Brenssell v Brenssell

[2013] NZHC 2280

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2011-425-000602 [2013] NZHC 2280

BETWEEN

STANLEY EDLIN BRENSSELL

First Plaintiff

ROGER STANLEY BRENSSELL
Second Plaintiff

WENDY ALICE MILLER
Third Plaintiff

AND

CHRISTOPHER WARRACK BRENSSELL

First Defendant

CLIFFORD BARRY BRENSSELL
Second Defendant

AARON JAMES BRENSSELL
Third Defendant

SHAWN NATHAN BRENSSELL
Fourth Defendant

Hearing:

27 August 2013

Appearances:

E Orlov and G Stewart for Plaintiffs

J C D Guest and Ms Gardiner for Defendants

Judgment:

3 September 2013

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]  On 31 July 2012 the Court issued a judgment by which two causes of action and a number of paragraphs in the statement of claim were struck out.

[2] In February 2013 the plaintiffs filed an amended statement of claim with the above-named second, third and fourth defendants added. On 8 March the defendants applied to strike out parts of that document.  On 20 March the plaintiffs filed another

S E BRENSSELL v C W BRENSSELL [2013] NZHC 2280 [3 September 2013]

amended statement of claim, and on 13 August they filed yet another statement of claim. Thus there have been four pleadings in all. As they are not described by number, I will refer to them by the month of filing. The August pleading followed the filing and service of Mr Guest’s submissions in support of his application to strike out, with the result that parts of those submissions were no longer required. It is common ground that the application to strike out needs to be decided to the extent that it continues to apply to the August statement of claim.

[3]  In the judgment issued on 31 July 2012 I summarised the facts ([26] to [50]) and it is not necessary to do so again. No further evidence has been filed in support of the application now before the Court.

[4]      Mr Guest relies on r 15.1 of the High Court Rules:

15.1  Dismissing or staying all or part of proceeding

(1)The court may strike out all or part of a pleading if it—

(a)   discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b)   is likely to cause prejudice or delay; or

(c)   is frivolous or vexatious; or

(d)   is otherwise an abuse of the process of the court.

(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.

(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4)This rule does not affect the court's inherent jurisdiction.

[5] He emphasises that he does not seek to strike out the whole statement of claim but only portions of it.  I will deal with these in turn.

A – paragraphs 13(c) and 13(f)

[6]     These paragraphs are in the “Background” section of the statement of claim. In paragraph 13(c) the plaintiff pleads that it was his intention that the farm, which was to be transferred to the trust, not be sold or subdivided and/or that any powers to subdivide or sell or alienate the farm be expressly curtailed as it was his intention that the trust be for the benefit of members of his family, who are identified in an earlier paragraph of the statement of claim. In paragraph 13(f) he pleads that it was his intention that he be entitled to a residual life interest in the residence located on the property “to live out the rest of his days thereon”.

[7] Mr Guest says that the cause of action in relation to the deed of trust is one of equitable rectification. There should not be any pleading to the effect that the first plaintiff ought to be afforded rectification of the trust because the trust, after it was established, bought the farm property, and the farm property was then managed in a way different from the way he says he had intended. The two transactions are separate, and the latter cannot be relevant to the former. Mr Guest’s concern is that if the pleading remains as it is, it will lead to unnecessary discovery in relation to the acquisition and use of the farm property. He says the invalid pleading appears, as he puts it, to be a basis for seeking extravagant discovery or otherwise embarrassing the defendants and causing unnecessary expense.

[8] Mr Orlov points out that the pleadings referred to are statements of the first plaintiff’s intentions, and says he is entitled to plead those intentions in this portion of the statement of claim.

[9] I agree with Mr Orlov. Paragraph 13  contains  summaries  of  the  first plaintiff’s intentions. The plaintiff is entitled to plead those intentions. The only resulting discovery would be of documents which either support the proposition that the first plaintiff held these intentions, or the converse. I think this paragraph is unobjectionable in its terms, as it is merely a statement of intention. But that is not the only point arising from the intermingling of pleadings relating to the land with those relating to the trust. There are far more fundamental issues.

[10] The purchase of the land was a separate (though related) transaction to the setting up of the trust, and if (despite my observations below) the first plaintiff continues to seek to set it aside, there must be separate causes of action with pleadings directed at impugning its validity, whether under the Contractual Mistakes Act 1977 or otherwise, with clear enunciations of the relevant facts which are alleged to constitute each cause of action. Each should be followed by a prayer for relief. The document does not follow that form at present. That is not acceptable.

[11] As well, it is not clear why any relief is sought in relation to the sale of the land. As noted in the July 2012 judgment the first plaintiff maintains that the trust which was set up in 1998 does not reflect his intentions at that time, and he lays responsibility for that at the feet of the first defendant, his son. In the first statement of claim he alleged that his son owed him a fiduciary duty. That course of action was struck out. In the August statement of claim the first cause of action is described as mistake of fact, the mistakes pleaded being the ways in which the deed which was signed is said to differ from the first plaintiff’s intentions, and the relief sought is “rectification/resettlement of the trust deed to reflect the true intentions of the First Plaintiff”.

