Gillespie v Guest

[2013] NZHC 669

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-1629 [2013] NZHC 669

BETWEEN  BRUCE JAMES GILLESPIE, PRUDENCE JULIET GILLESPIE, CHRISTOPHER JAMES GILLESPIE, NICHOLAS JOHN GILLESPIE AND JONATHAN PAUL GILLESPIE Plaintiffs

ANDANDREW JOHN DEXTER GUEST First Defendant

ANDVIRANDA PROPERTY NETWORK LIMITED

Second Defendant

ANDRSM PRINCE & PARTNERS First Third Party

AND  MORRISON CREED

Second Third Party  (DISCONTINUED)

ANDGRAEME HAMILTON SINCLAIR Third Third Party

Hearing:         10 May 2012

Counsel:         A Barker for Plaintiffs

A J D Guest, First Defendant, in person

Judgment:      4 April 2013

JUDGMENT (No.2) of ASSOCIATE JUDGE BELL On application for strike-out

This judgment was delivered by me on   4 April 2013  at  1:00pm

pursuant to Rule 11.5 of the High Court Rules.

...................................

Registrar/Deputy Registrar

GILLESPIE V GUEST HC AK CIV-2011-404-1629 [4 April 2013]

[1]      This decision, like the decision on the plaintiffs’ discovery application, comes long after the hearing, far too long.  I appreciate that the parties have been kept waiting and that the delay must have caused inconvenience.  I apologise for the time taken.

[2]      Mr Guest, the first defendant, applies to strike out the statement of claim against him because it discloses no reasonably arguable cause of action and that the cause of action cannot succeed.  The plaintiffs oppose.  The basis for Mr Guest’s application is that he is entitled to the limitations on the liability of trustees under the plaintiffs’ trust deed.  He says that he was a trustee.

The plaintiffs’ claim

[3]      The plaintiffs are the trustees of the Gillespie Family Trust.  The trust was established under a deed dated 11 July 1995.  Bruce and Prudence Gillespie are the settlors.  They have the power to appoint new trustees.   Bruce, Prudence, and their son Christopher, were the initial trustees.   Their sons Nicholas and Jonathan have since been appointed by deed.

[4]      The plaintiffs’ case is that Mr Guest was the primary financial advisor for the Gillespie family and the Trust since approximately 1987.  On his advice, they made an investment of $1,830,000 by way of term loan in a company, Titan 1 Finance Ltd. Titan 1 Finance Ltd failed.  The plaintiffs have been partly repaid, in part because of proceedings taken against the guarantors, but they have suffered a residual loss. They sue Mr Guest for that loss.

[5]      The statement of claim has four causes of action: (a)   Breach of fiduciary duty;

(b)      Breach of contract of retainer; (c)           Negligence;  and

(d)      Breach of the Fair Trading Act 1986.

[6]      Mr Guest’s statement of defence includes the following at its very start:

Limited Liability and Indemnity

AThat he is not liable to the Plaintiff Trust as claimed but that if he is found to be liable then his liability is limited only to loss attributable to dishonesty or the wilful commission or omission of an act which he knew to be a breach of trust and such conduct he denies in all respects.

PARTICULARS

a)That he was either appointed and acted as a Trustee of the Plaintiff Trust from 2004 until 2008 or that the Appointors of Trustees of the Plaintiff Trust, being one or more of the Plaintiffs, had invited him to be a trustee, led him to believe that he had been so appointed, represented  him  to  others  as  a  Trustee,  and  that  in  each  case therefore the Plaintiffs and the Defendants had accepted and acted on the basis that he was a Trustee at all relevant times.

b)That as a Trustee or as a person told that he had been appointed a Trustee,  he  was  entitled  to  and  expected  the  protections  almost always contained within similar Trust Deeds and specifically the Trust  Deed  of  the  Plaintiffs  and  that  his  liability  was  therefore limited only to loss attributable to dishonesty or the wilful commission or omission of an act which he knew to be a breach of that Trust.  He further states that such limitation was an express and implied term of the First Defendant agreeing to act as a Trustee of the Plaintiff Trust.

c)That the First Defendant is therefore entitled to the limit of Trustees’ liability and indemnity provisions set out in the Trust Deed of the Plaintiffs to the same extent as is enjoyed by each named Plaintiff acting as a Trustee.

d)That as a professional Trustee who was not a beneficiary and not within the Gillespie family the First Defendant expected and was entitled to the same limit of liability and indemnity as had been present in respect of the previous professional Trustee who the First Defendant had been appointed, or led to believe he had been appointed, to replace.

e)That had the First Defendant not had the protection of the limitation of liability agreed bundle of documents indemnity he would not have accepted or undertaken his role as a Trustee for the Trust and that he otherwise did not owe a fiduciary duty to the Plaintiffs.

