Meredith v Nelson [1932] WSLawRp 1; [1930-1949] WSLR 33 (4 May 1932)

[1930-1949] WSLR 33

HIGH COURT OF WESTERN SAMOA

MEREDITH,
as Guardian ad litem of
FN (an infant)

v

NELSON

High Court Apia
12 January; 4 May 1932
Luxford CJ

TRUSTS AND WILLS (Removal of administrator by Court) - Principle of welfare of beneficiary applicable - Investment of trust funds contrary to the Trustee Act, 1908 - Moral turpitude not implicit in breach of trust- Facts and circumstances of administratorship absolving administrator of intent to take pecuniary advantage of office - Likelihood of conflict of interest between administrator and beneficiary decisive in action for removal.

On the death of their father, pursuant to the terms of his Will, defendant and his brother AN agreed that AN's legacy should remain invested in the family trading business "until said business was conveniently able to release the same", and so it remained until the death of both AN and his wife leaving an infant son FN. Defendant was appointed administrator of their estates and guardian of FN, but by agreement the actual care and custody of FN was undertaken by the plaintiff, father of FN's mother. Defendant administered the deceased parents' estates for many years, paying for the care and maintenance of FN and accounting as required. In time he incorporated his business, and the surplus capital of the estates was deposited in an account with the Company in the name of FN. Ultimately, defendant being absent from Samoa, plaintiff petitioned to be named guardian of FN and to administer his parents' estates. The guardianship Order was made, but no decision as to the administratorship, which by the rules of Court could not be dealt with on petition. Plaintiff then commenced this action on behalf of FN praying for removal of defendant from his administratorship on the ground of breach of trust in respect of the trust funds and demanding payment of the moneys on deposit with the Company. Sometime earlier, in response to a similar demand for payment, defendant, being unable to arrange a Company mortgage to secure the deposit account because of banking restrictions during the then current depression, had given a first Mortgage on his personal freehold as security.

Held: Although there was no question of the defendant's integrity, and no other fault could be found with his administration of the estates, the investment of the trust funds in the Company of which he was the Managing Director and principal shareholder was contrary to the Trustee Act, 1908, and the Court was bound to order his removal for the welfare of FN where there was a likelihood of a conflict of interest arising with respect to the realization of the Mortgage security for the deposit account. Accordingly, defendant was given until 1 June 1932 to remedy the situation, failing which the Order for his removal would go: Letterstedt v. Broers (1884), 9 App. Cas. 371, per Lord Blackburn at p. 387, applied.

Andrews for plaintiff.
Klinkmueller for defendant.

LUXFORD CJ. The plaintiff seeks an order for the removal of the defendant from the administratorship of the estates of the late Jane Sueina Nelson and August Nelson and the appointment of the Samoan Public Trustee in his stead. This order is sought upon the ground that a large portion of the capital of the estates is invested in contravention of section 95 of the Trustee Act, 1908.

The deceased were husband and wife. Jane Sueina Nelson, the plaintiff's daughter, died on the 30th day of November, 1918. August Nelson, the defendant's brother, died on the 27th day of November, 1918. It is on behalf of the one surviving child of the marriage that the plaintiff has commenced these proceedings.

At the time of the deaths of Mr. and Mrs. Nelson, the law of Germany was applicable in Samoa, and continued so to be until the first day of May, 1920 when it was displaced by the law of England, modified and extended by the Samoa Constitution Order, 1920 and subsequently by the Samoa Act, 1921.

The change of the legal systems did not affect the devolution of the estates of the late Mr. and Mrs. Nelson, all rights existing at the commencement of the Constitution Order being preserved notwithstanding the repeal of the former laws of Samoa. Apart from this, it is common ground that under both systems the capital of the two estates devolve upon the only child of the marriage.

The defendant appeared before the District Court of Samoa (Guardianship Division) on the 3rd day of March, 1919 to obtain orders to administer the two estates and to become the guardian of Frank Clemens Frederick Nelson, the only child of August and Jane Sueina Nelson. These Orders were duly made.

The assets in the estate of August Nelson included a sum of approximately £1,600 on deposit in a business conducted by the defendant. This sum represented a legacy bequeathed to him by his father. The only evidence before the Court on this point is contained in paragraphs 1 and 2 of the defendant's affidavit. The defendant says in paragraph 1:-

That my father Augustus Nelson died in May, 1909 and by his last Will and Testament bequeathed a legacy of £1,600 to my brother August Nelson, the father of Frank Clemens Frederick Nelson;

and in paragraph 2:-

That according to the settlement arrived at between the legatees based on the terms of the Will of my father, Augustus Nelson, the money of all legatees had to be left in the business of A. Nelson & Sons, of which I then became the sole proprietor, at a certain rate of interest until the said business was conveniently able to release the same.

