Brenssell v Brenssell
[2012] NZHC 1961
•31 July 2012
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2011-425-000602 [2012] NZHC 1961
UNDER the Trustee Act 1956
BETWEEN STANLEY EDLIN BRENSSELL First Plaintiff
ANDROGER STANLEY BRENSSELL Second Plaintiff
ANDWENDY ALICE MILLER Third Plaintiff
ANDCHRISTOPHER WARRACK BRENSSELL
Defendant
Hearing: 17 July 2012
(Heard at Dunedin)
Appearances: E Orlov for Plaintiffs
J C D Guest for Defendant
Judgment: 31 July 2012
RESERVED JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
Introduction
[1] In 1998 the first plaintiff, who is the father of the second and third plaintiffs and the defendant, decided to place a substantial farm property which he then owned into a trust to be formed for the purpose. A document was executed on 28 May 1998 creating the CraigLea Trust, under which the defendant was, initially, the sole trustee. The property was valued and sold to the Trust, with the purchase price
remaining owing.
STANLEY EDLIN BRENSSELL V CHRISTOPHER WARRACK BRENSSELL HC INV CIV-2011-425-
000602 [31 July 2012]
[2] The first plaintiff seeks relief under two causes of action, and the second and third plaintiffs together seek relief under two different causes of action. This judgment determines an application brought by the defendant for summary judgment dismissing the claim in its entirety, including an application to bring that application out of time, and in the alternative, striking out each of the causes of action.
[3] The Trust deed was drawn up by the first plaintiff’s solicitor. A number of members of the Brenssell family are within a class of discretionary beneficiaries to whom both income and capital may be appointed by the trustees. Other provisions of the document specify who is to receive capital in default of appointment being made. The defendant was the sole trustee initially.
[4] In September 2001 the first plaintiff and an independent trustee company were appointed as trustees in addition to the defendant. In May 2007 the first plaintiff and the independent trustee company resigned, and the defendant was joined in trusteeship by his son, Shaun Brenssell, his brother Aaron Brenssell, and a cousin of the defendant Clifford Brenssell.
[5] The Trust was established at a time when the first plaintiff and the defendant had agreed that the farm should be converted to a dairying unit. The conversion was completed by the defendant as trustee and is now run by the defendant and his two sons. The income from the farm has been divided between the defendant, his wife and children but although it seems that some income may have been appropriated in the accounts of the Trust to other family members, no money has been distributed outside the defendant’s immediate family.
[6] The Trust has borrowed monies from its banker which holds a security over the farm property. The Trust has also given security to another lending organisation to support borrowing by a company owned by the defendant and his solicitor to purchase a building in Dunedin.
Application for leave to bring summary judgment application out of time
[7] Under r 12.4(3) of the High Court Rules an application for summary judgment by a defendant must be filed and served at the time the statement of defence to the proceeding is served, or otherwise with leave of the Court. Leave is sought by the defendant.
[8] The intitulment of the proceeding refers to the Trustee Act 1956 but no relief is specifically sought under that Act. Further, the allegations are made against the defendant under the second to fourth causes of action, inclusive, in his capacity as a trustee but none of the other trustees are named as defendants. The relief sought includes various orders rescinding the Trust, declaring the Trust to be void ab initio, resettling the property held by the Trust, transfer of non-trust assets to the Trust and disclosure of the Trust’s accounts. Not surprisingly the defendant’s advisors formed the view that the other trustees should have been joined to the proceeding, and that there should have been an application for directions as to service to include service on all trustees, all beneficiaries who might be affected by the orders sought and all other persons who might be affected. No such application accompanied the document.
[9] In addition, the defendant’s advisors noted some confusion in the dates on the
documents which were served.
[10] The solicitors for the defendant enquired about these matters from the Court and on 31 January 2012 filed a document which they regarded as a pro forma statement of defence. On 3 February 2012 the solicitor for the plaintiffs sent a fax communication noting that he considered service was effected from that date.
[11] The defendant then filed a full statement of defence and an application for summary judgment, and strike-out, together with an application for leave in relation to the summary judgment application, relying on the above facts.
[12] The plaintiffs opposed leave, complaining that no affidavit had been filed which explained why the summary judgment application had not been filed in
accordance with the Rules and submitting that the circumstances I have outlined did not provide a ground for leave. Counsel submitted that it would need to be shown that the delay is explained satisfactorily, that the merits of the case suggested that it should be heard at a later date than prescribed by the Rules, and that refusal to grant leave would cause a miscarriage of justice to the applicant.
[13] In my view the delay has been satisfactorily explained for the reason I have set out. The pleadings in this case are far from satisfactory. Of present relevance, all the current trustees of the Trust should have been cited as parties, an application for directions as to service should have been brought after due consideration of the potential effects of the orders sought, and the notice of proceeding should have cited those directed to be served. It is quite understandable that the defendant’s solicitors should require more time than is normally allowed for to respond to this claim.
[14] Further, the delay was brief. The first application for summary judgment was filed in mid-March. I do not see any prejudice to the plaintiffs from the delay, nor from the making of the orders sought. Counsel did not argue that there would be any.
[15] Accordingly, I direct that the application for summary judgment may be filed out of time.
Principles of law relating to summary judgment and strike-out
[16] The defendant’s application is primarily for summary judgment against the first plaintiff, on both his causes of action, and summary judgment against the second and third plaintiffs on both their causes of action. In the alternative, he asks that each of the causes of action be struck out.
[17] The principles relating to application for summary judgment by a defendant are summarised in Westpac Banking Corporation v M M Kembla New Zealand Ltd:1
1 Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
[60] Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under R 186. Rather R 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike-out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim.
[61] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.
[62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.
[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff’s claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff’s case prematurely before completion of discovery or other interlocutory steps and before the plaintiff’s evidence can reasonably be assembled.
[64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
[65] Applying these general principles, we are of the view that it was appropriate for the Master to consider the evidence as to delivery of the PIN and passwords even though negligence in such delivery was not distinctly pleaded. The starting point is R 187 which permits a party “at any time before trial” to file an amended pleading. Leave of the Court is required after a proceeding has been set down for trial. But no such leave is necessary before then.
[18] In Bernard v Space 2000 Ltd,2 the Court reiterated the principles enunciated in Kembla and stated further:
... it is an integral element of the rule of law that everyone having a proper issue to be tried should obtain access to the Court process. When that right of access is denied, justice is denied, and the ability of society to order its affairs and resolve its differences in a regular manner is impaired. Consequently, where a plaintiff has a proper issue to be tried it is inappropriate to apply a test or adopt an approach which would bar him or her from the judicial process which may aid the plaintiff’s cause. This Court’s insistence on a clear answer which cannot be contradicted and a complete defence to the plaintiff’s claim, that is, a “king hit”, recognises that a plaintiff’s fundamental right to his or her “day in Court” is not to be lightly denied.
[19] The Court went on to note that summary judgment is inappropriate where there are disputed issues of material facts, or where the determination of the case can only be made from a judgment formed after full hearing of the evidence.
