Dorchester Finance Limited v Deloitte HC Auckland CIV 2010-404-6442

[2010] NZHC 2294

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-006442

UNDER  S 24C(4) of the Judicature Act 1908

BETWEEN  DORCHESTER FINANCE LIMITED Plaintiff

ANDDELOITTE First Defendant

ANDPERPETUAL TRUST LIMITED Second Defendant

Hearing:         10 December 2010

Appearances: M V Robinson and G K Holm-Hansen for Plaintiffs

R G Simpson and J Q Wilson for First Defendant
S Barker for Second Defendant

Judgment:      17 December 2010 at 4.45 p.m.

JUDGMENT OF VENNING J

This judgment was delivered by me on 17 December 2010 at 4.45 pm, pursuant to Rule 11.5 of the

High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Simpson Grierson, Auckland

Bell Gully, Auckland

Buddle Findlay, Wellington

DORCHESTER FINANCE LIMITED V DELOITTE AND ANOR HC AK CIV-2010-404-006442  17

December 2010

Introduction

[1]      As its name suggests, Dorchester Finance Limited is a finance company.  As its name also suggests, Perpetual Trust Limited is a trustee company.   It has been appointed as trustee of Dorchester’s debt securities.   In 1998 Dorchester, like a number of other finance companies, encountered financial difficulties.  It took advice about a deferred repayment plan.   Perpetual engaged Deloitte to provide an independent assessment of Dorchester’s plan.

[2]      Before commencing the assessment, Deloitte required Perpetual to execute an engagement letter.   Dorchester was also required to countersign the letter of engagement between Deloitte and Perpetual.

[3]      The engagement letter contained a limit on action clause, which imposed a limit of one year for bringing an action arising from the engagement, including for non-payment.

[4]      Deloitte completed its review of Dorchester’s plan and rendered invoices dated 30 September 2008 and 24 November 2008 to Perpetual.  The invoices totalled

$198,628.00 (excluding GST).  Perpetual discussed the review and the invoices with Deloitte.   It raised a query about the fees charged.   Perpetual and Deloitte had a number of further communications about the fee.  In the event Perpetual did not pass the invoices on to Dorchester until 17 December 2009.

[5]      In mid 2010 Deloitte and Perpetual agreed to a review of Deloitte’s charges. Mr Waller, an independent consultant, conducted the review and recommended the fee should be fixed at the revised sum of $140,000, excluding GST and disbursements.  Deloitte issued a new invoice dated 30 August 2010 for that revised sum, and at the same time issued a credit note for the sums due under the earlier invoices.

[6]      Perpetual wants to pay Deloitte the revised sum and to recover the payment from Dorchester in terms of the Trust Deed.  Dorchester takes the view Perpetual has no obligation to pay Deloitte either the revised or any other sum.

[7]     To resolve that issue, Dorchester issued these proceedings seeking a determination as to the proper construction of the limit on action clause and, in particular, whether Perpetual is liable to pay Deloitte the amount claimed under the first and second or revised invoices.

[8]      Deloitte and Perpetual have brought counterclaims seeking declarations that:

a)       the contractual limitation period will not expire until 12 months after the Waller report;  and/or

b)the  revised  invoice  started  time  running  under  the  contractual limitation  period  afresh  so  the  period  will  not  expire  until  20

September 2011;  and/or

c)       Perpetual is entitled to pay Deloitte’s fees and to recover them from Dorchester,   irrespective   of   whether   the   contractual   limitation provision applies to Deloitte’s claim for recovery of its fees.

The issues

[9]      The pleadings raise the following issues for the Court:

a)       The effect of the limit on action clause from Dorchester’s point of view.

b)Does the Waller report  extend the time under the limit on action clause, or does the revised invoice issued following the report, restart time running?

c)        The interpretation of the limit on action clause.

d)If Deloitte is prevented by the limit on action clause from taking action against Perpetual for its fees can Perpetual nevertheless pay the fee as it wants to?

e)       If  Perpetual  pays  the  fee  to  Deloitte  is  Perpetual  entitled  to  be indemnified under the provisions of the Trust Deed?

