Cadman v Visini HC Auckland CIV-2009-404-7925

[2011] NZHC 526

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-7925

BETWEEN  MARTIN LEIGH CADMAN AND VANESSA JANE CADMAN AS TRUSTEES OF THE CADMAN FAMILY TRUST

Plaintiffs

ANDPETER JOSEPH VISINI Defendant

Hearing:         24 March 2011

Further submissions filed:   20 April and 5 May 2011

Counsel:         L Gerrard for Plaintiffs

RE Lawn for Defendant

Judgment:      30 May 2011 at 11:00 AM

JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 30 May 2011 at 11:00 am

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

L Gerrard, Hayden Tate Limited, PO Box 47640 Freemans Bay Auckland 1011 ([email protected] ) RE Lawn, Kumeu-Huapai Law Centre, PO Box 122 Auckland 0841 ([email protected] )

CADMAN V VISINI HC AK CIV-2009-404-7925 30 May 2011

Introduction

[1]      The defendant, Peter Joseph Visini, applies, pursuant to Rule 15.1 of the High Court Rules, to strike out a proceeding brought against him by the plaintiffs, in their capacity as trustees of the Cadman Family Trust (―the Trust‖).    Rather than alleging any failure by the plaintiffs to assert an arguable claim against him, the defendant asks the Court to strike out the proceeding on the basis of an alleged technical error by the trustees in the administration of the Trust,

Background

[2]      There  is  a  house  at  678  Ridge  Road  in  Coatesville,  Auckland  (―the Coatesville property‖) which has become another casualty in what has popularly become known as the leaky building crisis.[1]

[1] The summary of the relevant facts is taken from the pleadings and affidavits sworn in respect of the strike-out application. Consistently with the usual approach to strike-out applications, it is assumed that the plaintiffs will be able to prove the pleaded case.  Nothing in this Judgment should be taken as indicating any view as to the merits of the substantive claim.

[3]      The property is owned by the Trust. Martin Leigh Cadman and Vanessa Jane Cadman (―the Cadmans‖) brought a claim, purportedly in their capacity as trustees of the Trust, seeking compensation for the loss the Trust had suffered, or anticipated suffering, on account of the weathertightness issues.

[4]      The current litigation has its genesis in the mid 1990s. By trust deed dated 25

August 1995, Mr Cadman settled the Trust. He named himself, Ms Cadman and

Peter Winston Wood, an Auckland accountant, as trustees (―the original trustees‖).

[5]      Under  the  terms  of  that  trust  deed,  the  trustees  became  the  registered proprietors of the Coatesville property. The plaintiffs allege that in August 1998 the defendant was engaged to design a house to be built on the property. They say he agreed to act as supervisor and project manager of the construction of the house.

[6]      It  is alleged  that, in  December 1998,  the defendant submitted plans  and specifications for the construction of the house to the Rodney District Council in

order to obtain a building consent. That consent was issued in February 1999 and

[7]      The original trustees were not involved at all in the construction process. It is alleged the defendant acted as head contractor. He is said to have hired all the tradesmen, invoiced the plaintiffs for their services and materials, and charged an additional seven per cent for his work as project manager.

[8]      The  Cadmans  moved  into  the  house  on  10  December  1999;  initially occupying only one room. At that stage, construction was ongoing and  the last invoice from the defendant was not provided until 15 December 2000. A number of inspections were conducted throughout the construction. The last of these was on 4

November 1999 when the drainage was inspected. No final inspection of the house was undertaken. There was no application for a Code Compliance Certificate (―CCC‖) at that stage.

[9]      In  July 2009,  however,  an  application  was  made to  the Rodney District Council for a CCC. The house failed two inspections and the Cadmans obtained a specialist report from a weathertightness expert. On 4 November 2009, a report from that expert indicated that there were a variety of weathertightness defects. As a result of the defects, the house had suffered from extensive water ingress causing considerable damage.