[20] Mr Orlov submitted that it was necessary for his client to have discovery of documents before he could plead his client’s causes of action more accurately and with greater particularity and that this too was a reason to decline summary judgment. Generally, as summary judgment is intended to result in prompt disposal of claims, discovery is not encouraged, though it is technically possible. If sought, an application should be made under rr 8.12 or 8.20. No application was made. If an application is made, the document or documents sought must be identified with
some particularity – NZI Bank Ltd v Philpott.3
[21] Counsel for the plaintiff did seek discovery orders by way of a memorandum prepared for the first case management conference of this proceeding, but without reference to any specific classes of documents or specific reasons why discovery was required. This issue was discussed at the case management conference which followed and the Judge ruled that after that discussion he was not prepared to order discovery, having regard to the application for summary judgment or strike out. The Minute issued by the Court does not record whether further detail of the discovery
sought, and the reasons for it, were provided to the Court at the conference but the
2 Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA).
3 NZI Bank Ltd v Philpott (1988) 1 PRNZ 560 (HC).
presiding Judge issued a ruling which accords with the general principle which I have set out, strongly suggesting that no more detailed case in support of a request for a discovery order was made out. This would align, too, with argument before me in which only the most general statements were made about a need for discovery, apart from specific reference to discovery of documents relating to decisions of trustees in relation to allocation of Trust income, and documents that might exist in relation to instructions to the accountants and solicitors involved at the time the Trust was set up. I was informed that the file of the solicitors concerned had been made available, however, informally.
[22] Finally, in relation to principles applicable to summary judgment, the defendant can only obtain summary judgment if he can show that none of the plaintiff’s causes of action against him can succeed. Summary judgment cannot be entered for a defendant on other than the entire claim by a particular plaintiff. This differs from the situation with applications to strike out, which may be dealt with in respect of each cause of action.
[23] The defendant’s application to strike out is brought under r 15.1. This
provides:
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.
[24] The applicable principles are summarised in Attorney-General v Prince4 and
Couch v Attorney-General.5 First, pleaded facts, whether or not admitted, are
4 Attorney-General v Prince [1998] 1 NZLR 262 (CA).
assumed to be true unless shown to be entirely speculative and without foundation. Secondly, the jurisdiction to strike out is not excluded by the need to decide difficult questions of law requiring extensive argument.
[25] The Court reviewed the judgment in Couch and other judgments referred to it, in Swordfish Co Ltd v Buller District Council.6 At [6] the Court said:
[6] Of particular relevance to the present application is the summary of principles in Couch v Attorney-General (per Elias CJ and Anderson J) at [30] to [35] inclusive. After identifying specific deficiencies in the pleadings in that case which led to a lack of focus in the argument presented to the Court on the part of the plaintiff, their Honours noted cases in which deficient pleadings had nonetheless not resulted in proceedings being struck out, and then referred to the decision of Barwick CJ in General Steel Industries Inc v Commissioner for Railways NSW (1964) 112 CLR 125 (HCA), cited with approval by Richmond P in Takaro Properties Ltd (in receivership) v Rowling [1978] 2 NZLR 314 (CA) at 317, that the jurisdiction summarily to terminate an action where it is so clearly untenable that it cannot succeed is to be “sparingly employed” and is not suitable for use:
... except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion ...
Facts
[26] In his first affidavit the first plaintiff outlined his wish to set up a trust for the benefit of his five children and ultimately his grandson, Shaun. He then said:
I discussed the best structure for this first with Chris and Patrick [Houlihan], the proposed trust accountant from the firm of Malloch McLean in Gore. My main wish, as I explained it to Chris and Mr Houlihan, was to stay living on the farm and preserve it for the use and benefit of my immediate family during the trust period and then for the property to pass to Aaron and Shaun for the reasons given above.
[27] He then cited his wish to settle the farm for the persons to whom I have referred, his wish that the farm be kept as a working farm maintained properly and
managed efficiently, and that “any residual profit” be distributed amongst the named
5 Couch v Attorney-General [2008] NZSC 45 at 33.
6 Swordfish Co Ltd v Buller District Council HC Greymouth CIV-2011-418-143,
17 May 2012 per Associate Judge Matthews.
persons “equitably in accordance with the needs of each” and finally, that the farm
remain in the Brenssell family name for the maximum length permitted by law.
[28] I observe that in paragraph 9 of the statement of claim the first plaintiff pleads that the beneficiaries whom he had selected “were to share the profits in an equal manner” but this does not accord precisely with his evidence, which is that the profits should be distributed amongst them “equitably in accordance with the needs of each”.
[29] The first plaintiff then stated that he asked the defendant “to arrange for lawyers to create a trust deed in accordance with my wishes”, communicated those wishes to the defendant and that the defendant assured him that he had engaged lawyers to establish a trust deed specifically in accordance with his wishes.
[30] The first plaintiff deposed that on 28 May 1998 he and the defendant attended a meeting with Mr Pritchard of Bannermans, solicitors in Gore. Mr Pritchard had in fact been the first plaintiff’s solicitor for some time. The first plaintiff said:
At that meeting I communicated the above wishes to Pritchard and he gave me a piece of paper to sign which I took to be the last or execution page of the deed. It appeared that the deed itself was still in the process of being drafted and I was told that they would fill in the paperwork and send me a copy.
Mr Pritchard was my lawyer and knew I had difficulty reading. I have always had an eyesight problem, beginning as a child, and as a result I found reading to be particularly difficult. I did not do well with reading at school. My family is aware of this and usually a family member will read important papers for me. Mr Pritchard knew that I could not read the text; at least, I assume that is why he got me to sign the last page of the trust deed so that later he could read the text back to me without having me come in again if alterations were required in the meantime.
[31] The first plaintiff went on to state that he was not given a copy of the deed, and was not advised of its contents at the time he signed the page referred to. He said:
I signed it solely on the assurance by my son Chris that it accorded with my wishes that had been advised to him as per above.
He said:
I naturally trusted Chris as my son and in fact still trust him and therefore signed the document without question.
[32] The first plaintiff did not lead evidence from his solicitor, Mr Pritchard, on this issue.
[33] In response to this evidence the defendant referred first to his forming the view, in the 1990s, that as the farm was performing poorly as a sheep unit, he should look into converting it into a dairy unit. He went to see his accountant, Mr Houlihan, to see whether conversion was possible and was advised that finance could be raised. A meeting was then arranged at Mr Houlihan’s office. It took place on 7 May 1998. The first plaintiff and the defendant were present, as was Mr Houlihan, and the first plaintiff’s accountant, Mr Graham Page. Mr Houlihan put forward some proposals to place the farm into a trust, which would then undertake a conversion and the subsequent running of the property as a dairy farm. The defendant outlined in some detail the discussions which took place which included a decision that Mr Pritchard, the first plaintiff’s solicitor, would undertake the necessary legal work. The defendant said that Mr Pritchard had looked after his father’s affairs for as long as he could remember, and that he had no direct dealings with Mr Pritchard.
