Startup’s appointment in April 1997 and continued until late 2000. It was during that period that a replacement of a number of the trustees was undertaken. There were also the Te Mata and Mangaheia resettlements and the transfer of the conduct of the farming operation to the farming company. This period came to an end upon initiation of the proceedings in mid-2000. Soon after, the three trustees gave an undertaking to the Court that any important decision affecting the trusts or the farming company would not be taken without six week’s notice to the Kain children’s advisers.

[252] Then the third and final phase was the litigation phase. The Judge held that such decisions as have subsequently been taken affecting the trusts and the farming operation have been the context of the proceeding. There have in fact been few developments. Rather a stalemate existed or, to use the words of Mr Graham, the court appointed expert, trust administration has been largely paralysed.



[253] With regard to Mr WAX Couper, it had been submitted by the Kain children and the Kain trustees that there was a consistent pattern of breaches of duty including the use of assets of the trust as security for external borrowings, allowing inter-trust borrowings and advances without security, and various breaches of the non-profit role. It was further noted that Mr WAX Couper, through the farming company, was heavily indebted to a number of the trusts. The Judge held that these arguments, while factually sound, ignored the history and actual situation of the trust administration over many years, including the practices of Mr Springford which produced the features now the subject of criticism. Everyone appeared to acquiesce in the methods used in that period which included inter-entity advances and borrowings.

[254] The Judge said that Mr WAX Couper did not have a keen appreciation of the concept of trusteeship and that he struggled to understand why his wishes should not prevail when it was he who had built the assets up for the benefit of the family. He had made all the decisions without complaint for years and could not adjust to the more regular trust administration that was needed when family goodwill dissipated. The Judge considered, however, that there had been an absence of focus upon whether criticisms of Mr WAX Couper related to his trustee role, as opposed to his role as settlor, as appointor (of trustees and capital) or as the central figure in the farming operation. When the alleged defaults against him as a trustee were placed in their proper perspective, the Judge was not persuaded that a case for his removal from the five trusteeships has been made out.

[255] Turning to the three trustees, the Judge said that the period at issue must be from early 1999 to late 2000, as after that the undertaking given to the Court effectively relieved them from the ability to make decisions upon which they could be challenged. The Judge examined a number of the discrete transactions, including Te Mata, WCF and Mangaheia, and concluded that they fitted a pattern. He had no doubt that Mr WAX Couper desired those transactions to occur and that in various ways the three trustees facilitated the desired outcome, and in two cases had acted with immediate haste. This invited the inference that the three trustees were compliant and that they responded to the bidding of Mr WAX Couper.

[256] The Judge went on to say, however, that he was in general terms impressed with the evidence given by both Mr Startup and Mr Hutton. He saw Mr Startup as a conscientious and competent accountant who, in 1997, had inherited a number of practices in relation to accounting practices which he viewed with concern. The web of inter-entity advances and borrowings was a prime example. The Judge held that Mr Startup’s one failure was a general inability to bring to bear the true degree of independence demanded of someone in the role of trustee. By the time Mr Startup consented to appointment as a trustee he was in a close working relationship with Mr WAX Couper and his principal focus had been on accountancy issues.

[257] Panckhurst J said that Mr Hutton was a person of integrity and business acumen. The Judge accepted Mr Hutton’s evidence that he genuinely believed that any problems arising from his relationship of marriage to one of the Kain family would be manageable. Again, the Judge considered, however, that Mr Hutton was too close to Mr WAX Couper.

[258] In relation to Mrs AE Couper the Judge said that she complied with the wishes of her husband, that she was less involved with the trusts than the other trustees and that, if Mr Hutton and Mr Startup were content with a proposed transaction, then she could be relied upon to follow their lead. Panckhurst J also remarked that Mrs AE Couper impressed him as a straight-forward and honest witness.




(a) to ensure that land held by the vested trusts was not sold;

(b) to ensure that all trust assets remained in farming and were kept intact for future generations;

(c) to ensure equal treatment for Ms Georgina Kain and Mrs Hutton;

(d) To ensure provision for non-beneficiaries, in particular Mrs AE Couper; and (e) to ensure that trust assets remained under his control and were available to be used for his own purposes.

