Easton v New Zealand Guardian Trust Company Limited

[2016] NZHC 798

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-9 [2016] NZHC 798

IN THE MATTER	of the Trustee Act 1956.
BETWEEN	IAN CHARLES EASTON Plaintiff
AND	THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED Defendant

Hearing:	6 April 2016
Counsel:	J O Upton QC for Plaintiff L J Taylor QC for Defendant
Judgment:	27 April 2016

RESERVED JUDGMENT OF ELLIS J

I direct that the delivery time of this judgment is

11.45 am on the 27th day of April 2016

EASTON v THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED [2016] NZHC 798 [27 April

2016]

[1]      Mr  Easton  seeks  leave  to  amend  his  statement  of  claim  after  the  close  of pleadings  date  which  was  11  December  2015.1      A  five  day  trial  is  scheduled  to commence in less than two months’ time, on 13 June 2016.

[2]      In essence, the proceedings seek removal of the New Zealand Guardian Trust Ltd (GT) as the Trustee of the Moutoa Trust (the MT).  There is a second cause of action alleging various breaches of Trust by GT.  Damages and other relief are also sought.

Background

[3]      Mr Easton and his two sisters are the three final beneficiaries of the MT which, in turn, is the sole residuary beneficiary of the estates of Mr Easton’s parents, Ian and Bettina, who died within 11 days of each other in 2000.

[4]      Prior to 2011, the trustees of the MT were Mr Easton, his sisters and an accountant, Mr Alan Larsen.  In 2008 one of Mr Easton’s sisters applied to have GT appointed in their stead, due principally to conflicts that were said to exist between Mr Easton’s position as trustee and his business interests.  Of the other Trustees, only Mr  Easton  opposed  that  application.     His  opposition  effectively  delayed  the resolution of the application for two and a half years until, more or less on the eve of

trial, Mr Easton consented to it.2   GT has been the sole Trustee of MT from that point

onwards.

[5]      The MT controls two companies which, between them, own family farm properties near Shannon.  Mr Easton owns approximately 77 per cent of the shares in one of these companies, Ian Easton Limited (IEL), but his shares do not carry any voting rights. The other company is IG and BM Easton Limited (IGBM).

[6]      Mr Easton’s own company, Easton Agriculture Limited (EAL), leases the farm properties from the companies for the purposes of its cropping business.  EAL

also owns and farms a 25 hectare block across the road from those  properties.

1      Mr Easton in fact filed an amended statement of claim on 11 December 2015.  Earlier close of pleadings dates had been set at 21 August and 9 October 2015.

2      The history is recounted by Dobson J in Gregory v Bason HC Palmerston North CIV-2008-454-

545, 8 March 2011.

Mr Easton or entities controlled by him have been farming the family farm property and the 25 hectare block as one farming operation for many years.

[7]      In their wills and in a letter of wishes, Mr Easton’s parents explained that they had left the majority of their assets to the MT because it was their desire that:

(a)      their assets be distributed equally among their children (taking into account various gifts during their lifetimes);

(b)Mr Easton have “sufficient time to organise his affairs to hopefully put him in a position where he may be able to purchase” the farm properties; and

(c)      for that reason, that the Trustees of the MT refrain from distributing it for 10 years from the date that the last of them died.  That 10 year period expired in mid 2010 (prior to GT’s appointment).

[8]      GT’s position is that since it became the Trustee it has been endeavouring to get the MT in a position where it can be wound up and distributed.  For reasons that are in issue in these proceedings the companies owned by the MT have a large tax debt with interest and penalties accruing.  GT wishes to sell the farm properties not only in order to distribute the Trust but also in order to pay that debt.  It is willing to sell the properties to Mr Easton and Mr Easton says he wishes to buy them.  Thus far, agreement on valuation and other terms has been unable to be reached.

[9]      In  January 2015  Mr Easton  obtained  a without  notice  interim  injunction against GT preventing the sale of the farm properties by GT.  The tax debt remains unpaid and interest and (subject to any accommodation reached with IRD) penalties continue to grow.  I understand the total debt now exceeds $600,000.