[34] There was a further meeting on 28 May, the day the deed of trust was signed, this time at Mr Pritchard’s office. The first plaintiff and the defendant were present, as were Mr Pritchard and Mr Houlihan. The defendant said:
The trust deed was completed. Mr Pritchard went through it. I had had no influence on the contents of that document, and apart from generally knowing that it was a document setting up a family trust, I did not have a particular understanding of its contents. My father and I both signed the document and left Mr Pritchard’s office. My father in his affidavit says that he was only asked to sign the last page, with the rest of the trust deed to be attached to it. He also says he gave instructions at that meeting as to what he wanted. This is incorrect. The total document was complete when we arrived. Mr Pritchard must have obtained his instructions as to the content of the deed from other sources on other occasions. He did not get them from me, and in fact I was never asked by my father to make arrangements in regards to the establishment of the trust.
[35] The defendant presented an affidavit from Mr Houlihan, who was a registered chartered accountant, a principal in his firm, with some 35 years
experience, including knowledge of and familiarity with trust deeds and the operations of trusts, particularly in the context of farmers and farming.
[36] Mr Houlihan said that the trust was his suggestion, as was the appointment of the defendant initially as sole trustee, a step which avoided the payment of stamp duty, a tax imposed on land transfer at that time, in certain circumstances. Mr Houlihan said:
I was present at relevant meetings, and both the First Plaintiff (Stan) and Chris have been to my office many times. I am the accountant mentioned a number of times in Stan’s affidavit, although my surname is misspelt.
[37] Mr Houlihan said that his former partner, Mr Page, arrived in Gore in 1975 and acted for the first plaintiff from some time thereafter until he retired in 2008. Prior to his personal involvement the firm acted for members of the family and Mr Houlihan acted for the defendant from 1984 onwards. He has had regular professional dealings with Mr Pritchard who is known to him as the first plaintiff’s lawyer.
[38] Mr Houlihan gave evidence about this transaction. There was a meeting at his office on 7 May 1998 with the first plaintiff and the defendant. Following the meeting he wrote to Mr Pritchard on 12 May 1998. It is necessary to set out the first seven paragraphs of the letter in full, as this is a contemporaneous document of relevance to the issues raised in this proceeding:
A very lengthy meeting was held between myself, Stan and Chris on
Thursday, 7 May 1998 to discuss the future of the family farm.
Stan is adamant the farm is to remain in the family name. Chris has decided that the most viable option from a turnover perspective is to convert the operation to a cow milking operation supplying the Stirling Dairy Factory. His other alternative of converting to a sheep milking operation is not flavour of the month with financiers.
There should be no problem in financing the conversion provided sufficient security can be offered but WestpacTrust, who will be the financiers provided their interest rate is competitive, have indicated that they will require the entire property for security purposes, both from a margin perspective and taking into account that to fragment the unit weakens the strength of the operation from a physical viewpoint. Moreover, I have pointed out to Stan that if he retains ownership of a land area then as it will be part of a milking platform, it immediately substantially increases its value, and thus aggravates his own asset problem.
The proposal therefore is to transfer all Stan’s land into a trust which would have Chris as sole trustee, with his wife Gaynor and their descendants being discretionary beneficiaries. The trust would then undertake the dairy conversion. It would qualify for a first farm stamp duty exemption. To undertake the purchase in the name of Chris as a sole trader or Chris and Gaynor as a partnership would not be providing the family with the best advice for the future both from asset protection and taxation viewpoint.
After a recent discussion with Peter Moynihan, Chris has contacted Tony Robertson on a farm consultancy basis, but preceding this has estimated that the likely debt level by the time a dairy herd is purchased, will be in excess of $1 million. The thought pattern is that Gaynor will leave her employment with Blue Mountain Nurseries to assist Chris and an experienced dairy employee with the day to day operation. Due to the run down status of the property, it will be some years before full productive capacity is obtained, and accordingly this will mean that in the medium term, the ability of the milking platform to assist other family members will be limited. A farm consultant’s report will assist in clarifying this. Time will tell whether Aaron is interested in farming but Stan will have a net worth of sufficient magnitude to be able to give Aaron assistance over time in conjunction with the eventual cashflow from the dairy unit, should farm ownership for him be a requirement.
A dairy cow operation provides the only possible option to put two Brenssell brothers into farming ownership.
Stan has stressed the importance of stability, and thus there would naturally be the right for Stan and Aaron to remain in the home for their lifetime. We also discussed a rest home scenario and Chris realises that if Stan was to become incapacitated, in terms of the government asset testing he would have no option but to assist in any case.
[39] The balance of the letter refers to the first plaintiff’s will, an earlier trust, and
matters related to those, apart from one additional paragraph:
Naturally the bank is crucially interested in the eventual residual debt to be settled with other family members, and thus the aspects of the Trust and Will will need to be clarified before financing is approved. Certainly Chris and Stan did not appear keen to have to pay any capital to Roger and Grant in the short term.
[40] In his affidavit Mr Houlihan set out the factors which he had taken into account in formulating his advice and then said:
In short, the idea of establishing a trust, and having Chris as the sole trustee, was my idea. At the meeting in my office on 7 May 1998, I was the only one who tabled any particular structure. My letter of 12 May 1998 to Mr Pritchard makes it clear that I understood the position in regards to Stan’s right to reside on the property, and that I understood his wish to keep the Brenssell name on the land titles. I did not propose, because it was not part of my thinking, that Aaron and Shaun were to be default final beneficiaries, because I simply did not know what the future would hold for
them. There was also the possibility that other family members might return to the farm.
There seemed to be general agreement with my proposals, and I understand that Stan went to his usual lawyer, Mr Pritchard, to draft the deed. The deed that was produced appeared to me to be consistent with other trust deeds that I had seen in the Bannermans’ template of that era. The deed included a comprehensive list of discretionary beneficiaries which, although not part of my recommendation, was consistent with the wide drafting of family trust deeds. As I have said, Aaron and Shawn were set up as default final beneficiaries, and this must have been something on which Mr Pritchard received instructions.
[41] Mr Houlihan then turned his attention to specific allegations in the first
plaintiff’s affidavit. Mr Houlihan:
(a) reiterated that the idea for the trust was his, not the defendant’s;
(b)said that the first plaintiff entered into a scheme of making gifts requiring him to repeatedly go to Mr Pritchard’s office to sign annual deeds of forgiveness and gift duty declarations (there were five in total, at $27,000 each);
(c) said that once the first farm stamp duty exemption was no longer relevant or needing protection the plaintiff became a trustee with the defendant on 6 September 2001 and his trustee company was also appointed. That trusteeship arrangement lasted until 18 May 2007, as I have noted earlier;
(d) a letter addressed to the first plaintiff by Mr Pritchard on 7 November
2001 enclosed a copy of the trust deed (that letter was produced in evidence);
(e) he was present at a meeting at Bannermans in 2001 with the first plaintiff and the defendant as well as Mr Pritchard. The first plaintiff did not make any enquiry about any aspect of the trust, nor did he at any stage ask Mr Houlihan anything about the trust.