[12] In the pleadings contained within the portion of the statement of  claim described as “Background”, the first plaintiff pleads that his decision to sell the farm was inseparable from his intention to create the trust, so he would not have created the trust without selling the farm property to it, nor vice versa. In the prayer for relief in the August statement of claim, after seeking rectification of the trusts, the first plaintiff seeks a remedy in the following terms:

AND/OR IN THE ALTERNATIVE resettlement of the land on a properly constituted trust in accordance with the First Plaintiff’s wishes.

The basis for this remedy appears to be the pleading that when he signed the sale agreement of the farm to the trust, he was labouring under the same mistakes of fact as he pleads in relation to the trust.

[13] When questioned about this part of the pleading, at the hearing, Mr Orlov said that when he has discovery of relevant documents he will amend it, to bring it

into line with the elements that must be proved in order to establish an actionable unilateral mistake under s 6(1) of the Contractual Mistakes Act 1977, and also to claim relief in equity from the effect of the sale.

[14] I do not consider that lack of discovery of documents prevents these causes of action being correctly and sufficiently pleaded. Nor is it necessarily clear that any pleading in relation to the land is necessary. This follows, logically, from the claim in relation to the trust deed. If the trust deed is rectified, then the land will be held on the trust that the first plaintiff maintains it should have been held on in the first place, with the result that the plaintiff will not wish to set aside the sale of the land. If, on the other hand, the Court finds against the first plaintiff in relation to his pleaded mistaken beliefs, the claim relating to the land under the Contractual Mistakes Act would fail. It would also appear that the basis for any claim for equitable relief relating to the land would not have been made out.

[15] For these reasons it would not appear that there need be any reference to the agreement for sale and purchase of the property in this proceeding. I raised this with Mr Orlov but he seemed unconvinced.

B – paragraph 13(e)

[16]In paragraph 13(e), the first plaintiff pleads another statement of intention:

That the trustee’s discretion be fettered in so far as was necessary to ensure that the First Plaintiff’s intentions listed above not be circumvented.

[17] Mr Guest says this pleading is wrong as a matter of law as the term “fettered” does not apply to the drafting or settling of the terms of a discretion, but rather to the manner in which a discretion which is given by a trust is actually exercised. Thus, for example, where trustees are given a wide discretion they must not fetter that discretion by adopting policies which have the effect of doing so.

[18] Pressed on the point Mr Orlov accepts that the term “fettered” is not appropriate.

[19] However, the point is not resolved by merely changing one word in the pleading as Mr Orlov maintains. If the first plaintiff’s alleged intentions are accepted and the Court orders rectification of this trust, the trustees would not have the discretionary powers presently in the trust deed which allow them to make decisions which are contrary to the claimed intentions of the settlor. As the plaintiff would have it, those intentions would have been enshrined in the deed as part of the objects of the trust. The trust might have had some discretionary elements (Mr Orlov says it would have had some discretion in relation to application of income among the income beneficiaries) but it would not have had any discretion in relation to, for example, how the trust assets were to be dealt with, and in particular, if the settlor’s farm were later transferred to the trust, there would have been no discretionary power to dispose of it.

[20] It follows that paragraph 13(e) expresses an intention in terms which could not have been carried into the deed. As I gather it, the first plaintiff’s intention was that some of the discretionary powers that are in the trust deed not be in it at all. Why this has not been clearly pleaded in any of the four statements of claim, is obscure. In my opinion the correct course is to strike out paragraph 13(e), reserving leave to the first plaintiff to re-plead in terms that reflect this decision.

C – paragraph 45(d) and (e)

[21] In paragraph 44 the second and third plaintiffs plead that the defendants had duties as trustees pursuant to common law and the Trustee Act 1956. None of these duties is pleaded.

[22] In paragraph 45 they plead that the defendants have breached these unstated duties in certain particular ways. The paragraphs challenged by Mr Guest are in a group of particulars in sub-paragraphs (a) to (f) headed “First Count”. As a preliminary point, the phrase “First Count” is inappropriate in a civil pleading. If sub-paragraphs (a) to (f) are said to be particulars of the alleged breaches of the unstated duties, they are simply to be headed “Particulars of Alleged Breaches of Duty”.

[23] The particulars in sub-paragraphs (d) and (e) refer back to payments described in earlier sub-paragraphs. In (d) it is said that when making these payments to the first defendant and his wife, the defendants preferred their interests over those of the second and third plaintiffs, thus knowingly and deliberately placing themselves in a position of conflict of interest. In sub-paragraph (e), which is headed “AND/OR”, it is said that in making the distributions or some of them (with further and better particulars to be given after discovery) the defendants failed to provide their proper written consents by way of contemporaneous minutes, by which it is said they knowingly breached their duty to act unanimously.

[24]    Mr Guest says it is unfair to plead in these terms without particulars of how it is alleged these distributions give rise to breaches of trust, when the actions of making payments to some, but not all, discretionary beneficiaries, are within the discretionary terms of the trust deed.

[25] Mr Orlov says he is happy to give further particulars but cannot do so without discovery.