[7]      That defence is the basis for Mr Guest’s strike-out application.  He says that he was one of the trustees.  He relies on provisions in the trust deed:

24NO LIABILITY OF TRUSTEES EXCEPT FOR DISHONESTY OR BREACH OF TRUST

To the extent permitted by law no Trustee of the trusts of this Deed shall be subject to any duties except the duty to act honestly and the duty not to commit wilfully any act known by such Trustee to be a breach of trust and the duty not to omit wilfully any act when the omission is known by such Trustee to be a breach of trust  AND  no such Trustee shall be liable for the consequences of any act or omission or for any loss not attributable to such Trustee’s own dishonesty or the wilful commission by such Trustee of any act known by such Trustee to be a breach of trust or to the wilful omission by such Trustee of any act when that omission is known by such Trustee to be a breach of trust nor shall any Trustee be bound to take any proceedings against a co-executor or co-trustee for any breach or alleged breach of trust by that co-executor or co-trustee.

He also refers to a parallel indemnity provision:

25INDEMNITY OF TRUSTEES  EXCEPT FOR  DISHONESTY OR BREACH OF TRUST

A Trustee shall be absolutely indemnified by and out of the Trust Fund (whether as to the capital or the income thereof) for and in respect of any loss or liability which such Trustee may sustain or incur by reason of the carrying out or omission of any function duty or power of the Trustees under this Deed unless such loss or liability is attributable to such Trustee’s dishonesty or the wilful commission by such Trustee of an act known by such Trustee to be a breach of trust or to the wilful omission by such Trustee of any act when that omission is known by such Trustee to be a breach of trust.

[8]      The application raises these questions:

(a)       How should the court decide this strike-out application? (b)    Is the plaintiffs’ failure to file a reply fatal?

(c)      Was Mr Guest appointed a trustee of the Gillespie Family Trust? (d)      Did Mr Guest act as trustee in the matters for which he is sued?

(e)      Do the provisions of the trust deed limit Mr Guest’s  exposure to

liability?

How should the court decide this strike-out application?

[9]      On strike-out applications based on absence of reasonable arguable cause of action, it is almost ritualistic to set out the test summarised by the Court of Appeal in Attorney-General  v  Prince,1   and  endorsed  by  the  Supreme  Court  in  Couch  v

Attorney-General.2

(a)	Pleaded facts, whether or not admitted, are assumed to be true.  This does not extend to pleaded allegations which are entirely speculative
but without foundation.
(b)	The cause of action or defence must be clearly untenable.  The court must be certain that the claim cannot succeed.
(c)	The jurisdiction is to be exercised sparingly and only in clear cases. This reflects the court’s reluctance to terminate a claim or trial short
of trial.
(d)	The  jurisdiction  is  not  excluded  by  the  need  to  decide  difficult
questions of law, requiring extensive argument.
(e)	The court should be particularly slow to strike out a claim in any
developing area of law, and perhaps particularly where a duty of care is alleged in a new situation.
[10]	Wh	ere a defendant alleges that the statement of claim does not disclose an

arguable cause of action, the enquiry is whether the cause of action is tenable, assuming that the facts pleaded are true.   The court will not decide contested questions of fact.  Accordingly, the role of affidavit evidence is limited.  Affidavits may provide purely contextual material evidence or may set out factual matters

which are uncontested.

1      Attorney-General v Prince [1998] 1 NZLR 262 (CA).

2    Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725.

[11]     It is necessary to note some adjustments required for this case.  For his strike- out application, Mr Guest does not contest the facts pleaded by the plaintiffs.  Nor does he say that the allegations pleaded to support the four causes of action may not constitute arguable causes of action.  Instead, he alleges an affirmative defence – that he is a trustee entitled to the benefit of limitation and indemnity provisions in a trust deed.

