IN THE MAORI LAND COURT OF NEW ZEALAND WAIARIKI DISTRICT

Transcription

1 85 Taupo MB 225 IN THE MAORI LAND COURT OF NEW ZEALAND WAIARIKI DISTRICT A UNDER IN THE MATTER OF BETWEEN AND Section 237 and section 240 of the Te Ture Whenua Maori Act TAUHARA MIDDLE 15 TRUST.:-. Direction as to execution of instrument and removal of trustee CHARLES TE EREAOWHAKAKOTAHI WALL, JOHN TAHAU, PETER CLARKE FRED NICOLL, ADRIAN PAERA TA Applicants HARVEY KARAITIANA Respondent Hearing: Counsel: Date: 25 June 2007 (Heard at Rotorua) Mr M Taylor for the applicants Mr M MeKechnie for the respondent 29 June 2007 RESERVED JUDGMENT OF JUDGE L R HARVEY Introduction [1] The trustees of Tauhara Middle 15 Trust seek an order or direction from the court that they are entitled to act by majority to obtain a mortgage to effect a purchase of land, through an intermediary, that is currently owned by Landcorp. The respondent, who is also a trustee, refuses to execute the mortgage. The applicants seek his removal as a trustee. [2] I indicated at the hearing that the removal application would not be dealt with until the respondent had been given sufficient opportunity to consider his position, take advice and file evidence by way of defence. This judgment is therefore limited to consideration of

2 85 Taupo MB 226 whether the court should issue a direction or order that the trustees are empowered to act by majority, per sections 227 and 237 ofte Ture Whenua Maori Act The Land [3] Tauhara Middle 15 is Maori freehold land ha in area. There are 3,652 beneficial owners of the land holding 29, shares. The block is administered by an ahu whenua trust and the CUl1"ent trustees are Adrian Paerata, Charles Wall, Frederick James Nicoll, John Tahau, Peter Clarke, Harvey Karaitiana, and Leslie Rehua Wall. Mr Leslie Wall is deceased and so there are presently six responsible trustees. [4] The statement of financial position in the annual accounts for year ending 31 March 2006 filed with the court disclose that the trust's net assets amount to $1,899, 061. The accounts also record that the trust made a surplus of after tax, expenses and distributions of $37, 982. The trust's only income is rental of $70,000 received from a lease. Background [5] By application dated 7 February 2007 the trust seeks an order "... [u]nder sections 227 and 237(1) that a mortgage document in a sum up to $450,000 over the Middle 15 Fann be able to be executed by a majority of Trustees." The grounds for the application were: "The owners and trustees have approved a loan to Hikuwai HapiJ Lands trust (HHLT) of $500,000 towards the purchase of ancestral lands of the beneficiaries Hom Landcorp Fanning Limited; The loan to be secured by the moltgage is able to be repaid Hom existing income; Mr Karaitiana has been advised in wn ting ofthe decision of the owners and trustees and requested to execute moltgage documents but has refused; The execution olthe mortgage and release ofloan funds is urgently required in order to fulfil the Trust's undertaking to HHLT and HHLT's obligations to Landcorp; The removal 01 Mr Leslie Wall (deceased) as trustee. " [6] This was supp011ed by an affidavit swom by the trust's chairman, Mr Charles Wall on 1 February The application was heard before His Honour Judge PJ Savage on 23 February 2007 at 85 Taupo MB 17 and was adjourned for six months at the applicants'