(a) a breach of the duty to distribute assets upon vesting;

(b) a breach of the prudent man rule through slavish retention of assets in farming; (d) a breach of the duty to act impartially between beneficiaries; (e) a breach of the duty to adhere to the terms of the trust by conferring a benefit on a person who was not within the class of beneficiaries; and (e) a breach of the duty not to profit.

(a) failure to distribute vested trusts;

[259] The Judge said there is no escape from the fact that practices existed during Mr Springford’s era which were unorthodox to say the least. The evidence indicates that a laissez-faire attitude prevailed. Mr WAX Couper, with the advice of Mr Springford and his solicitors, effectively made all the relevant decisions and the role of the trustees was very much a secondary one. In the Judge’s view that history could not be ignored as it set the scene and coloured the approach which the new trustees took to the performance of their duties. He also considered it relevant to consider the conduct of the Kain children in the period from 1997. He said that at least some of them were not easy to deal with, and this meant that there was an absence of the "give and take" that had characterised the period of Mr Springford’s stewardship.

[260] The Kain children, supported by the Kain trustees and Mr Stewart on behalf of the Kain grandchildren, argue that the Judge should have ordered the removal of the three trustees and Mr WAX Couper for breach of trust. This is important, in their submission, to the issue of costs.

[261] The Kain children, argue that, aided by the acquiescence of the three trustees, Mr WAX Couper treated the assets of the trust as his own. In the Kain children’s submission, Mr WAX Couper’s objectives were as follows:

[262] The Kain children submitted that these objectives could not be implemented without potential and serious breaches of trust, such as:

[263] In their written submissions, the Kain children alleged 38 specific breaches of trust by Mr WAX Couper and the three trustees. Many of the alleged breaches were, however, inter-related. At our request, the Kain children provided a schedule of the significant breaches they were relying on. These were:



(b) transfer of farming operation to WCF;(c) intermingling of trust assets; (d) profit taking by Mr WAX Couper via WCF; (e) the lack of distributions to grandchildren; (f) the cutting of Mr GT Kain’s income; (g) the Te Mata resettlement and appointment; (h) the Mangaheia resettlement; (i) the Ponui appointment; and (j) issues involving Lybster and Bideford and Mr WAX Couper’s negative current account position generally.

Discussion

[264] The Kain children also submit that the Judge was wrong to find acquiescence with regard to the Springford era as they did not have full knowledge of what was occurring. In their submission, this can in any event provide no excuse for the later actions of Mr WAX Couper and the three trusteesand neither can the alleged difficulties in dealing with some of the Kain children.

[265] The first hurdle for the Kain children’s submissions in this regard is that there is no live issue involved. Mr WAX Couper and the three trustees are no longer trustees of any of the trusts, having been replaced by the Public Trust. The Kain children argue that the issue still has relevance with regard to costs. The decision with regard to costs is, however, more related to the conduct in the litigation and the success or otherwise in the substantive appeal, than to whether or not the three trustees and/or Mr WAX Couper should have been removed for breach.

[266] The next hurdle that the Kain children have to overcome is that the decision to remove a trustee is a discretionary one where the decision of a first instance judge is entitled to special weight. Such decisions will be based on a large and varied number of considerations which must, when combined, show that it is detrimental to the welfare of beneficiaries for the trustee to continue in office – see Miller v Cameron (1936) 54 CLR 572 at 580 – 581 per Dixon J (HCA).

[267] Merely showing breaches of trust would not necessarily be sufficient to justify removal of trustees. This would depend on the gravity and nature of the breaches and the particular circumstances of the trust and the trustees, including the level of culpability of the trustees – see Letterstedt v Broers (1884) 9 App Cas 371 at 385 - 386 (PC) per Lord Blackburn. To allow trustees to be removed for relatively inconsequential mistakes would be to usurp the settlor’s wishes in entrusting the assets to the trustees. In the same way, mere incompatibility between trustees and beneficiaries is not enough – see Khyentse v Hope [2007] 1 NZLR 645 (CA), Letterstedt v Broers at 389, and Forster v Davies (1861) 4 De GF & J 133; 45 ER 1134 at 1136. See also Garrow and Kelly at [17.8]. Any incompatibility must be at such a level that the proper administration of the trust is seriously adversely affected and it has become difficult for a trustee to act in the interests of the beneficiary - Plumley v Plumley (1980) 3 MPC 139 at 141 (SC).