After the Orders for administration had been granted and the defendant had discharged the debts of the estates, he filed accounts in the Guardianship Court, and on 26th January, 1920 he filed further accounts covering the previous years' administration. The further accounts were forwarded with a letter addressed to the Registrar of the District Court of Apia in which the defendant said:

re Mr. & Mrs. A. Nelson's Estates

In compliance with your request I herewith enclose statements for 1919 re these estates-

1. Mr. A. Nelson's estate.

2. Mrs. A. Nelson's estate.

3. Deposit Account.

Vouchers covering every entry will be found in the files of the estate kept by me as trustee. It will be seen that current accounts are opened for disbursements and receipts during the year and the balances are transferred at the end of the year to a deposit account with A. Nelson & Son in the name of the heir Frank Clemens Frederick Nelson and bearing 5% interest. There are two revenue producing properties:-

(a) Mr. A. Nelson's Motootua property let at £5 per month and now under option for sale to the government at £850;

(b) Mrs. Nelson's property next Market Hall used as a market place on show nights, and on which Mr. Meredith collects a fee from booth holders.

Mr. S.H. Meredith has requested me to turn over the property of the late Mrs. A. Nelson to him to administer, and I should be prepared to do this subject to the ruling of the Guardianship Court. I may mention that Mr. Meredith is the father of the late Mrs. Nelson, and failing a transfer of the trusteeship to him he requests that a separate account be kept for the moneys accruing from her property despite the fact that the only son of the deceased is the sole heir to the two estates. I take the liberty to request the Guardianship Court for a decision in the matter.

The defendant added this postscript to his letter:-

The estate of the late Mrs. Nelson was wound up as on 31st December, 1918 as per statements filed in the Court. The son of the above-mentioned also benefited in this estate to the extent of £300.

The Registrar apparently referred this letter and the accounts to the Judge of the Court for attached thereto is this minute under the hand of the Registrar:-

Referred to the Judge for decision as to Mr. Meredith's request. Mr. Meredith has made no application himself, and in the absence of such application I see no reason to alter the present arrangement. It would seem, however, both reasonable and not inconvenient that separate accounts should be kept of the moneys accruing from the two estates.

Although the defendant was appointed guardian of his nephew, whom I will refer to as Frank Nelson, the immediate custody and control of the boy was by mutual arrangement given to the plaintiff from the time of his mother's death.

The defendant also allowed the plaintiff to collect the rents and profits arising from the late Mrs. Nelson's property known as "The Market". The plaintiff made the necessary disbursements on behalf of Frank Nelson, and each year rendered an account to the defendant setting out in detail the receipts and expenditure. He also handed over to the defendant portions of the unrequired credit balances for investment.

Each year the defendant has addressed and delivered to the Guardianship Court a letter with statements of account for the preceding year.

During the year 1922, the defendant converted his business into a limited liability company, or more correctly speaking, was instrumental in forming a limited liability company, which purchased his business. The sum of £1,600 originally placed on deposit with A. Nelson & Sons, together with accretions and other moneys belonging to the two estates, was then placed on deposit with the Company. The same procedure has been followed year by year down to the present time, all surplus income from the estate having been capitalised and placed in the deposit account.

In the year 1924, the defendant with the concurrence of the plaintiff decided to erect a modern market on the late Mrs. Nelson's land, which for years past had been used for market purposes, and was called "The Market".

A letter was addressed to the President of the Guardianship Court asking for permission to carry out their intention, to which the Registrar of the High Court replied informing the defendant that a formal application must be made to the High Court by way of motion.

The defendant duly moved and on the 18th day of February, 1924 the Chief Judge of the High Court made an order giving leave to the defendant:-

to expend a sum of money not exceeding £1,500 out of the moneys now accrued to the infant from the said estates in the erection of a building suitable for a native market on the land of the said infant situate on Beach Road between the premises of the Overseas League and the Market Hall Syndicate.

The Court made the Order conditional upon its approval of the plans and estimates of expenditure. This approval was given on the 28th day of February, 1927. The building was duly completed at the total cost of £1,604.6.11. The Court sanctioned the extra expenditure.

The Legislative Council of Samoa passed an Ordinance on the 22nd day of March, 1927 known as The Native Market Ordinance, 1927 prohibiting the sale of Samoan foodstuffs in Apia except upon this property. Consequently, the investment has been very profitable to the estates. The capital in the deposit account was £3,629.18.11 on the 31st day of December, 1930, and the whole of the cost of the "Native Market", £1,604.6.11, has been paid.

