Crummer Trustees no. 83 Limited v Bank of New Zealand
[2015] NZHC 2165
•8 September 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000571 [2015] NZHC 2165
BETWEEN CRUMMER TRUSTEES NO.83
LIMITED Plaintiff
AND
BANK OF NEW ZEALAND First Defendant
AND
PARK ROAD CONSOLIDATED LIMITED
Second Defendant
AND
XFHNZ LIMITED Third Defendant
AND
CLASSIC BUILDERS GROUP LIMITED Fourth Defendant
AND
PETER DESMOND COONEY Fifth Defendant
AND
MERIDIAN TRUSTEE SERVICES LIMITED AND CLM TRUSTEES LIMITED
Sixth Defendants
Hearing: 25 August 2015 Appearances:
M C Black for Plaintiff
SM Bisley and B J Maltby for First Defendant
No appearances by or for Second to Sixth DefendantsJudgment:
8 September 2015
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie on 8 September 2015 at 4pm
Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:…………………………
CRUMMER TRUSTEES NO.83 LIMITED v BANK OF NEW ZEALAND & ORS [2015] NZHC 2165 [8
September 2015]
Introduction
[1] The plaintiff, Crummer Trustees No.83 Limited (“Crummer Trustees”), has filed a claim against various defendants in relation to a joint venture in a residential development in Katikati.
[2] Crummer Trustees is the corporate trustee of a trust known as the Winning Trust and the Winning Trust was one of the joint venturers. The other joint venturer was another trust – the Nexus Trust. The settlors behind the two joint venture trusts:
(a) settled a third trust, known as the Davric Trading Trust;
(b) incorporated the second defendant, Park Road Consolidated Limited
(“Park Road”); and
(c) appointed Park Road as the corporate trustee of the Davric Trading
Trust.
The joint venture was conducted through Park Road and the Davric Trading Trust. The first defendant, the Bank of New Zealand (“BNZ”) held and operated the bank accounts for the Davric Trading Trust.
[3] The most recent amended statement of claim raises eight causes of action. The sixth to eight causes of action (inclusive) are against the BNZ. They broadly allege:
(a) breach by the BNZ of its banking mandate;
(b) breach by the BNZ of fiduciary duties said to be owed to Crummer
Trustees; and
(c) negligence by the BNZ.
[4] BNZ seeks summary judgment on, or in the alternative, to strike out,
Crummer Trustees’ claims against it. The application is opposed by Crummer
Trustees. It in turn applies for particular discovery against BNZ, and this application is resisted by the BNZ.
[5] Counsel were agreed that it is appropriate to deal first with BNZ’s application for summary judgment and/or strike out. Unless that application succeeds, it will then be necessary to deal with Crummer Trustee’s application for particular discovery.
Background
(a) The joint venture
[6] In its amended statement of claim, Crummer Trustees alleges that it is a trustee company and that it is suing in its capacity as trustee of the Winning Trust. It says that the Winning Trust has, and continues to have, a 50 per cent beneficial interest in a joint venture residential development at Katikati, and that Park Road was incorporated as the sole trustee and corporate vehicle through which to implement the joint venture. It asserts that Park Road undertook the joint venture and traded on behalf of the joint venture partners as the Davric Trading Trust. It says that the initial directors of Park Road were a Mr David Macfarlane and a Mr Richard Black.
[7] Crummer Trustees alleges that the BNZ operated and managed Park Road’s joint venture accounts under the name Davric Trading Trust, and that the accounts were opened and managed on behalf of the joint venture beneficiaries who were required to use the accounts for all profits and expenses relating to the joint venture.
[8] Crummer Trustees says that the initial parties to the joint venture were the Winning Trust and the Nexus Trust, that the Nexus Trust was for interests associated with Mr Macfarlane, and that the Winning Trust was settled by and was for interests associated with Mr Richard Black. It is then said that the Nexus Trust decided to sell its interest in the joint venture, and that in December 2010, the third defendant, XFHNZ Limited, purchased the interests of Mr Macfarlane and the Nexus Trust in the joint venture. It says that Mr Macfarlane was then removed as a director of Park Road, and that the fifth defendant, Mr Cooney, became a director of Park Road,
along with Mr Black, and that the shares held by the Nexus Trust in Park Road were transferred to XFHNZ Limited.
[9] The amended statement of claim alleges a number of causes of action against the second to sixth defendants, either individually or together, including breach of the joint venture agreement, breach of fiduciary duty, knowing receipt and dishonest assistance, representations under the Fair Trading Act 1986, shareholder oppression, and dispositions which sought to defeat Crummer Trustee’s interests as a creditor in breach of the Property Law Act 2007.