[12]    The assertion of an affirmative defence requires a modified approach.  For example,  when  a defendant  alleges  that  a plaintiff’s  claim  is  statute-barred,  the strike-out application is not considered as one based on absence of a reasonable cause of action under r 15.1(1)(a), but instead under r 15.1(1)(d) on the basis that the claim is an abuse of process of the court:   Ronex Properties Ltd v John Laing

Construction Ltd3  and Matai Industries Ltd v Jensen.4    Admittedly that approach

arises because a limitation defence does not go to substance, but only to relief, but it does point to the need to bear in mind that the defendant is not saying that the plaintiff’s cause of action is not tenable as such.  Instead the defendant says that even if  the  cause  of  action  is  tenable,  he  has  a  clear  defence.    But  in  asserting  an affirmative defence, the defendant has the burden of establishing that defence.

[13]     Sometimes the merits of an affirmative defence can be established solely by reference  to  the  law.    No  factual  enquiry  may  be  required.    In  that  case,  the application can be decided under the standard approach for striking out for absence of reasonable cause of action.   However, when factual questions arise, there is no presumption that the matters pleaded by way of affirmative defence are true, even in the absence of any reply addressing them.  If a defendant applies to strike-out relying on an affirmative defence and gives evidence, the affidavits should give no more than uncontroversial contextual material or should set out uncontested matters of fact.   If the pleaded affirmative defence is subject to contest as to its factual foundations, then the case will not be suitable for a strike-out application.

[14]     Further, even if the defendant establishes the affirmative defence, the plaintiff may be able to counter it by showing an arguable case for some exception to the

3      Ronex Properties Ltd v John Laing Construction Ltd [1983] QB 398 (CA) at 405.

4      Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC).

defence maintained by the defendant.  Guidance for this comes from the judgment of

Tipping J in Murray v Morel & Co Ltd:5

[33]      I consider the proper approach, based essentially on Matai, is that in order to succeed in striking-out a cause of action as statute-barred, the  defendant  must  satisfy the  court that the  plaintiff’s cause  of action is so clearly statute-barred that the plaintiff’s claim can be properly regarded as frivolous, vexatious, or an abuse of process.  If the defendant demonstrates that the plaintiff’s proceeding was commenced  after  the  period  allowed  for  the  particular  cause  of action by the Limitation Act, the defendant will be entitled to an order striking-out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.

[34]      In the end the Judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings, and particulars (and evidence, if the plaintiff elects to produce such evidence) to persuade the  Court  that  what  might  have  looked  like  a  claim  which  was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement.  If the plaintiff demonstrates that to be so, the court cannot say that the plaintiff’s claim is frivolous, vexatious or abuse of process.  The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time.

[15]    Mr Guest has not approached the case in quite this way.  His strike-out application did not identify the particular grounds on which the application was based, other than to assert that no reasonably arguable cause of action had been pleaded.  He did not file any affidavit in support of his application at the outset, but his application was said to be made in reliance on incontrovertible evidence adduced from the pleadings and  from formally discovered documents.   Later,  he filed a bundle of documents which included a copy of the trust deed and certain matters of correspondence, but without any affidavit adducing those documents as evidence or explaining them. A very late affidavit stated that four of the documents in the bundle had been formally discovered and provided by way of inspection in the proceedings. The affidavit also contained a general assertion that Mr and Mrs Gillespie asked him in 2006 if he would accept appointment as trustee, he accepted their request and

from  there  on  acted  as  trustee.    That  general  statement  was  not  supported  by

5      Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33]-[34].

the request or his response.

[16]     The way Mr Guest went about the application caused embarrassment to the plaintiffs.   They did not, and could not, have understood the basis for Mr Guest’s application until late in the piece.   Their notice of opposition made their embarrassment clear.  Once they found out the exact basis for the application, they had to scramble to provide evidence in response.  As I show later in this judgment, their evidence attacks the factual basis for the defence asserted by Mr Guest.

[17]     The case has moved significantly from an enquiry under the “reasonable cause of action” ground to see whether the plaintiffs’ allegations are tenable in law. Mr Guest has not contended that the plaintiffs’ claim can be regarded as frivolous, vexatious or an abuse of process.  Instead, he has tried to turn a strike-out application into a defendant’s summary judgment application, even though he had not applied for leave to bring such an application out of time.