The proceedings against Mr Larsen

[10]     In  2009,  Mr  Easton  and  EAL issued  proceedings  against  the  accountant Mr Larsen, who was also at that point a trustee of the MT, as was Mr Easton.  These proceedings are relevant by way of background for two reasons.   First, it appears

from the pleadings in the present case that much of Mr Easton’s dissatisfaction with GT stems from his perception that GT has failed to remedy historical “issues” arising out of the accounting services provided by Mr Larsen to the MT.  In particular, he says that the accounting methodology adopted by Mr Larsen and continued after his removal has been disadvantageous and has led to the Trust owing the debt to IRD.3

[11]     Secondly, the progress and conduct of those proceedings has some bearing on the present application.   The two causes of action pleaded in the 2009 proceedings against Mr Larsen were for professional negligence (which related to Mr Larsen’s preparation of the MT’s accounts) and for breach of fiduciary duty and breach of trust in relation to his responsibilities as a trustee.

[12]     The  first  cause  of  action  was  abandoned  a  week  before  the  trial  was scheduled to commence.  On 29 October 2013, the first day of the trial, Mr Easton sought leave to amend the second cause of action.  That application was declined by Kós J, who also declined Mr Easton’s application for an adjournment, which had been made to enable him to pursue the application for amendment.4   Mr Easton then discontinued the claim in its entirety.

[13]     About  a  year  later  Mr  Easton  and  EAL  filed  fresh  proceedings  against Mr Larsen alleging breach of fiduciary duty: CIV-2014-454-102.   Mr Larsen has since applied to strike out that claim and for summary judgment.

These proceedings: the pleadings as they stand

[14]     At    an    early   case    management    conference   for   these   proceedings Associate Judge  Smith  minuted  that  Mr  Easton  essentially  alleges  that  GT  has breached its duties as a trustee by:

(a)       proposing to pay tax to the Inland Revenue Department on the basis of financial accounts which are acknowledged to be “inappropriate,

3      In short, it seems that an arrangement whereby Mr Easton/EAL did not pay rent on the farm properties in cash led to the rental amounts being added to Mr Easton’s current account on which interest was charged and tax became payable.

4      Easton v Larsen [2013] NZHC 2859.

based  on  a  flawed  methodology  and  disadvantageous”  both  to

Mr Easton and the Trust;

(b)seeking to sell the farm properties in circumstances where that is unnecessary because payment of whatever tax is owing to the Inland Revenue Department can be arranged by alternative means;

(c)      failing to honour its agreement in principle to an independent audit of the financial accounts, knowing that Mr Easton has agreed to accept the results of such audit;

(d)      refusing to calculate the rent payments honestly and fairly; (e)           refusing to grant a renewal of lease to EAL; and

(f)      having a conflict of interest  due to its separate duties to the two companies controlled by the Trust, and resolving that conflict against IEL (in which the plaintiff is the major shareholder).

[15]     In terms of relief, Mr Easton asks for directions under s 66 of the Trustee Act

1966 (the Act) relating to the proposed sale of the farm property, and (under s 68 of the Act) a review of the conduct of the defendant relating to the proposed sale of the farm property.  He asks for directions relating to such conduct and/or for such other order as the circumstances of the case require.   He also seeks the removal and replacement of the GT as trustee of the Trust and as trustee of his mother’s estate.

[16]     Although the statement of claim has had a number of iterations, the central allegations have, until now, remained as articulated above.

Proposed amended pleadings

[17]     The proposed amendment to the pleadings relevantly involves the addition of the allegations that:

29.      As the taxpayer/landlord with prime responsibility to manage the tax affairs of the entities it failed to promptly calculate and pay provisional tax as it fell due.

30.      (Alternatively) If it was not able to, or refused to, pay such tax, it failed to promptly advise the plaintiff to that effect, explain the position to him, ensure that he was fully informed and that alternatives were in place to meet tax obligations as they fell due.

…

36.      The defendant has failed or refused to deal with the issues reserved in paras 27.2 and 27.3 of the farm leases entered into on 22 August 2003 including:

·   the cropping account issues;

·   the plant and machinery issues.