[10] Broadly, it is alleged that the second, third, fourth, fifth and sixth defendants individually or together “wrongfully obtained, kept, and derived an unequal, disproportionate and unjust share of the profits and benefits resulting in the joint venture to the detriment and disadvantage of ” Crummer Trustees and its 50 per cent beneficial interest in the joint venture. It is said that the second to sixth defendants permitted Park Road and the Davric Trading Trust’s accounts to be utilised in their own self interests, and in breach of the rights and duties owed to Crummer Trustees.
(b) BNZ – Park Road – Davric Trading Trust
[11] On 9 August 2010 the accounting firm, KPMG, sent an email to the BNZ, requesting it to open both a cheque account and a call account for the Davric Trading Trust. The email stated that the trust was “owned ” by the Nexus Trust and by the Winning Trust, and advised that both trusts had a “50 per cent ownership” in the Davric Trading Trust. It also noted that Davric Trading Trust had a corporate trustee
– Park Road – and that that company was owned in equal one half shares by the Nexus Trust and by the Winning Trust. BNZ was told that the accounts would be used for the purposes of the property development. It knew that the development had started a number of years earlier, and it was aware that the account would be used to make payments, both to meet development costs, and to beneficiaries of the trust and persons associated with them.
[12] On receipt of the email, a Ms McQuarrie at the bank:
(a) requested a copy of the trust deed for the Davric Trading Trust. It was promptly provided by KPMG. The deed confirmed that Park Road was the sole trustee of the Davric Trading Trust, and that the Nexus Trust and a trust known as the Papamoa Trust were discretionary beneficiaries of the trust. The BNZ also received a copy of a deed excluding the Papamoa Trust as a beneficiary of the trust and a further deed appointing the Winning Trust as a beneficiary of the trust. BNZ did not request a copy of the Nexus Trust deed; nor did it request copies of the Papamoa or Winning Trust deeds. The BNZ was advised by KPMG that the Nexus Trust was a trust for the interests of Mr Macfarlane and that the Winning Trust was a trust for the interests of Mr Black. The BNZ was not however advised of Crummer Trustees and it did not know of its existence;
(b)carried out a company search of Park Road. The search confirmed that Park Road’s directors were Mr Macfarlane and Mr Black, and that its shareholders were Mr Macfarlane and Sharp Tudhope Trustee Services Limited;
(c) carried out a commercial credit check on Park Road, and also on a Ms Preston-Lett, an accountant with KPMG, who KPMG had proposed should be an authorised signatory on the accounts; and
(d)obtained identification confirmation from Ms Preston-Lett. It did not obtain identification from either Mr Macfarlane or Mr Black – both were existing BNZ clients and no further identification was needed from them.
[13] It was BNZ’s practice, when it opened an account for a trust, to complete customer details forms for both the trustee and the trust, so that the account could be in the name of the trust and bank statements could issue in the trust’s name. This was apparently preferred by customers.
[14] In this case the bank prepared separate customer details forms for the Davric Trading Trust and Park Road. The Davric Trading Trust was named as the business customer on one form and Park Road was named as the business customer on the other form. The trustee was recorded as being Park Road on the Davric Trading Trust form. It was also noted on the Davric Trading Trust form that two signatures would be required to operate the accounts, and that Ms Preston-Lett was to have access to the accounts for internet banking and phone banking. Both customer details forms were signed by Mr Macfarlane and Mr Black. Both described themselves as being company directors.
[15] The two accounts were opened on 12 August 2010 – a business first transact (cheque) account and a business first on call account. The instruction to open the accounts recorded that they were to be in the names of the Davric Trading Trust and Park Road.
[16] The bank sent out a copy of its standard terms and conditions, an account operating authority, and an additional signatories form. These were presumably sent to KPMG. The standard terms and conditions recorded that any person the customer might wish to authorise to instruct the bank had to be listed on the account operating authority.
[17] The account operating authority was signed by both Mr Macfarlane and Mr Black on 13 August 2010. It recorded that two signatures were required, and it authorised the BNZ to act on the joint instructions of Mr Black and Mr MacFarlane. The authority was returned to the bank. The additional signatories form added Ms Preston-Lett at KPMG and another accountant, a Mr Lee, as additional authorised signatories. Both Mr Macfarlane and Mr Black signed this form, as did Ms Preston- Lett and Mr Lee.