[18]     The application has not had a happy start.  However, it would not be fair to the parties to dismiss the application on purely procedural grounds.  Both parties prepared  fully  for  the  hearing.    It  is  better  that  I  address  the  merits  of  their arguments, notwithstanding the procedural lapses on the part of Mr Guest.

Is the plaintiffs’ failure to file a reply fatal?

[19]     So far, the Gillespie Family Trustees have not filed a reply to Mr Guest’s statement of defence.  Mr Guest invokes rr 5.62 and 5.63 of the High Court Rules. Rule 5.62 requires a plaintiff to file and serve, within 10 working days of service of the statement of defence, a reply if a statement of defence asserts an affirmative defence or contains any positive allegation affecting the plaintiff.

[20]    Under r 5.63(2), an affirmative defence and any positive allegation in a statement of defence that is not denied is treated as being admitted. That reverses the earlier  presumption  that  an  affirmative  defence  was  treated  as  denied,  unless

Trustees have admitted his affirmative defence in paragraph [6] above.  Mr Guest further submits that the Gillespie Family Trust are now well out of time for filing a reply and the court should not exercise any discretion to extend the time for filing a reply.  He says that it is no defence for the Gillespies to say that they overlooked the rule.

[21]    Mr Guest adds that in September 2011 he served on the Gillespie Family Trustees a notice to answer interrogatories, but the trustees did not answer them. Mr Guest submits that this notice would have put the trustees on notice that his reliance on the trust deed was in issue.

[22]     In response, the Gillespie Family Trustees point out that Mr Guest’s pleading is  unusual.    Mr  Guest’s  affirmative  defence  is  set  out  at  the  very  start  of  the statement of defence.   It does not refer to any particular cause of action.   It is standard practice for a defendant to address each paragraph of a statement of claim in turn, stating what parts are admitted and which parts are denied, and then to set out

affirmative defences.7   The Gillespie Family Trust asserts that Mr Guest has made a

free standing statement that moves between matters of pleading and matters of submission.

[23]     As to the notice to answer interrogatories, the trustees refer to the procedural history.  At a case management conference they took the point that the notice to answer interrogatories was more properly considered as a request for better particulars.  In a minute following a case management conference on 27 September

2011,  Associate  Judge  Christiansen  did  not  require  the  interrogatories  to  be answered.  He recorded that:

If what was really required was a response to an affirmative defence in the statement of defence, then the pleadings should be re-cast in the form of an affirmative defence. The plaintiff will plead to that in the usual course.

[24]     The trustees  invite me to  find  that Associate Judge Christiansen  did  not

understand Mr Guest’s pleading to have raised an affirmative defence.  They say that

6      High Court Rules 1986, r 171.

7      That is more in keeping with the requirements of r 5.48 of the High Court Rules.

after that conference, the matter no longer seemed to be a live issue as Mr Guest did not file any fresh pleading, as suggested in the minute of Associate Judge Christiansen.

[25]     The statement of defence is inelegant.  It is wordy and argumentative.  It does not follow the normal format.   Nevertheless, the extract set out in paragraph [6] above does raise an affirmative defence.  The pleading that Mr Guest’s liability is limited to losses attributable to dishonesty and to wilful commissions and omissions to act known to be in breach of trust are matters of affirmative defence.  That is because they do not arise merely from admissions or denials of allegations in the statement  of  claim,  but  need  to  be separately stated.    If  Mr  Guest  had  filed  a statement of defence simply denying the allegations in the statement of claim, that would not have allowed him to rely, at the substantive hearing, on the provisions of the trust deed.  He had to plead it separately and he has.

[26]     However, the failure to file a reply to that affirmative defence up until now does not mean that the trustees should now be denied the opportunity of putting that defence in issue.

[27]     In  strike-out  applications,  where  a  plaintiff ’s  case  can  be  saved  by  an amended pleading, the court will readily give the plaintiff the opportunity to re- plead, rather than strike out.  The discretion under r 15.1 is exercised so as to ensure that cases raising arguable claims are allowed to run, with the issues appropriately identified by proper pleadings, rather than to punish parties for deficiencies or delays in pleading.

[28]     On a strict view, the Gillespie Family Trust ought to have filed a reply to Mr Guest’s statement of defence, but the omission to do so is understandable, given the nature of the statement of defence and the way that issues had been addressed in the case management conference of September 2011.  It would be wrong to refuse to extend time for the filing of a reply.  The trustees tendered a draft reply and sought leave to file it.   Leave is granted.

