Hunt v Muollo

[2003] NZCA 66

IN THE COURT OF APPEAL OF NEW ZEALAND

CA205/02

BETWEENPETER MICHAEL HUNT

Appellant

ANDRAFFAELE AND JOSEPHINE MUOLLO

Respondents

Hearing:13 March 2003

Coram:Tipping J
Salmon J
Doogue J

Appearances:  M P Reed QC and E J Horner for Appellant

R C Laurenson and J A Porter for Respondents
J R F Fardell QC and S Brown as Interveners

Judgment:27 March 2003 

JUDGMENT OF THE COURT DELIVERED BY TIPPING J

Introduction

[1]       This appeal from France J is concerned with Rule 621 of the High Court Rules.  The appellant, Mr Peter Hunt, is indebted to the respondents, Mr and Mrs Muollo, pursuant to a judgment of the High Court for costs.  On 12 June 2002 Ronald Young J directed an examination under Rule 621(2) of Mr Hunt, as judgment debtor.  It was to take place before an inquiry into the damages suffered by the Muollos as a result of Mr Hunt’s breach of contract.  On 30 July 2002 Master Gendall ordered production of a number of documents.  That order was made pursuant to Rule 621(3) for the purposes of the examination.  In a second order made on 17 September 2002 the Master amplified his earlier order by requiring Mr Hunt to produce documents which were more specifically identified, and included documents evidencing the financial details of a number of trusts and companies with which Mr Hunt had an association.  We deliberately use the terminology of association at this point as to avoid pre-judging later issues. 

[2]       It should be noted that at the time the Master made these orders Mr Hunt, through his then counsel, did not take the points now raised both by him and the trusts and companies.  Indeed it seems that Mr Hunt agreed that the documents now in question were amenable to an order for production by him.  Hence the Master can hardly be blamed for making an order which is now said to have been inappropriate.

[3]       The Master directed a stay of his orders on terms, pending the hearing of an application by Mr Hunt for a review by the Court of the order that he produce the specified documents.  Prior to the stay being granted, Mr Hunt produced to the Court the documents in question in a sealed box.  It can readily be inferred from the memorandum which accompanied the documents he produced and the sealing of the box, that Mr Hunt was complying with the Master’s order under protest and without prejudice to his application for review.  He was understandably anxious to avoid being held in contempt for not producing the documents prior to obtaining a stay.  We cannot therefore accept Mr Laurenson’s argument that Mr Hunt is estopped or otherwise precluded from denying his liability to make production.

[4]       France J upheld the Master’s order for production and the matter has come to this Court on appeal from her judgment.  For the purposes of the appeal we admitted, without opposition, the affidavits of Mr Langridge and Ms Smart.  They are respectively the accountant for Mr Hunt’s general interests and the person who is responsible for managing them.  The arguments in this Court were materially different from those addressed to France J.  For that reason it is convenient, with no disrespect to the Judge, to move straight to the issues upon which the appeal focused without discussing the terms of her judgment.  She too was not asked to address the points which are now raised before us.

[5]       It should be added here that the trusts and companies referred to above were given leave to intervene in the High Court and they were represented in this Court also.  Indeed, for reasons which will become apparent, Mr Fardell QC on their behalf carried the main burden of the argument on that side, with Mr Reed QC associating himself with Mr Fardell’s submissions on behalf of Mr Hunt.  We note that Mr Laurenson accepted in this Court that a Rule 621(3) order could not be made against anyone other than the judgment debtor.

[6]       As we indicated at the hearing, it is neither appropriate nor possible for us to become involved in the detail of individual documents and what, if any, control Mr Hunt had over them for Rule 621 purposes.  If and to the extent it becomes necessary to investigate those matters, the Master is the appropriate person to do so in terms of the principles which we will discuss in this judgment.  We will therefore move straight to address the two issues of principle which arise on the appeal, after setting out the terms of Rule 621.  How the principles, as we determine them, affect the future conduct of this aspect of the litigation will be for the Master to determine after hearing such further evidence and submissions as may be necessary.