[18] On 23 December 2010, following the sale of Nexus Trust’s interests in the joint venture, Mr Macfarlane resigned as a director of Park Road. The fifth defendant, Mr Cooney, and a Mr Lagerberg, were appointed in his stead. The BNZ was not told of this however and it did not become aware of the changes until August
2011.
[19] On 18 January 2011, a Ms Gatfield at the BNZ sent an Internet Banking for Business (“IB4B”) registration form to Mr Black and a Ms Susan Lagerberg. The email requested them to complete the form and recorded as follows:
This must be signed off by the current truistees (sic) of the Davric Trading Trust, if the trustees have changed from our records then we must be provided with a copy of the amendments.
Mr Black, who was at the time one of the authorised signatories, and Ms Lagerberg, who was not an authorised signatory, signed the IB4B registration form and returned it to the bank along with a declaration relating to the use of internet banking. Inter alia the declaration contained an acknowledgement by the customer that its existing account operating mandates did not apply to its use of internet banking, and that they might be overridden by the operating mandates recorded in the IB4B registration form.
[20] The IB4B registration form was returned to the bank and it actioned it. Mr Black became an “administrator”, which meant he had authority to view and conduct transactions and could remove “authorisers” or sub-users from the account. Ms Lagerberg became an “authoriser”, which meant she could authorise internet banking transactions. Park Road became registered for internet banking on the Davric Trading Trust account with a maximum, and daily, limit on each transaction of
$500,000.
[21] In August 2011, Park Road provided a guarantee to another company of which Mr Cooney was a director. This company was also a customer of BNZ. As a result of this transaction, the BNZ became aware that the directors of Park Road had changed. For some reason however, it was only in late May 2012 that the bank sent a fresh account operating authority to Park Road for the Davric Trading Trust’s accounts. On 24 May 2012, Mr Black, Mr Cooney and Mr Lagerberg signed the new account operating authority as directors of Park Road, and returned it to the bank. The new account operating authority provided that only one authorised signatory was required to instruct the BNZ in relation to the Davric Trading Trust accounts.
[22] On 20 June 2012, Ms Lagerberg became an additional authorised signatory. It appears that the authority for this was signed by Mr Black, Mr Cooney and Mr Lagerberg. It was also signed by Ms Lagerberg.
[23] On 25 June 2013, Ms Lagerberg sent an email to the bank. She asked for the bank’s assistance in removing Mr Black “from having authority on the account Davric Trading Trust 02-0466-0281-588-00”. As I understand it, this was the business first transact (or cheque) account. Ms Lagerberg advised that Mr Black was no longer a director of Park Road, and that Mr Cooney and Mr Lagerberg were the only two directors.
[24] The bank checked the Companies Office register. It recorded that Mr Black had ceased to be a director of Park Road as from 13 March 2013. It transpired that Mr Black had been adjudicated bankrupt on 22 February 2013. It seems that the bank had been told of this before Ms Lagerberg requested its assistance to change the account operating authority, but for some reason it had not sought to clarify the issue itself with Park Road or Mr Black.
[25] BNZ then sent a further replacement account operating authority to Park Road. On 1 July 2013, Mr Lagerberg and Mr Cooney signed that authority. It was returned to the bank by email. Again, it required only one signatory to operate the accounts. Mr Black was removed by the bank as an authorised signatory on the accounts. He was also removed as an administrator for internet banking. BNZ did not inform Mr Black that he had been removed from the account operating authority or as an administrator. Nor did it inform Crummer Trustees of the change, for the simple reason that the BNZ did not know of Crummer Trustees’ existence.
[26] Since 1 July 2013, the bank has operated the account in accordance with the account operating authority signed on 1 July 2013. It has made payments from the account when instructed to do so by either Mr Cooney or Mr Lagerberg.
[27] On 21 October 2014, Mr Cooney contacted the BNZ and told it that $335,000 had been debited from one of Davric Trading Trust’s accounts. BNZ’s fraud team immediately investigated the matter, and ascertained that Mr Black had transferred
the funds using his personal internet banking authority. As at 1 July 2013, Mr Black had lost his authority to draw on the Davric Trading Trust accounts, and his IB4B registration as administrator had been cancelled. However Mr Black’s personal internet banking access to Davric Trading Trust’s accounts had not been cancelled because of an administrative fault in BNZ’s systems. The personal access was separate from the IB4B registration.
[28] On 22 October 2014, BNZ requested that Kiwibank – the receiving bank – reverse the transfer of the $335,000, which it did that day. BNZ also immediately cancelled Mr Black’s personal internet banking access to Davric Trading Trust’s accounts.
