Justitiae Trustee Co Ltd v NZF Nominees Ltd

[2021] NZHC 659

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-1954

[2021] NZHC 659

BETWEEN

JUSTITIAE TRUSTEE COMPANY LIMITED
Plaintiff

AND

NZF NOMINEES LIMITED

Defendant

Hearing:

22-23 February 2021

Appearances:

B D Gray QC, R B Hucker and R Selby for the Plaintiff No appearance by or on behalf of the Defendant

M V Robinson and A van Ammers for Fairlight Forestry Ltd and Clive Bradbury (Interested Parties)

K Glover for Clayton Bradbury (Interested Party)

S Gollin for De Havilland Investments Ltd and Heather Bradbury (Interested Parties)

Judgment:

30 March 2021

JUDGMENT OF GORDON J

This judgment was delivered by me on 30 March 2021 at 2 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:           Hucker & Associates, Auckland

West Auckland Law Office, Auckland Harrington Law Limited, Auckland

Counsel:B D Gray QC, Auckland M V Robinson, Auckland

JUSTITIAE TRUSTEE CO LTD v NZF NOMINEES LTD [2021] NZHC 659 [30 March 2021]

Introduction

[1]    This case is a sequel to the long-running tax litigation arising out of what was known as the Trinity tax scheme.1 The plaintiff, Justitiae Trustee Co Ltd (Justitiae) is associated with Garry Muir, a tax lawyer involved in the construction of the Trinity tax scheme, and his family. On the other side of the dispute the interested parties are associated with Clive Bradbury, a commercial lawyer involved in the Trinity tax scheme, and his family.2 Garry and Clive were formerly partners in the law firm Bradbury & Muir. As will become apparent, the two families have fallen out.

[2]    Justitiae and Fairlight Forestry Ltd3 (Fairlight) (the latter associated with the Bradbury family interests) are the two beneficiaries of a trust, which was part of a private investment scheme set up by Garry and Clive. The Trust is essentially a private investment vehicle held by a nominee.

[3]    The proceeding arises out of the execution of a Deed of Assignment (Assignment) on 24 June 2019, which assigned legal title to Fairlight of an undivided one-half share as tenant in common in the Trust Assets at the time held on trust for Fairlight by the Trustee under the Trust Deed. The principal issue is whether the Assignment is binding on the trust concerned. The various legal issues raised are all connected to this principal issue.

[4]    Justitiae brings its claims under s 68 of the Trustee Act 1956 (the Act). The parties rely on affidavit evidence. There was no cross-examination on the affidavits.

Background and parties

[5]    The  R  &  A  Trust  (the  Trust)  was  settled  on  14  November  2008,  by   R & A Nominees (Anguilla) Inc (Anguilla). Garry and Clive were the directors and shareholders of Anguilla. They have joint power of appointment of the Trustees of the

1      Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289.

2      I will refer to Garry Muir and Clive Bradbury by their first names. Clive’s brother, Clayton, is an interested party. I will similarly refer to him by his first name to avoid confusion. Garry’s son Nicholas has sworn an affidavit. I will use his first name to avoid confusion. No disrespect is intended by the use of first names.

3      Fairlight is the successor as a beneficiary to De Havilland Investments Ltd which is also associated with the Bradbury family interests.

Trust. On 10 July 2009, Anguilla retired, and Garry and Clive appointed the defendant, NZF Nominees Ltd (NZF), as Trustee.4 NZF is owned in equal shares by Justitiae and De Havilland Investments Ltd (DHIL).

[6]    The Trust Deed of 14 November 2008 provides that the Trustee holds the Trust Assets “on a bare trust and as nominee” as to 50 per cent for each of its two beneficiaries Justitiae and, initially, DHIL. Fairlight was subsequently substituted for DHIL. There is no issue over that.

[7]    The directors of Justitiae are Garry’s son Nicholas Muir (a qualified lawyer) and Catherine Odgers (also a qualified lawyer who was appointed as an independent director on 3 June 2018).  Heather Heazlewood (Garry’s sister) was a director from  3 January 2015 until 8 August 2019. Nicholas says that Garry’s wife, Sum Muir-Fong (Lily) is the ultimate beneficial owner of Justitiae and that it is a bare trustee with a duty to follow her instructions.