Rule 621

[7]       Rule 621 is concerned with “discovery in aid of execution”.  That is the heading which introduces Rules 620 and 621, the latter being in the following terms:

621.     Order for examination of judgment debtor or defendant

(1)       Whether or not a notice and form of statement has been served under rule 620, a party to a proceeding for the recovery or payment of money may apply for an order under this rule—

(a)      At any time after he has commenced the proceeding, if he desires to obtain a charging order under rules 567 to 587; and

(b)      In all other cases, at any time after he has sealed judgment.

(2)       Such a party may apply to the Court for an order that the other party or, if the party is a corporation, an officer thereof, do attend before the Court, or any person whom the Court may appoint, and be orally examined as to his income and expenditure, his assets and liabilities, and generally as to his means for satisfying the judgment, or, if judgment has not been obtained, as to such matters as are relevant to the issue of a charging order.

(3)       Upon granting the application, the Court may order the production at the examination of any books or other documents and may impose such terms and conditions, as it shall think proper in respect of the conduct of the examination or otherwise.

[8]       The principal purpose of this Rule is to enable a plaintiff or judgment creditor to conduct an oral examination of a defendant or judgment debtor as to that party’s means for satisfying the judgment which is sought or has been obtained.  The Rule focuses specifically on the judgment debtor’s income, expenditure, assets and liabilities.  The words “and generally as to his means for satisfying the judgment” are directed at any other “means” with which the judgment debtor may be able to satisfy the judgment.  They signal a broad and non-technical approach to the concept of assets.  The word “means” is not, however, wholly unconstrained in its reach. 

[9]       In the present case Mr Hunt and the interveners say that Mr Hunt was at most a discretionary beneficiary of some of the trusts, and that the trusts own all the shares in all the relevant companies, save for one in which Mr Hunt owns shares personally.  That company can be put to one side, as Mr Hunt acknowledges, quite rightly, that it is in a different category in the light of his personal shareholding.  The issue of principle is whether the interest of a purely discretionary beneficiary in a trust is a species of property capable of coming within the concepts of “assets” or “means” for the purposes of Rule 621(2). 

[10]     Mr Fardell agreed to produce the various trust deeds to Mr Laurenson, representing the Muollos.  It should be self-evident from them whether Mr Hunt is more than a discretionary beneficiary.  If he has a greater interest than that, the matter will take on a different complexion and will obviously need further examination.  Our present purpose is to state what the legal position is on the premise that Mr Hunt is no more than a discretionary beneficiary, and has no interest in the companies other than in that very indirect way.

Discretionary beneficiaries

[11]     It is generally regarded as settled law that a discretionary beneficiary’s interest in a normal discretionary trust is no more than a mere expectancy.  It is simply an expectation or hope (in Latin a spes) that the trustee’s discretion may be exercised in the beneficiary’s favour:  see Dal Pont and Chalmers Equity and Trusts in Australia and New Zealand (2^nd ed – 2000) at 505.  The position, as stated, is supported by high authority:  see Gartside v Inland Revenue Commissioners [1968] AC 533, 607 per Lord Reid and 615 per Lord Wilberforce. An ordinary discretionary beneficiary has no interest, legal or equitable, in the assets of the trust: see Queensland Trustees Ltd v Commissioner of Stamp Duties (Qld) (1952) 88 CLR 54 at 62-65, Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 (PC), and Pearson v Inland Revenue Commissioners [1981] AC 753, 775 per Viscount Dilhorne and 786 per Lord Keith. It is only on the making of a distribution to the discretionary beneficiary that the beneficiary obtains any interest in property, and then only to the extent of the distribution.

[12]     Mr Laurenson, on behalf of the Muollos, challenged the foregoing propositions but offered no authority in support of his challenge, or any tenable reason why we should depart from the generally understood position.  His submission came down, as we noted him, to a contention that whatever may be the legal nature of a mere expectancy, it should be treated as a species of property for the purposes of the present case.  The issue must, however, be determined on a more principled basis than that.  While Rule 621 should be allowed to serve its intended purpose, and its application should not be cramped by an unduly technical approach, conventional trust and property law concepts cannot simply be cast aside, as Mr Laurenson seemed to be suggesting. 

[13]     The Rule must be construed and applied in the context of the general law of property.  If the position were otherwise, the ambit of the Rule would have no clear or principled boundary.  It could be argued, for example, that the financial affairs of the judgment debtor’s rich uncle could be investigated because the judgment debtor had an expectation or hope of receiving a gift or bequest from him.  There is little difference in principle between that example and the case of a wholly discretionary beneficiary of a trust.  Of course, if the trust were a fraud on creditors or a sham, different considerations would apply, but on the evidence before the Court there cannot be any suggestion of that.