[29] On 23 October 2013, Mr Black contacted the BNZ and asked why his personal access to Davric Trading Trust’s accounts had been cancelled. Inter alia he advised the bank that the ownership of the funds held in those accounts was in dispute, and asked the bank to freeze the accounts. The bank did freeze the accounts, initially as a “stop gap” measure to preserve the position while it carried out enquiries. In the course of its enquiries, it became clear that Mr Black was asserting a right to the funds in the accounts, and that there was an underlying dispute between Mr Black and Crummer Trustees on the one hand, and Mr Cooney and Park Road on the other hand. As a result the bank did not feel comfortable lifting the freeze, and it did not do so. Correspondence ensued between legal representatives for the parties. The bank involved its solicitors. The present proceedings were commenced, and the accounts have remained frozen.
Summary Judgement/Strike Out
(a) Applicable legal principles
[30] The BNZ seeks summary judgment as a defendant in relation to Crummer Trustees’ claims against it pursuant to r 12.2(2) of the High Court Rules. It provides as follows:
The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[31] The Court of Appeal in Westpac Banking Corporation v M M Kembla NZ Ltd summarised the principles applicable to a defendant’s application for summary judgment:1
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 Rule 186. Rather Rule 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.
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.
…
Although Rule 136 refers to the causes of action “in the plaintiff's statement of claim”, Rule 186 (which permits the Court to strike out a cause of action) similarly is based upon “the pleading”. Under Rule 186 the Court does not strike out pleadings where a defect can be cured by amendment which the party is willing to make. Similarly, the residual discretion of the Court under Rule 136 to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would preempt a plaintiff exercising the right to amend the pleadings in terms of Rule 187. Indeed, use of the discretion to enable amendment is arguably more necessary in the interests of justice in the case of summary judgment than in the case of strike out because summary judgment results in issue estoppel.
[32] In the alternative, BNZ seeks an order striking out each of Crummer Trustees’ causes of action against it. Rule 15.1 of the High Court Rules provides that the Court may strike out all or part of a pleading if it discloses no reasonably arguable
cause of action or case appropriate to the nature of the proceeding. Strike out is
1 Westpac Banking Corporation v M M Kembla NZ Ltd [2001] 2 NZLR 298 (CA) at [60]-[64] and
[66]; Jones v Attorney-General [2003] UKPC 48, [2004] 1 NZLR 433.
available if the causes of action are so “clearly untenable that they cannot possibly succeed”,2 or the case “is so certainly or clearly bad that it should be precluded from going forward”.3 The threshold for a strike out is deliberately set high, and the jurisdiction is to be exercised sparingly and only in clear cases.
(b) The sixth cause of action – breach of mandate
[33] In the sixth cause of action Crummer Trustees alleges breach by the BNZ of the mandate given to it by Park Road in respect of Davric Trading Trust’s accounts. It asserts that the bank owed a primary duty to honour its customers’ instructions and to make payments from the accounts strictly in accordance with Davric Trading Trust’s requirements and the mandate for the accounts. It is asserted that the bank could only make payments out of the accounts in accordance with the terms of the account operating authority. It is pleaded that there was a request for internet banking, and that the IB4B forms were completed. It is said that thereafter, the bank was not entitled to amend the account operating authority without complying with the IB4B terms and conditions, and that inter alia, Mr Black was required to sign and approve any amendment as an authorised person and representative of the Davric Trading Trust. It is asserted that Crummer Trustees had a direct and beneficial interest in Davric Trading Trust’s accounts, and in the proceeds in those accounts, as a “trust holder” and a beneficiary, and that this was known by and accepted by the bank. It is asserted that the changes to the account operating authorities made on 25
June 2013 removing Mr Black as an authorised signatory were unauthorised, and that the bank thereafter operated the accounts in breach of its mandate and contrary to the applicable terms and conditions. As a consequence it is asserted that all payments made from the accounts after 25 June 2013 were made pursuant to an invalid mandate, contrary to Davric Trading Trust’s requirements, and contrary to the IB4B terms and conditions. It is said that the bank had no authority thereafter to effect transfers, transactions and payments from Davric Trading Trust’s accounts, and that the bank failed to obtain the necessary authorities and authorisations to
effect transactions made after that date. It is also alleged that the Electronic
2 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
3 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 (SC) at [33].
Transactions Act 2002 has been breached, and that the bank failed to meet the legal requirements for such transactions set out in ss 22, 24 and 29 of that Act.
[34] The bank’s response is to assert that there was no breach of the mandate. Further, it alleges that Crummer Trustees has no standing to sue for breach of mandate.