[268] Given the discretionary nature of the decision of whether to remove trustees and the wide range of considerations that must be taken into account, we do not consider that Panckhurst J was wrong to take into account the matters he did in coming to his decision.

[269] Looking first at the situation of Mr WAX Couper, it was appropriate for the Judge to point out his other roles. It must be remembered that Mr WAX Couper was trustee of only five of the trusts. Specific breaches in relation to those trusts



would have to have been identified and they would have to have occurred in his capacity as trustee rather than as settlor or manager of the farm operations. The requisite evidence was not before the Court in this regard.

[270] As to acquiescence, we accept the Kain children’s submissions that there was not acquiescence in the strict sense regarding the historical administration of the trusts. For a start, any acquiescence could only operate for adult beneficiaries. There was also not the detailed knowledge of the arrangements which would be required, although we accept the submissions of Mr WAX Couper that trust information had been available at various times to all of the Kain children in that period (and in particular to the Kain trustees).

[271] We do not consider, however, that the Judge was making a finding of acquiescence in the strict sense. He was, as he was entitled to do, merely recognising the history of the administration of the trusts. He was also recognising the very real difficulty which confronted the Kain children in attempting to put forward allegations of breach that relied on attacking the continuation of the Springford arrangements by Mr WAX Couper and the three trustees, while not challenging the arrangements in the Springford era, apart from in relation to Lybster and Bideford. The lack of challenge to matters in the Springford era meant that the history of those arrangements, including the partnership arrangements, were not fully before the Court.

[272] As to the three trustees, the Judge made the finding that they were not truly independent (and that this was inappropriate in a context of serious family disharmony) but not that they were compliant in the sense of blind acceptance of Mr WAX Couper’s instructions – see at [256] – [258] above. This does not amount to a finding of breach of duty. It is perfectly proper for trustees to take a settlor’s wishes into account. This can even lead to decisions that the trustees would not otherwise have made, as long as trustees appreciate that the ultimate decision is theirs. See in this regard Thomas Powers at [6-108], Underhill and Hayton at 61, Garrow and Kelly at [19.3.6], and Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 430 – 431 (CA).

[273] In addition, it is clear that any influence in fact went the other way as well. The farming company structure was Mr Startup’s idea and we note that Mr WAX Couper’s original preference was for a trust structure – see at [171] above. With regard to the Te Mata Montana lease, Mr Hutton was instrumental in the decision to pass the development risk to Montana, against Mr WAX Couper’s initial inclination. Indeed, this two way relationship is recognised by the Kain children, who at times argued that Mr Hutton had an unhealthy influence over Mr WAX Couper and at other times that Mr Hutton blindly followed the instructions of Mr WAX Couper.

[274] Even had there been blind acceptance of Mr WAX Couper’s instructions, however, Panckhurst J would, we think, not have been justified in removing the three trustees for breach of trust in the absence of identified breaches of trust that resulted from such blind acceptance. We also consider that the Judge was entitled to take into account the difficulties in dealing with some of the Kain children. We have already indicated that there is some merit in the submission made by the three trustees that the Kain children’s failure to engage fully in discussions as to the appropriate profit sharing arrangements in WCF hampered their efforts to untangle the assets of the various trusts – see at [203] above.

[275] Moving now to the specific matters that the Kain children say justified removal for breach of trust, we start with Mr WAX Couper’s alleged objectives as set out at [261] above. We have dealt with the issue of the vested trusts at [205] - [218]. The aim of maintaining a farming base for future generations does not seem to us to be illegitimate in the context of these family trusts, which were after all set up



as farming trusts. There is no suggestion that farming had become unprofitable such that there should have been a change in investment and indeed no alternative investments were identified in the evidence – see at [31] for a discussion on the duties of trustees regarding investment.