The plaintiff and the defendant apparently co-operated to the fullest extent in all matters pertaining to the welfare of Frank Nelson and the care of the property, which eventually he will control, until sometime prior to July, 1930. On the 18th day of July, 1930 the plaintiff petitioned this Court praying that he be appointed guardian of Frank Nelson and administrator of the estate of the late Mrs. Nelson in the place of the defendant. The only reason set out in the petition for the removal of the defendant from his administratorship was his absence from Samoa. However, during the hearing of the petition the investment of the trust funds was referred to, and the petitioner, the present plaintiff, objected to a form of investment contrary to the provisions of the Trustee Act, 1908. For reasons stated in my judgment in those proceedings, I did not decide the question of the investment of the trust funds, but limited my decision to the question of the defendant's absence from Samoa. I granted the application for guardianship, but refused the application for the removal of the defendant from his administratorship When the question of the investment of the moneys of the estates was mentioned in the former proceedings, the defendant's counsel stated on behalf of his client that they would be secured in an authorised manner. At that time, September, 1930 the depression which is now upon us was in its incipient stages. I am satisfied that defendant's counsel had no doubt when he gave the undertaking on behalf of his client that there would be no difficulty in carrying it out. It was stated during the present proceedings that it was intended that the Company should execute a mortgage over its property to secure the amount of the deposit account.

The Company worked upon a banking overdraft and its assets were in some way pledged to the bank to secure advances. In ordinary times no difficulty might have arisen, but the intensity of the depression resulted in the bank refusing to allow the Company to give the security, or to repay the deposited moneys. Although no figures were produced to the Court evidence was given by the Company's auditor, that although the Company was affected by the restrictions on banking accommodation, it was quite solvent. I have no reason to doubt that statement.

When the defendant ascertained the position, he at once offered his Tuaefu property as security. His solicitors communicated the offer to the plaintiff's solicitors, who by a letter dated the 17th day of November, 1930 stated:-

re Estate of J.S. Nelson, deceased

In reply to your letter of the 14th instant herein we beg to confirm the verbal acceptance given on behalf of cur client, Mr. S.H. Meredith, that he approves of the moneys now deposited with Messrs. O.F. Nelson and Co. Ltd. and belonging to the above estate being secured by way of mortgage over the dwelling house and lands at Tuaefu owned by Mr. O.F. Nelson.

Some delay occurred before the defendant carried out this arrangement. His solicitor in his affidavit has explained the delay. I do not consider that this has any material bearing on the case, so I will make no further reference to it.

The defendant executed the Mortgage, and it was duly stamped and registered on the 30th day of June, 1931. About this time, the defendant demanded payment from the plaintiff of the trust moneys he held on behalf of the estates. I have previously referred to the arrangement whereunder the plaintiff collected the rents from the "Native Market". The moneys demanded represented the credit balance in the plaintiff's hands. Correspondence continued between defendant's solicitors and the plaintiff, and eventually proceedings were commenced by the defendant for the recovery of these moneys. Upon the present plaintiff paying the moneys claimed into Court, I stayed the proceedings pending the determination of a new petition for the removal of the defendant from his administratorship. The petition was not proceeded with because the rules of this Court require proceedings for removal of trustees to be by way of action. The present action was then commenced.

A perusal of the Statement of Claim discloses that the plaintiff rests his case very largely upon the comments I made during the former proceedings and in my Judgment therein concerning the manner in which the trust funds were invested. The same course was followed during the hearing of the action.

It is quite clear from my Judgment that I did nothing more than point out that the funds were not invested in accordance with the provisions of the Trustee Act, 1908 and that so long as that continued the defendant was guilty of a breach of trust. I never intended to imply that if the breach of trust was not remedied forthwith that the defendant ipso facto would be removed from administratorship, nor do I think that such an implication could be read into my comments. I must therefore treat this question as one which was left open in the former proceedings, and any comments relating to it in my Judgment as obiter dicta.

The principle upon which the Court should exercise its jurisdiction to remove a trustee from his office is set out by Lord Blackburn in Letterstedt v. Broers (1884) 9 App. Cas. 371 at p. 387. I will repeat the portion of his Lordship's speech:

In exercising so delicate a jurisdiction as that of removing trustees, their lordships do not venture to lay down any general rule, beyond the very broad principle that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependent on details often of great nicety . . . .

The gravamen of the charge against the defendant is that the trust moneys have been lent without security at a low rate of interest to a Company of which he is Managing Director, and in which he is a very large shareholder. If that charge had been proved simpliciter, the order for removal would be made without the slightest hesitation. But although every word of the charge is true, there are several circumstances which change completely the inference to be drawn from the words standing alone.