[35] I am not persuaded that it is appropriate to grant the bank summary judgment on the breach of mandate claim. I have reached this conclusion because it is not clear to me, on the available evidence, that the bank did comply with its mandate.
(a) The initial instructions contained in the first account operating authority dated 13 August 2010 required the any transactions on the accounts take place on the instructions of two authorised signatories. However the bank actioned the IB4B registration form on the instructions of only one authorised signatory – Mr Black. The other signatory, Ms Lagerberg, was not an authorised signatory on the accounts at that stage.
(b)The later account operating authorities were signed either by Mr Black, Mr Cooney and Mr Lagerberg, or by Mr Cooney and Mr Lagerberg. There is nothing to suggest that Mr Macfarlane, as one of the two authorised and required signatories at the outset, or Ms Preston-Lett or Mr Lee as initial additional signatories, has ever signed an account operating authority permitting Mr Cooney and Mr Lagerberg to transact on Davric Trading Trust’s accounts.
[36] Mr MC Black (counsel for Crummer Trustees) argued that Mr Richard Black’s appointment as administrator under the IB4B registration form meant that the mandate could not subsequently be altered without his authority. He submitted that the Davric Trading Trust was registered for internet banking, not Park Road, and that once registration was complete, the IB4B terms and conditions overtook the bank’s general terms and conditions.
[37] On the limited evidence before me, I accept that it is arguable that there was a conflict between the bank’s standard terms and conditions and the IB4B terms and conditions. As I have noted at [19], the IB4B terms and conditions contained an acknowledgment that the existing account operating mandates did not apply to Park Road’s use of internet banking. How the two sets of terms and conditions operated in practice, and what effect any confusion had, is not clear on the affidavits before me.
[38] The pleadings do not reflect these various matters and quite what effect they may have had is uncertain. The pleadings can of course however be amended.
[39] I also note that much of the evidence put forward by the bank is hearsay. The only affidavit it has filed is from a Mr Wills, who was the account manager. Many of the relevant actions taken by the bank were taken by other employees, and it appears that Mr Wills has simply recorded what he has been told by those employees.
[40] I do not need to deal with the arguments which rely on the Electronic Transactions Act. Suffice it to say that I do not consider that it applies. The relevant authorities were in fact signed by Mr Cooney and Mr Lagerberg, and not by electronic signature.
[41] In my view, there are additional material facts which need to be ascertained before Crummer Trustees’ breach of mandate claim can be resolved. The issue cannot confidently be determined on the affidavits which have been filed. The BNZ has not met the onus of satisfying me that there has been no breach of mandate.
[42] The bank’s argument that Crummer Trustees has no standing to sue does
however seem to me to have rather more force.
[43] The primary duty of a bank is to act in accordance with its customers’
instructions.4 The duty arises as a matter of contract between the bank and the
customer. Because the duty to comply with a customer’s instructions is contractual,
4 Westpac NZ Ltd v MAP & Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 at [11].
generally it will only be a party to the contract – i.e. the customer – who will have standing to sue for breach of the duty.
[44] Here the accounts were in the name of the Davric Trading Trust. Mr MC Black argued that the accounts were in the name of the Davric Trading Trust and that it was the customer.
[45] I do not accept this argument. It is trite law that a trust is not a legal entity. Rather a trust describes the relationship which arises where one person – the trustee
– holds property which he, she or it is obliged to apply for the benefit of another – the beneficiary. It is the trustee of the trust who is the legal entity. A trustee is required to deal with trust property which he or she holds in the best interests of beneficiaries, and a trustee is accountable to the beneficiaries for his or her dealings
with that property.5
[46] In the present case, the original parties, Mr Macfarlane and Mr Richard Black chose to structure the joint venture through the Davric Trading Trust, and they appointed Park Road as its corporate trustee. No doubt this was done for what were considered to be sound commercial, and perhaps revenue related, reasons. Having chosen to structure their affairs in this way, one of the parties to the initial agreements, Mr Richard Black through Crummer Trustees, cannot now seek to ignore the structure initially put in place. Park Road as trustee was the owner of the Davric Trading Trust’s accounts, notwithstanding that the accounts were in the name of the Davric Trading Trust. Park Road, through its directors, signed the various account operating authorities which gave the bank the mandate to operate the accounts.
[47] Further the plaintiff, Crummer Trustees, is not a beneficiary of the Davric
Trading Trust. Rather it is the corporate trustee of the Winning Trust and the
Winning Trust is a discretionary beneficiary of the Davric Trading Trust.
