Hansard v Hansard
[2013] NZHC 1692
•4 July 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-006078 [2013] NZHC 1692
BETWEEN GERALD GUY HANSARD AND DIANA HANSARD AS TRUSTEES OF THE G G HANSARD FAMILY TRUST NO 2
Plaintiffs
ANDDAVID GUY HANSARD AND SHARON GRACE HANSARD AS TRUSTEES OF THE D & S HANSARD FAMILY TRUST
Defendants
Hearing: 11-13 February 2013
Appearances: D J Chisholm for Plaintiffs
K P McDonald for First named Defendant
P J Kennelly for Second named Defendant
Judgment: 4 July 2013
JUDGMENT OF ELLIS J
This judgment was delivered by Justice Ellis on 4 July 2013 at 4.30 pm
pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date……………………..
HANSARD v HANSARD [2013] NZHC 1692 [4 July 2013]
[1] The plaintiff trust seeks recovery of a $1,222,658 debt said to be owed to it by the defendant trust.
[2] Underlying the claim is a series of inter-generational dealings involving entities owned or controlled by members of the Hansard family.[1] The dispute has arisen largely because:
[1] Because all four parties to these proceedings have the same surname, I refer to each by his or her christian name in this judgment. No disrespect is intended.
(a) there is an absence of formal documentation in relation to some of the transactions said to give rise to the debt; and
(b)there is a relationship property dispute between the defendant trustees, David and Sharon Hansard.
The parties and associated entities
[3] It is necessary first to say a little more about the parties and certain other entities associated with them.
[4] The plaintiffs, Gerald and Diana Hansard, are the trustees of the G G Hansard
Family Trust No 2 (the G G Trust). The G G Trust was settled on 6 March 1966.
[5] Gerald and Diana settled another trust, the G & D Hansard Family Trust (the G & D Trust), on 20 September 1993. Their three children are the beneficiaries of that Trust, which has provided assistance to each of them in various ways over the years.
[6] As I have said, the defendants, David and Sharon Hansard, are the trustees of the D & S Hansard Family Trust (the D & S Trust). The D & S Trust was settled on
19 September 2003. David Hansard is one of Gerald and Diana’s children. Sharon is his estranged wife. David and Sharon were married in 1999, although they had been a couple for some time prior to that. The point at which they separated appears
to be in dispute; Sharon says it was in 2008 whereas David says it was in mid 2010.
[7] David and Sharon are also the directors and shareholders of MH Publications Ltd (MHP), which was incorporated on 5 October 1995. MHP operates a printing business.
[8] David has admitted the debt said to be owed by the D & S Trust to the G G Trust. Sharon does not. She has pleaded a number of affirmative defences to the debt claim, which are set out at [38] below.
Factual background
[9] In July 2001 Gerald and Diana, through the G G Trust, advanced $655,000 to MHP to enable the company to buy a new printing press. Some repayments were made by the company and by 2003 the debt had been reduced to $580,000. Other advances were also made from time to time by the G G Trust to MHP to help with the printing business.
[10] In May or June 2002 the G & D Trust purchased a property at 11 Maire Rd, Orewa. David and Sharon lived at 11 Maire Rd and it became their family home. Sharon continues to live there with their children.
[11] In 2003 a restructuring of the legal and financial arrangements between the Hansards and their associated entities began. That restructuring began with the settling of the D & S Trust by Gerald and Diana. As I have said, the trustees of the D & S Trust were David and Sharon.
[12] The evidence suggests that Gerald and (to a somewhat lesser extent) David, were the architects of the restructuring. Their principal aims appear to have been:
(a) to effect the gifting by the G & D Trust of 11 Maire Rd to the D & S Trust; and
(b)to transfer MHP’s assets into the D & S Trust and for that Trust to lease them back to MHP, thereby protecting MHP’s assets and creating an income stream for the D & S Trust.
[13] The gifting of 11 Maire Rd to the D & S Trust was to take the form of a capital distribution by the G & D Trust to the D & S Trust.