[26] Mr Orlov’s response misses the point. The trust which was set up is a discretionary trust. Thus, if it is to be alleged that the defendants have acted inappropriately in the way they have dealt with the trust assets, or made payments to certain beneficiaries, that must be properly particularised. Although specific sums are said to have been paid to the first defendant and to his wife, in the years 2007 to 2011, Mr Orlov was unable to tell me the source of these figures. The second and third plaintiffs have the annual accounts for the trust so they are in a position to plead with further particularity how it is said that the defendants have breached their duties as trustees to discretionary beneficiaries. This necessarily requires the plaintiffs to first give close consideration to the rights of discretionary beneficiaries to have the trustees’ exercise of a discretionary power reviewed.

[27] Therefore the discretionary power should be pleaded, the way the discretion has been exercised should be pleaded and that should be followed by a pleading that the stated exercise of the discretionary power was outside the parameters of the discretionary power, and how.  The extent of the discretion is known, because the

plaintiffs have the trust deed. The payments that have been made are recorded in the trust’s accounts, which the plaintiffs also have. The allegations can therefore be properly pleaded, and presently they are not. As I indicated to Mr Orlov during the hearing, no inference can be drawn just from the figures pleaded, that there has been any preference of any beneficiary over any other beneficiary. For example, it is said that the first defendant has received $587,000 in six years. However, the pleading does not say, despite the accounts being held, whether that is by way of wages or salary, and if so, whether it is before or after tax, or whether it is by way of distribution of surplus profit from the trust, or for some other reason. Nor is there a pleading that, if it is wages or salary, it is excessive relative to, say, market rates for persons undertaking the first defendant’s role on a property of this nature and size. I use these possibilities only as examples, because I am unable to discern how it is said that the payments made to either the first defendant or his wife over the stated six year period are said to be a preference over the second and third plaintiffs. I note that it is pleaded later in the document that the second and third plaintiffs have not received anything from the trust, but that does not necessarily mean the discretionary power has been improperly exercised. There is no pleading directing attention to how the second and third plaintiffs consider the discretionary power should have been executed.

[28] This portion of the pleadings is structurally incorrect, and does not plead the basis upon which it is said that the defendants have acted in breach of trust.

[29]   Sub-paragraph (e), also called in question by the defendants, alleges failure on the part of the defendants to provide their “proper written consents by way of contemporaneous trustees [sic] minutes” to the actions taken. If minutes have not been kept (and that point will not be established until discovery has been completed) that does not mean that there was not a joint decision on the part of the defendants. It only means that no formal minute was kept.

[30]   Sub-paragraphs (d) and (e) are struck out, but with leave reserved to re-plead in terms of this judgment.

Further issues

[31]   If this claim is to continue it will be necessary for a further statement of claim to be filed. That document is to take into account the decisions made in this judgment. Further, it must also take into account the following. First, if the plaintiff persists with a claim in relation to sale of the farm, there must be one or possibly two separate causes of action in relation to the allegations that the agreement for sale and purchase of the farm from the first plaintiff to the trust was entered by the first plaintiff by a mistake, and the consequences of that. It seems that one of the causes of action will be under the Contractual Mistakes Act, as noted, and that there is intended to be a second cause of action in equity. If so, these are to be pleaded separately, each with a prayer for relief.

[32] Secondly, the paragraphs commencing at paragraph 23 are to  be headed “First Cause of Action: First Plaintiff’s Claim against all Defendants: Mistake of Fact”. The paragraphs beginning at 36 are to be headed “Second Cause of Action: Second and Third Plaintiffs’ Claim against the First Defendant: Breach of Trustee’s Fiduciary Duties”. The paragraphs commencing at 44 are to be headed “Third Cause of Action: Second and Third Plaintiffs’ Claim against All Defendants Jointly and Severally: Breach of Fiduciary Duties”.

[33]     Thirdly, the duties alleged in 44 are to be specifically pleaded.

Outcome

[34] The application to strike out is dismissed in relation to paragraphs 13(c) and 13(f) but allowed in relation to paragraphs 13(e), 45(d) and 45(e). Leave is granted to re-plead in terms of the judgment.

[35] A further amended statement of claim is to be filed and served within 20 working days. This will be the fourth amended statement of claim and is to be so described.

[36]    It is well past the point where this claim should have been properly pleaded. It is conceptually straight-forward.   There is no apparent reason why it could not

have been pleaded just once, correctly, with a possible amendment after discovery. The repeated unsuccessful attempts at putting the plaintiffs’ case forward reflect an unacceptable approach to the obligations of pleading, and have caused delay in bringing the issues raised to trial, expense to the defendants, and pressure on the resources of the Court. The plaintiffs are to consider these observations with care as they prepare their next pleading.

[37] The defendants have largely succeeded on this application.  The plaintiffs will pay costs on a 2B basis with disbursements fixed by the Registrar.

[38] By consent this proceeding is transferred from the Registry of this Court in Invercargill to the Registry in Dunedin.

J G Matthews Associate Judge

Solicitors:

Stewart & Associates, Alexandra. Downie Stewart, Dunedin.