[10]     Subsequently, on 1 December 2009, the plaintiffs initiated a proceeding in this  Court  claiming  that  the  defendant  had  acted  negligently  and  that  they had suffered  loss  as  a  consequence. They sought  compensatory damages  as  well  as general damages for the stress and anxiety suffered. The Cadmans filed the proceeding in their own names but, so far as the intitulement of the documents reveals, ―as Trustees of THE CADMAN FAMILY TRUST‖. Mr Wood was not listed as a plaintiff.

[11]     A statement of defence was filed by the defendant on 21 January 2010.  On

29 June 2010, the defendant applied to have the plaintiffs’ claim struck out.

[12]     The defendant claims that the Cadman’s statement of claim discloses no reasonably arguable cause of action. He maintains that it should be struck out pursuant to High Court Rule 15.1. That rule 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 counter claim.

(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.

[13]     The principles relating to strike-out applications are well established. The jurisdiction to strike out should be exercised only in clear cases where the cause of action is so clearly untenable that it could not possibly succeed; it is a jurisdiction to be exercised only sparingly.[2]  The defendant maintains that this case meets the test.

[2] Attorney-General v Prince and Gardner [1998] 1 NZLR 262 at 267.

[14]     I have had the benefit of comprehensive written submissions from Mr Lawn on  behalf  of the defendant,  supplemented  by cogent  oral  argument,  and  I have considered that material carefully.  The defendant’s arguments in support of striking out the proceedings may be distilled to these:

(a)     Attempts by the original trustees to replace Mr Wood by a trustee company were invalid, with the result that Mr Wood was a trustee at

the time the proceedings were issued.

(b)The proceedings have been brought, purportedly, in the name of the Trust, but they were not authorised by all three trustees by a decision reached unanimously.   Consequently, the proceedings were void ab initio. Thus, there is no prospect of success.

(c) The current proceedings being a nullity, the plaintiffs must commence fresh proceedings brought properly in the name of the Trust. But the long-stop provision in s 393 Building Act 2004 means that any new proceedings would be statute-barred.

(d)If Mr Wood is still a trustee, an attempt to validate the proceedings by adding him as a plaintiff would be prevented, because it would be adding a new party rather than merely correcting a misnomer or mis- description of the parties in the pleading.[3]    The plaintiffs are now out of time to add a new party.

(e)     Rule 5.35 High Court Rules requires a party suing or being sued in a representative  capacity  to  show  that  capacity  in  the  statement  of claim.  Although the plaintiffs are described in the intitulement to the proceedings ―as Trustees of the CADMAN FAMILY TRUST‖,  they have not pleaded that capacity in the body of the statement of claim.

[3] Todd Energy Ltd v Transpower NZ Ltd (2000) 15 PRNZ 26.

[15]     Given the focus of the defendant’s arguments, it is necessary to examine the operation of the Trust.

The Cadman Family Trust

[16]     The original trustees were listed on the certificate of title to the Coatesville property.

[17]     In 2005, Mr Wood indicated to the Cadmans that he wished to retire as a trustee. This was done by a handwritten note dated 25 November 2005. A document headed ―Deed  of Retirement of Trustees and Appointment of New Trustees‖  (―the

retirement document‖) was drawn up in 2007 to give effect to Mr Wood’s desire. The retirement  document  purported  to  retire  Mr Wood  as  a  trustee  while  appointing Northplan Trustees Limited (―Northplan‖) in his place. The Cadmans were to continue as trustees.

[18]     The document contemplated, at clause 6, the vesting in the new trustees of trust property not automatically transferred, such as the Coatesville property. However, no such transfer ever took place and, even after the retirement document was  purportedly  executed,  Mr Wood  remained  on  the  certificate  of  title  to  the property.

[19]   After signing the retirement document, Mr Wood ceased to have any involvement with the Trust although he continued to act for the Cadmans as their accountant.  No other step was taken to bring his trusteeship to an end, although after the commencement of this proceeding, a transfer authority as contemplated in the retirement document was executed, removing Mr Wood from the certificate of title to the property from about August 2010.

[20]     It is now evident that the retirement document was defective. It did not fully comply with the requirements of s 4 of the Property Law Act 1952, the Act in force at the time. Although the document was signed by all the parties to it, including a representative of Northplan, s 4 required each of those signatures be witnessed by at least one person. The signatures of the Cadmans were not witnessed.