[42] Mr Houlihan then gave evidence about the meeting at which the trust deed was signed. He said:
I was present at the meeting. At paragraphs 11 to 15 (inclusive) he [the first plaintiff] describes that meeting. I do not agree with his description. Mr Pritchard is a strong-minded and very particular lawyer, and there was no way that either Chris or myself would have been able to influence his drafting or style of presenting his services to Stan. As I have said, the trust deed is based on a Bannermans template of the era changed only as necessary for what Stan wanted to achieve. At the meeting, Mr Pritchard went through the deed prior to it being signed. It was then signed and we left his office. The deed had been completed by the meeting, and therefore it is incorrect for Stan to say that he communicated his wishes to Mr Pritchard on that date. Mr Pritchard did not give Stan a single sheet of paper to sign. I would have remembered that as unusual, not acceptable, and not something that Mr Pritchard would do.
[43] Mr Houlihan then referred to the first plaintiff’s evidence about the trust being of a discretionary nature. After noting that fixed income trusts are not suitable “to more modern conditions, particularly in the threat of inflation” Mr Houlihan said that in the context of a working dairy farm with continuing capital requirements, it would not be workable, and would make the trust unattractive to financiers. He then said:
I also note that this is the first time in the history of the trust that I have heard the suggestion that income was to be shared equally amongst beneficiaries.
[44] This evidence needs to be seen in the context of the first plaintiff being a trustee jointly with Mr Houlihan’s trustee company, and the defendant, for some five and a half years.
[45] After these affidavits were served the first plaintiff filed a further 25 page affidavit responding to their evidence. I will refer to passages in this affidavit, but note at this point that in submissions Mr Orlov mentioned on a number of occasions that this affidavit must be accepted because no further affidavits had been filed by the defendant taking issue with the statements his client made. That completely overlooks the fact that the affidavits in question were filed in relation to the substantive proceeding under Part 18 of the High Court Rules, and therefore the plaintiffs’ affidavits were filed first, followed by the defendant’s, followed by an
affidavit in reply by the first plaintiff. There was no further right without leave for any further affidavit evidence to be filed by the defendant.
[46] In this affidavit the first plaintiff referred again to his eyesight problems, and said he could not read documents, and that all documents have to be read to him. He then said:
The defendant knew this. I believe he took advantage of my disability and deliberately changed or altered my instructions and created a document contrary to my wishes. What is confirmed now is that the trust deed was not signed by me and the trust deed in its current form is not what I intended. Prior to the creation of the trust I was not taken through the contents of the trust document, there is no memorandum of wishes recording my wishes and the trust deed is not what I intended.
[47] Later, he said he left the defendant to give instructions for preparation of the trust deed to Mr Pritchard who was to draw up the appropriate trust deed. He denied that the trust document was prepared and available to sign at the meeting on 28 May
1998. He said he relied completely on Mr Pritchard to ensure that the finished deed carried out his wishes and was in his interests. He noted that the trust deed does bear his signature on the final page but that he has not initialled each of the other pages (though Mr Pritchard has).
[48] The first plaintiff then took issue with the evidence of Mr Houlihan. He described his discussions with Mr Houlihan as “only of a general nature”, and said they “did not cover the specifics of the trust deed”. He remained insistent that he signed only the back page of documents on advice that it would all be put together at a later stage when all details of beneficiaries were supplied. Normally he would have a document of this size and complexity read out to him and he would then initial each page.
[49] In relation to the application of the profits of the Trust, the first plaintiff said:
I note that in my earlier affidavit I said it was my wish that the profits should be distributed equally. This was, on reflection a poor choice of words. I do not object to the farm profits being distributed fairly as opposed to equally. I do not believe that the farm profits have been distributed fairly in accordance with the trustee’s discretion.
[50] This appears to be a material change of stance from the position pleaded in the statement of claim and the evidence initially given, yet the first plaintiff describes it as “a poor choice of words” in his former affidavit. This change of position must be seen in the context of the difference between the three occasions in the statement of claim where he pleads that the profits were to be divided equally, his statements in his first affidavit to the same effect, and his statement in paragraph
6 of that affidavit that the profit would be distributed amongst specified beneficiaries “equitably in accordance with the needs of each” which is a materially different concept.
The first plaintiff’s claims
[51] In essence the first plaintiff maintains that the trust deed does not constitute a trust on terms which he believed he was creating. He pleads that he wished to settle the farm on a trust for the benefit of six members of his family, only. In addition, his intention was that he would continue living on the farm, that it would be kept in trust for as long as legally possible, that it would be jointly administered by the defendant and the first plaintiff, or another independent party, that all beneficiaries would share the profits equally and the Trust would vest on the first plaintiff’s death.
[52] The plaintiff maintains that contrary to these wishes, the defendant’s wife and daughter have been added as discretionary beneficiaries, the defendant was appointed as sole trustee and had certain discretions in relation to distribution of income, the Trust did not provide for his required beneficiaries to benefit equally, there are powers for the farm to be sold and the profits distributed as the defendant thought fit, and the vesting day differs from the date he wanted.
[53] The first plaintiff seeks to lay full responsibility for this at the feet of the defendant. He does so by two causes of action. First, he pleads that the first defendant was in a fiduciary relationship to him at the time the deed was entered and that he breached the duties he had as a fiduciary. Secondly, he pleads that he entered the deed as a result of a mistake of fact. On the first cause of action, breach of fiduciary duty, the plaintiff seeks an account of profits and rescission of the trust deed. On the second cause of action, mistake, he seeks a declaratory judgment that
the trust deed does not reflect his wishes, an order that the Trust property be resettled into a trust reflecting his wishes, and an order declaring it void ab initio.
First Plaintiff: first cause of action
[54] The first plaintiff’s first cause of action relies on what he describes as a fiduciary relationship between him and the defendant. The relationship is not defined, or described anywhere in the document. Mr Orlov submitted that it arose from the first plaintiff working out what he wanted the Trust to provide for, telling the defendant his wishes and then requesting the defendant “to arrange for lawyers to create a trust deed in accordance with my wishes”.
[55] That falls manifestly short of laying an arguable foundation that a fiduciary relationship was created, for the following reasons:
Thefirst plaintiff was only 59 years of age when the Trust was created, and although he plainly had poor eyesight requiring assistance by having documents read to him, there is no evidence or suggestion that he was other than in full possession of his mental faculties.
There is no evidence of any reason why he should have been or was reliant upon the defendant in any way in relation to the creation of the Trust and sale of his farm, at market value, to it, apart from his own assertion: yet he engaged his own solicitor to advise and act on the transaction.
Hewent to a lengthy meeting with Mr Houlihan, whose idea it was that a trust should be created to hold the farm while it was converted to a dairy farm, and operated in that way. As a result of that meeting Mr Houlihan clearly believed he had instructions to proceed and to write his letter to the first plaintiff’s own solicitor which led to that solicitor drawing up the trust deed.