[276] There can also be no difficulty with Mr WAX Couper’s aim to achieve a more equal treatment for Ms Georgina Kain and Mrs Hutton as beneficiaries who had been overlooked in the past. In the context of a discretionary trust, there is no duty of even-handedness in any event and the court will not lightly interfere in any decision where the discretion is wide – see at [70] and [100]. The alleged wish to benefit non-beneficiaries can only relate to Te Mata, Mangaheia and Ponui, which have also all been dealt with above.

[277] To a large degree, the alleged profiting from trust assets has also been dealt with when we dealt with Lybster and Bideford (at [139] - [164]) and WCF (at [167] - [200]). To the extent that it was not, it is tied in with the Springford era and the intermingling of trust assets that occurred. This leads to the difficulty, as noted above at [271], that what happened in this era was not put at issue in the proceedings by the Kain children. It also runs into the difficulty that the intermingling was inherent in the partnership arrangements and perhaps formed part of Mr WAX Couper’s remuneration for managing the farming operation – see at [142] - [145] and [160]. Further, Mr Springford was the instigator of the partnership structure and he managed the accounts. The actual level of Mr WAX Couper’s responsibility in this regard is unclear. It does not appear, however, that Mr WAX Couper was aware that the Springford manner of intermingling trust assets was inappropriate (and indeed Mr Springford himself presumably considered it appropriate).

[278] The specific alleged breaches of trust, set out at [263] above, have also already been dealt with, apart from that of cutting off Mr GT Kain’s income. This matter is not live and it is accepted that we do not need to make any findings on it. For these purposes it suffices to say that, even had this been a relevant matter, the Judge was aware of it (it was mentioned at [240] of his 3 December 2004 judgment) and thus it cannot be said that he came to his decision without taking it into account.

[279] The Kain children and the Kain trustees have taken the position in this litigation that there was a major conspiracy on the part of Mr WAX Couper and the three trustees to appropriate trust assets to Mr WAX Couper’s own use. The conspiracy is said to have started with the dismissal of Mr Springford by Mr WAX Couper and the pressure put on him to resign as trustee of a number of the trusts. This is somewhat surprising in that Mr Springford must be seen as the author of some of the worst aspects of the administration of the trusts since the 1980’s, including the maze of current accounts. Also heavily relied on as evidence of the conspiracy were the actions of Mr and Mrs Hutton and Mr WAX Couper in relation to the Waipuna loan. We have not been able to view those actions in this light. For reasons not immediately apparent to a disinterested observer, Mr Tom and Mr Charles Kain harbour resentment because Mr and Mrs Hutton and Mr WAX Couper blocked a proposed restructuring of this loan which would have compounded the breach of trust. Given that the security had been granted in breach of trust, Mrs Hutton was perfectly entitled to take the position she did.

[280] We have considered all of the matters put forward by the Kain children and the Kain trustees as well as the evidence as a whole. In our view, no conspiracy of the type alleged has been shown to exist. We remark that any conspiracy would have had to have included professional advisors like Mr Startup, Mr Wares and Mr Hadlee, who had no personal interest in the trusts involved, apart from their professional fees. It is inherently unlikely that they would have involved



Should judgment have been entered for the three trustees?

High Court judgment

The only damages sought in this proceeding are in respect of the farming company transaction (the fourth cause of action), where compensation is sought for the Trusts. Now that it has finally been accepted that all profits are to be returned to the Trusts, compensation is no longer required. Any other issue of damages must be left for other proceedings.


Discussion

themselves. There were, no doubt, things that could have been done differently and there were unsatisfactory aspects with regard to a number of the specific matters dealt with in the course of the litigation (although whether they resulted in breaches of trust or caused any loss is more problematical). However, there was no evidence of any conspiracy in the sense suggested by the Kain children.