[14] On 19 November 2003 the plaintiffs’ lawyers, Annan & Co, wrote to David
and Sharon about:
(a) the proposed formation of the D & S Trust;
(b) the transfer of plant and property to the Trust; and
(c) the quantum of the rental that was to be paid by MHP for use of its former assets.
[15] The letter attached documentation relating to the formation of the D & S Trust and the distribution of the 11 Maire Road property, together with draft minutes of trustee meetings approving the establishment of the Trust and accepting the distribution.
[16] The evidence establishes that Sharon saw this letter and, indeed, that she subsequently spoke on the telephone about it (in very general terms) to Annan & Co. The extent to which she turned her mind to the detail, and the implications, of the proposed transactions, however, is less clear.
[17] In early December 2003 the minutes of the D & S Trust’s first meeting were signed by both David and Sharon. Those minutes relate solely to the appointment of lawyers, accountants and bankers to the trust and other procedural matters.
[18] Later that month (on 17 December) both David and Sharon signed minutes of the trustees’ meeting accepting the capital distribution of the property at 11 Maire Road, which was stated to be valued at $580,000. The minutes also stated that David and Sharon, as beneficiaries, were entitled to occupy the property and would pay all rates and insurance premiums in relation to it. The D & S Trust deed was also executed by David and Sharon on the same day.
[19] Matters are more opaque where the transfer of MHP’s assets to the D & S Trust is concerned. On 19 February 2004 Annan & Co wrote a further letter to David and Sharon in relation to their proposed sale. The assets listed in the letter, which included two printing presses, were recorded as having a total value of approximately $1 million. Sharon denies having ever seen this letter.
[20] Annan & Co wrote again to the D & S Trust on 3 March 2004. That letter attached a range of documents relating to the transfer of MHP’s assets including draft trust minutes, a deed of acknowledgement of debt and other documents relating to the lease back of the plant and equipment to MHP. At that point it seems to have been proposed that MHP would lend money to the D & S Trust to fund the purchase of its assets.
[21] It is not disputed that none of these documents was ever signed either by
David or by Sharon and, indeed, David now denies having ever seen the letter.
[22] There was then some further email correspondence between Annan & Co and the manager of MHP (Mrs Walker) about the values of the assets being transferred and it seems that it was envisioned that a new set of documents for signature would in due course be forwarded. On 8 March 2004 Annan & Co also wrote to Gerald Hansard referring to the “substantial difficulties” they were having in ascertaining precisely what was to be transferred. Gerald subsequently confirmed the list of relevant assets and, it seems instructed Annan & Co that no formal lease between the MHP and the D & S Trust was to be prepared. A solicitor’s file note records that:
Gerald did not want this prepared stating that it was a book entry and that the accountant would be responsible for this.
[23] The file note goes on to state that the relevant documents would shortly be
completed and forwarded “to Dave” for his signature.
[24] Unfortunately, it was at about this point that a dispute between Gerald and Annan & Co arose about the fees that had been charged for the legal work involved in setting up the new trust and the transfer of assets. As a result of this dispute it
seems that amended documents were never completed and were never sent to David and Sharon for their signature.
[25] Notwithstanding the absence of formal documentation, however, the position of the plaintiffs and of David is that MHP’s assets were effectively sold to the D & S Trust and that the transfer was financed by advances from the G G Trust totalling
$509,863. At the same time, the D & S Trust also assumed liability for previous advances (totalling $712,794) that had been made by the G G Trust to MHP. Conversely, the debt in that amount that had been owed by MHP to the G G Trust was treated as discharged.
[26] The net effect of this would be that the D & S Trust purchased MHP’s assets,
with funds borrowed from the G G Trust, for approximately $1.22 million.
[27] As I have said, there is no formal documentation which directly evidences or records these transactions. But there are other (formal) documents that, when read together, indirectly evidence or reflect them.
[28] First, there is the contrast between MHP’s financial statements for the years ending 31 March 2004 and 2005 respectively. These statements, which were signed by both Sharon and David, record that:
(a) as at 31 March 2004, the company had received advances from the
G G Trust totalling $712,794 and owned fixed assets valued at
$596,992; and
(b)as at 31 March 2005, there was no liability to the G G Trust and the company owned no fixed assets.