[14]     It follows therefore that if such interest as Mr Hunt has in any of the trusts, and via them the companies, is no more than that of a wholly discretionary beneficiary, there is no basis under Rule 621(3) for an order that he produce any of the trust or company documents.  They would not be relevant to his assets or other means, and it would equally be irrelevant whether they were within his possession or power.  Further than that it is not possible to go on this aspect of the case.

Possession or power

[15]     The second point of principle is whether an order to produce, directed to the judgment debtor, can require the production of documents which are not in the judgment debtor’s possession or power.  At first blush the answer might appear obvious and self-evident.  It remains so at second blush.  How can a person be ordered to produce documents over which he has no control in the capacity in which he has been sued to judgment.  Mr Laurenson sought to answer that question by adopting, in his oral submissions, the notion of “effective control”.  He was not, however, able to give the Court any assistance with what might amount to effective control as opposed to legal control.  The latter is the conventional touchstone:  see Lonhro Ltd v Shell Petroleum Ltd [1980] 1 WLR 627, 635 per Lord Diplock, who said that the expression “power” in this context means a presently enforceable legal right to obtain inspection of the document from whoever actually holds it, without the consent of anyone else.

[16]     Mr Laurenson also sought to derive assistance from the fact that Rule 621(3) does not specifically say that the documents must be in the judgment debtor’s possession or power, as is the case with general discovery:  see Rule 298.  Counsel drew attention to statutory provisions and rules in other contexts and jurisdictions in support of the suggestion that this omission in Rule 621(3) was deliberate and designed to signal a wide and unconstrained approach.  But unfortunately counsel was unable to help, when pressed with the question how the Court could order somebody to do something which was beyond that person’s legal power to achieve.  Counsel was disinclined to accept that rights of third parties and privacy considerations presented an obstacle to our accepting his argument.  Where the boundaries of effective control might lie was not seen as a problem either. 

[17]     The only appropriate conclusion must be that it is clearly implicit in Rule 621(3) that a document can only be the subject of an order for production if it is within the judgment debtor’s possession or power.  We use the same terminology as that used for general discovery purposes because that terminology has a well understood and settled meaning.  There cannot in this respect be any sensible distinction between general discovery and the specific kind of discovery with which Rule 621 is concerned. 

Conclusions

[18]     The best way to proceed from here is for us to remit all the issues deriving from the Muollos’ application for production of documents under Rule 621(3) to the Master for de novo reconsideration in the light of the principles we have identified in this judgment.  It will be much simpler and more convenient for all concerned if the Master is able to start afresh.  Indeed the parties should be able to reach a measure of agreement now that they have clear parameters within which to work. 

[19]     It may perhaps be helpful, particularly to the Muollos, if we add that in the case of a disputed document Rule 621(3) involves two straightforward steps.  The first is to determine whether the disputed document is relevant to the judgment debtor’s means for satisfying the judgment.  The expressions “assets” and “means” denote some legally recognised species of property belonging to the judgment debtor and able to be used in whole or in part to satisfy the judgment whether immediately or at some future time:  as to that latter aspect see McCormack v National Australia Bank (1992) 106 ALR 647, 649. The second step is to determine whether the disputed document is within the judgment debtor’s possession or power. A negative answer at either step means that an order to produce cannot be made.

[20]     For the reasons given the appeal is allowed.  The Master’s orders concerning production of documents made on 30 July 2002 and 17 September 2002, and the High Court’s order of 3 October 2002 are each set aside, and the whole issue of production of documents by Mr Hunt under Rule 621(3) is remitted to the Master for de novo reconsideration in the light of this judgment.  In all the circumstances we consider that the parties should each bear their own costs, both in the High Court and in this Court.  We therefore set aside all costs orders made in the High Court in relation to production of documents, and make no order for costs in this Court.  Costs henceforth will be for the High Court to determine.

Solicitors:
Morrision Kent, Wellington for Appellant
Sievwrights, Wellington for Respondents
Stephen Brown, Wellington, as Interveners