FFP Trustee (NZ) Ltd v Peng
[2019] NZHC 3301
•16 December 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002631
[2019] NZHC 3301
BETWEEN FFP TRUSTEE (NZ) LIMITED
First Applicant
FFP (CAYMAN) LIMITED
Second ApplicantAND
LOW HOCK PENG
First Respondent
GOH GAIK EWE
Second RespondentLOW MAY LIN
Third Respondent
LOW TAEK SZEN
Fourth RespondentLOW TAEK JHO
First Respondent
Hearing: 9 December 2019 Appearances:
N Williams, S O’Connor and B Finn for Applicants No appearance for or by Respondents
Judgment:
16 December 2019
INTERIM JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie on 16 December 2019 at 2.00 pm, pursuant to r 11.5 of the High Court Rules
Date:
Solicitors/counsel:
Meredith Connell, Auckland
FFP TRUSTEE (NZ) LTD v PENG [2019] NZHC 3301 [16 December 2019]
Introduction
[1] The first applicant – FFP Trustee (NZ) Limited – is a New Zealand registered company. It is described as an “affiliate” of the second applicant – FFP (Cayman) Limited. FFP (Cayman) Limited is an offshore professional services firm, providing fiduciary, restructuring, trustee, registered office and agent services. It is based in both the Cayman Islands and in the British Virgin Islands.
[2] Either the first or the second applicant is the trustee of one or more discretionary trusts subject to New Zealand law and they are jointly referred to in this judgment as FFP. The names of the various trusts are listed in Schedule 1 to this judgment (the Schedule 1 trusts).
[3] The respondents (either all or some of them) are said to be the ultimate beneficiaries of each of the Schedule 1 trusts.
[4] FFP have filed an originating application under Part 19 of the High Court Rules 2016. The application is filed without notice. They seek the following:
(a)leave to commence the proceedings by way of originating application;
(b)confidentiality orders;
(c)directions under s 66 of the Trustee Act 1956 in relation to their proposed actions in dealing with the assets of each of the Schedule 1 trusts;
(d)a “Benjamin” order1 (or an order to materially the same effect); and
(e)reimbursement and indemnification from trust funds (as defined in the trust deeds for each Schedule 1 trust) for their costs of and incidental to the application.
1 Named after the decision in Re Benjamin [1902] 1 Ch 723.
Background
[5] In July 2016 and June 2017, a number of related civil asset forfeiture proceedings were commenced in the United States (US) District Court for the Central District of California. They alleged that there had been an international conspiracy to launder money said to have been misappropriated from an entity known as 1Malaysia Development Berhad, a strategic development company wholly owned by the Malaysian Government. The assets it was sought to forfeit were said to be traceable to the alleged misappropriation and international conspiracy.2
[6] Ten of the civil forfeiture actions related to assets owned by the Schedule 1 trusts.3 The affected trust, the relevant US forfeiture proceedings and the assets belonging to each trust and sought to be forfeited are listed in Schedule 2. Broadly, the ownership structures within each trust adopt a common form. A special purpose company owns a particular asset. The shares in that company are owned by a holding company. In turn, the shares in the holding company are owned by a trust, the beneficiary or beneficiaries of which are either the respondents or another company. Where the beneficiary is another company, the shares of that further company are held by another trust for the respondents.
[7] The then trustees of the Schedule 1 trusts (and other trusts) failed to take any steps to defend the civil asset forfeiture proceedings. As a result, default judgments were entered in relation to some assets. In late 2016, the respondents applied to this Court to remove the previous trustees of the Schedule 1 trusts and replace them with one or other of the FFP applicants. The application came before Toogood J. Either FFP Trustee (NZ) Ltd or FFP (Cayman) Ltd was appointed the trustee of each of the Schedule 1 trusts by orders made in January 2017 under s 51 of the Trustee Act.4 FFP then promptly took steps to become involved in the US asset forfeiture proceedings.
2 See, e.g. United States of America v One Bombardier Global 5000 Jet Aircraft CIV-16-5367 DSF (PLAx), 4 August 2017.
3 There are eleven Schedule 1 trusts. The Global One Real Estate Trust is the beneficiary of the 80 Columbus Circle (NYC) Trust, the 118 Greene Street (NYC) Trust, the Oriole Drive (LA) Trust, the One Stratton Street (London) Trust, the Seven Stratton Street (London) Trust and the Eight Nine Stratton Street (London) Trust – see below at [67(b), (c) and (d)]. The Global One Real Estate Trust has various property assets in the US, the United Kingdom (UK), Singapore and Hong Kong, as well as personal property assets and cash. This application relates only to the real property assets located in the US and the UK.
4 Peng v Rothschild Trust (Schweiz) AG [2017] NZHC 25, [2017] NZAR 288.
They sought to oppose the making of further forfeiture orders by default, to protect the interests of the respondents, and to ensure that each of the Schedule 1 trusts was properly administered.
[8] Pending the hearing of the civil asset forfeiture proceedings, FFP (and their underlying entities) were prevented from selling any of the Schedule 2 assets without approval from the US Government or a US Court.
[9] In September and October 2017, Court orders were made in the US staying the civil asset forfeiture proceedings indefinitely pending ongoing criminal investigations into the underlying money laundering and international conspiracy allegations. The stay prevented FFP from seeking to bring the proceedings to any type of conclusion. Further, FFP were unable to sell or generate income from any of the Schedule 2 assets and this constrained their ability to preserve the value of those assets.
[10] In the event, FFP obtained consent from the US Courts to market and sell some of the assets under their control, but other assets remained subject to the stayed civil asset forfeiture proceedings. FFP also considered the partial forfeiture of one of the assets owned by one of the Schedule 1 trusts and made application to this Court in this regard.5 This proceeding was discontinued on 28 November 2019. The asset the subject of this proceeding is now subsumed in the present application.
[11] During late October and early November 2019, the US Department of Justice and most of the parties to the remaining civil asset forfeiture proceedings, including FFP, negotiated a comprehensive global resolution of those proceedings. Under the resolution, it is proposed that assets and/or monies will be forfeited to the US Government, without any admission of guilt, liability or wrongdoing by any person or entity.
5 The JW Hospitality (VHG Grantor) Trust owns a 50 per cent interest in five companies that together own the Viceroy Hotel Group. (The Trust’s 50 per cent interest is referred to as the VHG asset). FFP was considering the sale of the VHG asset to a third party. On 20 September 2019, FFP filed an application in this Court seeking a Benjamin order and directions enabling it to withdraw the claims relating to the VHG asset. The application also sought orders relating to confidentiality and service. On 11 October 2019, Woolford J made a limited confidentiality order, and directed FFP to give notice of the proceedings to the Attorney General of the Government of Malaysia.
[12] According to the US Department of Justice, the assets and/or monies intended to be forfeited under the global resolution are valued at approximately US $700 million.
[13] The global resolution has been approved by the US District Court in each of the remaining civil asset forfeiture proceedings.6 Inter alia, each of the consent orders records as follows:
With respect to Defendant assets held in trusts, FFP shall petition the foreign courts in the relevant trust jurisdictions – New Zealand and/or the Cayman Islands – for orders known as “blessing orders” and other protective orders that would authorise FFP to forfeit or otherwise distribute the Defendant Assets to the United States in accordance with the orders of this Court.
