Friday, March 29, 2024

Family disagree over farm sale

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Two brothers have become embroiled in multiple court actions stemming from a disagreement about the future of family farms.
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The difference of opinion spread to their father and also to the trustee of a family trust.

Two farms north of Martinborough, Tawaha and The Cutting, had been farmed for 35 years by Thomas Jaspers. More recently, his son Malcolm joined him in farming the land as a single block. It was owned by the Jaspers Family Trust, with the beneficiaries being Thomas’s sons Malcolm, who was born in 1970, and Alastair, born in 1971.

Thomas became infirm and could no longer continue to farm or to act as a trustee. Thomas and his fellow trustee, Mr Bourke, disagreed as to how the trust property should be distributed. Accordingly, they applied to the court under section 66 of the Trustee Act 1956 for directions as to early distribution of the trust to Malcolm and Alastair.

Thomas wanted a preference over both farms in favour of Malcolm, while Mr Bourke favoured a split, with Tawaha (worth about $5 million) going to Malcolm and The Cutting (worth $3m) to Alastair.

The brothers disagreed about what should happen and the parties had different views about what else should be done to compensate Alastair and even out the distribution.

Court proceedings were filed seeking a number of orders, including applications:

  • to remove the trustees
  • by Malcolm to restrain Alastair’s access to the farm property
  • by Alastair concerning the farm partnership between the brothers and another claiming the section 66 application had triggered certain provisions of the trust deed 

The Trustee Act Section 66 says that any trustee can apply to the court for directions concerning any property subject to a trust, the management or administration of such property, or the exercise of any discretion vested in a trustee. Applications must be served on all parties with interests in the application and they can all attend the court hearing.

Settlement

A three-day court hearing was allocated in April to deal with the applications filed but the parties reached a settlement on the second day dealing with all the issues.

Justice Simon France made consent orders providing that:

  • Tawaha and The Cutting were to be sold.
  • Wellington solicitor John Greenwood was to be appointed as a trustee of the Jaspers Family Trust to replace the existing trustee for the purposes of the sale and distribution of the trust assets.
  • The net sale proceeds were to be divided equally between Malcolm and Alastair and the trust was to be wound up immediately.
  • The remaining assets were to be sold and/or distributed equally, after current accounts had been paid and all liabilities had been met.
  • The farming partnership between the brothers was to be wound up, with any disagreements being referred to an arbitrator appointed by Mr Greenwood.
  • Mr Greenwood was to have the power to appoint agents, including an accountant and a real estate agent, in the course of supervising the sales of the properties and the winding up of the partnership.

Mr Greenwood began his work as a new trustee and on May 9 advised he would sell the two farms immediately. He had taken advice from two farm property consultants and had been told that the best price would be obtained by selling the properties separately. He was seeking proposals from real estate agents and was considering the use of auctions, expressions of interest or closed tenders.

On May 17 he wrote to the beneficiaries advising that he was appointing Property Brokers as agent and that advice from real estate agents, a stock agent and farming consultants indicated sales should be postponed until spring to achieve the best prices.

Alastair’s lawyer wrote to Mr Greenwood to advise that his client wished to purchase The Cutting and was willing to pay $2.74m, a figure halfway between two recent valuations. This would provide certainty there would be a sale and also save $80,000 in commission and marketing costs.

Mr Greenwood wrote back to say he had consulted Malcolm, who might wish to acquire The Cutting himself. It was only fair that each brother should have the opportunity to purchase each farm, he said. He did not believe that under the court order he could exercise a discretion in favour of one brother only.

On August 21 Alastair made a new application to the High Court for orders under section 68 that he and his brother be given equal opportunities to purchase either or both of the farms. Alastair said in an affidavit he was prepared to pay the full market price for The Cutting. His preference would be to buy the property at an agreed market valuation arrived at by independent valuations. Alternatively, he wished to have the opportunity to better the best offer received if it was placed on the open market.

Malcolm opposed Alastair’s application, saying the settlement had assumed there would be a sale on the open market. He intended to tender for both properties. He believed the level of interest in the properties meant a premium over current valuation would be obtained.

Affidavit

Mr Greenwood also filed an affidavit, saying he believed the terms and circumstances of his appointment to sell the trust assets “forthwith” contemplated a sale on the open market. He did not believe the consent orders had contemplated an intermediate “off-market” step.

In the High Court, Justice Kos said Alastair’s application raised three issues:

  • Did section 68 of the Trustee Act apply?
  • What extent of review did section 68 permit?
  • Was there a reviewable error by the trustee? 

Section 68 provides that anyone with a beneficial interest in a trust property or who is aggrieved by a trustee can apply to the court to review or give directions. The court has the power to require the trustee to appear before it to explain the decision made.

However, Justice Kos said section 68 did not apply because it permitted only review of trustees’ decisions when they were made in the exercise of a power conferred under the act. If the decision had been made under a power conferred by a trust deed, section 68 did not apply. The source of the trustee’s power to sell arose from the orders of Justice Simon France and not from the act, so there was no power to review.

Outside power

But the judge said if he was wrong in that conclusion, he would consider the other issues. He determined that section 68 did not confer on the High Court a general appeal from a trustee’s decision. An applicant challenging a trustee’s decision must establish the trustee acted outside his or her powers.

On the third issue, Justice Kos said Mr Greenwood had not failed to take into account Alastair’s proposals and there was no evidence the solicitor had acted arbitrarily, in bad faith or outside his powers. Justice Kos concluded Alastair was really seeking to vary the consent orders that had been designed to bring an end to the litigation between the parties. Any such variation would require agreement and there was none.

Alastair’s application was accordingly dismissed.

This and other judgments can be downloaded free of charge from Judicial Decisions Online – www.justice.govt.nz/jdo

Jaspers vs Jaspers [2012] NZHC 2422.

Catriona MacLennan is a south Auckland barrister and journalist.

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