3 85 Taupo MB 227 request. However, on 19 June 2007 the trust's solicitors then requested, by amended application, an urgent hearing before 30 June It was claimed that an urgent hearing of the application was necessary because the settlement date is 30 June A further affidavit ofmr Wall was filed on 19 June [7] The amended application sets out the current grounds as follows: "1. Under sections 227 and 237(1) that a mortgage document in a sum up to $450,000 over the Middle 15 falw, and any mortgage able to be secured over Middle 15's share in the Tauhara North Block be able to be executed by a majority of Trustees. 2. that the urgency be granted to hearing and disposal of the above application. 3. removing Leslie WalI (deceased) as Trustee. 4. under section 240 that Harvey Karaitiana be removed as Trustee. " [8] Counsel for the respondent then filed notices of opposition and an intention to appear dated 22 June 2007 stating the investment which the trust contemplates and which is said to require the execution of the instrument is contrary to the trust order and unlawful. It was also claimed that in respect of the proposed transaction all other trustees have a disqualifying conflict of interest. Applicants' submissions [9] The evidence and submissions of the applicant relevant to the issue of trustees acting by majority can be summarised thus: (a) Tauhara Middle 15 Trust and Opepe Farm Trust have agreed to purchase the Tauhara North Farm currently owned by Landcorp for $5 million. Tauhara's share of the purchase price, being $1 million, is to be obtained by mortgaging the trust's land for $450,000, contributing its cash reserves of $240,000 and with additional funds of $310,000 provided by the Tauhara 4A2A Trust. The applicants are also trustees of Tauhara 4A2A Trust; (b) this transaction is part of a large and complex series of arrangements involving the Hikuwai Hapu Lands Trust and Landcorp. Hikuwai is a community trust which is to act as a facilitator or broker to arrange the acquisition of Landcorp properties in the Taupo district by local hapu;

4 85 Taupo MB 228 (c) the agreement for sale and purchase of the Tauhara N011h Farm is initially between Landcorp and Hikuwai. Hikuwai also has a "back to back" agreement with Tauhara and Opepe so that the ultimate beneficiaries of the~sale are the latter two trusts; (d) the trust has the approval two hui of beneficial owners held on 10 December 2006 and 13 April 2007 to proceed with the transaction and to convert an existing loan of $240,000 in favour of Hikuwai into an investment in Tauhara North Farm. The hui also resolved to support the trustees' plans to raise a total of $1 million to participate in the sale and acquire a 20% share in Tauhara'North Farm; (e) the ability of the trustees to enter into the agreements is supported by the trust order, general trust law principles and in particular by section 218 of the Act - Maori community purposes; and (t) the respondent's refusal to follow the directions of the beneficial owners and his fellow trustees must cast real doubt as to his continuing suitability as a trustee. The hui in fact also resolved to seek the respondent's removal if this was deemed necessary. Mr Wall's second affidavit confirms the applicants' view that the respondent ought to be removed as a trustee. [10] Counsel argued that the order sought is simply one of administrative convenience for the trust so that this important transaction, which both a majority of trustees and owners support, can proceed. If there are concerns over the trustees' actions, then they can be dealt with in due course should that respondent persist with his opposition and claims of breach of trust. The Hikuwai proposal, which included the purchase of Tauhara North Farm, iss a major transaction for the local hapu and so it is entirely appropriate in the circumstances that the court grant the order sought. Respondent's submissions [11] Mr McKechnie submitted in summary:

5 85 Taupo MB 229 (a) the respondent is as a matter of law entitled to dissent from the decision of the applicants. In so doing he was relying on the advice of Tauhara's fonner solicitor Mr T Jensen and its then accountant Mr Allan; (b) the trustees appear to have acted unlawfully in advancing $240,000 unsecured to Hikuwai in December 2006 as evidenced by a signed but undated deed of loan when Hikuwai had no agreement with Landcorp and the trustees ought to be held accountable. More importantly, the deed between Hikuwai and the trust discloses that in the event of default in repayment of the loan Hikuwai is absolved from any responsibility to repay; ( c) as there is no signed agreement between the trust and Hikuwai, the trustees have failed to demonstrate the necessity for the mortgage to be entered into when it is not clear what harm will result to the trust. Inexplicably, the trustees confinned that there has been no request for any extension of time for payment of the price and so the case for urgency simply has not been made out; (d) the trust is putting up all its cash reserves and a substantial portion of its income to repay the loan and this must call into question whether the trustees are acting prudently. While claims have been made as to other income, no concrete evidence has been placed before the court as to the reliability of those claims; ( e) there is no agreement between the trust and Opepe as to the nature of their ownership relationship and nor is there evidence as to the ability of Opepe to meet its obligations and so conceivably the trust's 20% share of Tauhara North Fann may be put at risk; and (f) there exists at least the potential for a conflict of interest between the trustees of Tauhara and Hikuwai given the overlap between the two groups. This position is not assisted by the fact that the trust's present solicitor is also the solicitor for Hikuwai. The trust's previous and long standing solicitor advised against entering into the present agreements and the termination of his engagement in that role simply adds to the respondent's concerns;