[8]    The directors of DHIL are Clive, Heather Bradbury5 (Clive’s wife) and one other person. The directors of Fairlight are Heather Bradbury and Selina Thomson, (who is Heather and Clive’s daughter). I will refer to Fairlight, Clive and Clayton collectively as the Bradbury defendants. I will refer to DHIL and Heather Bradbury separately.

[9]    The current directors of NZF are Clive and Heather Heazlewood. Clayton was formerly a director having been appointed in August 2012. He became sole director in January 2015 after Garry resigned his directorship. There is an issue as to whether Heather Heazlewood was a director of NZF as at 24 June 2019 when the Assignment was executed. There is also an issue as to when Clayton’s resignation as director was effective.

[10]   In that regard, the Bradbury defendants say that Clayton’s letter of resignation as sole director of NZF dated 1 May 2018 expressed to be effective immediately,

4      NZF has not been required to take steps in this proceeding as its 50 per cent shareholders and their appointed directors are deadlocked by the disputes in the proceeding.

5      I will refer to Heather Bradbury as Heather Bradbury to avoid confusion with Heather Heazlewood, Garry’s sister.

resulted in Clayton becoming Trustee of the Trust in his personal capacity. Justitiae disagrees and says the resignation was ineffective. Clayton formally accepted appointment as Trustee of the Trust on 30 April 2019.

[11]   On 29 May 2019, Clive was appointed director of NZF. Justitiae  says Heather Heazlewood was also a  director at that time,  having been  appointed  on    1 May 2018. The Bradbury defendants disagree and say she was not appointed until 2 August 2019.

[12]   On 24 June 2019, Clayton (the Bradbury defendants say acting in his capacity as Trustee of the Trust) and Clive (the Bradbury defendants say as the sole director of NZF) executed the Assignment in favour of Fairlight. Pursuant to the Assignment, Clayton and NZF jointly and severally transferred to Fairlight all their “rights, title and interest in the undivided one-half share as tenant in common in the Trust Assets currently held on trust for Fairlight by the Trustee under the Trust Deed”. In other words, they transferred legal title. The Assignment did not address Justitiae’s beneficial interest in the other undivided half share in the Trust Assets or the Trustee’s legal interest in that undivided half share.

[13]   Justitiae says that the Assignment had the effect of making each power granted to NZF into two powers, one belonging to each beneficiary, and then to ‘grant’ those powers to Fairlight, free of the Trust obligations attached to them. This, Justitiae says, threatened the tax-exempt status of Trinity.6 The Bradbury defendants do not accept that this was the effect of the Assignment.

[14]   On 18 September 2019, Lang J granted a without notice application by Justitiae for interim relief preventing NZF and any other party from taking any steps pursuant to the Assignment or pursuant to a default notice that Fairlight had issued to Trinity.

[15]   Also on 18 September 2019, Lang J directed service on: Trinity, DHIL, Fairlight, Clive, Clayton and Heather Bradbury. Justitiae subsequently sought leave

6      Trinity (as defined in [22] below) had granted the rights to carbon credits to NZF by deed. See discussion in [22]–[26] below.

to  discontinue against Trinity.    That application was granted by judgment dated  11 March 2020.7

Terms of the Trust Deed (of the R & A Trust)

[16]   Clause 1 of the Trust Deed vests 50 per cent of the Trust’s Assets in Justitiae (including its successors or assigns) and 50 per cent in DHIL (including its successors or assigns). As noted above, Fairlight has been substituted for DHIL.

[17]   Under cl 3(a), the power of appointment of Trustees is vested in Garry and Clive (or their successors or assigns) jointly. As already noted, that power was exercised by appointment of NZF as Trustee.

[18]   The Trustee was declared a bare trustee with no discretion. The Trustee is required to act at the written direction of each beneficiary as to their beneficial interest in half the undivided share of the Trust Assets, and on their joint written direction shall wind the Trust up (cl 3(b)). There have been no joint instructions to wind up the Trust.

[19]   Any sums of money owing to the Trustee, whether in the form of a credit bank balance, or sum receivable by the Trustee as Trustee may be partitioned 50/50 at the direction of either or both beneficiaries and each or either beneficiary at their direction, may direct the Trustee to pay out to them, from cleared funds once received, 50 per cent of such sums (cl 3(d)).