[281] In their pleadings for the substantive hearing, the Kain children sought an inquiry into the damages suffered by them and the trusts. At the substantive hearing the Kain children, in their closing submissions, indicated that they did not wish to pursue this issue at the hearing but to save it for another hearing. Mr Wilson’s notes in closing stated that the claim for compensation in relation to the farming company transaction had been met by the agreed return of all profits to the trusts. His notes said:

[282] In Panckhurst J’s view, as expressed in his judgment of 18 November 2005, the Kain children should have made an application under r 418 for an order that the issue of an inquiry into damages should be heard separately. They did not make such an application and had therefore missed their opportunity to argue this issue. Panckhurst J determined that Mr WAX Couper and the three trustees should have had judgment in their favour on this issue. He held, however, that the Court should not order the recall of his substantive judgment in order to enter judgment in their favour as it had already been sealed.

[283] The Kain children submit that there should have been an order for an inquiry into damages suffered or profits foregone by the trusts, and an order that the three trustees and Mr WAX Couper compensate the trusts for such damage or profits foregone.

[284] The three trustees, on the other hand, contend that judgment should have been entered for them with regard to the allegations of breach of trust. They say first that the High Court had jurisdiction to enter judgment as it was a supplementary matter and did not impact on the existing orders made in the 3 December 2004 judgment – see Hassan v Pasha (No 2) HC HAM CIV 2003-419-33319 December 2003. Alternatively, they argue that judgment should be entered by way of this appeal.

[285] We agree with Panckhurst J that the Kain children were not entitled to shelve the issue of damages for another day, absent an application under r 418. Despite the judgment having been sealed, we accept the submission of the three trustees that



Should the Judge have restrained Mr WAX Couper from exercising his power to appoint new trustees?

Should the costs awards be disturbed?

46. ... if the farming profit is notionally distributed in accordance with the partnership profit-sharing regime, a large proportion of that profit flows back to Mr and Mrs Couper, in any event. Mr Couper is the income beneficiary of the ED Couper Estate

it would have been open to Panckhurst J to enter judgment for Mr WAX Couper and the three trustees.

[286] We note, however, that the unwind proposals of Mr Graham are still to be implemented and that leave is reserved to apply in relation to any issues arising in that unwind, including those relating to Lybster and Bideford. This (and in particular the Lybster and Bideford issues) means that entering judgment for Mr WAX Couper would, in our view, have been premature. In any event, Mr WAX Couper does not seek such a judgment at this stage.

[287] As the three trustees are no longer trustees of any of the trusts, however, and there is no allegation of them having wrongfully appropriated any of the trust funds (apart from in relation to the costs which we discuss below at [293]), we consider that judgment in their favour should have been entered.

[288] The Judge held that grounds existed to justify restraining Mr WAX Couper’s power to appoint new trustees, but such an order was not made to allow the opportunity for the appointment of a professional trustee. The question of restraint of Mr WAX Couper’s power of appointment was reserved for further consideration, if necessary.

[289] The Kain children submit that this decision was wrong and that there were ample grounds pointing to the need to restrain Mr WAX Couper’s power of appointment.

[290] This was a matter within the Judge’s discretion and we will not interfere with his decision in this regard. A professional trustee has now been appointed. If a problem arises in future, the question of restraint can come before the High Court either on a fresh application or pursuant to the leave reserved.

[291] In his judgment of 18 November 2005, Panckhurst J held that the three trustees were entitled to full indemnity for their costs from the trusts as the expenses were reasonably incurred in the execution of trust powers. Various other costs orders were made.

[292] The Kain children argue that the three trustees should not have been awarded indemnity costs from the trusts, that the Kain children should have received full costs from the three trustees in their personal capacities and Mr WAX Couper and/or WCF, and that the fees of the Court expert, Mr Graham, should likewise have been paid by those parties.

[293] This was a discretionary matter and we have not been persuaded that the Judge was wrong, particularly given the Kain children’s lack of success in their substantive appeals.

[294] It is true that the three trustees’ legal fees were funded by WCF (as confirmed in Mr Hutton’s affidavit dated 28 August 2001) and that the funds in WCF belonged in part to the trusts. Part of the funds of WCF, however, also undoubtedly belonged to Mr and Mrs WAX Couper. Mr Startup, in his affidavit of 7 December 2000, for example, said:



(half owner of Waipuna Station), Te Mata (both old and new) and Mrs Couper is the income beneficiary of the new Mangaheia Trust and one of the income beneficiaries under the old trust. Moreover, under the previous partnership arrangement profit distributed to the Waitaha Trust resulted in a payment of rental to the Te Mata Trust in relation to its property. If that payment is notionally made, and then notionally distributed to Mr Couper as life tenant, Mr and Mrs Couper would receive approximately $1.2 million out of the farming profit of $1.9 million.