[14] FFP Trustee (NZ) Ltd and FFP (Cayman) Ltd propose to forfeit the Schedule 2 assets under their control to the US Government pursuant to the global settlement.7 They seek this Court’s “blessing” of their proposed course of action. Specifically, they seek confirmation that it is lawful and proper, and that it is in the best interests of each of the trusts and of the respondents. They also seek “Benjamin orders” (or orders to like effect) so that they can implement the global settlement and forfeit the Schedule 2 assets without incurring liability to any third party.
[15] A “blessing order” was made by the Grand Court of the Cayman Islands on 28 November 2019.8
[16]Against this background, I consider each of the orders sought.
Leave to bring originating application without notice
[17] Applications under the Trustee Act are generally required to be brought under Part 18 of the High Court Rules.9 They are required to be commenced by way of a statement of claim and an application for directions as to service. FFP seek to avoid
6 United States of America v One Bombardier Global 5000 Jet Aircraft, above n 2, dated 4 November 2019.
7 The detail of the proposal is set out below at [77]–[81].
8 FFP (Cayman) Ltd v A, Cayman Is GC FSD 206 OF 2016 (NAS), 28 November 2019.
9 High Court Rules 2016, r 18.1(a); And see, Jones v O’Keefe [2019] NZCA 222 at [51].
these requirements. They seek leave to commence this proceeding by way of originating application.
[18] Originating applications are governed by Part 19 of the High Court Rules. Relevantly:
(a)rule 19.2 sets out various types of applications which must be made by way of originating application. Applications under s 66 of the Trustee Act are not specified under this rule;
(b)rule 19.3 provides that Part 19 also applies to contempt of Court proceedings and to applications commenced against forfeiture and non- payment of rent. Clearly it has no application in the present circumstances; and
(c)rule 19.4 provides that various office holders may seek directions from the Court by originating application. This rule does not extend to trustees.
[19] Rule 19.5(1) is not however prescriptive. It provides that the Court may, in the interests of justice, permit any proceedings not mentioned in rr 19.2 to 19.4 to be commenced by way of originating application.
[20] The originating application procedure under Part 19 can be used where particularised pleadings and interlocutory steps (such as discovery) are not necessary for the proper determination of the issues raised by the application.
[21] It appears from the papers before me that there are no factual issues in dispute. The respondents, either all or some of them, are the ultimate beneficiaries of all of the Schedule 1 trusts. They have been served with the application. They have consented to it, having taken independent legal advice. Particularised pleadings are not required. No interlocutory steps are proposed or necessary. Allowing the application to proceed by way of originating application permits the matters raised by the application to be
resolved promptly and expeditiously, and that is an overarching consideration for all civil litigation.10
[22] I am satisfied that it is in the interests of justice to grant leave permitting the application for leave, for confidentiality orders, for directions, for a Benjamin order and for costs, to be commenced by way of originating application and I so order.
Confidentiality orders
Orders sought
[23] FFP seek confidentiality orders in respect of the Court file and any document relating to the proceeding, on terms set out in a draft order which accompanied the application, or on such other terms as the Court deems appropriate.
[24]The draft order filed with the application sought the following:
(i)That the application be heard in private.
(ii)That neither the court file nor any document relating to this proceeding may be searched, inspected, or copied by anyone without further order of the Court following 14 days’ notice to the applicants and the applicants having been given an opportunity to be heard.
(iii)That the confidential affidavits of Richard George Lewis, Robin
W.A.G. Rathmell, and Naeun Rim filed in support of this application (the Confidential Affidavits) and the Memorandum of Counsel, which are to be held on the court file, be kept confidential, and placed into sealed envelopes and are not to be searched, inspected, or copied by anyone without further order of the Court following 14 days’ notice to the applicants and the applicants having been given an opportunity to be heard.
(iv)That there be no publication of any of the Confidential Affidavits (and accompanying confidential exhibits) or the Memorandum of Counsel in whole or in part.
(v)That all references to the names of the Trusts and the respondents be anonymised and substituted with initials in any formal court record in this proceeding.
(vi)That the filing of privileged, confidential or work-protected documents or communications in conjunction with the application or proceeding, whether inadvertent or otherwise, is not to be treated as a waiver of the privilege, confidentiality or protection from discovery
10 High Court Rules 2016, r 1.2.
in any federal or state proceeding in the United States or anywhere else in the world.
(vii)That these confidentiality orders shall be interpreted to provide the maximum protection allowed by United States Federal Rule of Evidence 502(d).
(viii)That nothing contained in this Order is intended to or shall serve to limit a party’s right to conduct a review of the documents or communications filed in conjunction with this application or proceeding for relevance, responsiveness and/or segregation of privileged and/or protected information before production.
The confidential affidavits
[25]FFP initially filed five affidavits, from three deponents. Two of the affidavits
– one from Mr Lewis, who is a director of both the applicants and the other from Mr Rathmell, who is a barrister and a partner in the US law firm acting for the respondents – have been filed as open affidavits. The other three affidavits – another from Mr Lewis, another from Mr Rathmell and one from an additional deponent, Ms Rim, who is a US attorney retained by the applicants in relation to the civil asset forfeiture proceedings – have been filed on a confidential basis.
[26] Following minutes issued by me, FFP have filed four supplementary affidavits to clarify various issues. Two of these supplementary affidavits have been filed on a confidential basis. They are further affidavits from Mr Lewis and Mr Rathmell. The other two affidavits – one from Ms Rim and the other from Ms Jeffs, an employee of the legal firm retained by FFP in this country – have been filed on an open basis.
[27] I refer to all of the affidavits filed on a confidential basis as the confidential affidavits.
[28]It is asserted that the confidential affidavits contain:
(a)legal advice provided to FFP by their counsel or information describing such advice, which is subject to legal advice privilege under s 54 of the Evidence Act 2006;
(b)memoranda prepared by FFPs’ counsel for the purpose of preparing for this application, which is subject to litigation privilege under s 56 of the Evidence Act;
(c)commercially sensitive information that, if publicly disclosed, could result in harm to FFP or adversely affect the value of the Schedule 2 assets;
(d)information said to be subject to common interest agreements and protected by common interest privilege (a type of legal privilege recognised in the US but not in New Zealand); and
(e)information and documents that the US Government has directed be kept confidential pursuant to the US’s confidentiality obligations under a mutual legal assistance treaty it has with Malaysia.
[29] In addition, a bundle of documents said to be confidential has been filed as an exhibit to Mr Lewis’ confidential affidavit. There is also a confidential exhibit affidavit filed by Ms Rim and a bundle of exhibits to Mr Lewis’ supplementary confidential affidavit. Confidentiality orders are sought in respect of this material as well.
[30] Confidentiality orders are also sought in respect of memoranda filed by counsel, because they address material taken from the confidential affidavits and exhibits.
[31] FFP and each of the deponents have asserted, and in fulsome terms, that they have not waived privilege by swearing the confidential affidavits, by referring to confidential matters in those affidavits, or by producing confidential material as exhibits. Rather, they assert that they have filed the confidential affidavits and exhibits on the understanding that they will be kept confidential, and to ensure that this Court is fully informed.
Relevant principles
[32] The principle of open justice is fundamental to the common law system of not only criminal justice, but also civil justice. It is a principle of constitutional importance, described as “an almost priceless inheritance”.11 The underlying rationale is that transparency of Court proceedings maintains public confidence in the administration of justice by guarding against arbitrariness or partiality, and any suspicion of arbitrariness or partiality, on the part of the Courts.
