Easton v Larsen HC Palmerston North CIV 2098-454-549

[2010] NZHC 1559

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV 2009-454-000549

BETWEEN  IAN CHARLES EASTON First Plaintiff

ANDEASTON AGRICULTURE LIMITED Second Plaintiff

ANDALLAN MCKENZIE LARSEN Defendant

Hearing:         18 June 2010

Counsel:J O Upton QC for plaintiffs (and I C Easton second named defendant in related proceeding CIV 2008-454-545)

S M Hunter for defendant (appearance excused)

M B Ryan for interested party J M Gregory (plaintiff in related proceeding CIV 2008-454-545)

K Johnston for interested parties N J L Bason and A M Larsen (first and third named defendants in related proceeding CIV 2008-454-545)

Judgment:      3 September 2010 at 3:00pm

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 3 September 2010 at 3:00pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Rainey Collins, PO Box 689, Wellington 6140 for plaintiffs/interested party in related proceeding
Gilbert Walker, PO Box 1595, Auckland 1140 for defendant

M B Ryan, PO Box 12504, Palmerston North 444 for interested party J M Gregory

Jacobs Florentine, PO Box 237, Palmerston North 440 for interested parties N J L Bason and A M Larsen

EASTON & ANOR V LARSEN HC PMN CIV 2009-454-000549 3 September 2010

[1]      The plaintiffs, Mr Ian Charles Easton and his company Easton Agriculture Limited, have applied for an order that this proceeding be consolidated or heard together with an earlier proceeding brought by Mr Easton’s sister, Mrs Jeanette Gregory.  Both proceedings relate to the administration of a family trust (the Moutoa Trust), established by Mr Easton’s and Mrs Gregory’s parents (both of whom died in

2000) as part of their estate planning.

[2]      Mrs Gregory issued her proceeding in August 2008, seeking removal of the trustees of the Moutoa Trust.  The trustees currently are Mr Easton, another sibling (Mrs  Nancy Bason)  and  the  defendant  in  this  proceeding (Mr  Allan  Larsen),  a chartered accountant.  She alleges failure or inability of the trustees to administer the Moutoa Trust and, in the case of Mr Easton, conflict of interest.   Mr Easton is defending that claim.  The other two trustees do not oppose their removal provided Mr Easton is also removed.

[3]      Mrs Gregory, Mr Easton and Mr Larsen are also executors and trustees of the mother’s will.  The mother made several specific bequests, and left the residue of her estate  to  the  Moutoa  Trust.    Mrs  Gregory  and  Mr  Larsen  cross  claim  in  Mrs Gregory’s proceeding for an order removing Mr Easton as a trustee of that estate, on the ground that he refused to sign a transfer of property to give effect to one of the terms of the will.

[4]      In the present proceeding Mr Easton and his company are suing Mr Larsen for alleged negligence and breach of duties as professional trustee.  As part of the relief sought, they seek an order removing Mr Larsen as trustee of the Moutoa Trust.

[5]      The plaintiffs have brought the present application on the ground that the two proceedings need to be heard together, or at least by the same judge, as they raise common issues relating to the administration of the Moutoa Trust.  The application is opposed by Mrs Gregory and Mr Easton’s co-trustees.

Background

[6]      Mrs Gregory, Mrs Bason and Mr Easton are the three children of the late Ian

Graham Easton and Bettina Mary Easton (the parents).  Mr I G Easton died in April

2000.  Mrs B M Easton died in May 2000.

[7]      The Moutoa Trust was established in 1997 with the three children as both discretionary and final beneficiaries. The trust deed provides expressly that all decisions of the trustees are to be unanimous.  The original trustees were the parents, Mrs Bason and Mr Larsen.

[8]      Mr Easton was appointed an additional trustee of the Moutoa Trust after the death of the parents, so that from that time (June 2000) the trustees were Mrs Bason, Mr Easton, and Mr Larsen.