The effect of the “limit on action” clause from Dorchester’s point of view

[10]     The limit on action clause provides:

Limit on action

No action, regardless of form, arising under or relating to this engagement, may be brought by either party more than one year after the cause of action has accrued, except that an action for non-payment may be brought by a party not later than one year following the date of the last payment due to such party hereunder.

[11]     The clause was contained in the engagement letter between Deloitte and Perpetual.  The letter also incorporated Deloitte’s master terms of business.  As the contracting parties, Perpetual and Deloitte agreed to the review on the terms and conditions set out in the engagement letter and the master terms of business.

[12]     Dorchester also confirmed its agreement that it would be bound by, inter alia, the limit on action clause as follows:

Dorchester Finance Limited (‘Dorchester’):

•Accepts and agrees to the constraints, limitations and disclaimers contained  in  this  engagement  letter  and  the  Master  Terms  of Business;

•Accepts and agrees that clause 9 of the Master Terms of Business that form a part of this engagement letter, which clause limits the liability of Deloitte and any other DTT party, applies to both Dorchester and Perpetual;

In both cases as if Dorchester is also defined as the Client for the purposes of this clause;  and

Agrees that any information obtained by Deloitte in relation to this engagement  may  be  disclosed  to  Perpetual  (and  through  Perpetual,  the secured investors) whether or not such disclosure is in Dorchester’s interests.

(emphasis added)

[13]     The highlighted wording effectively brought Dorchester within the definition of client for the limited purposes identified in the clause.   The provision did not constitute   Dorchester   as   Deloitte’s   client   but   rather   confirmed   Dorchester’s agreement to be bound by the limitations and constraints that the party referred to as the client in the engagement letter and master terms of business was bound by, where applicable.

[14]     For present purposes, other than the limit on action for non-payment, the limitations and constraints in the engagement letter and master terms of business are not relevant.

[15]     Even in relation to the limit on action for non-payment clause, Dorchester did not obtain any particular rights by executing the letter in the terms it did.  Perpetual engaged Deloitte to enable Perpetual to satisfy its obligations as trustee under the Trust Deed.  The obligation to pay Deloitte’s fee rested with Perpetual, as confirmed by the engagement letter.   By signing the addendum to the engagement letter as required by Deloitte, Dorchester agreed that its rights against Deloitte (and DTT) were limited but Dorchester did not obtain any independent right to prevent Deloitte recovering its fee from Perpetual under the limit on action for non-payment clause. That right lies with Perpetual only.

The effect of the Waller report

[16]     Mr Robinson submitted that the reference to the date of the last payment due in the limit on action clause was to payment being due 20 days after the date of the invoice, in this case 14 December 2008, so that the latest date for Deloitte to commence an action for payment of its fees would have been 14 December 2009.

[17]     In response, Mr Simpson first submitted that the limitation period under the limit on action clause did not commence until the fee dispute was resolved by Mr Waller’s report.

[18]     The evidence of Mr Lithgow and Mr Pardington establishes that Perpetual initially queried the level of the fees in December 2008 and then later, after Deloitte provided further information in November 2009, Perpetual and Deloitte agreed a process in good faith, in early 2010, to resolve the issue of the fee by requesting Mr Waller to review Deloitte’s work and charges.

[19]     It has to be observed that Deloitte took some time to respond to the queries that Perpetual raised about the fees charged.   After Perpetual advised, in early December  2008,  they  wished  to  discuss  the  fees  Deloitte  did  not  respond  in substance until 6 November 2009 when Mr Pardington summarised the work done and the difficulties that had arisen during the course of the engagement.  The only reason Mr Pardington gives for the delay in responding to the enquiry is that, along with a number of other insolvency practitioners, he was particularly busy in 2009.