6 85 Taupo MB 230 [12] In summary, counsel implored the court to refuse the application, to adjourn the application to remove the respondent and initiate an investigation ii).to Tauhara's affairs. The respondent did not believe that the proposals were in the best interests of Tauhara and so his opposition was resolute. Indeed, he considered that the decisions of the applicants were likely to be in breach of trust and accordingly they should be held to account for their actions. Discussion [13] Given the rising complexity of Maori business activities involving kin-based assets over the last two decades, the necessity for a practical approach to the administration of such assets has become increasingly evident. Maori authorities avail themselves of a range of administrative devices including the use of custodian trustees where numerous individual titles are involved. With trustees located around the country executing documents can be complicated, costly and time consuming. The pool of talent for those involved in governance roles - while increasing all the time - remains relatively small and so the demands placed on this group are high. Time and effort are at a premium and so the use of more efficient practices including meetings by telephone/video conferences, resolution by , and the execution of documents by a majority is becoming more commonplace. [14] That said, minority trustees would correctly have cause for concern if, when Maori authorities adopt such practices, a trustee's rights to paiiicipate, to dissent and challenge decisions by a majority were rendered nugatory. Notice of meetings and decisions and being provided with adequate opportunity to take advice and be heard must remain paramount if a trustee is to properly perform the obligations and duties reposed in that office. Anything less would be unacceptable and could cast doubts over the validity of decisions. The ShOli point is that a balance must be struck between the rights of majority and minority trustees to exercise their duties appropriately and when they are in any doubt, the option of seeking directions from the court remains available.

7 85 Taupo MB 231 Trustees acting and executing documents by majority [15] Counsel for the respondent did not seriously challenge the jurisdictional point of whether the court can issue a direction or an order authorising trustees to act and execute documents by majority. Indeed, Mr McKechnie did not make submissions on the matter but contended that the issue was primarily one of prudence-should the trustees be entering into these transactions at all? That is a valid but different question. Section 237 and 227 when read together without doubt provide the court with the jurisdiction to authorise trustees to act by majority and execute documents by majority. [16] It is also important to note that the effect of section 227 is to provide trustees with the ability to act by majority and execute documents, except those capable of registration under the Land Transfer Act 1952, by majority, unless the trust order says otherwise. Put another way, the starting point is that where the trust order is silent on trustees acting unanimously, as is the case here, then section 227 provides them with authority to act by majority in any case. The only proviso concerns the execution of documents capable of registration under the Land Transfer Act 1952, but even then, per section 227(3) the court can grant authority to the trustees to execute such a document by majority. [17] In the absence of any compelling arguments to the contrary, as a matter of principle, I can find no reason why the trustees of this trust-and indeed of any Maori land trustcannot so act. Whether they should now do so is a separate question that remains at large. It is a question for the trustees and their advisers and it ought to be answered. Limitations on authority granted [18] Mr Taylor also referred to section 64 of the Trustee Act This refers, inter alia, to where in the opinion of the court any mortgage or other transaction is expedient in the management or administration of trust assets or would be in the best interests of the beneficiaries, the trustees can be appropriately authorised. I make no such authorisation except insofar as the trustees may now act and execute documents, including those capable of registration under the land Transfer Act 1952, by majority.