[9]      The Moutoa Trust holds the voting shares in a family company Ian Easton Limited, which was effectively the trading company for the trust, and in I G and B M Easton Limited.  These companies own significant rural land interests.  Mr Easton owns 85% of the non-voting shares in Ian Easton Limited.

[10]     In their wills, the parents gifted their shares in the two family companies to the Moutoa Trust with the effect that the trust held a substantial block of farm land. The Moutoa Trust’s deed allowed the trustees to determine the vesting date.   In a memorandum of wishes signed at the same time, the parents expressed the wish that the trustees not distribute the trust fund prior to ten years after the death of the last of the two of them, with the hope that this would allow their son, Mr Ian Easton, time to organise his affairs and put himself in a position to purchase the farm properties from the trust.

[11]     Mrs Gregory wants to see her mother’s estate wound up, and the assets of the Moutoa Trust distributed.   She and Mrs Bason take the view that Mr Easton has already received most if not all of his entitlement, and that they are the ones who will benefit from this distribution.  Mrs Gregory contends that it suits Mr Easton to defer

distribution, as he cannot buy out the interests of the other two, and may not be able to keep the land he is currently farming and on which he has his home.

[12]     The plaintiffs contend that there are disputes over the administration of the Moutoa Trust which need to be determined before any distribution can take place (these have not been identified in this application).   In essence, they say that Mr Easton left administration to Mr Larsen and that Mr Larsen has acted as if he was sole trustee and to (the plaintiffs’) prejudice.   They also says that there is an unresolved dispute over the mother’s estate.

[13]     Mrs Gregory’s proceeding is ready for hearing.  The only reason that it has not been given a hearing date is because the plaintiffs filed this application.   This proceeding has not advanced since it was issued and the application for consolidation was filed.

The application

[14]     Although  the  application  is  for  consolidation,  at  the  start  of  the  hearing counsel for the plaintiffs stated that they would be content to have an order that the claims be heard together or sequentially (rather than be consolidated formally).  The important consideration, in his submission, is that they be heard before the same Judge.

[15]     The application is brought under r 10.12 of the High Court Rules, which reads:

10.12   When order may be made

The court may order that 2 or more proceedings be consolidated on terms it thinks  just,  or  may  order  them  to  be  tried  at  the  same  time  or  one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if the court is satisfied—

(a)that some common question of law or fact arises in both or all of them; or

(b)      that the rights to relief claimed therein are in respect of or arise out of—

(i)       the same event; or

(ii)      the same transaction; or

(iii)     the same event and the same transaction; or

(iv)     the same series of events; or

(v)      the same series of transactions; or

(vi)     the same series of events and the same series of transactions;

or

(c)that for some other reason it is desirable to make an order under this rule.

[16]     It was common ground between counsel that the Court has a wide discretion, to be exercised in the interests of justice, once it is satisfied that some common question of law or fact arises in both proceedings, or relief is claimed in respect of or arising out of the same event or transaction, or there is some other reason making an order desirable.  Once this common thread has been established the Court will weigh the factors for and against an order.  These may include potential saving of time and cost to parties by avoiding the need to traverse the same facts or argument on common points, and thereby reduce the risk of inconsistent outcomes from the same event or transaction.   As against that, the Court must also weigh any potential prejudice as a consequence of combining the hearing.

Some common question of law or fact

[17]     On first impression there is commonality between these proceedings. They have parties in common, and both raise issues over the administration of the Moutoa Trust.  In addition, both seek orders that trustees be removed from the Moutoa Trust (Mr Ian Easton in Mrs Gregory’s proceeding, and Mr Larsen in the plaintiffs’ proceeding).   However, this apparent commonality is not borne out on closer examination.  In my view the claims pleaded have a different focus and character.