[20]     The latest date for Deloitte to commence an action to recover the fees in the first and second invoices was 14 December 2009.  Perpetual did not even pass the invoices on to Dorchester until 17 December 2009.  Deloitte’s argument that as the contracting parties, Deloitte and Perpetual, had agreed to review the fee (in accordance with the dispute resolution clause) the limit on action clause would not take effect until that process was completed would have more effect, and could perhaps support an estoppel argument, if the review had been commenced before 14

December 2009 when the limit on action clause was engaged.  However, Mr Waller was not engaged until June 2010 and the review was not commenced until well after the limit on action clause was engaged and applied according to its terms.   In the circumstances the agreement to review the fee could not affect the contractual limitation period which applied as from 14 December 2009.

The revised invoice issue

[21]     Mr Simpson next submitted that time under the clause started running again once Deloitte issued the revised invoice on 30 August 2010 (following the Waller report) and there was no practical or conceptual difficulty with extending the date under the limit on action clause to commence running from the issue of a revised invoice because decisions by the parties to procure further work, correct errors or revise fees could all affect the date of the last payment due in terms of the clause.

[22]     The purpose of this aspect of the limit on action clause is clear, it is to provide a time limit on Deloitte’s rights to take action to recover fees incurred in terms of the engagement letter.  The fact further or additional work might be done by Deloitte is irrelevant and cannot affect the operation of the clause.  Such further or additional work would effectively be a fresh engagement and would not be covered by the specific scope of work referred to in the engagement letter.

[23]     Next, there is no principled reason for the correction of an error in an invoice to start time running again.  The invoice issued (even with an error) would relate to work under the engagement letter.   Perpetual was obliged to pay whatever was properly due for that work.  The date of the original invoice for that work would be unaffected by an error within the invoice.   Perpetual could reasonably expect that any correction would occur well within the 12 month period in any event.

[24]     Nor can I accept the argument the issue of a fresh invoice (for the same work) can start time running again.   To allow such an action to start time running again would  entirely  defeat  the  purpose  of  the  limit  on  action  clause.    Taking  Mr Simpson’s argument to its logical conclusion, Deloitte could avoid the consequence of the clause by reducing its account by $100 and reissuing a revised invoice, even after the limitation period expired.  That cannot be right or what the parties intended when including the limit on action clause in the engagement letter.

[25]     It follows I reject the arguments for Deloitte that the limit on action clause did not apply either because the Waller report extended the time or because the revised account issued in August 2010 started time running again.

The interpretation of the clause

[26]     The next, and related issue, is the interpretation of the clause itself.   In his oral (and supplementary) submissions Mr Robinson referred to the text by Professor Coote Exception Clauses (Sweet & Maxwell, 1964) to support a submission that as the  limit  on  action  was  created  by  contract  (as  opposed  to  being  a  statutory limitation) it was not merely a procedural limit on action but it effectively extinguished or destroyed underlying substantive contractual rights.  That led to the submission that once the 14 December 2009 had passed, any debt Perpetual might have owed Deloitte was extinguished.

[27]     In  the  text  Professor  Coote  identified  two  principal  types  of  exception clauses.  He identified Type B clauses as:

exception clauses which qualify primary or secondary rights without preventing the accrual of any particular primary right.

Examples would be limitations on the time within which claims might be made, and limitations as to the amount which might be recovered on a claim.

And later:

exceptions  of  Type  B  do  not  affect  the  question  of  whether  particular primary rights shall accrue, but merely qualify rights which ex hypothesi do accrue.  ... the exception may lay down a time-limit within which an action may be brought.   [e.g., Rendall v. Arcos (1937) 43 Com.Cas. 1 (H.L.); Smeaton Hanscomb v Sassoon I. Setty [1953] 2 All E.R. 1471.] Whether such limitations act directly on sanctioning rights, or only indirectly by controlling procedural rights, the result is the same. Once the time-limit has expired, the primary rights concerned become unenforceable and are  extinguished  or  fulfilled.    [Cf.  Morison,  Principles  of  Rescission (1916), p. 18.]  But, until that time, they subsist as valid contractual rights. In other words, the exception does not prevent particular primary rights accruing.