[33] There can however be circumstances where the interests of justice require that the general rule of open justice be departed from, but only to the extent necessary to serve the ends of justice. By way of example, a Court can order that proceedings be heard in camera, either in whole or in part, in the exercise of its inherent powers; it has an inherent power to make non-publication orders;12 it can seal Court files in appropriate circumstances.13 A party seeking a confidentiality order must show specific adverse consequences that are sufficient to justify an exception to the fundamental rule of open justice. The standard is a high one,14 but there is no onus or burden on an applicant. The question is rather whether the circumstances justify an exception to the fundamental principle of open justice.15
[34] Counsel noted the assertion made by FFP and the deponents relating to the retention of privilege and confidentiality, and referred me to the decision in R v Bain,16 where the Court of Appeal observed that there can be situations where privileged material is referred to a Court, and produced in evidence, without a general loss of privilege. Counsel also referred to the decision in B v Auckland District Law Society,17 where the Privy Council noted that privilege is not generally waived when a privileged document has been disclosed for a limited purpose only.
11 Erceg v Erceg [2016] NZSC 135, [2017] 1 NZLR 310 at [2]; And see Y v Attorney General [2016] NZCA 474, (2016) 23 PRNZ 452 at [25]–[26].
12 Erceg v Erceg, above n 11 at [3]–[7]; Taylor v Attorney General [1975] 2 NZLR 675 (CA); Siemer v Solicitor General [2013] NZSC 68, [2013] 3 NZLR 411.
13 Senior Courts (Access to Court Documents) Rules 2017, r 5(2).
14 Erceg v Erceg, above n 11 at [13].
15 Y v Attorney General, above n 11 at [29]–[34].
16 R v Bain [2008] NZCA 585 at [80].
17 B v Auckland District Law Society [2004] 1 NZLR 326, [2003] UKPC 38.
[35] Against this background, I turn to consider each of the particular confidentiality orders sought.
(i)That the application be heard in private
[36] I accepted that some of the material filed in support of the application is legally privileged, that parts of it disclose confidential information and that other parts are commercially sensitive. I also accepted that it is important to protect and maintain the privilege and confidentiality attaching to confidential material in the hearing process. I was not however prepared to make in advance of the hearing a blanket order that the application be heard in private from the outset. I am told that the underlying proceedings have been the subject of extensive media coverage overseas. Further, the suggestion that New Zealand is playing host to trusts alleged to be involved in international money laundering is a matter of general public interest which has previously attracted considerable political and media attention in this country.
[37] In the event the hearing before me proceeded in open Court. I did indicate that I would consider any request made to conduct part of the hearing in camera, if counsel wished to discuss material which could properly be said to be confidential. However, it was not necessary for Mr Williams, appearing for the applicants, to make such request. There were no members of the public present in Court.
(ii)That the Court file and documents relating to the proceeding not be searched
[38] Under the Senior Courts (Access to Court Documents) Rules 2017, every person has a right to access the formal Court record relating to any civil proceeding.18 The formal Court record is defined to include judgments, orders and minutes, but not pleadings or affidavits. Access to documents that are not subject to the general right of access can be sought by any person by written request to the Registry. The Registrar must promptly give notice of the request to the parties, and the person receiving a request has a right to object. A Judge can grant the request, refuse it, or refer it to the
18 Senior Courts (Access to Court Documents) Rules 2017, r 8(1).
Registrar for determination.19 A Judge can proceed either on the papers or at an oral hearing.20
[39] Any right or permission given to access a document, a Court file, or part of the formal Court record, can be made subject to a Court order or direction.21 As already noted, the Court also retains an inherent jurisdiction in this regard.22
[40] I am not persuaded that the order sought is appropriate in this case. The respondents chose to settle the Schedule 1 trusts in this country, and make them subject to the law of New Zealand. FFP chose to become involved as trustees of the Schedule 1 trusts, in the knowledge that they were governed by New Zealand law. New Zealand law favours openness and transparency unless there are good reasons to detract from that principle. No good reason has been made out and I cannot see why the general provisions governing access to Court documents should not apply. I decline to make the order sought.
(iii)That access to the confidential affidavits and supporting materials be restricted
[41] I have read the confidential affidavits and materials filed. The affidavits and the exhibits detail and annex legal advice received and memoranda prepared, insofar as I can glean, for the dominant purpose of preparing for this application or the underlying proceedings. I accept that this information prima facia is privileged under either s 54 or s 56 of the Evidence Act 2006. I also accept that some of the material disclosed is commercially sensitive and there is evidence suggesting that, if this material were to be publicly disclosed, it could result in detriment to FFP, to the respondents, and to the value of some of the Schedule 2 assets. I also accept that FFP and the deponents have expressly stated that they have not waived the privilege and confidentiality claimed in respect of the materials filed, and that the circumstances in which the materials have been provided to the Court is consistent with that ongoing claim to privilege and confidentiality.
19 Rule 11(2)–(7).
20 Rule 14.
21 Rule 6(a).
22 Rule 5.2.
[42] I am satisfied that order (iii) is, in broad terms, appropriate. It will protect privilege and confidentiality in documents which prima facie seem to be privileged and which prima facie can fairly be said to contain confidential information. The Court has express jurisdiction to order that documents not be accessed without the permission of a Judge.23 It also has its inherent jurisdiction. A blanket prohibition is not proposed by FFP or, in my view, required. Anyone seeking access to the sealed confidential materials will be able to test the claims made to privilege and confidentiality, on notice, and after both FFP and the respondents have been given the opportunity to object.24 I set out the order that I make below at [53].
(iv)That there be no publication of the confidential affidavits
[43] I cannot see that a separate order in this regard is necessary. The confidential affidavits, the privileged and confidential exhibits and the memoranda of counsel will be sealed pursuant to order (iii) and I will direct that they not be copied. Publication of the privileged and confidential material will not be possible because it will not be in the public domain. If application is made to access the material, then the issue of publication can be dealt with at that time. Mr Williams accepted that this is appropriate.
(v)That the names of the Schedule 1 trusts and the respondents be anonymised
[44] I cannot see that it is necessary to anonymise the names of the Schedule 1 trusts and the respondents. The respondents’ names and the names of the Schedule 1 trusts were not anonymised in the civil assets forfeiture proceedings commenced in the US. Rather, notice of each proceeding was provided on an official US Government website. Mr Lewis has provided a copy of a certification report confirming that the notices were on that website for at least 18 hours a day for a period of some weeks. The names of the respondents and the Schedule 1 trusts were not anonymised by Toogood J or by Woolford J.25 Nor were the respondents’ names and the names of the Schedule 1 trusts anonymised in the judgments recording the various consent orders
23 Rule 5.
24 Rule 11.
25 An order under r 5(2) of the Senior Courts (Access to Court Documents) Rules 2017 was made by Woolford J. It precluded access to the documents said to be confidential. The Judge did not anonymise the names of the respondents or the trust involved.
following on from the global resolution. The names of the respondents and trusts were anonymised by the Grand Court of the Cayman Islands. I do not however have any information as to why or the basis on which that was done. The law in the Cayman Islands may well be different from the law in this country.