[18]     It is not in dispute that the trustees cannot make a unanimous decision.  The other trustees (Mrs Bason and Mr Larsen) are prepared to stand down in recognition of this fact, provided Mr Easton does likewise.  Mr Easton is unwilling to do so.  The critical issue in Mrs Gregory’s proceeding, is whether it is appropriate for Mr Easton

to  remain  a  trustee.    This  will  require  focus  on  his  role  in  the  impasse,  and particularly how he carried out his role as trustee.   In that respect Mr Easton acknowledges  that  he  has  left  administration  to  Mr  Larsen.    He  contends  that Mr Larsen,  to  all  intents  and  purposes,  runs  the  Moutoa  Trust  and  the  trading company Ian Easton Limited as if he was sole trustee.  This contention may involve some examination of the extent of Mr Easton’s reliance on Mr Larsen, but that is unlikely to be a sufficient answer to a claim that he has failed to carry out his responsibilities.  Mr Easton’s acknowledgment that he deferred all decision-making to Mr Larsen may well amount to an abdication of responsibility (as the other parties contend).  It may be unnecessary to go further and attempt to attribute fault for the impasse, bearing in mind that the Court can order removal where “the trustee is out

of sympathy with the beneficiaries” and without a finding of fault.[1]

[1] Kain v Hutton, HC Christchurch M198/00, 3 December 2004.

[19]     Mrs Gregory’s proceeding will also require examination of the allegations that Mr Easton is in a position of conflict.  There is no doubt that he has a personal interest in the matter.  The inquiry in this respect is likely to be whether he has the skills or experience to stand back and make objective decisions on the issues facing Moutoa Trust or in respect of the distribution of his mother’s estate.

[20]     In other words, the principal focus in Mrs Gregory’s proceeding is likely to be on Mr Easton’s role, and there is unlikely to be any great need for a resolution of disputes as to why the trustees have been unable to agree.

[21]     On the other hand the focus in the plaintiffs’ proceeding is on the actions of Mr Larsen from a different point of view.  Rather than saying that he has failed to exercise his obligations, the plaintiffs’ contention is that Mr Larsen has exceeded his authority,  causing  both  of  them  damage.     Mr  Larsen  strongly  contests  this contention, but there cannot be any doubt that the primary focus of this proceeding will be on his role as professional advisor to Moutoa Trust, the farming companies, and to Mr Easton and Easton Agriculture Limited.  It will also involve consideration of the way in which  Mr  Larsen has  carried  out his role as trustee.   It will be necessary to examine the plaintiffs’ allegation that Mr Larsen established a complicated and interlocking company structure, and a complicated and unnecessary

intercompany accounting transactions, partly in relation to the affairs of Moutoa Trust but as much, if not more, in the handling of the affairs of the family companies and the plaintiffs.  I am not persuaded, however, that it is necessary to make findings on those matters in order to determine the allegations in Mrs Gregory’s proceeding.

[22]     I take the view that the focus in plaintiffs’ proceeding will be on the nature and scope of the duties that Mr Larsen owed to the plaintiffs (both of them), as an accountant and as a trustee, whether he fulfilled those duties and if he did not, whether those breaches caused loss to Mr Easton or Easton Agriculture Limited.  I regard that as a claim of different character to the mere failure of trustees to carry out their duties properly.

[23]     Counsel for the plaintiffs pointed out that one of the matters of contention was the proper basis for any distribution.   If that is so (and in my view it is not clearly spelt out in the pleadings to date) it is a matter on which trustees, acting objectively, could seek directions.  That is different from the focus of the plaintiffs’ proceeding which is that Mr Larsen’s actions have caused him damage.   In other words, the point could be addressed quite satisfactorily in Mrs Gregory’s proceeding, where it was always open to Mr Easton to have cross applied for removal of Mr Larsen.

Relief arising out of same events or transactions

[24]     Counsel for the plaintiffs also advanced their case on the basis that there was common relief in both proceedings (removal of trustees) arising out of the same events or transactions (administration of the Moutoa Trust).