8 85 Taupo MB 232 [19] For the avoidance of doubt, in simply confirming this authority I am not "approving" the sale and purchase nor the overall Hikuwai proposal in general. There is insufficient evidence before me to consider approving the transaction or the issue of whether the trustees are acting prudently and in accordance with their duties. In any event, the application only seeks an order that trustees by majority can enter into a mortgage. I reiterate, the issue-of whether the transactions should be entered into is a much wider discussion that would necessarily involved further evidence and submission. [20] If the trustees still intend to proceed then they must do so with appropriate advice and knowing that the respondent has raised serious issues for consideration challenging their decision. That challenge will not likely disappear and so further proceedings will be required to give the parties adequate opportunity to state their cases. The trustees should be under no illusion that they will be held to account should it ultimately transpire that the proposal should not have proceeded. They need to consult their advisers as to the nature and extent of their potential liability in this context. [21] The Court of Appeal confirmed the broad powers of the Maori Land Court in respect of trusts in the important judgment The Proprietors of Mangakino Township v The Maori Land Court & Anor (CA65/99, 16 June 1999, Wellington). In that decision it was noted that this court has a guardianship role to play in respect of trusts. According to Blanchard J at pp 9-10 the Maori Land Court "... is expressly given in s237 in respect of any trust to which Part XII applies 'all the same powers and authorities as the High Court has (whether by statute or by any rule of law or by virtue of its inherent jurisdiction) in respect oftmsts generally'. In other words - it is to have the most extensive supervisory powers." [22] As that decision and the subsequent hearing before this Court highlighted, the Maori Land Court has a particular jurisdiction that endows it with the broad responsibility of supervising trusts over Maori land. However, in exercising such powers this court must be mindful of the need to avoid micro managing trusts and substituting its decision for the exercise by the trustees of their discretion. Only where there is real evidence of an actual breach of trust or in the opinion of the comi the potential for breach is real should intervention occur.

9 85 Taupo MB 233 Future steps [23] That said, the evidence presently before the court and the allegations made by the respondent do raise questions for consideration which include: (a) should the trustees have entered into the initial unsecured loan with Hikuwai for $240,000 given the ability of Hikuwai under the deed of loan between Hikuwai and Tauhara to terminate its obligations without penalty? If not, does this action constitute a breach of trust and are any positive defences available for the trustees? (b) what issues of conflict of interest arise between the trustees of Hikuwai and Tauhara and have these been successfully waived by the meetings of beneficial owners? If not, what is the effect in law of any actual conflict on the decision to enter into the agreements with Hikuwai? (c) what is the effect of the resolutions of the meetings of beneficial owners in law on the trustees' decision making, taking into account clauses 3bi, v, vii, xvii of the trust order? (d) in committing their available funds, a significant portion of their future income and using their assets as security, are the trustees acting prudently and consistently with their duties as set out in the trust order and according to general trust law principles? (e) should the trustees enter into the sale and purchase transaction without first agreeing the precise terms of its relationship with Opepe? [24] There are likely to be others. The Registrar in concert with counsel will arrange a hearing for the trustees to provide answers to these questions for the benefit of both the beneficial owners and the court. It may be that perfectly satisfactory explanations will be forthcoming. [25] The limited infol1nation before me nonetheless confirms that the Hikuwai proposal is bold. It has the potential to realise significant benefits to the hapu of that region both in the short and medium term. The long-tenn prospects may be even greater. That the trustees

10 this 2'?m day of Ju N ~ Taupo MB 234 wish to move quickly to capture this unique opportunity given these potential gains for several generations of Ngati Tuw,haretoa people is not lost on the court. While the laudable aims of the Hikuwai proposal calmot be seriously challenged, the question for these trustees in simply: are they acting in accordance with their duties and obligations to their beneficiaries and according to trust law? Decision [26] The application for an order per sections 227 and 237 of the Act that the trustees may act by majority and execute documents in the exercise of their duties and obligations is granted. [27] Regarding the application for the removal of the respondent as a trustee the following directions are now issued: (a) the Registrar, in concert with counsel, will arrange a hearing of the application in Taupo within one month; (b) the applicants are to file and serve any fmther evidence they intend to rely on within 14 days from the date of this decision; and (c) the respondent will have 14 days from then to file and serve any evidence in reply. [28] This hearing should also consider the questions raised in paragraph 23 of this judgment. The trustees should ensure that they are prepared to answer these questions at the next hearing of this matter. I rely on section 238 of the Act in making this order. [29] Costs are reserved. Pronounced in open court in b U"l'El>\N at b. 20 ~m