Some final observations

Result and costs

(a) Mr WAX Couper, the three trustees, Mrs Hutton (and her children) and Mrs AE Couper (in her personal capacity) should file and serve their submissions on or before 20 June 2007.

[295] We mention this, not because we endorse those profit figures, but merely because it suggests that the three trustees might reasonably have considered that Mr WAX Couper was funding the litigation. Further, the Judge knew that the trustees’ fees were being paid by WCF (and thus there must be seen to have been at least tacit approval of this course). The three trustees have also been justified in taking part in the litigation. Merely having anticipated this by taking payment from what may have been in part trust funds in WCF would not, in the circumstances of this case, have led them to forfeit their right to indemnity.

[296] The situation that has developed seems to us to be an object lesson in people not being placed, for tax and estate planning reasons, into structures that they do not understand and which do not accord with commercial reality.

[297] The difficulties have stemmed in large part from a fundamental misunderstanding of the nature of trusts on the part of Mr WAX Couper and of discretionary trusts on the part of the Kain children. Mr WAX Couper considered that, given his role in building up the assets of the trusts, he was entitled to keep the assets under his control, albeit largely for the benefit of his wider family. The Kain children, despite being merely discretionary beneficiaries of most of the trusts, appear to believe that the assets belong to them.

[298] Unfortunately the mistaken beliefs on both sides have caused a major rift in the family leading to the current proceedings, the dissipation of large sums in legal fees, the diversion of energy away from more productive pursuits for the trusts and no doubt major personal strain on all those involved.

[299] For the reasons given above, the appeals of the Kain children and the Kain trustees are dismissed, including the cross-appeal against the costs orders.

[300] The three trustees’ cross-appeal with regard to the Ponui shareholding is allowed. The appointment of the Ponui shareholding on Mrs AE Couper is upheld. Given our decision on this cross-appeal, we do not need to decide on Mr WAX Couper’s appeal against the 18 November 2005 judgment. It is accordingly dismissed.

[301] The cross-appeal of the three trustees on the question of whether judgment should have been entered for them is allowed.

[302] The parties have leave to file submissions on the form of judgment to be entered for the three trustees and on costs (if these cannot be agreed) with regard to all the appeals and cross-appeals:



(c) The Kain children, the Kain trustees and Mr Stewart QC for the Kain grandchildren should file and serve their submissions on or before 4 July 2007. (d) Any submissions in reply should be filed on or before 11 July 2007.

Solicitors: Rhodes & Co, Christchurch for Appellants Chapman Tripp, Christchurch for First, Third and Fourth Respondents Phillips Fox, Wellington for Second Respondent Wynn Williams & Co, Christchurch for Fifth Respondent

APPENDIX ONE

FAMILY TREE

Ernest Donald Couper and Helen Ralston Couper

Janet Richmond and George Thomas Kain Kain (Couper) (aged 86) (died 17 May 1986)

William Alexander Annette Elizabeth

Xavier Couper Couper (aged 78) Married May1989 Separated 2003 Mary Hutton (46) Mrs AE Couper has 4 married daughters aged 32 to 39 Charles Kain (47) Georgina Kain (50) Harry Kain (52) Tom Kain (53) Michael Kain (55) George 25 Rupert 24 Sam 21 Michael 19 Madeline 3 Asta born 25.12.03 Rachel 16 Molly 15 Jack 12 Stanley 9 Harriet 21 Georgina 19



Constance 5

Note: All four Kain brothers have George as a first name. This was deleted by the Judge to avoid confusion. Ages are as given in Panckhurst J’s judgment of 3 December 2004.



Documents

Kain v Hutton [2007] NZCA 199 (22 May 2007) · [5] Mr and Mrs Couper senior also had a daughter, Mrs JR Kain, who died in 1986. She was married to Mr GT Kain (the fifth respondent