[21]     There is an important distinction to be drawn between the removal of a trustee and the retirement of a trustee. That distinction is particularly evident in the current case.

[22]     Here, the former is contemplated by cl. 14.2 of the trust deed. That clause gives the same person who has the power to appoint new trustees (in this case the Cadmans) the power to remove trustees without the need to give reasons. There is no requirement in that clause that the removal be facilitated by deed. In fact there are no requirements as to form at all.

[23]     The retirement of a trustee, by contrast, is not provided for in the trust deed. There being no contrary intention expressed in the trust deed, the provisions of s 45

of the Trustee Act 1956, relating to the retirement of trustees, apply.[4]  That section requires that the retirement of a trustee be by deed and, importantly, that the consent of the co-trustees to that retirement must also be by deed.

[4] Trustee Act 1956, s 2(4).

[24]     At no stage did the Cadmans purport to remove Mr Wood as a trustee. That much is evident from the retirement document itself which is headed up a ―Deed of Retirement of Trustees...‖   But, purporting to be a deed of retirement, it had to comply with the requirements of s 4 of the Property Law Act 1952.   It did not so comply, at least so far as the signatures of the Cadmans were not witnessed.

[25]     In Re Vanstone[5] a deed was signed by eight out of the nine parties. The party who refused to sign contended that the other eight were bound by their execution of the deed. It was held by the Court of Appeal that there was no statement by the signatories that the deed was intended to be delivered in escrow, and that the surrounding circumstances did not disclose any intent that the deed should be operative only when executed by all parties.

[5] Re Vanstone [1955] NZLR 1079 (CA).

[26]     On this basis, it could be argued that Mr Wood’s retirement was effective, notwithstanding the defect in the deed, as he was bound by the deed  from the moment that he signed.

[27]     In my view, however, this case is distinguishable from Vanstone.  Here, any attempt to hold the retirement to be effective must be reconciled with the specific statutory requirement that the continuing trustees must consent by deed before the retiring trustee is deemed to have retired.   Because their signatures were not witnessed, the Cadmans cannot be said to have given their consent by deed.

[28]     I find that, for those reasons, Mr Wood continued to be a trustee of the Trust at the time the proceeding was issued.

[29]     If I am wrong about that, Mr Wood’s retirement was effective before the

proceedings were issued.  Northplan was not a trustee at the time of issuing, leaving the Cadmans as the only trustees. The defendant’s argument would fail on that point.

Effect of alleged breach of trust

[30]     The defendant submits that, as Mr Wood was a trustee of the Trust at the time the proceedings were issued, there was a breach of trust by virtue of the proceedings having been issued without his consent.   First, in the absence of proper authority, trustees may not delegate their powers and must act unanimously, if more than one.[6]

Second, by definition, the power to issue proceedings under clause 21.37 of the trust deed was vested in ―the Trustees‖,  i.e. the Cadmans and Mr Wood, not merely a majority of them.   Consequently, it is submitted, the plaintiffs had no standing to bring the current proceedings.

[6] Rodney Aero Club Inc v Moore [1998] 2 NLZR 192; Niak v Macdonald [2001] 3 NZLR 334.

[31]     The plaintiffs acknowledge that the original trustees were, in the ordinary course of events, required to exercise their powers as trustees unanimously.  They point, however, to clause 22 of the trust deed which reads:

22.      Trustees’ majority decisions

If any dispute or difference shall arise between the Trustees respecting any matter relating to the Trust Fund the decision of the majority of the Trustees, if there be more than two, shall be binding on the other Trustees provided that any Trustee may require the Trustees to record their disagreement and advise  the  person  for  the  time  being  entitled  to  appoint  new  or  further Trustees of the disagreement.

[32]     I do not think this provision assists the plaintiffs.  It is clear that the power to bind  a  minority of  trustees  applies  only where  any dispute  or  difference  arises between the trustees.  By necessary implication, a dispute or difference cannot arise unless all of the trustees are aware of the matter in dispute or giving rise to the difference and express differing views.   In the present case, Mr Wood believed he was no longer a trustee and was unaware of the issuing of the proceedings.