[20]   Each beneficiary has the right to appoint one of the two directors of the Trustee (cl 3(f)).

[21]   And finally, there is cl 3(g), which I will consider later in this judgment. For completeness, I set out cl 3(g) in full here:

If the Trustee shall for any reason be liquidated, struck off or otherwise placed under any legal restraint on its ability to give effect absolutely to this deed and its obligations as a trustee, the Trustee shall have been deemed to have resigned before that liquidation, striking off, or restraint, and the last directors of the Trustee shall be deemed to be appointed as interim trustees in the place of the Trustee.

7      Justitiae Trustee Co Ltd v NZF Nominees Ltd [2020] NZHC 471.

Trust Assets

[22]   In simple terms the Trust Assets are what is known as carbon credits, which passed to two companies, Trinity Foundation (Services No. 2) Ltd and Trinity Foundation (Services No. 3) Ltd (together Trinity). The rights to the carbon credits arise first from a deed entered into between NZF and Trinity on 23 July 2009. The 2009 deed was subsequently amended by a modification deed dated 27 May 2014 (together the confirming deed). In accordance with the terms of the modification deed, NZF (as Trustee of the Trust) and Trinity entered into a security agreement (which is in fact a deed) dated 27 May 2014 (security agreement). Trinity granted NZF a security interest in all of Trinity’s personal property to secure: the due and punctual payment of secured money and the performance by Trinity of other obligations including under the confirming deed. The security agreement conferred trust powers to exercise in the event of a default.

[23]   In summary, the primary right of NZF against Trinity is Trinity’s assignment and agreement to assign to NZF its right and title to “Receivables”. These include the right of NZF to receive 50 per cent of the proceeds of sale of New Zealand units (NZUs) (i.e. carbon credits) allocated by the New Zealand Government to Trinity in respect of forests. Trinity qualifies for carbon credits because it granted various third- party foresters (RFR investors) registered forestry rights (RFR) to maintain forests on Trinity’s land. The security agreement secures Trinity’s obligation to assign the Receivables (including cash proceeds).

[24]   Under each of the RFRs, NZUs allocated in respect of the forests and credited to Trinity’s holding accounts that it owns under the NZ Emissions Trading Register (NZETR) are required to be sold by the RFR investor as soon as practicable after they arise. The proceeds are then to be deposited into a Westpac New Zealand Ltd bank account opened in Trinity’s name (the nominated bank account), where they are to be applied in meeting various costs,. The balance is then to be divided equally between Trinity and the RFR investors.

[25]   The 50 per cent share of the balance in the nominated bank account from time to time constitutes Receivables, which Trinity assigned and agreed to assign under the

confirming deed. As noted above, the security agreement secures Trinity’s obligation to assign this balance.

[26]   The evidence is that, in practice, for each of the past six years, Trinity has instead transferred 25 per cent of the carbon credits directly into the NZETR accounts of each of Justitiae and Fairlight (in other words, without involving the Trustee). NZF, Fairlight and Justitiae have acquiesced in this informal arrangement and there is no issue over the way it has operated.

[27]   The relationship between the various entities, including Trinity, is set out in the flow diagram attached to this judgment.

Relief sought

[28]   There are two causes of action in the third amended statement of claim, considerably trimmed down from the seven causes of action in the statement of claim. In the first cause of action, Justitiae seeks relief against Clayton as follows:

(a)A declaration that the shareholders of NZF have agreed that Justitiae may appoint one half of the directors of NZF.

There is no real issue over this. What is pertinent, however, is that the relevant resolution, Resolution 7, appears to have been overlooked by both sides. I will discuss this in the context of my consideration of the next declaration sought.

(b)A declaration that Heather Heazlewood was validly appointed a director of NZF on 1 May 2018;

(c)A declaration that NZF was never under any legal restraint from preventing it from acting as Trustee of the Trust;

This is the cl 3(g) issue referred to in [21] above.

(d)A declaration that Clayton never became Trustee of Justitiae (that is in his personal capacity as opposed to a director of NZF).

This declaration also raises the interpretation of cl 3(g) of the Trust Deed.