(emphasis added)

And later at p 154 – 155 the author notes that:

The effect of the Limitation Act may in general be procedural, but it would appear that when the parties to a contract “provide their own statute of limitations” [As Lord Sumner put it in Atlantic Shipping Co. v. Dreyfus   [1922] 2 A.C. 250, 261 (H.L.).] the   effect   is   ordinarily substantive.  ...

Where the limitation is upon secondary rights, as by placing a time limit on the right to damages, the effect again is substantive. The same result would follow also from a time limit on all procedural rights of enforcement. In both cases the ability to sue would be extinguished permanently at the end of the limitation period. The effect of the exception would then be analogous to that of an agreement not to sue, which, if unlimited, operates as a release. [Ford v. Beech (1848) 11 Q.B. 852.] There could be no question of the promisee’s substantive rights surviving.   [Cf. Atlantic Shipping Co. v. Dreyfus [1922] 2 A.C. 250, 258 (H.L.), per Lord Dunedin “destruction” of liability).]...

It may be mentioned that contractual limitations as to time on rights of recovery were held by the House of Lords in Atlantic Shipping Co. v Dreyfus [Cf. Atlantic Shipping Co. v. Dreyfus [1922] 2 A.C. 250, 258 (H.L.), per Lord Dunedin “destruction” of liability).] to be substantive, not procedural: and in Smeaton Hanscomb v Sassoon I. Setty [[1953] 2

All E.R. 1471.] Devlin J. did not doubt that such clauses were exception clauses properly so called.

(emphasis added)

[28]     The same point was made by the New South Wales Court of Appeal in the case of Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd.[1]     The Court stated:[2]

[1] Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14 at [17].

[2] At [17].

... The reality is that the parties agreed that after 90 days no claim could be made for so-called “pallets owing”.  Such a clause bars the claim altogether: Smeaton Hanscomb[e] & Co Ltd v Sassoon I Serty, Son & Co [1953] 1 WLR

1468 at 1472, and can be seen to have a substantive operation: destroying or extinguishing  liability:    B  G  Coote  Exception  Clauses  (1964  Sweet  &

Maxwell) at 11 and 154–155;  Atlantic Shipping & Trading Co Ltd v Louis

Dreyfus and Co [1922] 2 AC 250 at 258 (Lord Dunedin), 259 and 261–262 (Lord Sumner); The ‘Auditor’ (1924) 18 Lloyd’s List Law Rep 402 and 464

at 465.

[29]     The significance of all this lies in Dorchester’s attempt to distinguish the authority of Budgett v Budgett which is relied on by Deloitte and Perpetual.[3]   Budgett is authority for the proposition that statutory limitations extinguish only the remedy, but leave the right of action otherwise untouched, so that trustees have a right to be indemnified out of the trust estate for costs and expenses properly incurred by them, whether those costs are statute barred or not, if the trustees have paid or are willing to pay those costs.

[3] Budgett v Budgett [1895] 1 Ch 202.

[30]     To  answer  that  submission,  Mr  Robinson  relied  on  the  passages  from Professor Coote’s text and the comments in Santos, that a contractual limitation clause has a substantive operation and submitted that the limit on action clause in this case destroyed or extinguished any liability for Deloitte’s fee so that once the 14

December 2009 had passed, Deloitte had no substantive right in relation to payment of its services under the engagement letter.

[31]     However, I do not read the authorities cited by Professor Coote and referred to in Santos as establishing a principle that contractual limits on action will always be substantive and will destroy or extinguish liability as opposed to statutory limits on action which will always be procedural.  In my judgment the effect of the clause or statutory provision must turn on the wording, and thus the construction, of the particular clause or provision under consideration.