[29] Secondly (and conversely), there are the G G Trust’s financial statements for
2004 and 2005 which record as current assets:
(a) (in 2004) debts owed by MHP totalling $712,795 and a debt owed by the D & S Trust of $509,863; and
(b)(in 2005) no debts owed by MHP and debts owed by the D & S Trust of $712,794 and $509,863.
[30] Thirdly, the D & S Trust’s statement of financial position for the year ended
31 March 2005 (which was signed by both David and Sharon) shows debts to the G G Trust of $509,863 and $712,794. It also shows an increase in fixed assets consistent with the D & S Trust taking ownership of MHP’s business assets.
[31] The D & S Trust’s financial statements for the year ended 31 March 2005 were approved in trustee minutes dated 22 March 2006 and were signed by both Sharon and David.
[32] Similarly, the D & S Trust’s balance sheets for the years 2006, 2007, 2008 (which were unsigned) and 2009 (which were signed by Sharon and David) all showed the liabilities to the G G Trust. Moreover:
(a) on 20 November 2007 Sharon and David signed trustee minutes that expressly confirmed the accounts for the year ending 31 March 2007; and
(b)on 10 May 2010 Sharon and David signed trustee minutes that expressly confirmed the accounts for the year ending 31 March 2009.
[33] I also accept Mr Chisolm’s submission that the same financial statements indicate that the D & S Trust received considerable financial benefit from the restructuring. In particular, between 2003 and 2008 they show that:
(a) the D & S Trust was receiving significant rental for the plant and equipment namely $54,925 (2004), $300,000 (2005), $425,000 (2006), $600,000 (2007) and $600,000 (2008);
(b)the D & S Trust took for the benefit of sizeable depreciation on assets purchased, e.g. $44,123 (2004), $163,308 (2005), $607,082 (2006),
$616,921 (2007) and $599,219 (2008); and
(c) while the D & S Trust received funds interest free from the G G Trust, it charged MHP interest for advances it made to it. For example, for the year ended 31 March 2005 the D & S Trust charged MHP interest in the sum of $151,761.
[34] Beneficiary distributions were also made by the D & S Trust and, it seems, the Trust essentially met the Hansard’s day-to-day household expenses. It can also be noted that shareholder salaries were paid by MHP to both David and Sharon throughout this period.
[35] MHP’s business did quite well until 2008. At that point it seems there was a downturn, however, which was likely caused not only by the global financial crisis but by particular problems the company experienced with a faulty Komori printer, which ended up in litigation. It seems that today, the company today has little, if any, value.
[36] Following David and Sharon’s separation, on 11 October 2010, Gerald and Diana gave notice to the David and Sharon (as trustees of the D & S Trust) that they required repayment of the sums owing to the G G Trust. David and Sharon have failed to repay any part of the total sum claimed. As I have said, the claim has been admitted by David but denied by Sharon.
[37] From Sharon’s perspective, the combined effect of the restructuring, the downturn in MHP’s business, her separation from David and the demand by Gerald and Diana for repayment is that:
(a) the family home is owned by a trust whose liabilities (to Gerald and Diana) are outweighed by the value of that property and the depreciated value of the assets transferred; and
(b) her shares in MHP are worth little, if anything.
Pleaded defences
[38] In her first amended statement of defence Sharon pleaded three affirmative defences to the debt claim, namely:
(a) lack of unanimity;
(b) breach of fiduciary duty by David; and
(c) estoppel.
[39] Each defence will be analysed in turn.
Lack of unanimity
[40] As pleaded, the “unanimity” defence has two aspects, namely that
(a) MHP’s directors (i.e. Sharon and David) did not meet and approve the transfer of company assets to the D & S Trust, in breach of s 129 of the Companies Act 1993; and
(b)in breach of clause 19[2] of the D & S Trust Deed (which required all decisions of the trustees to be unanimous) there was no agreement by Sharon to minutes and/or resolutions approving:
[2] Clause 19 provides:
The Trustees shall have full power and authority to buy, sell, lease, invest, mortgage, deal and carry on business and generally manage and order the Trust Fund in all respects as if the Trustees were the absolute beneficial owners of it and the powers set forth in clause 20 of this deed shall be deemed to be in aid of this present power but shall not derogate from its generality. The Trustees must be unanimous in any decisions they make.