Thefirst plaintiff had an opportunity to seek and receive such advice as he wished, from his own solicitor. He had the opportunity to check the trust deed. Even if his own version of the format of the trust deed at the time he
signed the final page is correct, contrary to the evidence of both Mr Houlihan and the defendant, he was present in his own solicitor’s office when that occurred and he cannot blame the defendant for his own election to proceed with execution of the document in the manner which he describes.
[56] I therefore find that there was no fiduciary relationship between the first plaintiff and the defendant in relation to the execution of the trust deed or the sale of the farm to the Trust.
[57] In the first cause of action it is pleaded that the alleged fiduciary relationship required the defendant to instruct the first plaintiff’s solicitors to prepare the trust deed in accordance with the first plaintiff’s wishes and instructions as conveyed to the defendant by the first plaintiff, and not to put himself in a position of conflict with that of the first plaintiff, and not to acquire secret gains or profits.
[58] I am satisfied on the evidence that even if there was a fiduciary relationship as alleged, contrary to my finding, it was not the duty of the defendant to instruct the first plaintiff’s solicitors as alleged. The first plaintiff and the defendant went to Mr Houlihan for advice on how to effect a re-arrangement of the family’s affairs and on related issues concerning the conversion of the farm to a dairy unit. Mr Houlihan gave advice and in a contemporaneous letter to the plaintiff’s solicitors resulting from the meeting, set out his views on how these steps should be effected. Apart from the first plaintiff’s own assertions which run contrary to the evidence of the defendant and Mr Houlihan, and to the contemporaneous letter of instruction, there is no evidence to support the first plaintiff’s assertions.
[59] For this reason the first cause of action cannot succeed.
[60] Because of the findings I have made in relation to the substantive difficulties with this cause of action it is not necessary to discuss in detail the prayer for relief. However, it is manifestly unsatisfactory. First, it claims an “account of profits”. Given that the cause of action is against the defendant in his personal capacity, and the farming operation has been run by the Trust, this prayer for relief could not possibly be sustained. Secondly, the prayer for relief claims “rescission of the trust
deed”. No foundation is made for that prayer for relief. Any claim to rescind the Trust deed would be against the trustees, not the defendant personally, and it would be necessary for all trustees to be parties, all beneficiaries to be served and all other parties who would be affected by the granting of such a remedy to be served.
First Plaintiff: second cause of action
[61] Under the second cause of action the first plaintiff first cites his intentions. As Mr Guest submitted, these intentions are not the same as the wishes and instructions cited earlier in the statement of claim. Further, given that this cause of action is apparently directed at a claim in equity based on an assertion that the plaintiff signed the document under a mistaken belief as to its contents, some are completely irrelevant.
[62] First, it is said to have been his intention that the farm be kept as a working farm. That is not a wish that could appropriately be recorded in a trust deed. Upon settling the farm on trust, the trustees assume legal responsibility for the property. The settlor may in such a circumstance execute a memorandum of wishes but the first plaintiff, despite being represented by his own solicitor, did not do so.
[63] Secondly, it is pleaded that his intention was that the farm be maintained and managed efficiently. Little argument could be had with that aspiration but, again, it is not a wish that would be recorded in a trust deed. It is the right of the trustees to determine the use of the Trust assets, consistent with their duties.
[64] Thirdly, it is pleaded that the first plaintiff intended that the profit from the farm be distributed equally among the beneficiaries. I have already noted the three versions of the first plaintiff’s intention in relation to profit which appear in the statement of claim and his affidavits.
[65] Fourthly, it is pleaded that his intention was that the defendant, the family accountant and he should be appointed as trustees of the Trust. Whilst cogent evidence has been given of the good reasons for appointing only the defendant as trustee, and the fact that the first plaintiff’s intention was effected as soon as it was
no longer financially prudent to retain sole trusteeship in the name of the defendant (in order to save imposition of stamp duty on the transfer of the farm), this is an intention which could have been recorded in the trust deed, but was not. However, Mr Houlihan made the recommendation in relation to the trusteeship, and the first plaintiff was at the meeting at which this was discussed. The Trust derived the financial advantage of a saving of stamp duty as a result of accepting Mr Houlihan’s advice.
[66] Fifthly, it is pleaded that the first plaintiff intended that the farm be kept in the Brenssell family for as long as legally possible. Again, it is most unlikely that this intention would be recorded in a trust deed, for the same reasons as apply to the first and second intentions which I have discussed.
[67] In the succeeding clause of the statement of claim, the first plaintiff pleads that the trust deed does not incorporate his intentions, and that further clauses contrary to his intention were inserted in it. He cites four particulars:
(a) First, it is said that clause 12 gives the defendant absolute and uncontrolled discretion to exercise every power bestowed upon him by the terms of the Trust. In fact, clause 12 gives this discretion to the trustees. Over the years since the Trust was set up there have been three groups of trustees. As I have indicated, with the appointment of further trustees the defendant does not have the discretion cited in this paragraph. He must act jointly with them. The particular is manifestly unsustainable.
(b)The second particular is that clause 13(i) gives the defendant power to appoint new trustees at his sole discretion. Whilst that is correct, that is not contrary to any of the intentions expressed in paragraph 9 or 18 of the statement of claim, where the first plaintiff’s intentions are recorded.
(c) The third particular given is that clause 17(c) of the trust deed confers powers on the trustee to subdivide the land. That is correct. Again,
however, this does not conflict with any of the intentions stated in paragraphs 9 or 18.
(d)The fourth particular is that clause 17(d) of the deed confers powers on the trustee to exchange land with or without payment or receipt of monies for equality of exchange upon such terms and at such values as the trustee shall think fit. Yet again, this does not conflict with any of the pleaded intentions of the first plaintiff.
[68] Notably, none of the pleaded particulars in paragraph 19 make reference to the plaintiff’s wish, stated in paragraph 7, to settle the farm on trust for the benefit of six named members of the family. However, in paragraph 17 of his first affidavit in which the first plaintiff lists the reasons he considers the trust deed is not the deed he thought he was signing, he refers to the discretionary beneficiaries including the defendant’s wife and daughter. His comment in relation to them is “this is unfair on my other children and would never have been my intention”, but this complaint about the document is not in the pleaded cause of action. Further, the inclusion of these persons in the class of discretionary beneficiaries is specifically referred to in Mr Houlihan’s letter to Mr Pritchard dated 12 May 1998, giving him instructions and reporting on the “very lengthy meeting” at which the first plaintiff was present.
[69] The only explanation I could discern from Mr Orlov’s submissions for this and other shortcomings in the document was that it was prepared in haste as the first plaintiff was to have an operation for cancer. There is no reason not to accept that statement from Mr Orlov but I observe that the first plaintiff’s first affidavit was sworn on 17 September 2011, and the pleading was not filed until 2 December,
11 weeks later. There was more than ample time to ensure that the pleaded cause of action accurately portrayed the evidence of the first plaintiff, and a duty on the first plaintiff to do so.