[45] As I have noted already, the material before me records that the various allegations involving 1Malaysia Development Berhad have received significant international media attention and have been the subject of multiple books and documentary films. By way of example, in a confidential memorandum forwarded to the Court on 20 November 2019, counsel referred to an article in the New York Times dated 30 October 2019. That article referred to the broad allegations made and to the fifth respondent by name. It is also significant that FFPs’ application for a Benjamin order is based in part on an assertion that any prospective claimants to the Schedule 2 asserts should be well aware of what is happening because of the publicity which has occurred, and I note that Mr Lewis has deposed that “the global settlement is in the public domain”.
[46] There is nothing before me to suggest that the respondents are likely to suffer specific adverse consequences if their names remain in the public domain. Nor is there anything to suggest that the Schedule 1 trusts (or FFP) will suffer any specific adverse consequences.
[47] I decline to anonymise the names of the Schedule 1 trusts and of the respondents.
(vi) That the filing of the confidential affidavits not be treated as a waiver of privilege or confidentiality in any proceeding in the US or elsewhere
[48] Orders are sought that the filing of the confidential affidavits and related materials are not to be treated as a waiver of privilege or confidentiality or as a protection from discovery, in any federal or state proceeding in the United States or anywhere else in the world.
[49]I am not prepared to make an order in these terms.
[50] I have recorded above the basis on which the documents were made available to this Court, and noted that both FFP and the deponents have expressly asserted that they did not waive privilege or confidentiality by producing the documents to the Court. Ms Rim has filed an affidavit explaining why the order (and orders (vii) and (viii)) are sought.
[51] The proposed orders are sought to try and secure protection in the US Courts, using “standard language” adopted in that jurisdiction. I am not persuaded that such orders are appropriate in this country. Whether or not the production of the documents in a New Zealand Court should be treated as a waiver of privilege or confidentiality, or as a protection from discovery, in any federal or state proceeding in the US (or anywhere else) is a matter for the courts in the US (or in any other relevant jurisdiction) to determine. Any order that I might make would have no application unless there are reciprocity of judgments provisions in place.26 There are no such provisions in place between New Zealand and the US.
(vii) and (viii) – Interpretation in the United States – Right to conduct a Review
[52] Both of these orders are related to matters properly within the province of the courts in the US. I repeat my observations in relation to proposed order (vi) above. I decline to make the orders sought.
Result – confidentiality orders
[53]Accordingly, in relation to confidentiality, I order that:
(a)The following materials, all of which are on the Court file:
(i)the confidential affidavits of Richard George Lewis, Robin
W.A.G. Rathmell and Naeun Rim filed in support of the application;
(ii)the bundle of exhibits to the confidential affidavit of Richard George Lewis, the confidential exhibit affidavit from Ms Rim,
26 See, Reciprocal Enforcement of Judgments Act 1934, and subsequent Orders-in-Council.
and the bundle of exhibits to Mr Lewis’ supplementary confidential affidavit;
(iii)the letter from the Attorney General of Malaysia dated 27 November 2019;
(iv)the confidential memorandum of counsel to notify the Court of the pending application dated 20 November 2019;
(v)the confidential memorandum of counsel in support of the without notice application dated 29 November 2019; and
(vi)the confidential memorandum of counsel in advance of hearing dated 6 December 2019.
are to be kept confidential and placed into a sealed envelope or envelopes. The envelope(s) is not to be opened except by order of a High Court Judge. The material in the envelope(s) is not to be searched, inspected, or copied by anyone without further order of the Court. If application is made to search, inspect or copy the materials, not less than 14 days’ notice is to be given to the applicants and to the respondents so that they have the opportunity to oppose any application made.
(b)For the purpose of this order, the respondents are to provide the Registrar with an email address at which any application can be served. Such address is to be provided within ten working days of the date of this order.
[54] I record that I have excluded the fourth memorandum of counsel dated 9 December 2019, notwithstanding that it is headed “confidential”. It does not contain anything confidential. In very large part it repeats (uninvited) submissions made at the hearing in open Court earlier on the same day. The additional information provided, which was sought by me, is already in the public domain in the US.
Application for directions
[55] As noted above, the consent judgments in the US require FFP to obtain “blessing orders” from this Court. This country’s law does not provide for “blessing orders” as such, although such language has been used in some judgments.
[56]FFP has applied for an order in the following terms:
That the applicants may effect, and take all such steps as may be necessary to facilitate or implement, the Consent Judgments and to forfeit the assets or proceeds of the sale of the assets listed in Schedule 2 on the grounds that it is lawful and proper and in the best interests of the trusts and the respondents to do so.
[57] The application for these directions is made pursuant to s 66 of the Trustee Act and/or the Court’s inherent jurisdiction to supervise trusts. Section 66 provides as follows:
66 Right of trustee to apply to court for directions
(1)Any trustee may apply to the court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power or discretion vested in the trustee.
(2)Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the court thinks expedient.
[58] The jurisdiction under s 66 is intended essentially for private advice by the Court to trustees where they are in doubt as to the proprietary of action that is contemplated. Questions of substance or importance, involving matters in dispute or contest between trustees or allegations of breach of trust (either implicit or explicit), do not lend themselves to applications under s 66. The section is not intended to be used where the rights of adversarial parties need to be determined. Rather, an application must be on agreed facts.27
27 Melville v NRMA Insurance New Zealand Ltd HC Wellington CP 70/01, 17 April 2002 at [58]; Neagle v Rimmington [2002] 3 NZLR 826 (HC); And see Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington) at [24.34]; Andrew Butler and others Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [5.3.3](8).
[59] If directions are given and followed, trustees can seek to take advantage of the statutory protection afforded by s 69 of the Trustee Act. However, the protection afforded to trustees by that section depends upon the accuracy of the information provided.28 Directions under s 66 are not intended to immunise trustees against all possible claims against them.29
[60] Counsel relied on a decision of Hart J, sitting in the Chancery Division of the High Court in the United Kingdom, in Public Trustee v Cooper.30 In that case, the Judge quoted from, and agreed with, a judgment given by another Judge – Robert Walker J – in chambers. Robert Walker J described four situations in which directions can be given under the equivalent provision in the United Kingdom. I summarise as follows:
(a)whether a proposed action is within the applicant trustee’s power;
(b)where there is no doubt as to the extent and nature of the trustee’s power, but the trustee wishes to obtain the blessing of the Court for the actions on which he/she has resolved because the decision is particularly momentous.
(c)where the trustee seeks to surrender a discretion vested in him or her; and
(d)where the trustee has taken action and that action has been attacked as being either outside the trustee’s power, or an improper exercise of the power.
[61] In this country, Fitzgerald J, in Re PV Trust Services Ltd,31 has held that the jurisdiction conferred by s 66 can extend to category (b) matters noted above, provided appropriate procedural safeguards are put in place to minimise potential prejudice to beneficiaries. The Judge observed that caution is required in considering orders in
28 Trustee Act, s 69; and see Garrow and Kelly, above, n 27 at [24.34](i).
29 Melville v NRM; Insurance New Zealand Ltd, above n 27; NZ Guardian Trust Co Ltd v Hewitt HC Hamilton M 314/96, 19 May 1998.
30 Public Trustee v Cooper [2001] WTLR 901 (HC).
31 Re PV Trust Services Ltd [2017] NZHC 2957, [2018] 3 NZLR 160.
such circumstances, given the potential for disadvantage to beneficiaries resulting from such orders. It is of paramount importance that an applicant trustee provides the Court with all relevant facts, documents and information when making application. Further, it is imperative that, when considering such an application, a Judge only makes the orders sought after “scrupulous consideration” of the evidence. The Court will not rubber stamp such applications, and if the Court is left in doubt, then it should decline to make the direction sought.32
[62]I agree with and adopt these observations.