(emphasis added)
(i) the transfer of the debt from MHP to the Trust; and
(ii) the acquisition of MHP’s assets by the Trust.
[41] Putting to one side for the moment the factual issues raised by the two limbs of this pleading (which I address later below), there is a more fundamental difficulty with the “unanimity” defence. That is because even if the transfer was made in breach of s 129 and of cl 19 of the Trust Deed it would not follow that the debt owed by the D & S Trust to the plaintiffs as a result of that transfer is not owed.[3] In order to reach that result it would need to be shown that the plaintiffs were aware, or ought to have been aware, of those irregularities at the time.[4] In my view, the evidence falls well short of that.
[3] Any remedies would be against David as the the misfeasant director or trustee, not against the plaintiffs as bona fide third parties without notice.
[4] See Companies Act 1993 s 18(1) and Foskett v McKeown [2000] 3 All ER 97; [2001] 1 AC102.
[42] On the contrary, Gerald’s evidence was that he proceeded on the assumption that David and Sharon were ad idem. While that view was arguably predicated on a somewhat old-fashioned idea of marriage, there is no clear basis for any suggestion that (prior to the marriage breakdown) his assumption was unreasonable. In my view there were sound enough business reasons for the transfer and, in 2003/4 (some seven years before their separation), it might fairly be supposed that Sharon’s and
David’s positions were necessarily aligned.[5]
[5] Sharon did not, as I understand it, contend that the transfer was some far-sighted, prescient attempt to defeat a future relationship property claim. It would have been drawing an impossibly long bow for her to do so.
[43] But even if I am wrong in that, there are further problems with the absence of unanimity defence and, more particularly, Sharon’s contention that she neither knew of, nor consented to, the D & S Trust taking over MHP’s assets and liabilities. David’s evidence was, of course, that he discussed that proposed restructuring with Sharon and that she did expressly (although not formally) agree with it.
[44] Although I am prepared to accept that Sharon may not have paid any great attention to the details of the restructuring of her and her husband’s business affairs in 2003 and 2004 I consider that the evidence shows that:
(a) she would have been generally aware of it; and
(b) to the extent she did not expressly approve it at the time:
(i)her subsequent (and repeated) sign-off on the financial statements of both MHP and the D & S Trust; and
(ii)her unquestioning acceptance of the benefits of the restructuring
means that she can fairly be taken to have ratified the transactions after the event.
[45] As well, it seems to me that care must be taken in drawing any significant inference from the fact that Sharon did not formally sign any trust resolutions or minutes approving the transactions. That is because there seems to be no doubt that David did not do so either. Thus the inference that can be far more readily drawn is that both the trustees of the D & S Trust were as lax about recording its decisions as both they and the trustees of the G G Trust were about formally documenting significant transactions. In these circumstances, the absence of minutes bearing Sharon’s signature does not, in my view, point incontrovertibly to a lack of unanimity. And whatever Sharon may say about her exclusion from the relevant decision-making by David and Gerald, the reality is that she subsequently signed the financial statements.
[46] The lack of unanimity defence must fail as a matter of law and as a matter of fact accordingly.
Breach of trust
[47] The pleading in relation to the breach of trust claim begins with the (indisputable) proposition that David owed fiduciary duties to the beneficiaries of the D & S Trust:
(a) to carry out strictly the business to be undertaken by him as a trustee; (b) not to make a profit or receive a benefit from his position;
(c) not to allow his own interests or the interests of other parties to conflict with his duty to the beneficiaries of the trust; and
(d) not to act in bad faith towards the trust.