[25]     Although I accept that there is some degree of overlap, I regard it as being mainly by way of background.   As I have already indicated, Mrs Gregory’s proceeding   is   focussed   on   the   trustees’   combined   inability   to   act   in   the administration, and Mr Easton’s role in that process (particularly the fact that he left decisions to Mr Larsen).   The inquiry seems likely to focus on whether that is appropriate behaviour on the part of a trustee, given the issues that the trust had to address.   On the other hand, I consider that there is a far more complex inquiry

required   into   more   wide-ranging   events   and   transactions   in   the   plaintiffs’ proceeding.   It will also be necessary in that proceeding to look at the impact of Mr Larsen’s actions on the family companies and the plaintiffs.   That is not an inquiry that is necessarily required in Mrs Gregory’s proceeding.

Discretion

[26]     Although I have come to the view that there is little in the way of common questions of law or fact, or material events or transactions, there is sufficient for me also to consider other factors relevant to the exercise of my discretion:

(i)       Inconsistency of findings

[27]     I  have  addressed  this  generally  in  examining  the  prospect  of  common questions of law or fact.  I should also consider it more specifically in relation to the specific pleading.

[28]     Counsel for Mr Easton referred me to areas where the pleadings specifically overlapped.   He identified four aspects of Mrs Gregory’s pleadings which were repeated  in  the  plaintiffs’  claim,  and  three  aspects  of  Mr  Easton’s  defence  to Mrs Gregory’s claim which were carried forward to the plaintiffs’ pleading.   The common pleading between the claims related to sale of plant by one of the family companies to Easton Agriculture Limited which has not been fully implemented, timely preparation of financial statements and tax returns, and a failure to declare dividends in one of the family companies and distribute income from the Moutoa Trust.  In addition, both claims pleaded conflict of interest (on the part of Mr Easton in Mrs Gregory’s proceeding, and on the part of Mr Larsen in the plaintiffs’ proceeding).  In the comparison between Mr Easton’s statement of defence and the plaintiffs’ statement of claim, the common pleading was that Mr Larsen acted as if sole trustee, and that the failure to allocate income in the first three years was a consequence of Mr Larsen’s decision to use Ian Easton Limited as the financial vehicle for all transactions.

[29]     For the reasons I have already given, I consider it unlikely that the Court would need to make definitive findings on these matters in determining Mrs Gregory’s claim.  However, even if it was necessary to do so, the risk of inconsistent findings seems very low.   These are transactional matters which are likely to be established on the basis of documentary evidence, rather than as a consequence of findings of credibility (where the greatest risk for inconsistency could arise).

(ii)      Time and cost savings

[30]     There was a difference between counsel as to the time that would be required for trial of Mrs Gregory’s claim on its own, as distinct from the combined trial. Counsel  for  the  parties  opposing  the  application  referred  to  an  estimate  for Mrs Gregory’s proceeding of one and a half days, given in a case management conference.   Counsel for Mr Easton pointed out that that estimate had not been agreed.  He maintained that the inquiry in Mrs Gregory’s case was likely to take at least three days, perhaps more.   I am not in a position to determine, with any precision, how much time each claim would in fact take (likely witnesses were not discussed at the hearing),  but it is  clear to me that the inquiry required in Mr Easton’s claim is wider ranging, will require greater factual detail, and is likely to involve far more disputed areas of fact than Mrs Gregory’s claim.  It is likely, in my view, that at least twice the amount of time will be required if not more.

[31]     It is also material that Mrs Gregory is not a party to, nor concerned with, the claim for damages being made by the plaintiffs (whether common law or equitable damages).  There seems no reason to commit her to the cost of the additional time of the longer trial in those circumstances.   The same can be said of Mrs Bason. Similarly, Mrs Gregory’s claim can proceed without the need for the presence of Easton Agriculture Limited, or the time needed to present its claim for damages in the plaintiffs’ proceeding.

[32]     Counsel for the plaintiffs sought to answer this point by proposing that Mrs Gregory need not remain in the hearing for evidence merely affecting the plaintiffs’ claims, and also suggested that this aspect could be circumvented by leaving determination  of  damages  for  later.    In  my view  both  of  these  proposals  have

difficulties.    It  is  possible  that  material  raised  in  the  “discrete”  aspect  of  the plaintiffs’ claim could carry over into Mrs Gregory’s claim, making it unlikely that her counsel would be comfortable not being present for the whole trial.  Similarly, it is better to deal with both liability and damages together if at all possible.