5 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at
[37]; Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington,
2009) at [3.1.2]; Greg Kelly and Chris Kelly Garrow and Kelly Law of Trusts and Trustees (6th ed, LexisNexis, Wellington, 2005) at [1.4].
[48] Again it is trite law that a discretionary beneficiary has no proprietary interest in trust assets. A discretionary beneficiary merely has an expectation or hope that the trustee may exercise his, her or its discretion in the discretionary beneficiaries’ favour.6 Neither the Winning Trust nor Crummer Trustees, as trustee of the Winning Trust, had an interest in the funds held in the Davric Trading Trust’s account. It would only be on the making of a distribution to the Winning Trust that it would
obtain any interest in the Davric Trading Trust’s property, and then only to the extent
of the distribution.7
[49] A beneficiary (let alone a discretionary beneficiary) of a trust cannot generally sue a third party for breach of the third party’s contractual obligations to the trustee. The beneficiary’s rights are against the trustee, and the beneficiary cannot supplant the trustee by bringing an action against a third party for breach of the obligations owed to the trustee, even if the third party was aware of the
beneficiary’s existence.8 The courts do however allow a beneficiary to step into the
shoes of a trustee, and sue a third party on behalf of a trustee, where the trustee, in breach of its duty to the beneficiary, unreasonably refuses to take steps to enforce a claim to trust property, or the trustee is unable to take such steps.9 In such circumstances, a beneficiary must generally sue the trustee for due administration of the trust, and seek an order compelling the unwilling trustee to perform his or her duties, or apply for leave to sue the third party.10
[50] Here there is no claim or evidence that Crummer Trustees has asked Park Road to bring a claim against BNZ for breach of mandate, or that Park Road has refused or is unable to bring such a claim.
[51] A third party to a contract can also have standing to sue where s 4 of the
Contracts Privacy Act 1982 applies. It provides that a third party can enforce a
6 Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589 at [25]; Nation v Nation [2005] 3 NZLR 46 (CA) at [74]; Hunt v Muollo [2003] 2 NZLR 322 (CA) at [11].
7 Hunt v Muolla, above n 6, at [11].
8 Nimmo v Westpac Banking Corporation [1993] 3 NZLR 218 (HC) at 236.
9 Hayim v Citibank NA [1987] AC 730 (PC) at 748; Parker-Tweedale v Dunbar Bank Plc (No 1)
[1991] Ch 12 (CA) at 19.
10 Trustee Act 1956, ss 67 and 68; Sharpe v San Paulo Railway Company (1872-73) LR 8 Ch App
597 at 610.
promise contained in a contract that confers or purports to confer a benefit on a person designated by name, description or reference to a class.
[52] This provision does not assist Crummer Trustees in the present circumstances. Crummer Trustees is not designated in the contract between the BNZ and Park Road, either by name or by designation or reference, e.g. as a trustee of a beneficiary of the trust.
[53] On the evidence which is currently before the Court, Crummer Trustees has no standing to sue the BNZ for breach of mandate. The appropriate course is not however to give summary judgment to the bank. It may be that Crummer Trustees can bring a properly constituted claim. In my view the preferable course is to strike out the breach of mandate claim on the basis that, as currently pleaded, it is untenable. There is nothing to suggest that the problem of standing can be resolved, or that Crummer Trustees is willing to amend the pleading. Nevertheless, a strike out will preserve Crummer Trustee’s ability to come to the Court afresh.
(c) The seventh cause of action – breach of fiduciary duty
[54] First, I observe that, as a result of my conclusion on the breach of mandate claim, it is no longer open to the BNZ to seek summary judgment. Where a defendant seeks summary judgment on a plaintiff’s claim, it is not sufficient to establish that only part of a plaintiff’s claim cannot succeed. If a defendant is to obtain summary judgment, it must be able to establish a complete answer to all of the plaintiff’s causes of action, even if they constitute separate claims.11
[55] I therefore consider only whether or not the cause of action for breach of fiduciary duty should be struck out.
[56] Crummer Trustees pleads that the Davric Trading Trust’s accounts were trust accounts, and that therefore the BNZ knew or ought to have known of Crummer Trustees’ proprietary rights and interests in the same. It is asserted that from 27
January 2011 the second to fifth defendants wrongfully transferred and depleted
11 McGechan on Procedure at [HR12.2.10].
moneys in the accounts, and that the BNZ breached duties it owed to Crummer Trustees in failing to properly manage and supervise the accounts. It is said that Crummer Trustees “as a beneficial co-owner” had “a direct proprietary and other interests” in the accounts. It is said that the BNZ knew or ought to have known, that the accounts were being manipulated and dissipated by the actions of the second to fifth defendants, that the transfers from the accounts effected by the second to fifth defendants were in breach of trust, and that transactions were suspicious. It is asserted that the BNZ is liable as a constructive trustee for the losses resulting from the improper transactions effected by the second to fifth defendants as from 25 June
2013.