[29]     Mr Guest cannot run his argument on the basis of a deemed admission under r 5.63.  He will need to make out his case relying on his affirmative defence by some other means.

Was Mr Guest appointed a trustee of the Gillespie Family Trust?

[30]     Clause 14 of the trust deed gives Mr and Mrs Gillespie the power to appoint new trustees.  The power is to be exercised by them jointly during their lifetimes and by the survivor after the death of one of them.  The trust deed does not say how the power to appoint trustees is to be exercised.  It therefore appears open to Mr and Mrs Gillespie to appoint a trustee, other than by deed.8     Nevertheless, to  become a trustee, there must still be an appointment.  An appointment happens at a point in time.  It is not something that happens over an extended period, such as a change of season or growing into adulthood.

[31]     Mr Guest was not one of the original trustees of the Gillespie Family Trust. His case is more that he was treated as a trustee than that he was appointed a trustee. He refers to correspondence that passed between him and Mr and Mrs Gillespie which address him as a trustee of the Gillespie Family Trust:

(a)       email from Mrs Gillespie to him of 11 March 2007; (b)          email of Mr Gillespie of 13 March 2007;

(c)      email dated 30 March 2006 by Mr Guest to the Gillespies’ former lawyers referring to a power of attorney held by a former partner being cancelled and the trustees’ wish to appoint him;

(d)email of 13 April 2009, where Mr Gillespie says: “A question with your GST Trustee hat on ...” and Mr Guest’s reply of 14 April;  and

(e)       Mr Bruce Gillespie’s email of 16 April 2009 to his lawyer referring to

Mr Guest as a trustee.

8      Contrast this with s 43(1) of the Trustee Act 1956 which provides that appointments of new trustees under that section are to be by deed.

[32]     He  also  refers  to  a  deed  of  18  January 2007  under  which  Mr  and  Mrs Gillespie appointed their son Jonathan a trustee.  That deed contains a declaration confirming that the trustees are various named members of the Gillespie family and Mr Guest.  A draft of that deed shows that Mr Guest was to sign it, although he did not in fact.   Mr Guest says that the deed of 18 January 2007 confirms him as a trustee, and was signed by Mr and Mrs Gillespie.

[33]     Mr Guest signed the term loan agreement of 15 November 2006 at issue in this case on behalf of the Gillespie Family Trust.

[34]     Mr Guest says that from this evidence it is clear that he was a trustee and that the Gillespies treated him as such.

[35]     The trustees contest this.  They deny that Mr Guest was one of the trustees. They accept that he acted on behalf of the trust on a number of occasions and was entitled to do so.  In his affidavit, Mr Gillespie says that after the formation of the trust, the power to appoint new trustees has been exercised only twice, to add the sons Nicholas and Jonathan as trustees.  They have never had a professional and independent trustee.  The Gillespies’ view is that it is important that only the family members have control over trust assets.  The Gillespies live overseas in Singapore. They gave a power of attorney to Mr Guest, but that did not make him a trustee.  He signed documents on behalf of the trust, under the power of attorney, not as trustee in his own right.

[36]     Mr Gillespie has put in evidence documents to support these contentions. They include five items of correspondence where Mr Guest is identified as holding a power of attorney, or as being authorised by the trustees to sign documents on their behalf.

[37]     Mr Gillespie says that there was no deed appointing Mr Guest as a trustee. The deed of January 2007 appointing Jonathan as a trustee was later identified as containing an error insofar as it confirmed that Mr Guest was a trustee.   When Mr Guest signed the loan documents and the roll-over of the loan, he did not do so as

a trustee himself, but as a person authorised by the trustees to execute documents on their behalf.

[38]     Mr Gillespie accepts that on occasions he did refer to Mr Guest as being a trustee.  He says that this was not meant in any legal sense.  He says that Mr Guest was the Gillespies’ trusted advisor and held a power of attorney. They had also made him executor under their wills.  However, none of those matters point to Mr Guest actually being a trustee.

[39]     On the evidence, it is far from clear-cut that Mr Guest was a trustee.  He has not been able to pinpoint a time when he was made trustee.  His reliance on the deed of January 2007 under which Jonathan was appointed a trustee is not by itself incontrovertible evidence that Mr Guest was a trustee.  While that deed contains a declaration confirming that Mr Guest was a trustee, the Gillespie Family Trustees have an arguable case for rectification of that deed on the grounds that the inclusion of the reference to Mr Guest as a trustee did not properly record the intention of the parties to the deed.