[32]     In  Smeaton  Hanscomb  the  clause  provided  that  the  buyers  of  logs  were obliged to make payment on delivery but their right to claim compensation through arbitration was preserved provided that:

Any claim must be made within fourteen days from the final discharge of the goods and before they are removed.

[33]     The issue in that case was whether the clause provided a time limit within which the party could go to arbitration but otherwise left the claim in law unaffected, or whether the clause barred a claim being brought at law as well.

[34]     Devlin  J  (as  he  was)  concluded  the  clause  was  not  restricted  to  the appointment of an arbitrator and also prevented the claim being brought at law.  He concluded that the clause went, not to the appointment of the arbitrator, but to the making of a claim which the arbitrator has to determine and noted:

Furthermore, if I have to choose between construing a clause which provides that any claim must be made within fourteen days either as a clause that bars the  claim  altogether  or  as  a  clause  that  goes  to  the  jurisdiction  of  the arbitrator, I should choose the former, for I can see no reason for holding that a clause which is, in form, a limitation clause, should be construed so as to affect the authority of an arbitrator or the validity of his appointment.

[35]     The reference to barring a claim is consistent with a procedural bar on action.

[36]     In Atlantic Shipping and Trading Company Ltd  the relevant wording was:[4]

Any claim must  be  made  in  writing and claimants’  arbitrator  appointed within three months of final discharge and where this provision is not complied with the claim shall be deemed to be waived and absolutely barred.

[4] Atlantic Shipping Co. v. Dreyfus [1922] 2 AC 250, 258 (HL).

[37]     The House of Lords read the clause as an exclusion clause and concluded that it was unavailable to the ship-owners in the case of damage caused by unseaworthiness.   Lord  Sumner concluded the words did not exclude the cargo owner from recourse to the Courts at all after the period of three months.  He did however accept that the words “shall be ... absolutely barred” were otherwise plain and effective.  Lord Dunedin observed in that case, that under certain conditions, the

wording of the clause “destroys liability”.[5]

[5] At 258.

[38]     However Lord Sumner confirmed that the issue of the effect and application of the clause, was a matter of interpretation:[6]

The point, however, hardly admits of discussion;  a view is formed of it, one way or the other, simply on the perusal of the words, for the question is purely one of interpretation.

[6] At 258.

[39]     In the case of The Auditor the clause in question provided a limit on the value of the claims and also provided that:[7]

All claims ... of whatever nature must be made in writing ... “within 48 hours after the steamer or lighter finished discharging, ... and in case such claims shall not be presented in writing within the time and the place hereinbefore designated  such  loss  or  damage  shall  be  deemed  to  be  waived  and  the steamer discharged therefrom.

[7] The “Auditor” Lloyd’s List Law Reports, Admiralty Division, 17 April 1924, at 402-403.

[40]     Again the clause contained wording to the effect that the contracting party had agreed to discharge the carrier from claims in certain circumstances.   The President of the Admiralty Division, Sir Henry Duke, noted that the effect of the clause was dependent upon its construction.

[41]     In Santos itself, the clause provided “no claim ... will be accepted after 90 days”.  While Mr Robinson relies on the passage referred to earlier, in a later passage

of its judgment the New South Wales Court of Appeal seemed to resile somewhat from the absolute position referred to previously by noting that:[8]

[8] Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14 at [43].

... the operation of cl 4 can be seen either to destroy the earlier obligation or at least to change its character to one that was not enforceable.

(emphasis added)

[42]     From my review of the authorities referred to by Professor Coote, I conclude that there is no principled reason to draw a distinction between limitations to sue under statute and contract on the basis the latter will always extinguish contractual rights, if by that is meant that the underlying obligation is extinguished, as well.  The right to take proceedings to recover the contractual debt might be extinguished, but that need not lead to the extinguishment of the underlying obligation.  The focus is on the right or ability of the party seeking to recover the debt, rather than on the

position of the party owing the debt.[9]    The contractual clauses can often be seen as

the parties providing their own statute of limitations.[10]     The difference between clauses and the effect of the contractual limitation will be determined by the wording of the clause in issue.   In each case it must be a question of focusing on and interpreting the wording of the particular limitation provision whether it is embodied in statute or contract.[11]

[9] Coote at 11.