[33]     In the alternative, the plaintiffs refer to an affidavit sworn in relation to this application by Mr Wood on 18 November 2010.  In it, he confirms that it had been his intention to retire as a trustee in 2007 when he signed the retirement document and, further, that he consented to his trusteeship being brought to an end by the removal of his name from the certificate of title for the Coatesville property on

11 August 2010.

[34]     Mr Wood’s trusteeship stemmed from the trust deed and its provisions, not from the certificate of title, so that if the retirement document was not effective in removing him as the trustee, it follows that he remains a trustee of the Trust.  That being so, the plaintiffs argue, Mr Wood had the capacity to ratify the issuing of the proceedings ex post facto and he has done so at paragraph 6 of his affidavit.

[35]     I agree.  The potential for such a course was implied in Niak v Macdonald where it was held at [20] that there continued to be a breach of trust because the breach, the misuse of trust funds, had not been subsequently authorised or ratified by the trustees. I am satisfied, therefore, that the Cadmans are entitled to claim that, in continuing the proceeding, they are validly acting under their power to do so as trustees, as retrospectively authorised by clause 21.37 of the trust deed.

Assuming Mr Wood remained a trustee, who was entitled to sue?

[36]     A trust is not a legal entity; it is a concept which describes the equitable obligations of the trustees, requiring them to deal with property over which they have control in the interests of the beneficiaries.[7]   When proceedings are brought in the name of a trust, therefore, the proceedings must be initiated by the trustees as individuals but suing in their capacity as trustees.

[7] Butler (ed), Equity and Trusts in New Zealand (2nd ed) Brookers Ltd 2009, 3.1.2; Kelly (ed) Gamon and Kelly Law of Trusts and Trustees (6th ed), LexisNexis NZ Ltd 2005, 1.4; Dick v CIR [1999] 2 NZLR 756, 759

[37]     There is no general requirement of law that all of the trustees who have authorised the issuing of Court  proceedings must be named as parties in the ensuing litigation.  Rule 4.24 HCR provides:

4.24     Persons having same interest

One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding—

(a)       with the consent of the other persons who have the same interest; or

(b)      as  directed  by  the  court  on  an  application  made  by  a  party  or intending party to the proceeding.

[38]     In   Hill   v   Wellington   Co-operative   Taxi   Owner-Drivers’  Society   Ltd[8]

McGechan J allowed an application by one of four executors of an estate to take over the conduct of proceedings initiated by the deceased, observing that:

I see this as a situation where all persons interested in an estate whether as executors or beneficiaries are in agreement that one of their number, an executor, shall have the conduct of the proceeding in such manner as he sees fit.

[8] Hill v Wellington Co-operative Taxi Owner-Driver Society Ltd HC Wellington A4/75, 3 February 1988.

[39]     Generally speaking, a defendant may challenge the standing of a person purporting to sue only by establishing that the suing party does not have a sufficient interest in the subject-matter of the proceeding; that question is to be considered in the factual and legal context of the proceedings.[9]    Here, there is no doubt that the Cadmans have been trustees of the Trust throughout.   They are the registered proprietors of the Coatesville property in that capacity; as such, they were entitled to hold themselves out, in the intitulment to the proceedings, as suing in their capacity

as trustees. Although Mr Wood was also a registered proprietor of the property at the time the proceeding was issued, r 4.24 HCR applies.

Have the plaintiffs sufficiently shown the capacity in which they sue?

[9] Inland Revenue Commissioner v National Federation of Self-Employed and Small Businesses ltd [1981] 2 All ER 93 (HL). This approach has been followed in New Zealand in cases such as Environmental Defence Society v South Pacific Aluminium ltd (No. 3) [1981] 1 NZLR 216 (CA) and Murray v Whakatane District Council [1999] 3 NZLR 276, 307.

