24 April 2015

Family Trust: Powell v. Powell

The Court of Appeal upheld the decision to remove a father as trustee of a family trust and his replacement with an independent trustee after father and son literally came to blows over operation of the trust.
The court was told Daniel Powell, a trustee of the Daniel Powell Family Trust assaulted his father John, a co-trustee, during a heated dispute over how the trust was being run.  Daniel was subsequently discharged without conviction on charges of intentional damage and assault with intent to use a weapon.  Animosity between the two was running so high they could not co-operate as trustees of the Trust.  The High Court removed John as trustee, replacing him with an independent trustee.  His son Daniel was left in office as a trustee.  John appealed, without success, to the Court of Appeal. 
The Trust was established in 1998 with its main asset being a commercial cool store in Christchurch.  By 2014, the Trust had an estimated net worth of $11.2 million.  Named as beneficiaries of the Trust are Daniel, his spouse, their children and his sister and her children.  Daniel was appointed trustee in 2007 when he returned from a sojourn overseas.  A similar “mirror” trust was also established in the name of Daniel’s sister and this trust is controlled by her.
Evidence was given that Daniel understood the Trust to be his “inheritance”.  He understood his father intended to pass on the remainder of his assets to charities on his death.  Major differences of opinion between Daniel and his father surfaced in 2011 when John reacted with surprise to news that Daniel’s spouse was being paid a salary out of Trust resources.  Allegations of fraud were made.  Despite John’s expressed surprise at the news, there was evidence of email correspondence dating back to 2008 where payment of a salary was discussed and apparently approved.  The court was told John subsequently queried both delays in producing financial statements and the Trust’s dividend policy.  John became uncooperative when asked to sign off on PAYE and ACC payments for the Trust.  A refusal to release funds from the Trust to buy a replacement home after Daniel’s family home was damaged in the Christchurch earthquakes added to the friction. Amidst all this, Daniel went around to his parents’ home and assaulted his father.
John applied to the High Court asking his son Daniel be removed as a trustee alleging Daniel’s behaviour and mental state  made him unfit to be a trustee.  Instead, the court removed John as trustee, a decision affirmed in the Court of Appeal.
The Court of Appeal said the overiding consideration in removing a trustee is consideration of the beneficiaries’ welfare.  While Daniel and his father had proved unable to work together as trustees, there was evidence that Daniel had continued to work in a professional manner with other parties involved in Trust activities.  There was no evidence that in future Daniel would fail to act properly in respect of Trust beneficiaries, the Court said.  Appointment of an independent trustee as co-trustee meant Daniel would not be acting on his own as trustee and it was even more unlikely that beneficiaries’ interests would be overlooked.
Powell v. Powell – Court of Appeal (24.4.15)
15.037