37.      It has failed to deal with the issues arising from the purchase by the plaintiff of the shares held by Jeanette Gregory in IEL, including appropriate recognition of the $600,000 loan from BNZ taken out inter alia to allow the purchase to take place.

38.      It failed to offer the plaintiff a renewed lease of the family farm property on the same terms as before, pending resolution of outstanding issues and the purchase by the plaintiff of the family farm property.

39.      As  a  result  the  plaintiff  had  been  exposed  to  significant  and unnecessary financial risk, stress and cost.

[18]     The reason given for the application to amend is that it was only in the course of preparing his evidence for the trial that Mr Easton became aware of them (or aware of their significance).

Principles

[19]     Leave to file an amended pleading after the close of pleadings will only be

granted if the applicant can surmount the “formidable hurdles” of showing that:5

(a)      the amendment is in the interests of justice;

(b)      the amendment will not significantly prejudice the defendant; and

(c)      the amendment will not cause significant delay.

[20]     The Court must consider the overall justice of the case, including the length of the delay and whether a satisfactory explanation has been given for it.6

Discussion

[21]     I am of the clear view that the proposed amendment should not be permitted, for the reasons which follow.

[22]     First, although the amendment involves no fresh cause of action, strictly so called, the allegations set out above are said to constitute new and discrete breaches of trust.  In that regard I am unable to accept the submission by Mr Upton QC that they merely articulate matters that were implicitly included in the earlier pleading. Why that is not so can most clearly be seen from the point made by Mr Taylor QC that the new tax allegation appears directly to contradict the existing tax pleading.  In other words the original claim was (and remains) that GT was in breach of trust for wishing to pay the outstanding tax.   The new pleading is that GT should pay the outstanding tax.

[23]     Similarly, I am unable to accept that the allegation about the purchase of Mr Easton’s sister’s shares and the cropping account and plant and machinery issues “reserved in the lease” were implicitly included in the earlier statement of claim. The issue raised by the earlier pleading is whether GT was obliged to renew the lease (which had expired); the suggestion that GT also had some obligation to resolve issues under the (expired) lease is new and different.

[24]     Because of my view that the proposed amendments raise new and discrete matters, it follows that I also accept Mr Taylor’s submission that they will possibly require  further  discovery  and  will  certainly  require  additional  evidence  and additional hearing time.  In light of the now lengthy continuation of the injunction which acts as a significant fetter on the performance by GT of its trustee duties any step which jeopardises the trial date is not to be countenanced.

[25]     Thirdly,  the proposed  amendments  are themselves  deficient  as  pleadings. While I suspect that, in light of the protracted history of the matter, it may be that GT understands in a general way what the new allegations relate to, it is far from clear to the Court.   In my view particularisation would certainly be required.  Again I am unable to see how that could adequately occur without jeopardising the trial.

[26]     Lastly, the reasons given for the late amendment are less than compelling. Again, I can only agree with Mr Taylor that all the matters now pleaded have always been within Mr Easton’s knowledge; indeed, they constitute complaints that he has had for many years.  Even if that were not the case, discovery and inspection should have been completed by August 2015; Mr Easton has had ample time prior to the close of pleadings date to get to grips with any genuinely new matters falling out of that process.

[27]     The application for leave to amend is declined accordingly.

Further directions

[28]     Understandably, the defendant has not served its evidence in accordance with the timetable directed by Associate Judge Smith pending resolution of this application.   The plaintiff’s evidence was, in any event, served late.   I therefore direct that the defendant is now to serve its evidence by 6 May 2016.

[29]     As discussed with counsel at the hearing it is, in my view, expedient and cost effective for the trial in this matter and the applications for strike out and summary judgment in the Larsen proceeding to take place consequentially.  One day is said to be required in this latter respect.  I therefore also direct that the Larsen applications will be heard on 13 June 2016 and the trial in these proceedings will follow directly on (ie it will commence on 14 June 2016 and may continue onto Monday 20 June if necessary).

[30]     I will be the presiding Judge in both matters.

Costs

[31]     GT is entitled to 2B costs in relation to the present application.

Solicitors:           John Upton QC for Plaintiff

Leslie Taylor QC for Defendant

“Rebecca Ellis J”