[10] Atlantic Shipping Co. v. Dreyfus [1922] 2 AC 250, 258 (HL) at 261.

[11] See for example Chitty on Contracts (30th ed vol 1 23-112) and the comments of Lord Sumner in Atlantic Shipping and Trading.

[43]     The wording of the statutory bar created by s 4(1) of the Limitation Act 1950 is of interest.  It provides:

The following action shall not be brought after the expiration of 6 years ...

It is accepted that the effect of that provision is not to destroy or extinguish rights but rather is to prevent any action being brought to enforce them.  The wording in the limit on action clause in this case that “action for non-payment may [not] be brought

... later than one year following the date of the last payment due” is much closer to the statutory wording in s 4 than the wording used in the authorities referred to by Professor Coote and relied on by Mr Robinson in his submissions.  The wording of

the limit on action clause in this case is consistent with it being a procedural bar on Deloitte recovering its fee.  The wording does not, however, suggest that Perpetual no longer has any obligation to Deloitte.

[44]     I conclude that after 14 December 2009 the limit on action clause in this case prevented Deloitte from taking an action against Perpetual for non-payment of its fees whether under the first, second or revised invoices, but the clause does not have the effect of extinguishing the debt for the services carried out.  The debt remains.  It would support a lien, for example.

Can Perpetual nevertheless pay Deloitte?

[45]     Perpetual engaged Deloitte to carry out the review of Dorchester’s deferred repayment plan.  As such, Perpetual is the party which has the prime obligation to pay Deloitte.  The limit on action clause, insofar as it relates to claims for payment, was for Perpetual’s benefit.  For the reasons given above, Dorchester did not obtain any rights under the limit on action clause from the acknowledgement it executed.

[46]     Perpetual and Deloitte, as the principal parties to the engagement, were free to agree to vary the contract or to waive the contractual provisions relating to them at any time.  Although after 14 December 2009 Perpetual could have relied on the limit on action clause to resist any claim by Deloitte for fees, it was open for Perpetual to waive that right, agree a process to review Deloitte’s fees and agree to pay such reviewed fee.

[47]     In Budgett v Budgett the Court had to consider whether costs, which the trustees had properly incurred for professional legal advice ought,  notwithstanding they were statute barred, to be included in the costs to be paid and retained out of the capital moneys subject to the settlement of the Trust Deed.    Kekewich J noted the argument that a fully informed beneficiary might say he would insist on reliance on the statute of limitations although the trustees did not, but rejected that argument.

Kekewich J distinguished the position of a trustee from that of an executor noting:[12]

The trustee is paying his own debt, and he, although the legal liability may be gone, still owes the money.  It may not be recoverable, but still the debt is not gone.  It is a debt due from him.  Any question of dishonesty, any setting up the statute being out of the way, he still remains morally liable, and he remains liable in every sense except that an action cannot be brought.  Ought he not to be indemnified against that?  What is the meaning of indemnity? Not surely that he is only to be indemnified against that which can be enforced by action, but that he is to be indemnified against all fair claims of every kind.  The distinction seems to me to get rid of what otherwise struck me as a powerful argument.  The trustees are not admitting claims against another’s estate, although indirectly it is so.   It is not a claim against the estate, or at  all  events  not  that only;   it is  a claim against  the trustees themselves, and I think they are entitled to be indemnified against that.

[12] At 217-218.

[48]     The position is the same in the present case.  The debt, Deloitte’s fee is an obligation incurred by Perpetual.  While ultimately Perpetual looks to Dorchester to indemnify  it  in  terms  of  the  Trust  Deed,  it  is  Perpetual  that  has  the  primary obligation to Deloitte for the fee.  Deloitte could not seek to recover the debt directly from Dorchester.

