The
High Court intervened in an intergenerational dispute over the operation of two
Hamilton family trusts. The father was
held to be in breach of trust by approving payment of capital distributions to
himself. The High Court removed all
trustees and appointed the Public Trust as trustee to oversee the trusts’
operations.
The court was told a wide ranging
dispute had developed between several members of the Hodge family, including Mr
Graeme Hodge (the father) and two children, David Hodge and Jan Kite, over the
operation of two family trusts: the David Hodge Trust and the Kite Family
Trust. Both trusts owned Hamilton
properties.
Formed in 1996, the David Hodge
Trust owned a house at 24 McFarlane Street, Hamilton. Graeme Hodge engineered a reorganisation of
the Trust’s structure in July 2006 by selling the house at its then market
value to a newly formed trust. A
mortgage over McFarlane Street was cleared with funds extracted from the Kite
Family Trust. A resolution by trustees
of the David Hodge Trust declared that a capital distribution worth some
$107,000 be made to the father Graeme Hodge.
This reorganisation had resulted in the sale of the house and repayment
of the mortgage with the value of the equity payable to the father alone.
Justice Lang ruled that Graeme
Hodge acted in breach of trust by approving payment of the capital distribution. The trust deed governing operation of the
David Hodge Trust prohibited Graeme as beneficiary from voting as trustee in
approving any distribution to himself.
The second trust, the Kite Family
Trust, owned a motel at 265 Te Rapa Road.
In July 2006, Graeme Hodge arranged that motel be sold to another, newly
formed, trust. The new trust was
capitalised sufficiently to pay off a mortgage over the motel and leave a
surplus. This surplus was used to pay
off a mortgage on the McFarlane Street property and to make a capital
distribution to Graeme Hodge – a capital distribution believed to be in the region
of $439,000 though no precise figures were before the court. Again, this reorganisation had resulted in the
sale of a major Trust asset with the equity in that asset winding up in the
hands of the father alone.
Justice Lang again ruled that
Graeme Hodge had acted in breach of trust by approving payment of this capital
distribution. The trust deed for the
Kite Family Trust does not prohibit trustees voting to make distributions to
themselves as beneficiary. The trust
deed allows trustees to make Trust decisions by majority vote, provided all
trustees are given the opportunity to either vote or voice their opinion. One trustee for the Kite Family Trust, son
David Hodge, was in Ireland at the time the resolution was passed. His father used a power of attorney to sign
on David’s behalf. Justice Lang said while
father Graeme could sign as power of attorney on his son’s behalf, that did not
negate an obligation required by the trust deed to get his son’s opinion as
trustee before the vote. The court was told Mr Hodge was in regular
contact with his son while he was living in Ireland. He did not get his son’s views on the
proposal. Should his son disagree with
the proposed capital distribution, the trust deed required that Graeme Hodge step
aside and not vote on the trustees’ resolution.
The court removed all trustees
from the two trusts, appointing the Public Trust as sole trustee of each trust.
Kite
v. Hodge – High Court (1.12.14)
14.054