[63] It has been suggested in such cases that the task of the Court is not to say how it would itself would exercise the discretion, but rather to ensure, via an inquisitorial process, that the proposed exercise is lawful in the sense that the trustees can properly form the view which they have.33
[64] The orders sought by FFP in the present case fall within category (b) discussed in Public Trustee v Cooper. There is no real doubt as to the powers conferred on FFP by each of the trust deeds and by the Trustee Act. FFP have decided how they propose to exercise the powers conferred on them, but the decision is momentous for the trusts. The forfeiture of the Schedule 2 assets will significantly affect each of the Schedule 1 trusts. The amount proposed to be forfeited is very large – approximately US $700 million. The proposed forfeitures are also very important to the respondents.
Procedural safeguards
[65] I have set out s 66(2) above. It requires that every application under s 66(1) be served upon all interested persons, or such of them as the court thinks expedient.
[66] Mr Lewis has deposed that either all or some of the respondents, are the ultimate beneficiaries in each of the Schedule 1 trusts. The first and second respondents are the parents of the third, fourth and fifth respondents. All are clearly
32 At [55].
33 David Hayton and others Underhill and Hayton Law of Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [85.7] – cited in Re PV Trust Services Ltd, above n 31 at [58]; And see Public Trustee v Cooper, above n 30 at 92; And see Gailey v Gordon [2003] 2 NZLR 192 (HC) at [34].
interested parties. Their legal adviser – Mr Rathmell – has confirmed that he had authority to accept service by way of email on their behalf by email. Ms Jeffs has confirmed in her affidavit that service was effected on Mr Rathmell on 4 December 2019. Mr Rathmell in his supplementary affidavit he confirmed that he was properly served. As I note shortly, all respondents consent. There has been no request that they be given time to file a notice or notices in opposition.
[67] I have considered each trust in turn to see if there are any additional persons who should be served.
(a) Global One Aviation (Global 5000) Trust – the fifth respondent was initially the only named beneficiary. By deed dated 6 December 2013, the then trustee of the trust appointed the first to fourth respondents as additional named beneficiaries. Under the trust deed the beneficiaries of the trust also include:
(i)the trustees of any trust or superannuation fund or foundation of which any of the respondents is a beneficiary (discretionary or otherwise) or member;
(ii)any company under the control of or owned by any of the respondents or any of the beneficiaries identified in (i) above; and
(iii)any person, body or charity declared to be a beneficiary under the power contained in cl 7 of the trust deed prior to the vesting date.
Mr Rathmell has deposed (based on information provided to him by the respondents) that there is no superannuation fund or foundation of which any of the respondents is a beneficiary (discretionary or otherwise) or member. He has further deposed that, to the extent that any company exists which is under the control of or owned by any of the respondents, that company has knowledge of, and does not object
to the application. Mr Lewis has deposed that no person, body or charity has been declared to be a beneficiary under cl 7 and that it follows that the respondents are the ultimate beneficiaries of the trust.
(b) Global One Real Estate Trust – all of the respondents are named beneficiaries. There are additional beneficiaries. They are as noted in [67(a)] above. The same comments apply as are there noted.
(c) 80 Columbus Circle (NYC) Trust – the named beneficiary is a company registered in the British Virgin Islands – Global One Real Estate Limited. Initially, there was no information before me in relation to this company and in particular, whether it is under the control of or owned by some or all of the respondents. Mr Lewis then filed a supplementary affidavit advising that Global One Real Estate Limited is wholly owned by the Global One Real Estate Trust. This ties in with his initial affidavit when he deposed that the respondents are the ultimate beneficiaries of the 80 Columbus Circle (NYC) Trust. The additional beneficiary provisions are identical in all material respects as noted in [67(a)] above and Mr Rathmell’s comments noted above apply. So do Mr Lewis’ comments.
(d) 118 Greene Street (NYC) Trust, Oriole Drive (LA) Trust, Stratton
Street (London) Trust, Seven Stratton Street (London) Trust and Eight
Nine Stratton Street (London) Trust – the position is the same as is set out in [67(c)] above.
(e) JW Hospitality (VHG Grantor) Trust – the named beneficiary is Boluo Investment (US) Limited. The additional beneficiary provisions are in all material respects identical to those noted in [67(a)] above, and again, Mr Rathmell’s comments apply. Mr Lewis has deposed that the shares in Boluo Investment (US) Limited are held by the Boluo Investment (US) Trust, and that no person, body or charity has been declared to be a beneficiary under cl 7 of the trust deed. I turn to the beneficiaries of the Boluo Investments (US) Trust in the next paragraph.
(f) Boluo Investment (US) Trust – the named beneficiaries are the first and second respondents, together with their children – the third, fourth and fifth respondents. By deed dated 18 October 2018, the fifth respondent (and any entities associated with him) was removed as a beneficiary. The additional beneficiary provisions are in all material respects as noted above, and again, Mr Rathmell’s comments apply. Mr Lewis has deposed that no person, body or charity has been declared to be a beneficiary under cl 7, and that accordingly, the first to fourth respondents are the ultimate beneficiaries of the Boluo Investment (US) Trust. It follows that the first to fourth respondents are also the ultimate beneficiaries of the JW Hospitality (VHG Grantor) Trust.
(g) LBH Grantor Trust – the primary beneficiary is The Winton Investment US Limited, a company with its registered office in the British Virgin Islands. That company is now known as Boluo Investment (US) Limited. I have covered its position in [67(e) and (f)] above. The additional beneficiary provisions are in all material respects identical to those noted in [67(a)] above. Mr Rathmell’s comments apply. Mr Lewis has deposed that no person, body or charity has been declared to be a beneficiary under cl 7 and that in effect the Boluo Investment (US) Trust is currently the sole beneficiary of the LBH Grantor Trust. He says that the Boluo Investment (US) Trust is in effect the parent trust of the LBH Grantor Trust, and that accordingly the first to fourth respondents are the ultimate beneficiaries of the LBH Grantor Trust.
[68] On the information made available to me, I am satisfied that the respondents are the ultimate beneficiaries of the each of the Schedule 1 trusts, and that there are no other persons or entities who have an interest pursuant to the trust deeds.
[69] As already noted, Mr Rathmell has deposed that his firm is retained by the respondents and that he was duly authorised by them to swear his affidavit. He has confirmed that the respondents have been informed of the application being made by FFP, that they support and agree with FFP’s decision to enter into the consent
judgments, and that they believe that it was in their best interests to enter into the global settlements. He has confirmed that all of the respondents are sui juris, and that they have instructed him to inform this Court that they agree with and consent to the orders being made in the terms sought by FFP.
[70] As noted at the outset of this judgment, the civil asset forfeiture proceedings allege an international conspiracy to launder money misappropriated from 1Malaysia Development Berhad, an entity wholly owned by the Malaysian Government. The Malaysian Government is a potentially interested person.
