Mark became a doctor. Andrew a vet. John a registered valuer. It cost John McLaughlin $1.1 million in legal fees successfully defending his two brothers’ High Court claims that he had improperly benefitted from work done subdividing their parents’ land in Marsden Valley near Nelson, land held in a family trust.
On appeal, there was argument over who should pay these legal fees and whether John was entitled to payment for project management in realising their father’s dream to subdivide land purchased some fifty years ago.
In 2004, their parents transferred some one hundred hectares of rural land to a McLaughlin family trust.
The court was told John became deeply involved with his parents’ plans to subdivide Marsden Park. He has property valuation qualifications and business experience in property management and construction.
At time of their father’s death in 2007, resource consent for stage one of a planned subdivision had been lodged. Consent was granted six months later. John took the initiative, personally guaranteeing Trust borrowings of $3.7 million needed to get earthworks underway. He oversaw progress.
His two brothers subsequently challenged payments made for project management. They said the entire scheme appeared to have operated for the benefit of John alone; Trust beneficiaries would have done better if the consented land were sold and proceeds invested, they said.
Evidence was given of an agreement with trustees that John would get paid $120,000 for the first year of Marsden project management, with payment in subsequent years subject to review. John was also a trustee. It was intended this management contract would be signed with a company he controlled. Initially, no contract was signed; to avoid accrued management fees showing up as a liability in the Trust’s financial statements. In its early years, Marsden Park was generating no income to pay him. Accrued management fees had reached some $800,000 before there was sufficient cashflow from sales to make any payment. It was 2016 and some eight years after work started before trustees signed John’s management contract and arrears were paid.
Two years previously, in 2014, a cash payout was made to all the McLaughlin brothers as beneficiaries; each receiving $550,000.
Mark and Andrew challenged John’s management fee. A further brother, Brett, allied himself with his two brothers.
The Court of Appeal said there was ample evidence supporting the level of remuneration paid John’s management company. One remuneration expert said it would be difficult to find someone with John’s skill level to do the job for the salary paid.
A challenge to John being paid for project management whilst also a trustee was dismissed. As a general rule, a trustee cannot receive payment for work done managing trust assets. Wording of the McLaughlin trust deed was wide enough to allow payments to a trustee acting as project manager.
Trust deed wording also allowed John as trustee to recover from trust assets the $1.1 million cost of defending legal action taken against him. The amount payable by the trust is to be reduced by court ordered legal costs Mark and Andrew as unsuccessful litigants must pay John.
The Court of Appeal ordered they pay thirty per cent above the standard rate, to mark what the trial judge called their ‘heated and hostile’ approach to litigation against their brother.
The court was told residential sections developed to date at Marsden Park were expected to sell for a total of six to seven million dollars.
McLaughlin v. McLaughlin – Court of Appeal (29.09.23)
23.171