Green Meadow Holdings APS v Sargison - [2019] NZHC 562

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-3098

[2019] NZHC 562

UNDER the Building Societies Act 1965

IN THE MATTER OF

the dissolution of KIWI DEPOSIT

BUILDING SOCIETY (In dissolution)

BETWEEN

GREEN MEADOW HOLDINGS APS

First Plaintiff

LILAC POND HOLDINGS APS
Second Plaintiff

AND

PAUL GRAHAM SARGISON and SIMON DALTON

Defendants

Hearing: 25 March 2019

Appearances:

Noel Ingram QC and Duncan McGill for the Plaintiffs Sean O McAnally for the Defendants

Judgment:

25 March 2019

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:
Duncan Cotterill (D McGill), Auckland, for the Plaintiffs
Keegan Alexander (S O McAnally), Auckland, for the Defendant
Copy for:
Noel Ingram QC, Auckland, for the Plaintiffs

GREEN MEADOW HOLDINGS APS v SARGISON and DALTON [2019] NZHC 562 [25 March 2019]

[1] The plaintiffs have appealed against my decision of 5 October 2018.1 They have applied for an order staying the proceeding until their appeal has been heard and finally determined.

What the case is about

[2] The case concerns the Kiwi Deposit Building Society, which is in insolvent dissolution. It was put into dissolution in April 2013. The defendants are the trustees appointed to carry out the dissolution. The plaintiffs, Danish companies, held preference shares in the society with special rights to track their investments in property holdings in England and Sweden. The trustees say that the creditors of the society exceeded the assets that they have realised in the dissolution and there are no funds available for members of the society, including the plaintiffs. There will be a shortfall for creditors.

[3] The plaintiffs do not accept that. The plaintiffs began this proceeding in response to a notice by the trustees under s 75 of the Trustee Act 1956. The original statement of claim had two causes of action. The trustees applied for strike-out. In response, the plaintiffs tendered a proposed amended statement of claim with three more causes of action.

[4] In the first cause of action, the plaintiffs pleaded that by distributing the funds of the society to unsecured creditors, the trustees disregarded the terms of the instrument of dissolution and a judgment of Davison J of 22 April 2016.2 The trustees had refused to distribute the investment assets to the plaintiffs as required under the instrument of dissolution, and the trustees thereby breached their duty to adhere to the terms of the deed for the appointment of them as trustees.

[5] In the second cause of action, the plaintiffs pleaded that they and the unsecured creditors were all beneficiaries under a trust created by the instrument of dissolution. By preferring the unsecured creditors over the plaintiffs, the trustees breached their

1 Green Meadows Holdings v Sargison [2018] NZHC 2216.
2 Re Kiwi Deposit Building Society: ex parte Sargison and Dalton [2016] NZHC 782.

duty of impartiality amongst the beneficiaries, and by using the proceeds of the investment assets to benefit the unsecured creditors, the trustees preferred one set of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NZHC 562
Decision Date: 25 March 2019

CaseChat Overview and Summary

In Green Meadow Holdings APS v Sargison, the plaintiffs, Danish companies, sought to appeal the Associate Judge's decision of October 5, 2018, in the High Court of New Zealand, Auckland Registry. The case involves the Kiwi Deposit Building Society, which is in insolvent dissolution. The plaintiffs, who held preference shares in the society, contested the trustees' decision to distribute funds to unsecured creditors, arguing that the trustees breached their duties. The plaintiffs filed an amended statement of claim with additional causes of action, including claims for equitable compensation, breach of duty of care, and constructive trust. The Associate Judge struck out the first and second causes of action and directed that the fourth and fifth could not be pleaded, while allowing the plaintiffs to re-plead the third cause of action.

The legal issues in this case revolved around the validity of the plaintiffs' causes of action against the trustees, particularly whether the plaintiffs could prevail over the creditors of the society. The plaintiffs argued that the trustees' actions breached their duties and that they were entitled to equitable compensation. The defendants, the trustees, maintained that the creditors had priority in the distribution of the society's assets.

The court's reasoning centered on the priority of creditors' claims in insolvency proceedings. The Associate Judge found that the plaintiffs' claims were substantively deficient as they asserted that the plaintiffs' interests should prevail over the creditors. The court also noted procedural deficiencies in the plaintiffs' pleadings and gave the plaintiffs an opportunity to amend their claim. However, the plaintiffs appealed the Associate Judge's decision, objecting to the time limit for re-pleading and the directions for inspecting trustee records.

Considering the potential for further delays and the risk of prejudice to creditors, the Associate Judge refused the stay application and dismissed the proceeding. The court reasoned that the plaintiffs' appeal did not necessitate an interim stay, as they could seek disclosure of trust records under Erceg v Erceg independently of the proceeding. The court also noted that the plaintiffs might not be able to re-plead their cause of action in time for the Court of Appeal hearing, and that it would be efficient to dismiss the proceeding if the appeal were to be dismissed.

The final orders of the court were to refuse the stay application and dismiss the proceeding in the absence of any current pleading by the plaintiffs. The defendants were awarded costs for the stay application and the defence of the proceeding. The plaintiffs retained the right to appeal the decision and potentially commence a fresh proceeding based on their proposed third cause of action.

Orders