[70] Further, there has been ample time for an amended statement of claim to be filed, but this has not been done. Mr Orlov endeavoured to explain this as an attempt to save costs for his client given that an amended pleading would be necessary after discovery. Again, I do not accept that as a reasonable explanation, for two reasons:
(a) First, the second cause of action is based on allegations that the deed was mistakenly signed as the first plaintiff did not realise that it did not reflect his intentions. His intentions were within his own personal knowledge and are not the subject of documents. The content of the deed is apparent on its face. No discovery is relevant to this allegation.
(b)Secondly, the application for summary judgment or strike out squarely raised shortcomings with the documents and put the plaintiff’s counsel on notice that the pleadings would be scrutinised.
[71] At the hearing, Mr Orlov emphasised on a number of occasions that he accepted that there were shortcomings with the pleading as it stood, but that it could be fixed, and would be fixed, after discovery. The correct course to assist the Court in coming to grips with the precise allegations upon which the plaintiff relies, and to put the defendant on notice of them, was to plead them initially. If that were not done, then certainly it should have occurred well in advance of the hearing of applications which put the pleadings firmly under a spotlight. It is common and accepted practice that where a submission is to be made to the Court that a pleading under challenge can be remedied, if found deficient, by the filing of an amended pleading, a draft of such an amended pleading should be in the hands of the defendant and the Court so that submissions can be considered on a realistic footing, not in a vacuum. Instead, the defendant and the Court were left having to make their own assessments of precisely what is included in (or excluded from) the trust deed that the first plaintiff maintains does not reflect the intentions he says he had at the time the Trust was entered. When the statement of claim and the evidence are compared, as above, the difficulty in undertaking this task is increased to the point of impossibility.
[72] Notwithstanding these manifest shortcomings in the pleading of the second cause of action, Mr Orlov submitted that it was “perfect”. All that can be said of that submission is that if it is correct the second cause of action should perhaps remain as it is, and the evidence confined solely to the pleading. Fortunately, perhaps, for the first plaintiff, I do not accept the submission.
[73] In bringing this application and preparing to argue it, it was not clear to the defendant’s solicitor how the claimed mistaken belief, either as pleaded or as stated in evidence, could give rise to the remedies sought on this cause of action (a declaratory judgment that the deed does not reflect the wishes of the plaintiff, an order that the Trust property be resettled into a trust reflecting the wishes of the first plaintiff, and an order declaring the trust deed void ab initio). Leaving aside the self- evident conflict between the second and third of these requests, and the inappropriate request for a declaration, it is easy to see how the defendant’s solicitor was unable to grasp the nature of the cause of action from the pleading, given that the sole defendant is but one of the trustees and any claim challenging the validity or the terms of the Trust could not possibly be correctly directed at but one trustee. It had the appearance of being a claim parallel, perhaps, to the first cause of action which was directed at the defendant’s personal actions prior to the deed being settled. Yet instead of challenging those actions as before, it criticised the terms of the document itself and sought to sheet responsibility home to just the defendant.
[74] Light was eventually thrown on this by the first plaintiff’s submissions. He accepted that all trustees should have been defendants. Mr Orlov submitted that the settlement could be avoided by the Court if it was entered in the mistaken belief that it reflected the settlor’s intentions, but it was later found that it did not. He referred
me to a brief passage in Nevill’s Law of Trusts, Wills and Administration at [5.2]7
and to two decisions of the Jersey Royal Court.8
[75] Where by mistake an instrument creating a trust does not express the settlor’s intention, it may be rectified to comply with his true intention.9 In some cases it may be appropriate for the Court to set aside the deed rather than rectify it.
[76] In Gibbon v Mitchell,10 the plaintiff entered a deed by which he purported to surrender his life interest under a trust, in favour of his two children. He was not
7 N Richardson Nevill’s Law of Trusts, Wills and Administration (10th ed, LexisNexis, Wellington, 2010).
8 Re A Trust [2009] JLR 447 and S Trust [2011] JRC 117.
9 Halsbury’s Laws of England (4th ed) vol 48 at[ 665] and cases cited in fn 1.
10 Gibbon v Mitchell [1990] 3 All ER 338.
advised that the effects of the deed would be to bring about a forfeiture of his life interest and thus invoke the operation of the discretionary trusts provided for in s 33 of the Trustee Act 1925. In fact, in entering the deed on the advice of his solicitors, the plaintiff had intended to reduce the effects of inheritance tax which would be incurred if the terms of the settlement, in which he purported to surrender his life interest, remained in force.
[77] After reviewing a number of cases, Justice Millett in the Chancery division said:11
In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it.
[78] There are other authorities to similar effect – see Halsbury (supra) and see also Snell’s Equity.12
[79] Whether a cause of action to either rectify or set aside this deed of trust on the ground of the mistaken belief of the settlor as to the terms of the deed is available to this plaintiff on the facts of this case is quite another matter.
[80] There are major difficulties in the first plaintiff’s way. First, it is far from clear on the evidence and the pleading exactly what the plaintiff’s intentions were, and how the trust deed is said to fall short of them. Some of the concerns listed and issues raised by the first plaintiff are matters which would not in any event be included in a trust deed, as I have already noted.
[81] Secondly, the first plaintiff’s own solicitor prepared the deed as a result of details provided by the accountant whom both the first plaintiff and the defendant
consulted and with whom they met for a lengthy period to discuss the proposed trust.
11 Ibid, at 343.
12 David Fox “Private express trusts” in John McGhee (ed) Snell’s Equity
(32nd ed, Sweet & Maxwell, London, 2010) 22-001 at 22-051.
If he had any specific intentions as he now maintains (so far as they can be ascertained, see discussion above) he had every opportunity to consult his solicitor, discuss them, and ensure that the deed he entered into did in fact reflect those intentions. On the evidence at present, he did not. That is his responsibility.
[82] Thirdly, the first plaintiff’s evidence about the execution of the deed lacks credibility. The solicitor concerned is accused of inappropriate conduct in the preparation and execution of the deed which, given his experience and his longstanding professional relationship with the first plaintiff, has an element, at least, of inherent unlikelihood; further the evidence on this point directly conflicts with that of Mr Houlihan and of the defendant. The plaintiff had the opportunity to lead evidence from the solicitor himself but did not do so.
[83] Fourthly, the evidence shows that even if the first plaintiff was not given a copy of the trust deed at the time of its execution, as he maintains, he was sent a copy in 2001 when he became a trustee. He says he did not receive it. Nonetheless he acted as a trustee for five-and-a-half years and if his evidence is correct, he did so without any knowledge of the deed under which he was supposedly acting in that capacity.
[84] Fifthly, if it were found as a matter of fact that the first plaintiff received a copy of the trust deed in 2001 when it was sent to him, the defendant would have a strong defence of laches.
[85] Sixthly, even if the first plaintiff were to overcome all these hurdles, in determining whether to revoke the Trust or whether to rectify it the Court will take into account the interests of all those who have acted in reliance on it being a valid instrument for the last 14 years, including those who have benefited from the Trust, those who are discretionary beneficiaries, and those who deal with the Trust, for example, its financiers.