[49]     Mr Robinson submitted that Budgett should also be distinguished on the basis it is premised on notions of morality and fairness and that in 2010 as opposed to

1895 there was nothing immoral or unfair in requiring a commercial  trustee to invoke the benefit of freely assumed and mutually beneficial contractual limitation defences and the parties should be kept to the bargain they have made.

[50]     However the reference in the decision to the trustee being morally liable to pay the debt is as valid in 2010 as it was in 1895.  A person who incurs a debt is still today, morally liable to pay that debt whether or not they may be entitled to rely on a limitation clause.  Further, the authority of Budgett v Budgett is an established one. It continues to be cited in a number of texts:  Halsbury’s Laws of England Limitation Periods Vol 68 para 492;  Pettit Equity and the Law of Trusts (10th ed, 2006) at 484;

Garrow and Kelly Law of Trusts and Trustees (6th  ed, 2005) at 721;   Richardson

Nevill’s Law of Trusts, Wills and Administration (10th ed, 2010) at 310.

[51]     Next Mr Robinson submitted that Budgett was inconsistent with the case of Coneys  v  Morris  in  the  related  area of  indemnification  of  sureties  by principal debtors.[13]   Conveys v Morris establishes that if a surety pays a statute barred debt he

[13] Coneys v Morris [1922] 1 IR 81.

cannot recover the amount from a principal debtor.   That case, however, is quite different and of no assistance on the point before the Court.   In the case of a guarantee obligation it is the principal debtor that owes the money to the creditor. The surety is entitled to be indemnified on discharging the principal debtor’s obligation to the creditor.  The surety is entitled to be indemnified in equity because he or she has discharged another’s obligation.   In the present case, however, the principal debtor is Perpetual.   Dorchester is not in the position of a surety of Perpetual.  Dorchester’s obligations under the Trust Deed are not to pay Perpetual’s creditors but are to reimburse Perpetual for expenses properly incurred by it in the exercise of its obligations as trustee.

If  Perpetual  pays  Deloitte’s  fee  is  it  entitled  to  recover  the  payment  from

Dorchester?

[52]     The parties to the Trust Deed were Dorchester, Dorchester Pacific Limited (DPL) and Perpetual (the trustee)).  Under the Trust Deed Perpetual agreed, at the request of Dorchester and DPL, to act as trustee for the holders of the stock and for depositors upon the terms set out in the Trust Deed.

[53]     The   relevant   provisions   of   the   Trust   Deed   entitling   Perpetual   to reimbursement for costs are:

6.1.3[Dorchester]  shall  also  pay  all  expenses  (including  travelling expenses) reasonably incurred by or on behalf of [Perpetual] in connection with the preparation, execution and registration of this Deed and if any deed collateral or supplemental hereto, the exercise of any power or execution of any trust conferred on [Perpetual] hereunder, including the taking of any expert advice deemed necessary by the Trustee and in relation to any default by a Charging Group Member or DPL under this Deed or any security collateral hereto.

And:

6.1.5All expenses incurred by, payments made in the lawful exercise of the powers hereby conferred on and remuneration and fees payable to, [Perpetual] or any Receiver shall be payable on demand and shall be a first charge on the Charged Assets and form part of the Moneys and until payment shall carry interest at the highest rate per annum for the time being payable on any Security.

[54]     In addition to the provisions of the Trust Deed Mr Barker referred to s 38(2) of the Trustee Act 1956 and cl 11 of Schedule 5 of the Securities Regulations 1983. Section 38(2) provides statutory authority for a trustee to reimburse himself out of the trust property for all expenses reasonably incurred in execution of the trusts or powers.  Clause 11 of Schedule 5 of the Securities Regulations authorises the trustee to engage an expert and confirms the obligation on the issuer to pay such reasonable fees.