[71] A confidential affidavit has been filed by Ms Rim, to advise this Court of the steps taken to notify the Malaysian Government of this application. Ms Rim advises that she has been instructed by the US Government that this information must be kept confidential, pursuant to the confidentiality requirements in a mutual legal assistance treaty between the United States and Malaysia. Accordingly, I do not refer to the detail of her affidavit. I am however satisfied that the Government of Malaysia has been made aware of the application to this Court. The Attorney General of Malaysia has confirmed that the Attorney General’s Chambers of Malaysia does not object to the US consent judgments or to any applications filed with the Courts in New Zealand for FFP to forfeit the relevant assets or otherwise comply with the terms of the US consent judgments. The Attorney General has identified the forfeiture actions in the US Courts to which his confirmation applies by name and number. His list includes all of the civil asset forfeiture proceedings the subject of this application. I am satisfied that service on the Malaysian Government is not required.
[72]There are other potentially affected persons.
[73]First, Mr Lewis, in his open affidavit, deposed that one of the Schedule 1 trusts
– the JW Hospitality (VHG Grantor) Trust – owns, through a complex structure of holding companies and nominee arrangements, a 50 per cent interest in the five companies together known as the Viceroy Hotel Group (the VHG asset). The other 50 per cent interest is, again indirectly, held by a co-investor, Mubadala Development Company PJSC. This matter is dealt with in Mr Rathmell’s confidential affidavit. I do not refer to the detail of that affidavit. I am satisfied that the co-investor is aware
of the proposed forfeitures, and that it does not oppose FFP forfeiting the VHG asset to the US Government. I do however have reservations about the co-investor’s knowledge of the Benjamin order being sought by FFP. I return to this shortly.
[74] Secondly, two of the consent orders made by the US Courts refer to a claimant who is not a party to the Stipulation and Request34 that led to the consent judgments for forfeiture, namely the consent orders in United States v The Real Property Known as The Viceroy L’Ermitage Beverly Hills (the L’Ermitage Real Property Action)35 and United States v All Business Assets of The Viceroy L’Ermitage Beverly Hills, Including All Chattels and Intangible Assets, Inventory, Equipment and All Leases, Rents and Profits Derived Therefrom (the L’Ermitage Business Assets Action).36 The proceedings are noted respectively as numbers 9 and 10 in Schedule 2. The trusts involved are the Boluo Investment (US) Trust and the LHB Grantor Trust – trusts 10 and 11 in Schedule 1. The claimant in both proceedings is an entity known as VHG Beverly Hills LLC. The consent orders in these proceedings record that, while the orders resolve all claims of FFP, the claimant entities and the respondents, they are not case-dispositive, because of the claim made by VHG Beverly Hills LLC. It is not controlled by FFP or the respondents. Its claim is based on a hotel management agreement dated 15 January 2010. The claim in the L’Ermitage Real Property Action is to the Viceroy L’Ermitage Beverly Hills hotel, and the claim in the L’Ermitage Business Assets Action is to all the business assets of the hotel property. It appears that VHG Beverly Hills LLC is affected by the orders sought by FFP in relation to the assets the subject of the two sets of proceedings. It has not consented to the application made by FFP, and I require that it be served before I am prepared to consider an order in the two proceedings in respect of which it is a claimant. Its claims however do not affect the proposed forfeiture of the other Schedule 2 assets.
[75] I have not been given and do not know the detail of the alleged misappropriation(s) from 1Malaysia Development Berhad. It may be that there are
34 See below at [77].
35 United States of America v The Real Property Known as The Viceroy L’Ermitage Beverly Hills
CD Cal CIV 16-3568-DSF (PLAx).
36 United States of America v All Business Assets of The Viceroy L’Ermitage Beverly Hills, Including All Chattels and Intangible Assets, Inventory, Equipment and All Leases, Rents and Profits Derived Therefrom CIV 16-5369-DSF (PLAx).
other parties with a claim, either in whole or in part, to the Schedule 2 assets following on from any misappropriation. The evidence is that no party to date has filed a claim to the Schedule 2 assets, despite notice of the civil asset forfeiture proceedings being given in the US and extensive international media coverage highlighting the proceedings over the last three years. Given the publicity that has taken place, and the length of time that has passed, I am satisfied that there is a low risk of claims from other parties and I do not require service of the application on prospective claimants even assuming that it was possible to identify them. I do however have reservations as to whether or not public notice calling for claims should be given before any Benjamin order, or order to like effect, is made. I return to this below.
[76]I now turn to the detail of the directions sought.
FFPs’ proposed actions
[77] The terms of the global settlement reached are set out in a document referred to by Mr Lewis as a “Stipulation and Request to Enter Consent Judgment of Forfeiture”. In late October 2019 and early November 2019, the US Government filed virtually identical versions of this Stipulation and Request in each of the civil asset forfeiture proceedings, along with corresponding draft consent judgments. By 9 November 2019, US Courts had approved the Stipulation and Request agreements and made consent judgments in each of the proceedings.37
[78] The consent judgments relating to the FFP controlled Schedule 1 trusts provide that all rights, title and interests of FFP, the claimant entities and the respondents in the Schedule 2 assets (and other assets) be immediately forfeited to the US Government, with the exception of the UK properties owned by either FFP Trustee (NZ) Ltd or FFP (Cayman) Ltd as trustee of the Stratton Street (London) Trust, Seven Stratton Street (London) Trust and Eight Nine Stratton Street (London) Trust. The UK properties are to remain in the custody of the applicable trustee until either they are sold to third parties pursuant to interlocutory sale orders already made by the US Courts, or 29 February 2020, whichever date comes first. If the UK properties are
37 See, e.g. United States of America v One Bombardier Global 5000 Jet Aircraft CD Cal CIV 16- 5367-DSF (PLAx), 4 November 2019.
sold prior to that date, the sale proceeds are to be forfeited instead of the properties themselves. If they are not sold, the properties are to be forfeited to the US Government.
[79]The consent judgments further provide the US Government will release US
$15 million from the forfeited proceeds of one fund held in escrow (which is within the control of FFP and held in a Cayman Island trust), to three law firms, such money to be used only to pay the respondents’ legal fees and costs relating to the civil asset forfeiture proceedings. The released funds cannot be used for any other purpose. Under no circumstances are the released funds to be remitted and/or credited back by any of the three law firms, either in whole or in part, and whether directly or indirectly, to FFP, the claimant entities or the respondents.
[80] It is recorded that neither the Stipulation Agreements nor the global settlement, (including any representations made therein) constitute an admission of guilt, fault, liability and/or any form of wrongdoing on the part of FFP, the corporate entities under FFPs’ control or the respondents.
[81] The consent judgments also record that each of the parties (including FFP) is “to bear its own fees and costs in connection with the civil asset forfeiture proceedings in a manner consistent with the terms of [the] consent judgment[s]”.
Exclusions
[82] The following analyses at [83]–[86] and at [87]–[94] do not apply to the assets involved in the L’Ermitage Real Estate Action or the L’Ermitage Business Assets Action. I have directed that the claimant in both of these proceedings be served and I reserve any findings in relation to the application insofar as it affects the assets involved in these proceedings until that claimant has been served and given the opportunity to be heard.
Is FFPs’ agreement to forfeit the Schedule 2 assets lawful?
[83] The trust deeds for each of the Schedule 1 trusts have been produced. Relevantly, clause 11(5)(a) – (c) of the trust deeds provide as follows:
11 Trustee’s Indemnities
…
(5)(a) The Trustee may institute, prosecute and defend any legal or other proceedings anywhere in the world
affecting the Trustee or the Trust Fund.
(b)In addition, the Trustee may compromise any matter of difference or submit it to arbitration, and may
compromise or compound any debts owing to it as Trustee or any other claims against it affecting it or the Trust Fund.