[48] Sharon contends that David breached those duties by transferring the MHP’s assets to the D & S Trust in circumstances where the Trust is said to have received no benefit from the transfer. She pleads that this contention is supported by the following:
(a) MHP is not bound by the transaction because it was undertaken in breach of David’s duties to it under ss 135 and 138 of the Companies Act 1993;
(b)the D & S Trust assumed liabilities substantially greater than the value of the assets purportedly acquired by it;
(c) neither the company nor the plaintiffs provided any consideration for the D & S Trust’s acquisition of the company’s assets and liabilities; and
(d)there was no meeting of trustees as required by clause 19 of the trust deed at which the trustees resolved unanimously to enter into the transaction.
[49] Next, it is alleged that the plaintiffs dishonestly assisted David in breaching his fiduciary duties to the D & S Trust. The pleaded particulars of the dishonest assistance allegation are that the plaintiffs:
... sought to recover advances made by them to the company by causing the trust to become liable to repay sums due by the company and which the company was unable to repay;
instructed their solicitors Annan & Co to record those purported transactions;
now assert in this proceeding that the sums due by the company are lawfully due to them by the trust.
[50] Again, however, it appears to me that this defence falls at a number of hurdles.
[51] First, and for reasons I have already given, I reject the underlying proposition that the D & S Trust received no benefit from the transactions. Sharon did not allege (or has not called any expert evidence to support an allegation) that the assets were transferred for over-value. So the D & S Trust received MHP’s assets, was able to claim depreciation for them and obtained an income stream.
[52] Secondly, three of the four particulars pleaded in relation to the “no benefit” allegation (i.e. the particulars referred to in [48] above) appear to me to be non- sequiturs. The fourth is merely a repetition of the “no benefit” claimed which must be rejected for the reasons I reiterate in the preceding paragraph.
[53] But to the extent I am wrong about the other three particulars:
(a) I do not accept that breach of ss 135 and 138 of the Companies Act
1993 (if established) would mean that MHP was not bound by the transfer. A breach of s 135 (which prohibits reckless trading by a director) is actionable by a shareholder; it does not invalidate a transaction entered into as a result of such a breach. And it is debatable whether s 138 (which deals with directors’ taking advice) operates as anything but a defence; I am not aware of any authority to the effect that it can operate to vitiate a transaction entered into by the relevant company. In any event, I do not consider that the evidence here establishes that either provision had been breached.
(b)I do not accept that the transfer occurred without consideration. Put simply, MHP transferred its assets to the D & S Trust in return for the discharge of its liabilities to the G G Trust. The D & S Trust obtained MHP’s assets in return for incurring a liability to the G G Trust.
(c) I have already set out my views on the factual problems with the lack of unanimity allegation. I have reservations as to whether such an
absence of agreement is established on the evidence, although I accept that there is no direct and formal record of such. But even without these reservations it seems to me that a breach of the unanimity requirement (if established) would not constitute a breach of trust capable of founding a dishonest assistance claim. The duty to act unanimously does not seem to me to fall easily within the four
commonly recognised “core” fiduciary obligations.[6]
[6] Namely, to avoid unauthorised personal profit or benefit from the relationship, to avoid
conflict between personal interest and duty to the beneficiary, to avoid divided loyalties and to report to the beneficiary the fact a breach of fiduciary duty has been committed by the fiduciary.
[54] It goes without saying that if none of the alleged breaches of fiduciary duty are established (and in my view they are not) there can be no “dishonest assistance” by the plaintiffs in relation to such breaches.
[55] Accordingly I do not propose to set out the legal requirements for dishonest assistance here. It is sufficient to note that some form of dishonesty on the plaintiffs’ part is necessarily required. While I accept that the civil standard of proof continues to apply in relation to a dishonesty allegation, it is also clear that in such a case the Court would be justified in requiring strong evidence in order to find that that
standard is met.[7] So even assuming that a breach by David could be established
[7] Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1.
(which in my view it cannot) the evidence comes nowhere near to satisfying me (on the balance of probabilities) that the plaintiffs did not themselves believe that the restructuring and the transactions would benefit the D & S Trust, of which they are not only the settlors but the protectors.