[55]     The Trust Deed and statutory provisions prima facie entitle Perpetual to seek reimbursement for the payment by it of Deloitte’s reasonable fees.   There is no evidence to suggest the fees now sought by Deloitte,  as revised by Mr Waller are anything other than reasonable.

[56]     The only remaining issue is whether it is reasonable for Perpetual to pay Deloitte and then seek reimbursement when Deloitte could not enforce their right of action against Perpetual.

[57]     Mr  Robinson  submitted  that  the  trustee  owes  the  beneficiaries  various fiduciary duties which include a duty to act solely in the beneficiary’s best interests: Boardman v Phipps;[14]   Cowan v Scargill;[15]   and also that the trustee must act in the beneficiary’s best interests regardless of notions of commercial morality:  Buttle v Saunders.[16]

[14] Boardman v Phipps [1967] 2 AC 46.

[15] Cowan v Scargill [1985] Ch 270.

[16] Buttle v Saunders [1950] 2 All ER 193.

[58]     The short answer to Dorchester’s reliance on the above authorities is that Perpetual was appointed as trustee for the holders of the stock and for depositors with Dorchester.   Its obligation is to consider their interests, not Dorchester’s. Dorchester is not in the position of a beneficiary.  Dorchester’s obligations under the Trust Deed, to reimburse Perpetual for its costs, are in the nature of an obligation to pay trading expenses.   In the absence of evidence that Dorchester’s position is so parlous that to pay the debt would lead it to default in its obligations to depositors, there is no basis to submit that payment by Perpetual of Deloitte’s fee with Perpetual

having the right to be reimbursed by Dorchester, would affect the position of the depositors, whose interests Perpetual represents.

[59]     As Mr Barker submitted, Deloitte provided a valuable service to Perpetual, one which Perpetual was entitled to request and, while the limit on action means Deloitte cannot sue to recover the debt, the debt remains due and owing.  Perpetual may properly wish to maintain a professional relationship with Deloitte and other providers  of  professional  services  and  would  want  to  satisfy  its  obligations  to Deloitte accordingly.   I conclude that Perpetual is entitled to pay the account and seek reimbursement.

Result

[60]     The issues raised by the parties are answered as follows:

a)       The limit on action clause in the engagement letter applies so that Deloitte would not be able to bring any action to recover its fees whether under the first and second invoices or the revised invoice.

b)The 12 month contractual limitation period in the engagement letter was not extended by the Waller report.

c)       The revised invoice issued on 31  August 2010 did not start time running   again   under   the   contractual   limitation   period   in   the engagement letter.

d)Perpetual is entitled to pay Deloitte’s reasonable fees as revised under the Waller report and recover payment from Dorchester under cls

6.1.3 and 6.1.5 of the Trust Deed as a reasonably incurred expense.

Costs

[61]     As the successful parties Deloitte and Perpetual are entitled to costs.

[62]     Mr Simpson argued for costs for Deloitte on an indemnity basis, or in the alternative, for increased costs.  To support the claim to indemnity costs Mr Simpson relied on cl 10 of the Master Terms of Business.  That clause does not relate to an application for determination of liability in relation to fees.  Nor am I prepared to make an order for increased costs in Deloitte’s favour.  As noted above the issue has arisen in part at least because Deloitte was dilatory in responding to Perpetual’s initial query regarding the level of its fees.  It was reasonable for Dorchester to bring the application before the Court for determination.   I am satisfied scale costs are appropriate.  Costs in favour of Deloitte on a 2B basis, together with disbursements as fixed by the Registrar.

[63]     In relation to the costs sought by Perpetual, I accept Perpetual was entitled to take an active role in this case as opposed to abiding the decision of the Court. Perpetual was required to take legal advice regarding the proceedings and is entitled to indemnity for such costs in terms of the Trust Deed.  There will be an order for

costs in Perpetual’s favour on an actual and reasonable basis.

Venning J