Because the inference to be drawn from the words standing alone is so clear and would be such a serious reflection on the integrity of the defendant, I will state specifically that the circumstances to which I will refer presently make certain in my mind that the defendant has administered his trust with absolute honesty, and that the breach of trust, which has been committed by allowing the trust funds to remain on deposit with O.F. Nelson and Co. Ltd., was not committed with any intent to take pecuniary advantage of his office. The expression "guilty of a breach of trust" is one which is frequently used and has in many instances in the popular mind a much greater significance than is justified. Moral turpitude is not necessarily implied, but unfortunately it is so in the popular mind. So, I will endeavour to remove any suggestion of moral turpitude against the defendant in the carrying out of the trusts reposed in him.

I will now refer seriatim to the circumstances which in my opinion remove any suggestion that the defendant has acted with an improper motive in allowing the trust funds to remain on deposit with O.F. Nelson and Co. Ltd.

1. The original deposit was made by the late August Nelson in accordance with an arrangement between the legatees under his father's Will.

2. The defendant made full disclosure of the terms of the deposit to the Guardianship Division of the District Court.

3. The accounts which the defendant rendered to the Guardianship Court were not taken exception to.

4. The function of the Guardianship Court in respect of a guardian's account was to audit the account, technically and materially, with particular attention to the propriety of the investments. The Court was vested with power to discipline a guardian. It was bound to take steps against any breach of duty by issuing appropriate orders or prohibitions. These steps had to be taken by the Court of its own motion.

5. From the commencement of the defendant's administration down to the abolition of the Guardianship Court, that Court permitted the investment of the trust funds in the manner to which exception is now taken.

6. The defendant filed the same accounts each year after the abolition of the Guardianship Court. Although addressed to the President or Registrar of that Court, the accounts were received by the Registrar of the High Court and attached to the former Guardianship Court file.

7. The defendant referred to these accounts in 1924 in his affidavit in support of his motion for leave to expend a portion of the capital in the erection of a market.

8. No question was raised concerning the impropriety of the investment until during the hearing of the former proceedings in 1930.

9. Immediately the question arose, defendant's counsel agreed to have the funds secured in a manner authorised by law. When the defendant found that the Company was unable to give such a security, he offered to execute a first mortgage over his freehold property at Tuaefu to secure the trust moneys. To this the plaintiff agreed, and the Mortgage was duly executed and registered.

10. The Tuaefu property intrinsically is worth at least twice the amount of the trust moneys, although owing to economic conditions its market value at the present time is problematical.

11. The defendant had no doubt as to the financial standing of the Company, or any fears that the trust funds were in jeopardy.

Now that I have fully considered and satisfied myself as to the bona fides of the defendant, I shall consider whether, having regard to the welfare of the beneficiary, the defendant should be removed from his office. Circumstances may arise which will justify the Court in exercising its jurisdiction notwithstanding the integrity and capacity of the trustee.

The point with which I was most impressed during the argument was the difficulty in which the defendant may be placed by reason of his dual capacity. On the one hand he is the managing Director of and a large shareholder in the Company which holds the trust funds. They are secured only by a Mortgage given by the defendant to himself as trustee over his Tuaefu property. Although the Tuaefu property may have a large intrinsic value, its market value is not sufficient properly to secure the trust funds. The Company itself, owing to the abnormal conditions of the present day, is unable immediately to repay those funds. On the other hand, the defendant is the legal custodian of the trust funds, and on him alone rests the decision as to the steps he should take to recover the moneys from himself, or from his Company.

However honest a trustee may be, the Court will never allow him to continue his office if his own interests are likely to conflict with his duties as trustee. That is the position in the present case and would justify me in making an order in terms of the prayer of the Statement of Claim.

Mr. Klinkmueller contended, however, that the plaintiff agreed to the security in the form in which it was given and cannot now be heard to say that the trust moneys are improperly invested. The short answer to this contention is that the plaintiff had no locus standi previously to his admission as the guardian ad litem of the infant beneficiary in the present proceedings.

Ordinarily, I would be justified in making the order for removal forthwith. Nevertheless, I will give the defendant an opportunity to rectify the present position. This is a case where some of the difficulty has arisen by reason of the transition of the legal systems, and consequently the Court is bound to exercise its jurisdiction in accordance with equity and good conscience.

The defendant must satisfy the Court on or before the first day of June, 1932 that the trust funds of the estates of August and Jane Sueina Nelson are invested in a manner authorised by law. Otherwise, an order in terms of the prayer of the Statement of Claim will be made as soon thereafter as the plaintiff shall apply _herefore.

The case shall stand adjourned sine die to be brought on by either party at any time on three days' notice in writing to the opposite party. I will reserve all questions of costs until the entry of final Judgment.

NOTE

On 4 May 1932, the action was dismissed with costs against the defendant in the sum of £15.15.0 and £7.2.0 disbursements.