[86] Counsel for the defendant understandably argued that summary judgment should be entered, in these circumstances. To determine this I have analysed the
position if the first plaintiff’s evidence were to be consistent (where it presently is
not) and accepted as correct.
[87] This would result in the Court:
(a) making findings on exactly what the defendant’s intentions were for the
Trust, and how (if at all) they differ from the Trust as established;
(b)finding either that the first plaintiff signed an incomplete Trust document or that for some other reason such as his eyesight he was not aware at the time that the deed did not record his intentions;
(c) finding that he only learnt the provisions of the deed very recently.
[88] These findings would lay the foundations for the cause of action the first plaintiff wishes to pursue and eliminate the prospect of it being defeated by a defence of laches.
[89] On each point, as I have noted, there is conflicting evidence. In Attorney- General v Rakiura Holdings Ltd,13 the Court said:
In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them. On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331, at
341E, the Judge is not bound:
“to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.”
[90] As noted above, aspects of the testimony of the first plaintiff are equivocal and lack precision, conflict with other statements in the ways I have noted, and may be criticised as inherently improbable. Further, the first plaintiff’s statement that he did not receive a copy of the trust deed until recently conflicts with the letter sent to
him in 2001 enclosing a copy of the deed, and many of his assertions are at least
13 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14.
inconsistent with Mr Houlihan’s letter which resulted from a lengthy meeting which
he attended, and which was sent to his own solicitor.
[91] Against this background it is necessary to consider carefully the lengthy passage from Westpac Banking Corporation v M M Kembla New Zealand Ltd.14
Coupled with the need for caution where summary dismissal of a plaintiff’s claim will deprive the plaintiff of access to the Court process, as recognised in Bernard v Space 2000 Ltd,15 and such cases as Couch v Attorney-General,16 I discern a need to proceed in this case with caution, erring on the side of the plaintiff where an issue is finely balanced. Whilst the burden of proof on the defendant is only to establish on the balance of probabilities that the plaintiff cannot succeed, in my view it is only where that burden is discharged on clear evidence that a plaintiff’s claim should be summarily dismissed.
[92] Approaching my decision on this application in that way I am not satisfied that the first plaintiff in this case cannot succeed on a cause of action based on a mistaken belief as to the terms of the Trust. I am not prepared to enter summary judgment for the defendant on the first plaintiff’s second cause of action.
[93] The consequence of this is that I cannot, either, enter summary judgment for the defendant on the first plaintiff’s first cause of action, though were it possible to do so I certainly would.
[94] I therefore turn to consider the defendant’s alternative application that both causes of action should be struck out. I have no hesitation in striking out the first cause of action and need add nothing to the reasons recorded earlier.
[95] So far as the second cause of action is concerned, I take into account the principle that where it is possible that the cause of action could be sustained if repleaded, an opportunity should be given for that to occur. I extend that
opportunity. That said, the first plaintiff and his legal advisors should be in no doubt
14 Westpac Banking Corporation v M M Kembla New Zealand Ltd, above n 1, at [17].
15 Bernard v Space 2000 Ltd, above n 2, at [18].
16 Couch v Attorney-General [2008] NZSC 45.
that the extent of the re-pleading that is required is significant and that given the manifest shortcomings in the pleading as it stands, particularly when considered in light of the evidence which has been given, the prospect of a further application for strike out cannot be ruled out.
Second and Third Plaintiffs: first cause of action
[96] The second and third plaintiffs are persons within the class of discretionary beneficiaries under the Trust. In their first cause of action they seek to impugn the actions of the defendant as a trustee. They plead that certain duties are owed by the defendant to them, and they plead that he has breached his duties and, in addition, failed to comply with the trust deed.
[97] The alleged breaches of the defendant’s duties as a trustee are particularised in paragraph 24 by reference to a single transaction by which the Trust property was secured for an advance by a lender which was applied to the purchase of a commercial property in Dunedin which is owned by a company associated with the defendant but is separate from the Trust.
[98] In relation to alleged non-compliance with the trust deed, the pleading in paragraph 23(a), (b) and (c) respectively, refers to clause 17(m) of the trust deed, clause 17(v)(iii) of the deed and clause 12. I will deal with these in turn, below.
[99] In paragraph 25 it is said that as a result of “the actions of the defendant in breaching his duties” the beneficiaries have suffered damages which will be particularised after discovery and prior to trial. By way of relief the second and third plaintiffs seek an account of profits, an order or direction removing the defendant as trustee and a declaration that all property or assets acquired as a result of the security provided by the Trust belong to the Trust. An enquiry into damages is sought in the alternative.
[100] Clause 17(m) of the trust deed is in the following terms:
17.THE trustees in addition to all powers vested in them by statute or at law and in their absolute discretion may exercise the following powers
and authorities or any of them both in respect of the Trust Fund and during the infancy of any beneficiary in respect of any property held by the Trustees but allotted appropriated credited [sic] in account or otherwise held for such infant beneficiary, namely:
...
(m) TO erect repair restore reconstruct and add to any buildings and erections and to do any act in connection with any freehold or leasehold property which the Trustees consider will increase the value thereof whether or not the Trustees would apart from these presents be empowered to do such act including but not by way of limitation the power to grant easements or profits a prendre and to enter into party wall agreements and other mutual easements.
[101] The particular of the relevant pleading (23(a)) says:
Clause 17(m) of the trust deed requires the trustee to maintain and keep the property to reasonable standards. Minimal and deficient standards of maintenance have been provided for the trust property;
[102] Clause 17 is an empowering clause, clear in its terms. Sub-clause (m) does not require the trustee to take the actions specified in the particular.
[103] Clause 17(v) continues from the opening sentence recorded above, to provide:
TO do all such things as the Trustees think to be in the interests of the beneficiaries hereunder or any one or more of them including (by way of illustration and not of limitation):
...
(iii) THE benefit of the occupation use or enjoyment of any land or chattels for the time being subject to the trusts hereof may in the discretion of the Trustees either by means of a lease or licence bailment or otherwise and on such terms and conditions in all respects as the Trustees may think fit be granted to any beneficiary or beneficiaries hereunder to whom or for whose benefit the income of such premises would or might otherwise be payable or applicable and the Trustees shall have power at any time or times in their discretion to lay out any moneys forming part of the trust fund in the purchase or otherwise in the acquisition of any land or chattels for the purpose of enabling the same to be occupied used or enjoyed accordingly.
[104] In relation to this clause it is pleaded in paragraph 23(b):
The Defendant in breach of clause 17(v)(iii) of the trust has denied use and enjoyment of the trust property to other beneficiaries of the trust namely Shaun and Aaron Brenssell; ...
[105] Sub-clause v(iii) does not require the trustees to offer the use of the Trust property to other beneficiaries. Failure to do so as alleged cannot amount to a breach of this sub-clause. Further, the allegation relates to Shaun and Aaron Brenssell who are not plaintiffs. There is no allegation that either of the second or third plaintiffs is affected by any decisions that may or may not have been taken under this sub-clause.