(c)… the Trustee may pay any expenses incurred by it in exercising its powers under sub-clauses (a) and
(b) from the capital of the Trust Fund or of the part or share of it to which the action, proceeding or
claim relates, and may have recourse to that capital at any time and from time to time during the course of the proceedings and after their conclusion.
[84] There is also a very wide power conferred on the trustee of each trust in para 2(1)(p) of each trust deed. Relevantly, it provides as follows:
2.GENERAL POWERS OF ADMINISTRATION AND INVESTMENT
(1)The Trustee shall have the following powers in addition to those powers vested by law in trustees:
…
(p)Give indemnities and other commitments: … to enter into any type of agreement, that it thinks fit relating to the transfer or sale of any business, or shares in a company owned or held by the Trustee (whether relating to the business or company itself or to the assets, liabilities, shares or employees, or any other relevant aspect of, the business or company) in favour of any transferee, purchaser or other relevant party, …
[85] Further, s 20 of the Trustee Act provides a trustee with broad powers to compromise or otherwise settle any claim relating to the trust or to the trust property. Relevantly, it provides as follows:
20 Power to compound liabilities
A trustee may, if and as he thinks fit,—
…
(c)pay or allow any debt or claim on any evidence that he thinks sufficient; or
(d)accept any composition or any security, real or personal, for any debt or for any property, real or personal, claimed; or
…
(g) compromise, compound, abandon, submit to arbitration, or otherwise settle any debt, account, claim, or thing whatever relating to the trust or to the trust property,—
and for any of those purposes may enter into, give, execute, and do such agreements, instruments of composition or arrangement, releases, and other things as to him seem expedient, without being responsible for any loss occasioned by any act or things so done by him in good faith.
[86] Based on the information which has been put before me, I am satisfied that FFP have the power to forfeit the Schedule 2 assets (or the proceeds of their sale) to the US Government (with the exception of the assets involved in the L’Ermitage Real Property Action and the L’Ermitage Business Assets Action).
Have FFP acted properly reaching their view that they should forfeit the Schedule 2 assets?
[87] FFP have reached the view that the proposed exercise of their powers set out above is proper and in the interests of each trust and its ultimate beneficiaries. While it is not for this Court to say how it would itself have exercised the powers conferred on FFP, viewing the proposal objectively, and with the exceptions which I note shortly, I accept that FFP have acted properly in forming their view.
[88] It is clear from the affidavits filed that FFP considered numerous factors over the course of some months before deciding to agree to the terms of the global settlement. They obtained legal advice as to their position and consulted with the respondents via their counsel. In particular, FFP sought advice from:
(a)US tax counsel in relation to the US tax implications;
(b)US litigation counsel in relation to FFPs’ litigation position in the civil assets forfeiture proceedings;
(c)UK tax counsel in relation to UK tax implications;
(d)UK Queen’s Counsel in relation to issues concerning notice and consent;
(e)Cayman Island counsel in relation to Cayman Islands’ law; and
(f)New Zealand counsel in relation to New Zealand law.
[89] FFP were entitled to, and did take into account, the litigation risk to the Schedule 1 trusts and to the respondents. There was no certainty of success in the civil asset forfeiture proceedings, and resisting the forfeiture orders sought would no doubt have been very expensive. There was also the negative impact on both the Schedule 1 trusts and the respondents from the civil assets forfeiture proceedings. Some of the Schedule 2 assets were deteriorating in value because the proceedings were stayed. The Schedule 1 trusts (and through them the respondents) were exposed to the risk of commercial litigation from third parties who could claim that their businesses had been impacted as a consequence of the civil asset forfeiture proceedings. Resolving those proceedings through the consent judgments reduces these adverse effects and risks.
[90] FFP was aware throughout of the risk of claims against them by the respondents as the ultimate beneficiaries of the Schedule 1 trusts. In the event the consent judgments were consented to by each of the respondents, and their legal advisers have confirmed their consent to this application. The respondents have obtained the very real advantage of disposing of the civil asset forfeiture proceedings without any admission of wrongdoing.
[91] Contrary to the submissions I received, FFP do obtain a limited benefit themselves. The consent judgments record that there is no admission of guilt, fault, liability or wrongdoing on FFPs’ part, and they are released from the civil asset forfeiture proceedings. While these matters are limited benefits to FFP, I am not aware of anything to suggest any fault or wrongdoing by FFP and I do not consider that these factors can have played any significant part in their decision to agree to the global settlement. Even they did, the respondents, as the ultimate beneficiaries, do not object.
[92] Mr Lewis, on behalf of FFP, has deposed that he is personally satisfied that there are substantial benefits to FFP, the trusts and the respondents resulting from the implementation of the global settlement.
[93] On the materials made available to me, I accept that FFP have acted properly in reaching their view that the proposed exercise of their powers to forfeit the Schedule 2 assets to the US Government to settle the civil asset forfeiture proceedings identified in Schedule 2 is in the interests of each trust, and its ultimate beneficiaries. This acceptance does not apply to the proposed forfeitures the subject of the L’Ermitage Real Property Action and the L’Ermitage Business Assets Action. I have still to hear from the non-FFP claimant entity in these proceedings.
Result – direction under s 66
[94] Accordingly, pursuant to s 66 of the Trustee Act 1956, and in the exercise of the Court’s inherent power to supervise trusts, and based on the materials which have been provided to me, I direct that, except as noted in (c) below:
(a)FFP, as trustees of the Schedule 1 trusts, have the power to forfeit the Schedule 2 assets (or the proceeds of their sale) to the US Government; and
(b)FFP have acted properly in reaching their view that they should forfeit the Schedule 2 assets to the US Government to settle the civil asset forfeiture applications identified in Schedule 2.
(c)Pending further order of the Court, these directions do not apply to the assets sought to be forfeited in the following proceedings:
(i)United States of America v The Real Property Known as The Viceroy L’Ermitage Beverly Hills CIV 16-5368-DSF (PLAx); and
(ii)United States of America v All Business Assets of the Viceroy L’Ermitage Beverly Hills, Including All Chattels and Intangible
Assets, Inventory, Equipment, and All Leases, Rents and Profits Derived Therefrom CIV 16-5369-DSF (PLAx).
Benjamin order
Order sought
[95]FFP seek a Benjamin order in the following terms –
That the applicants may implement the Consent Judgments and forfeit the assets or proceeds of the sale of the assets listed in Schedule 2 in accordance with those judgments without liability to any third party.
Relevant law
[96] If trustees in a fiduciary capacity have received notice that a fund in their possession is, or may be, claimed by a third party, they will be liable to that third party if they deal with the fund in disregard of that notice should the claim subsequently prove to be well founded.38 Sometimes a claimant may not have issued proceedings, but nevertheless trustees may learn of circumstances suggesting that a claim is possible. In such cases, prudent trustees would be well advised to seek directions from the Court unless they are able to make satisfactory arrangements for their own protection with the beneficiaries.39
[97] At common law the Court will not generally permit a trustee to distribute without notice to potential claimants.40 This practice is endorsed by s 76 of the Trustee Act in this country. Nevertheless it appears the Court has inherent jurisdiction to permit or direct the trustee to distribute notwithstanding the existence of claims, or potential claims from the parties.41 In the UK, it has been held that, in situations where the trustees are faced with a practical difficulty in establishing the existence of possible claimants, the Court can give a direction to the trustees enabling them to distribute the trust property on the assumption that there is no such beneficiary or claimant, and without the necessity of giving notice. 42
38 Guardian Trust & Executors Company of New Zealand Ltd v Public Trustee [1942] AC 115 at 127, [1942] NZLR 294 (PC) at 300.