[57] The BNZ argues that Park Road as trustee could distribute any or all of the income or capital of the Davric Trading Trust to any beneficiary, to the exclusion of any other beneficiary. It submits that the Winning Trust was a discretionary beneficiary, and that it did not have any legal or equitable interest in Davric Trading Trust’s property, and that there was no duty of impartiality on Park Road in managing the trust. It accepts that fiduciary obligations can be owed by banks, for example where it would be unconscionable to limit an action to the strict terms of the banker/customer contract, or to those who are customers. In particular it accepts that banks can be liable as constructive trustees, for example, when, in breach of trust,
they knowingly receive funds or assist in their transfer.12
[58] Crummer Trustees’ case, at its highest, is that the BNZ knew, or ought to have known, of a breach of trust because payments were made from Davric Trading Trust’s accounts to the fourth defendant, Classic Builders Group Limited (the project manager and builder of the houses comprising part of the joint venture), to the third defendant, XFHNZ Limited, and to other parties involved in the joint venture development, for example, the fifth defendant, Mr Cooney.
[59] The BNZ has filed affidavit evidence suggesting that there was nothing unusual in the operation of the account. It says that there was nothing inherently
suspicious about payments to beneficiaries of the trust. It also asserts that the trust
12 See, for example, Westpac Banking Corporation v Savin [1985] 2 NZLR 41 (CA); Westpac NZ Limited v MAP & Associates Ltd, above n 4.
was a trading trust involved in a substantial residential development, and that payments to entities such as the fourth defendant and other suppliers were to be expected. It also notes that Mr Richard Black retained his personal internet access over the accounts until 21 October 2014, and that at no stage prior to that date, did he raise any dispute in relation to the accounts, or assert that any payments were improper.
[60] In essence Crummer Trustees appears to be asserting that the BNZ has dishonestly assisted the second to sixth defendants breach the Davric Trading Trust. The onus in such cases is high. The Supreme Court has noted as follows:13
The key ingredient in the cause of action for dishonest assistance is the need for a dishonest state of mind on the part of the person who assists in the breach of trust. … such a state of mind may consist in actual knowledge that the transaction is one in which the assistor cannot honestly participate. But it may also consist in what we would describe as a sufficiently strong suspicion of a breach of trust, coupled with a deliberate decision not to make inquiry lest the inquiry result in actual knowledge. For the purpose of this alternative, it is necessary that the strength of the suspicion that a breach of trust is intended makes it dishonest to decide not to make inquiry. That state of mind, which equity equates with actual knowledge, is usually referred to as wilful blindness. It involves shutting one's eyes to the obvious and can thus fairly be equated with the dishonesty involved when there is actual knowledge.
There is nothing in any of the affidavits filed to suggest either actual knowledge nor wilful blindness of this kind.
[61] Were this the only problem I would accept that a strike out would be inappropriate because the pleadings might be capable of amendment. However, for the reasons I have identified, the Winning Trust as a discretionary beneficiary was not a beneficial or equitable owner of any of Davric Trading Trust’s property, including the accounts with the BNZ. The seventh cause of action is founded on the assertion that Crummer Trustees was a beneficial co-owner of the trust account, and that it had a direct proprietary interest in the accounts. These arguments are
untenable, and as pleaded, there is no reasonably arguable cause of action.
13 Westpac New Zealand Ltd v MAP & Associates Ltd at [27].
[62] I have considered whether, on the limited materials currently before the Court, Crummer Trustees may be able to argue knowing receipt and assistance by BNZ. The difficulty is that the Davric Trading Trust was a discretionary trust and that the Winning Trust cannot have had either a legal or beneficial interest in its assets. It seems to me that this hurdle is insurmountable, and I cannot see that that the pleadings can be cured by amendment. Accordingly, I strike out the seventh cause of action.