[40]     The only question which arises on the pleadings, in my view, is whether the Cadmans have sufficiently shown their capacity as trustees.  Rule 5.35 of the High Court Rules provides that ―a party to a proceeding who sues or is sued in a representative capacity must show in what capacity the party sues or is sued in the statement of claim.‖

[41]     The  defendant  argues  that  a  mere  reference  in  the  intitulement  to  the plaintiffs suing in the capacity as trustees is insufficient to meet the requirements of this  rule.    He  says  that  since  the  proceedings  could  only  be  brought  by  the proprietors  of  the  Coatesville  property,  who  are  the  trustees,  the  fact  that  the plaintiffs are suing as trustees should have been pleaded in the body of the claim as part of the foundation for the cause of action.

[42]     The requirement of r 5.35 is to ―show‖ in the statement of claim in what capacity the party sues.  It is significant, in my view, that the word ―show‖ is used,

rather than a word such  as  ―plead‖;  ―to  show‖  means  to  exhibit  or present,  to

display,[10] or to make visible, to indicate or explain.[11]

[10] New Shorter Oxford English Dictionary.

[11] New Collins Concise English Dictionary.

[43]     Holding  that  a  reference  to  representative  capacity  in  the  intituling  is sufficient, applying those definitions, rather than requiring the capacity to be fully pleaded, is consistent with the purposive approach to the interpretation and application of the rules which is required by r 1.2.

[44]     It is noteworthy that the learned authors of McGechan on Procedure have provided a commentary to r 5.35 as follows:

HC5.35.1        Proceedings against executors and trustees of estates

The rule has perhaps its commonest application in proceedings against executors and trustees of estates. Such should be named in the statement of claim in fashion recognising their capacity as such, and not simply in their individual names. For example, description in the heading of the statement of claim might be ―AB and CD of Wellington, solicitors as executors and trustees of the estate of EF, late of Wellington, retired, deceased‖.

[45]     It is clear that the plaintiffs’ solicitors, in drafting the statement of claim, have adopted this approach in their description of the plaintiffs in the heading of the statement of claim.

[46]     Even if a particular pleading were required in order to meet r 5.35, I would readily allow the plaintiffs to amend the proceedings under r 1.9, on the basis that the substance of the claim is not affected; the amendment could not possibly be said to prejudice the defendant in any way; and any non-compliance with r 5.35 is merely an

irregularity.[12]    In light of the decisions I have made in this Judgment, however, no

amendment to the pleadings is required.

Is the defendant disadvantaged regarding a potential costs order?

[12] Rule 1.5(1)(a) HCR.

[47]     A subsidiary argument for the defendant was that he would be disadvantaged by non-compliance with the trust deed and the issuing of the proceeding by the Cadmans as the only plaintiffs, if that meant that the Cadmans were able to evade

liability for any costs award in the defendant’s favour.  There is nothing in that point.

The plaintiffs will be primarily liable to the defendant for any costs orders made against them; whether they may then seek an indemnity from the Trust for any such liability,  and  satisfy any costs  orders from  trust  funds, is a matter between  the trustees and the beneficiaries.   Mr Wood’s ratification of the proceedings would appear to deal with this point, in any event.

[48]     Further, whether the plaintiffs might be in a position to pay costs is not a matter to be taken into account in determining whether or not there is a cause of action or whether the proceedings should be struck out.

Conclusion

[49]     It follows, in my view, that there is no substance to the defendant’s arguments that the statement of claim as presently pleaded discloses no cause of action.   In summary:

(a)      The Cadmans have shown the capacity in which they sue; namely, as the registered proprietors of the subject matter of the claim, positions they hold as trustees of the Trust.

(b)The Trust not being a separate legal entity, the proceeding could only have been brought by the trustees as individuals and the Cadmans have done so;

(c)      In  any event,  Mr Wood  remains  a trustee and  he has  ratified  the decision to sue.

[50]     The strike out application is dismissed.

[51]     The plaintiffs having succeeded, they are entitled to costs which should be determined now.   I will leave it to the parties to confer but, in the absence of agreement, the plaintiffs should file and serve a memorandum as to costs within

20 working days of this Judgment.

[52]     The defendant shall have 20 working days from service of the plaintiffs’

memorandum in which to file and serve a memorandum in reply.

........................................................

Toogood J