39 L Tucker and others Lewin on Trusts (19th ed, Sweet and Maxwell, 2015) at [26-028].
40 At [26-033].
41 At [26-033].
42 In Re MF Global (UK) (in special administration) (No 3) [2013] 1 WLR 3874.
[98] Such orders are akin to orders known, in the UK, as Benjamin orders. In that case, the issue was whether the son of a testator had survived his father. The testator died in June 1893. The son had disappeared in September 1892, and had not been heard of thereafter. If he had survived his father he was entitled to a share in the residuary estate. A summons was taken out to determine how the son’s share ought to be dealt with. The Court held on the evidence that the son must be presumed dead, and that the onus was on the son’s administrator to show that he had survived his father. In the circumstances, the Court held that the trustees of the father’s will should be at liberty to distribute on the assumption that the son had failed to survive his father. The order was that the trustees were at liberty to divide a share of the testator’s estate given to the son upon the footing that the son did not survive his father. It was emphasised that the son’s personal representatives were not precluded from making a claim if evidence subsequently became available that the son had died after his father, and it was noted that the order made did not finally determine the son’s rights, but simply authorised the trustee to distribute upon what was considered the appropriate footing, which the evidence then available suggested was the probable footing.
[99] It is clear that such orders do not vary or destroy beneficial interests or finally determine rights; rather they authorise trustees to distribute upon an assumed footing which the evidence then available suggests is the probable one.43
Analysis
[100] On the materials currently available, I do not consider that a Benjamin or similar type order is appropriate in the present circumstances.
[101] First, in the L’Ermitage Real Estate Action and the L’Ermitage Business Assets Action, there is a known claimant, who is not a party to the Stipulation and Requests which led to the consent orders. That party is VHG Beverly Hills LLC. It is not on notice of the FFP application to this Court. In a third proceeding – United States v Certain Rights to and Interests in the Viceroy Hotel Group,44 there is another claimant, who is not also a party to the Stipulation and Requests, or the consent judgments. That
43 Re Plato [1989] 2 NZLR 360 (HC); Re Green’s Will Trusts [1985] 3 All ER 455 at 462.
44 United States of America v Certain Rights to and Interests in the Viceroy Hotel Group CIV 17- 4438-DSF (PLAx).
party is the co-investor – referred to in para [73] of this interim judgment. That co- investor through its solicitors has indicated that it is anxious that the asset forfeitures should proceed. There is nothing however to suggest that it is aware of the proposed detail of the FFP application or of the Benjamin or similar order sought.
[102] Secondly, in regard to all but two of the proceedings, I am making directions under s 66 of the Trustee Act. Trustees acting bona fide pursuant to the Court’s directions do obtain a measure of protection. Section 69 of the Trustee Act provides as follows:
69 Protection of trustee while acting under direction of court
Any trustee acting under any direction of the court shall be deemed, so far as regards his own responsibility, to have discharged his duty as such trustee in the subject matter of the direction, notwithstanding that the order giving the direction is subsequently invalidated, overruled, set aside, or otherwise rendered of no effect:
provided that this subsection shall not extend to indemnify any trustee in respect of any act done in accordance with any such direction if he has been guilty of any fraud or wilful concealment or misrepresentation in obtaining the direction or in acquiescing in the court making the order giving the direction.
[103] Thirdly, insofar as I am aware, there is no reason why FFP could not obtain an indemnity from the respondents, as the ultimate beneficiaries of each of the Schedule 1 trusts. FFP’s affidavits are silent on this point.
[104] Fourthly, there may well be other potential claimants – as noted above – see [75].
[105] Finally, and most importantly, I have not been given any detailed information about the alleged misappropriations or of those who could potentially have a claim against the Schedule 2 assets or any of them. While there is some information in the affidavits filed dealing, in a general sense, with the material which is in the public domain in relation to the civil asset forfeiture proceedings, it is limited. Insofar as I am aware, FFP has not attempted to bring the application to the attention of potential claimants. As noted, the Court will not generally make an order permitting distribution where there are prospective claimants, without notice, and I am mindful of s 76 of the Trustee Act in this regard. I am also mindful that a Benjamin type order could have
wide ranging ramifications for prospective claimants. Before I would be prepared to make the order sought, I would need to know more about these matters. I would want to consider where and how public notice should be given calling on prospective claimants to make their claims. I would have to be satisfied that the possibility of claims is remote, or that claims are speculative, or not demonstrably premised on firm evidence.45
[106] I am not, on the information currently available to me, prepared to make the Benjamin type order sought. If the trustees can make further information available relevant to this issue, I am prepared to reconsider the matter. It is likely that I will require the appointment of an amicus, given the wide ranging effect of a Benjamin type order, and given that there is little or no authority in this country relating to the making of such orders in circumstances similar to those which arise in this application.
[107]For these reasons, I decline to make an order in the terms sought.
Costs reimbursement/indemnity
[108]FFP seek an order in the following terms:
[109] That the applicants be reimbursed and indemnified from the Trust Funds (as defined in the Trust Deeds for each of the Trusts) of the Trusts, excluding any proceeds from the FFP assets to be forfeited under the Consent Judgments, for all of their costs of and incidental to this application.
[110] I accept that costs and expenses involved in bringing proceedings relating to the administration of a trust are usually chargeable to the capital of the trust.46 Similarly, I accept that where a trustee exercises his, her or its power to make enquiries, the cost of such enquiries are normally chargeable against the trust property.47
[111] I nevertheless have some difficulty with the width of the order sought by FFP in the present case.
45 Lewin on Trusts, above n 39, at [26-033].
46 Carter v Sebright (1859) 26 Beav 374, 53 ER 942; In Re Wood’s Trusts (1870) LR 11 Eq 155.
47 Trustee Act 1956, s 15(1)(h).
[112] First, the order sought, if made, would confer a carte blanche on FFP. Its costs would not be subject to Court approval.
[113] Secondly, as I understand it, once the proposed forfeitures proceed, each of the affected Schedule 1 trusts will be denuded of their assets, with the exception of the Global One Real Estate Trust. As noted above in footnote 3, this trust has other assets.
[114] For these reasons, I decline to make an order in the terms sought. Rather, I make an order in the following terms:
The applicants are entitled to recover their reasonable costs and disbursements, in such amount as shall be approved by the Court, from the trust funds (as defined in the trust deed) of the Global One Real Estate Trust, but excluding therefrom any of the Schedule 2 assets to be sold and/or forfeited under the consent judgments entered by the Courts in the United States.
General
[115] I have directed service on the VHG Beverly Hills LLC, declined to give direction under s 66 of the Trustee Act in relation to the L’Ermitage Real Estate Action and L’Ermitage Business Assets Action, and declined to make a Benjamin order or similar. I have however indicated that I am prepared to reconsider these matters if the appropriate steps are taken, and the necessary information can be provided. I am therefore issuing this judgment as an interim judgment.
[116] The judgment has been given on an urgent basis, as requested by FFP. If they wish to proceed further with the application, they are to advise the Registrar in this regard on or before 31 January 2020. I will then convene a telephone conference, to consider what further steps are necessary.
Wylie J
*ha0u!a1:(Stef7ri
6
4
0