[106] Clause 12 of the deed provides:
Trustee ’s Disc reti on
SUBJECT ALWAYS to any express provision to the contrary contained herein every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion PROVIDED HOWEVER that no Trustee hereof who is also a beneficiary hereunder shall exercise in his or her own favour any discretion vested in the Trustees and it is hereby expressly provided that all of the powers and discretion conferred herein may be exercised by the remaining Trustees in favour of any Trustee who is also a beneficiary hereof.
[107] The pleading in paragraph 23(c) is:
(c) The Defendant as trustee is in breach of the express provision of clause 12 against exercising discretion in his own favour by granting himself more money from the trust than to any of the other beneficiaries.
[108] It is not possible to determine whether the pleading in sub-paragraph (c) can be sustained, on the present state of the evidence.
[109] As with the causes of action by the first plaintiff, the defendant seeks summary judgment on the causes of action by the second and third plaintiffs. Summary judgment could not be granted in relation to the first of the two causes of action brought by the second and third plaintiffs. I am not satisfied on the balance of probabilities that a cause of action against the defendant for breach of clause 12 in relation to the exercise of a discretion in its own favour cannot succeed. Evidence is
required to determine how the decisions of the trustees, which have benefitted the defendant, were made. I agree with Mr Orlov that discovery of documents relevant to that issue must be given.
[110] Having said that, I am satisfied that paragraph 23, sub-paragraphs (a) and (b), must be struck out as they disclose no reasonably arguable course of action. It is not appropriate to allow an opportunity for them to be amended as the flaw in them is the fundamental failure to recognise that the pleaded clauses are empowering and do not impose duties.
[111] Accordingly paragraph 23 may remain solely with the particular in sub- paragraph (c). The particulars in sub-paragraphs (a) and (b) are struck out.
[112] As noted earlier [97], paragraph 24 gives particulars of an alleged breach of trust by giving security over the Trust property for a loan to a company associated with the defendant. Clause 17(u) of the trust deed empowers the trustees:
TO enter into or join in entering into any guarantee by the Trustees alone or together with any other person the giving of which the Trustees shall think to be in the interest of the Trust Fund or the beneficiaries hereunder or any one or more of them and to authorise any company in which the Trustees shall hold shares securities or other rights to enter into such guarantee or enter into any other arrangement whatsoever which the Trustees shall deem to be in the interests of the Trust Fund or the beneficiaries hereunder or any one or more of them AND in support of or in lieu of any such guarantee to give security by way of mortgage charge or assignment or otherwise over the whole of the Trust Fund or any real or personal property comprised therein.
[113] Despite the reference to the defendant only in paragraph 24, it is clear that the actions challenged in this paragraph are those of the trustees, not solely the defendant. At the relevant time the trustees were, in addition to the defendant, A J Brenssell, C B Brenssell and S N Brenssell. By clause 17(u) of the trust deed the trustees were empowered to grant a mortgage over the Trust property if they considered it to be in the interests of any one or more of the beneficiaries, and it is apparent on the evidence that that is what they have done. The defendant is one of the beneficiaries.
[114] For that reason I am satisfied that the allegations in paragraph 24 cannot succeed, whether brought solely against the defendant, as at present, or against all trustees. No reasonably arguable cause of action is disclosed, nor can this be improved by an opportunity to amend.
[115] Therefore paragraph 24 is struck out.
[116] As a result, paragraphs 22, 23(c) and 25 remain, but cannot remain in their present form. Paragraph 22 must be amended to plead only that the defendant has acted in breach of the terms of the Trust because that is the only conduct of his that remains within paragraph 23, and paragraph 24 has been struck out.
[117] Paragraph 23(c) should be re-pleaded against all trustees if it is to be retained.
[118] Paragraph 25 is to be amended to plead the damage which the second and third plaintiffs, as members of a class of discretionary beneficiaries, allege they have suffered as a result of the actions of the defendant described in the remaining portion of paragraph 23. In this respect the plaintiffs must reflect on the limited rights of the second and third plaintiffs as discretionary beneficiaries, and plead with sufficient clarity and particularity how it is said that the breach of trust, alleged in paragraph
23, has affected them as discretionary beneficiaries.
[119] It follows that the prayer for relief following this cause of action requires re- pleading. Paragraph (a) seeks an “account of profits”. This is unsustainable. No profits are at issue. It is struck out. Paragraph (c) is struck out as it relates to paragraph 24. Paragraph (d) needs amendment consequent on the required amendments to paragraph 25. Paragraphs (b) and (e) of the prayer for relief may remain, but subject to amendment as a result of all the trustees being cited as defendants.
Second and Third Plaintiffs: second cause of action
[120] In this cause of action it is alleged that the defendant has failed to keep full
and proper accounts for the Trust and has not supplied “the beneficiaries” –
presumably the second and third plaintiffs – with accounts even after being requested to do so. It is further alleged that other information and explanations in relation to investments and dealings with the Trust property since the creation of the Trust have not been given.
[121] Since the proceeding was issued the accounts for the Trust have been provided to the second and third plaintiffs. A review of the pleading and prayer for relief which follows shows that although failure to give the beneficiaries “information and explanations as to the investment and dealings with the Trust property” is alleged, no particulars of the failure are given and no orders in respect of any further information or explanations is sought in the prayer for relief. This cause of action as it stands does not disclose any reasonably arguable cause of action given the provisions of the accounts. Amendment would not assist; discovery may be sought on the re-pleaded claim if appropriate, under the High Court Rules.
[122] The second cause of action is struck out.
Outcome
[123] (a) The plaintiffs’ application for summary judgment against the first
plaintiff is dismissed.
(b) The first plaintiff’s first cause of action is struck out.
(c) The first plaintiff’s second cause of action may be re-pleaded to reflect this judgment, and in accordance with the requirements of the High Court Rules and relevant principles of law.
(d) The defendant’s application for summary judgment against the second
and third plaintiffs is dismissed.
(e) Paragraphs 23(a) and (b) are struck out. (f) Paragraph 24 is struck out.
(g) Paragraph 25 is to be amended as directed in [118].
(h) Paragraphs (a) and (c) of the prayer for relief on the second and third
plaintiffs’ first cause of action are struck out.
(i) The second and third plaintiffs’ second cause of action is struck out.
[124] Costs are reserved. I observe that although the defendant has not succeeded in his application for summary judgment, he has largely succeeded in his application to strike out. Where the causes of action have been allowed to stand, the pleadings require substantial amendments. The many flaws in the pleadings are as fundamental as failing to join the right parties, failing to identify appropriate relief, and being at odds with the plaintiffs’ own evidence. A manifest lack of analysis of the case prior to the pleadings being filed, or within a short time thereafter given the claim of a need to file as a matter of urgency, is apparent. My present inclination is to award costs to the defendant on a 2B basis; memoranda not exceeding three pages of typing in the form and density of this judgment may be filed within 10 working days if agreement is not reached. If this step is not taken I will award costs as
indicated.
J G Matthews
Associate Judge
Solicitors:
Equity Law – Email: [email protected] / [email protected]
Downie Stewart – Email: [email protected]
0