[33]     A further factor relating to the trial itself is that Mr Larsen is represented separately  in  the  two  proceedings,  given  the  different  nature  of  the  allegations against him in each.  This too raises additional complications for the running of trial.

[34]     In summary, although separate trials may require more time in total (because of the need to provide similar background evidence), it is unlikely to be significantly different, and there may be ways in which background evidence common to both can be shared.   Conversely, if the trials are held together, I am in no doubt that Mrs Gregory and Mrs Bason will be required to incur substantial time and expense which they would not have to do if the trials were conducted separately.  It seems inevitable that the plaintiffs’ claim will involve substantial financial and accounting evidence that is unlikely in Mrs Gregory’s claim, and a greater amount of history than will be needed in Mrs Gregory’s proceeding.  For the reasons I have already advanced, I do not see that this is necessarily overcome by a direction that the trials be held sequentially.   That seems to leave open the door for a number of judicial rulings which could be avoided.

[35]   Lastly I consider it material that if Mrs Gregory’s proceeding is heard separately, and orders are made for removal of the trustees, that would dispose of the plaintiffs’ second cause of action and have the effect of reducing the time required for their proceeding.

(iii)     Prejudice - delay

[36]     Mrs  Gregory’s  proceeding  is  ready  for  hearing  now.     The  plaintiffs’ proceeding is still a long way from being ready.  I suspect there will be a need for substantial discovery, with the possibility of interlocutory arguments before it will be ready.   It is not unrealistic to think that it could take a year longer to bring both

proceedings to trial (although I regard the opposing parties’ estimate of two to three years as overly pessimistic).

[37]     Mrs Gregory has been waiting for ten years for distribution of the estate.  Mrs Bason has been waiting for that period to receive a transfer of a property bequeathed to her from her mother’s estate.  Mr Easton has not identified the specific issues that he contends are holding up a winding up of the mother’s estate, but I understand that he is contesting ownership of some farm assets currently held by the farming companies.  It is significant that he has not taken steps to pursue these claims and there is a distinct possibility that they will not have survived Mr Easton’s bankruptcy in earlier times.

[38]     Although it is not certain that resolving the deadlock amongst the trustees will necessarily expedite distributions (new, more objective,  trustees may yet agree with Mr Easton that there are issues on which they need directions), it seems more likely than not that administration of both the mother’s estate and the Moutoa Trust will be expedited by functional trustees.  I regard this as a significant factor in having Mrs Gregory’s claim determined as soon as possible.  As I have already said, it may also resolve the second cause of action in the plaintiffs’ claim.

[39]     I also take into account that different stages of readiness for trial have been considered  to  be  a  significant  factor  in  declining  an  order  for  consolidation  or hearing together: Ward v Genesis Equipment & Manufacturing Inc.[2]

[2] Ward v Genesis Equipment & Manufacturing Inc HC Auckland CIV 2005-404-1686, 30 October 2006.

Decision

[40]     Weighing all of the matters I have discussed, I am not persuaded that this is a case where it is appropriate to order that these proceedings be consolidated, heard together or heard sequentially.  Mrs Gregory’s proceeding is ready for trial, and can be heard within a far shorter time than a trial of both proceedings together would take.   I take the view that there is little risk of inconsistent findings given the

different focus of the two cases and the nature of the matters that are, or could be, common to both.

[41]     The plaintiffs’ application is dismissed.  The defendant and opposing parties are entitled to costs on a 2B basis, together with disbursements as fixed by the Registrar.

[42]     The  Registrar  is  to  allocate  a  case  management  conference  for  this proceeding  at  the  first  available  opportunity.    There  is  now  nothing  to  prevent

allocation of a trial date in Mrs Gregory’s proceeding.

Associate Judge Abbott