[40]     Similarly, the draft of that deed, showing Mr Guest as a person who would sign the deed, does not assist.  That document was simply a draft.  Mr Guest did not sign it.  The people who did sign it were the settlors, the current trustees, and the newly-appointed trustees.   If anything, it is telling that Mr Guest did not sign the deed.

[41]    In summary, it is far from conclusive that Mr Guest was a trustee of the Gillespie Family Trust at the relevant times.  The Gillespie Family Trustees have an arguable case that he was not a trustee, albeit he was a trusted advisor.

Did Mr Guest act as trustee in the matters for which he is sued?

[42]     Mr Guest contends not only that he was a trustee, but that on all the matters over which he is sued, he was acting as a trustee.  On the other hand, the Gillespie Family Trustees say that even if he had been appointed a trustee, when he acted on the Titan 1 Finance Ltd loan, he was not acting as a trustee but simply as a trusted

advisor.  For this approach they refer to the decision of Venning J in Kapa-Watene v Latimer.9   There, trustees had also acted as consultants to the trust and had been paid remuneration for their services.  The trust deed provided that trustees could contract with the trust, or deal with the trust in their personal capacity, subject to provisions as to disclosure.  That case concerned claims against those trustees for breaches of fiduciary duties to the trust in respect of the remuneration they received for their

work as consultants.  The contest was over remuneration rather than the quality of the services provided by the trustees.  Nevertheless, if the trustees were entitled to remuneration for services they provided as consultants, no doubt the trust could hold them to account for the quality of the services provided.  The point is that when a trustee is under a contract of retainer to provide services to the trust, he may carry contractual responsibilities for the discharge of the services he provides and may be required to answer in terms of his contract.  The relations between the parties would be governed by the contract, rather than by the trust deed.

[43]   In this case clause 21 of the trust deed provides that trustees who are professionals may charge for their services as trustees.  That recognises that trustees who are also professionals may provide services to the trust.  If Mr Guest is found to be a trustee, it will be a question of fact whether Mr Guest was providing services as trustee or in some other capacity.  At this stage it is not unequivocal that Mr Guest was working solely as trustee on those matters for which he is sued.

[44]     Mr Guest did not have an effective answer to this argument.  At this stage, it remains arguable for the Gillespie Family Trust that, even if Mr Guest were a trustee when he acted for them on the Titan 1 Finance Ltd loan, he was acting for them professionally as an advisor and consultant, not as a co-trustee.

Do the provisions of the trust deed limit Mr Guest’s exposure to liability?

[45]     Mr Guest’s case is that as trustee he is entitled to the limitation on liability under clause 24 of the trust deed.  His case is that his only duty was to act honestly and not to commit wilfully any act known to him to be a breach of trust, and not to

wilfully omit to do any act when he knew the omission to be a breach of trust.  His

9      Kapa-Watene v Latimer HC Whangarei CIV-2009-488-504, 27 July 2011.

only liability is for the consequences of his own dishonesty and of his wilful commission or omission of any act he knew to be a breach of trust.

[46]     He also makes the point that the statement of claim does not distinctly plead breach of any of the duties saved under clause 24.  He points to the responsibilities falling on pleaders when making allegations of dishonesty or other reprehensible conduct.

[47]     In response, the Gillespie Family Trustees say that they can still run their claim against Mr Guest, even if he is a trustee and even if he is able to invoke clause

24 of the trust deed.  They say that there is an irreducible core of obligations resting on a trustee from which it is not possible to exempt from liability by clauses such as clause 24.

[48]    The parties referred to Armitage v Nurse,10 and Spread Trustee Co Ltd v Hutcheson.11   Thankfully, we have the judgment of French J in Spencer v Spencer12 which distilled these principles:

(a)      Limitation or exclusion clauses such as [clause 24 in this case] are valid;

(b)There is, however, an irreducible core of obligations owed by a trustee to a beneficiary which is fundamental to the concept of a trust and which cannot be excluded, namely the duty of the trustee to perform the trust honestly in good faith for the benefit of the beneficiaries;

(c)      It  is  the  trustees  who  bear  the  onus  of  establishing  that  they are protected by the clause.