(d) Eighth cause of action – negligence
[63] Crummer Trustees alleges that the bank owed it a duty of care to exercise reasonable care and skill in managing and supervising the Davric Trading Trust’s accounts. It is said that that duty is owed by the bank to Crummer Trustees, “as a beneficiary”, and as “having a proprietary interest” in Davric Trading Trust’s accounts. It is alleged that the bank breached those duties, because it knew or ought to have known that Crummer Trustees’ moneys were being receipted into the accounts, for Crummer Trustees’ benefit as a co-owner and beneficiary. It says that the bank ought to have properly supervised the accounts, acted in accordance with Crummer Trustees’ best interests, made proper enquiries and investigations when transacting on the accounts, and taken all reasonable care and skill in managing and supervising the accounts. It is argued the bank breached those duties, and that Crummer Trustees has suffered loss and damage as a consequence.
[64] The BNZ submits that the claim is fatally flawed. It accepts that a bank can owe concurrent duties of care in contract and tort to its customers, but submits that it would be very unusual for a bank to owe wider duties in tort than in contract. It says that a bank is not obliged to act as an “amateur detective”, or to enquire into the nature and purpose of instructions given in accordance with a valid mandate, and the bank only owes a duty in tort to ignore its customer’s instructions if a reasonable and honest banker would have considered that there was a serious or real possibility that its customer was being defrauded. It repeats that a beneficiary of a trust account has no standing to sue for the duty of care owed by the bank to its customer, except in limited circumstances, where the trustee has refused, or is unable to take steps to protect the trust property.
[65] I accept that liability in tort can be imposed by law, independently of the contract between the bank and its customer, and that a bank can be liable in negligence to both customers and non-customers.14 I also accept that the BNZ’s management of the Davric Trading Trust’s accounts was not particularly careful. For example, it appears from the papers filed that the bank failed to resolve issues in relation to its mandate promptly after it became aware of possible problems with the same. It allowed internet banking to be put in place without proper authority from the required signatories. Further, it allowed Mr Black to maintain his personal
internet access to the accounts notwithstanding that it had cancelled his standing as an authorised signatory and as an administrator for internet banking.
[66] I nevertheless have difficulty however with the assertions made by Crummer Trustees in the present case. It was not the bank’s customer; the bank was unaware of its existence. I cannot see that the duty of care which the BNZ owed to Park Road as its customer extends to Crummer Trustees as the corporate trustee of the Winning Trust, which itself was only a discretionary beneficiary of the Davric Trading Trust.15
Again, it seems to me that the claim as presently pleaded is untenable, and stands no
reasonable prospect of success.
[67] Further, I have very real doubts that the claim can be salvaged through amendment. Again Crummer Trustees cannot get over the difficulty that the Winning Trust was only a discretionary beneficiary of the Davric Trading Trust. As a result, I also strike out the claim based on negligence.
Application for particular discovery
[68] This matter can be dealt with concisely. The application is declined for the following reasons:
(a) As a result of my judgment on the strike out applications, there is no longer any extant proceeding outstanding against the BNZ. If
Crummer Trustees can reconstitute its claims, and bring fresh
14 Dairy Containers Ltd v NZI Bank Ltd [1995] 2 NZLR 30 (HC) at 74; Allison v KPMG Peat
Marwick [2000] 1 NZLR 560 (CA) at [99].
15 Parker-Tweedale, above n 9, particularly at 19-20, 25; Nimmo v Westpac Banking Corporation, above n 8, at 236-237.
proceedings against the BNZ, then discovery will fall to be considered against the pleadings as they then stand; and
(b)If Crummer Trustees is unable to formulate its proceedings without discovery, then it can make application under r 8.20 of the High Court Rules for pre-commencement discovery. There has been no such application to date. Rather the request that has been made appears to be more in the nature of a fishing expedition.
Conclusion
[69] For the reasons set out:
(a) I decline BNZ’s application for summary judgment against
Crummer Trustees.
(b) I order that each of them, the sixth to eighth causes of action
(inclusive) be struck out.
(c) I decline to order particular discovery by the BNZ.
Costs
[70] The BNZ is entitled to its reasonable costs. It is my preliminary view that costs should be assessed on a 2B basis – one counsel only. If the parties accept this, they should be able to agree on quantum. If the parties disagree with this preliminary view, then I direct as follows:
(a) Within 10 working days of the date of release of this judgment the
BNZ is to file a memorandum in relation to costs.
(b)Within a further 10 working days, Crummer Trustees is to file a memorandum in reply.
(c) Memoranda are not to exceed 10 pages.
[71] I will then deal with the issue of costs on the papers unless I require the
assistance of counsel.
Solicitors:
Craig, Griffin & Lord, Auckland for Plaintiff
Buddle Findlay, Wellington for First DefendantJ K Hamilton, Tauranga for Second to Sixth Defendants
Wylie J
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