[56] The breach of fiduciary duty/dishonest assistance defence must also therefore fail.
Estoppel
[57] Sharon also pleads that the plaintiffs are estopped from alleging that advances to the D & S Trust are loans because:
(a) they did not have the loans documented and no security for the advances was provided by the D & S Trust;
(b)at the time of the advances Sharon and David were in a stable relationship and they had two children (the plaintiffs’ grandchildren);
(c) $580,000 for the purchase of the property at 11 Maire Road was included in the unsecured advances to the Trust; and
(d)all funds advanced were to be forgiven on the death of the plaintiffs and or were part of the defendant D G Hansard’s inheritance.
[58] Sharon then says that she believed and was induced to believe that the D & S Trust would not be under any obligation to pay back any monies advanced by the plaintiffs.
[59] There are fundamental difficulties with this defence as with the former two. In particular, the orthodox estoppel requirements of the existence of a relevant representation and detrimental reliance upon it are either not pleaded or are not established on the evidence.
[60] As far as any representation is concerned, Sharon did make reference to a statement made to her by Gerald at the time of the restructuring to the effect that he wanted to give her and David a “start in life” and Gerald accepts saying something like that. However it seems clear (and Sharon seemed ultimately to accept) that this was a reference to the gifting of the Maire Rd property, not the advances to the company and/or the D & S Trust. Moreover there was, as I have said, other evidence that Sharon understood and accepted that the funds advanced (to whatever entity) for the purposes of the printing business were loans.
[61] The contention that there was some kind of representation that the funds advanced to MHP/the D & S Trust were to be forgiven on the death of the plaintiffs and/or would be part of the David Hansard’s inheritance, is based on two documents that were in evidence before me.
[62] The first was a letter handwritten by Gerald to his accountant in June 2003 in which he talks about the fact that his daughter (Rachael) already had a family trust and his intention to establish a trust for David (i.e. the D & S Trust) together with a trust for his other son, Jonathan. He refers to the fact that “David had received parents help for part of his home at Orewa and a printing press”, his desire to treat each of his children even-handedly and his intention that any inequalities would be remedied in his will.
[63] The second is a typewritten document of unknown provenance entitled The overall position of beneficiers [sic] D[avid] R[achael] and J[onathan] to the G & D Hansard Family Trust. This document was found at some point (I think by Sharon) in David and Sharon’s family home. It sets out a proposal whereby previous assistance given or distributions made to each of the children could be fairly taken into account when dividing the assets of the G & D Trust and Gerald’s and Diana’s estates. The effect of the proposal would be that the assistance received by David during Gerald and Diana’s lifetimes would be subtracted from any final distribution.
[64] In my view neither document constitutes a relevant (let alone adequately unequivocal) representation by Gerald to the D & S Trust.
[65] The first document was, as I have said, sent by Gerald to his accountant, not to the Trust and there was no evidence that either David or Sharon had seen it before these proceedings were on foot.
[66] As to the second, although Sharon necessarily contended that it was a document that Gerald himself had typed or that he at least agreed with its contents, Gerald did not accept this and said that he had never seen the document before. My own view of the matter is that the document was most likely authored by David himself with a view to obtaining the buy-in of his siblings. That view is supported not only by where the document was found but also by the fact that, while there is a signature line for each of the three children, only David has signed. Again (and even putting to one side the fact that the document does not in fact refer to the G G Trust) the evidence falls short of satisfying me that this document constitutes a relevant representation to the trustees of the D & S Trust by Gerald and Diana.
[67] Even if Sharon was able either to meet or to avoid the need for an unequivocal representation, there would remain the overwhelming impediment of detrimental reliance. There was no evidence whatsoever of steps being taken by the D & S Trust that would not have been taken had it been understood that the advances would not have to be repaid.
[68] The estoppels defence also fails.
Result
[69] The plaintiff trust has made out its claim. The defendant trust has not established a tenable defence to that claim. The D & S Trust must pay to the
plaintiffs the sum of $1,222,658.
Rebecca Ellis J