(d)      The exemption clause is to be construed narrowly against the trustees;

10     Armitage v Nurse [1998] Ch 241 (CA).

11     Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13.

12     Spencer v Spencer [2012] 3 NZLR 229 (HC) at [189].

(e)	Acting  dishonestly  means  simply  not  acting  as  an  honest  person would in the circumstances;
(f)	The standard is an objective one;  and
(g)	The trustee may still be held to have acted dishonestly even though
the  trustee  does  not  stand  to  gain  personally  from  the  impugned actions.
[49]	The	Gillespie Family Trustees say that their first cause of action, for breach

of fiduciary duty, is within the irreducible core of obligations which cannot be removed by an exemption clause.   They also signal an intention to review the statement of claim in the light of further discovery by Mr Guest.  They reserve the right to plead dishonesty if further evidence becomes available following discovery.

[50]     The Gillespie Family Trustees also submit that there is limited ability to contract  out  of  the  application  of  the  Fair  Trading Act.    They  argue  that  the exempting parts of clause 24 may not be a sound defence to a claim for breach of the Fair Trading Act.

[51]     Even if Mr Guest can establish that he was appointed as a trustee, and that the acts and omissions for which is he sued were within his role as a trustee and not for some other role, the defence he raises, relying on clause 24 of the trust deed, is not a complete bar to a claim against him.  It reduces the grounds for a claim against him, but it does not exempt him totally from liability.  The argument left open to him is that the present pleading is not specifically targeted at liability within the irreducible core of obligations left open under clause 24.  That point is a criticism of the quality of the present statement of claim, but it is no more than that.

[52]    In the context of a defendant’s summary judgment application in Westpac Banking Corp v M M Kembla New Zealand Ltd,13  the Court of Appeal cautioned against  dismissing  a  plaintiff’s  claim  pre-emptively,  when  the  defendant  held

information that had not yet been made available to the plaintiff.  If that approach is

13     Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [63].

correct for defendants’ summary judgment applications, it should equally apply in strike-out applications.  In this case there is no reason to deprive the trustees of the opportunity to amend their statement of claim to include more focussed allegations directed at breaches of duties within the irreducible core of obligations.

Outcome

[53]     For this strike-out application, Mr Guest has not shown that the proceeding by the Gillespie Family Trustees is bound to fail, regardless of any amendments to the pleadings.  He has not established an unequivocal case that he was a trustee at the relevant times, and that he was acting solely in his capacity as a trustee.  Even if he could establish those matters, he has not established that the plaintiffs’ claims against him  would  fail  because  of  the  application  of  clause  24  of  the  trust  deed. Accordingly, his application to set aside must fail.

[54]     The  plaintiffs  wish  to  review  their  pleadings  once  discovery  has  been completed.  With this decision I have delivered another decision on the plaintiffs’ discovery application.  That will require Mr Guest to take further steps by way of discovery.   It would be inefficient to require the plaintiffs to file further pleadings ahead of discovery being completed, as discovery may require further amendments.

[55]     In my discovery directions I have required further discovery to be completed within fifteen working days.   I direct the Registrar to allocate a further case management telephone conference after that date for further directions to be given for the filing of further pleadings.

[56]     I make these orders:

(a)       The strike-out application is dismissed.

(b)The time for filing and serving a reply to the statement of defence is extended.  I do not fix a time within which the reply is to be filed and served, as that will be fixed in a later case management conference.

(c)      I direct the Registrar to fix a time and date for a case management telephone conference for further directions to be given, including for filing and service of further pleadings, after Mr Guest has complied with the discovery orders made in my discovery decision delivered at the same time as this decision.

(d)Mr Guest is to pay costs to the plaintiffs on a category 2 basis.  If the parties cannot agree costs, memoranda may be filed.   If required, I will  hear  the  parties  further  on  costs  at  the  case  management telephone conference.

............................................

Associate Judge R M Bell

Solicitors:
Wynyard Wood (P Jones) PO Box 2217 Auckland for Plaintiffs

Email:   [email protected]

Copy for:

Andrew Barker, P O Box 4338 Auckland 1140 for Plaintiffs

Email:   [email protected]

Andrew J D Guest, 3 Byron Avenue, Takapuna, Auckland, Defendant

Email:   [email protected]