[29]   In the second cause of action, Justitiae seeks relief against each of Fairlight, Clive, Clayton, Heather Bradbury, and DHIL as follows:

(a)A declaration that the Assignment is not binding on the Trust; As noted above, this is the primary issue in the proceeding.

(b)A declaration that NZF could not validly bind the Trust to the Assignment;

(c)A declaration that the financing change statement [which is registered on the Personal Property Securities Register] dated 24 June 2019 altering details of NZF’s charge against the assets of Trinity was not validly executed by the Trust and is not binding on the Trust;

(d)If (contrary to other relief sought) Clayton became Trustee of Justitiae, then a declaration that steps taken by him to procure execution of the Assignment were a breach of trust; and

(e)An inquiry into losses suffered by Justitiae.

No party made submissions on this inquiry sought.

[30]   Each of the two causes of action seeks “such further or other relief as the Court thinks is just”. In Justitiae’s written submissions, it sought other orders by way of relief in reliance on this part of the two prayers for relief. In his oral submissions in reply, Mr Gray QC, for Justitiae, abandoned those further claims saying that Justitiae would seek only the particular declarations pleaded. However, Mr Gray also submits

that if the Court was minded to do so, on the basis that equity required further orders, the Court would be entitled to make any further orders.8

The issues

[31]   I agree with the analysis of Mr Robinson, who appeared for Fairlight and Clive, as to what the issues are for decision. As I have already noted, the principal issue is whether the Assignment is binding on the Trust (the first declaration sought in the second cause of action). Each of the interested parties represented in the proceeding opposes the making of this declaration.

[32] Justitiae also makes submissions on (unpleaded) allegations of breach of trust by the Trustee. For the purposes of the breach of trust arguments, Mr Gray submits it does not much matter whether Clayton was the Trustee in his personal capacity or as director of NZF. (But Justitiae’s case is that Clayton did not become Trustee in his personal capacity). Regardless, Mr Gray submits there were breaches of fiduciary duty. The interested parties say there were no breaches of trust. They also complain about the lack of pleading. The only pleaded allegation in relation to an alleged breach of trust is referred to in the declaration set out at [29](d) above.

[33]   The other declarations Justitiae seeks are all related to the principal issue. They raise four other issues which are interrelated. These issues and the parties’ respective positions on each are briefly stated below:

(a)Was Heather Heazlewood appointed a director of NZF on 1 May 2018 (or on 2 August 2019)?

As already noted, Heather Heazlewood is Garry’s sister and she is a former director of Justitiae. Justitiae seeks a declaration that it appointed Heather Heazlewood as a director of NZF on 1 May 2018. Fairlight and Clive say that this is contrary to the evidence, which includes Justitiae’s previously stated position on a number of occasions; and that Heather Heazlewood was appointed on 2 August 2019.

8      Relying on Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320.

(b)Did Clayton resign as a director of NZF on 13 May 2018?

Justitiae says he did not. It further says that Clayton was the sole director at this time and as such he could not resign until Clive was appointed a director on 29 May 2019. The Bradbury defendants note that this submission is contrary to Justitiae’s previously stated position that NZF was directorless between 13 May 2018, when Clayton resigned, and 29 May 2019 when Clive was appointed; and further, that it contradicts Justitiae’s submission above that Heather Heazlewood was appointed as a director of NZF on 1 May 2018. Substantively, the Bradbury defendants say that Clayton’s resignation as director of NZF was effective on 13 May 2018.

(c)Did Clayton’s resignation as a director of NZF trigger cl 3(g) of the Trust Deed, with the result that Clayton, as the last director of NZF, became the replacement Trustee of the Trust?

Justitiae says it did not and seeks declarations accordingly. In response, the Bradbury defendants say that Justitiae’s case at trial contradicts correspondence from its solicitor of 15 May 2018 stating that Clayton had become Trustee of the Trust under the terms of cl 3(g) of the Trust Deed. The Bradbury defendants agree with Justitiae’s previously stated position but they say, in any event, that even if Clayton did not become the Trustee pursuant to cl 3(g), the Assignment was still validly executed by NZF as transferor by Clive as its sole director (the transfer was expressed to be joint and several).

(d)Was Fairlight entitled to have legal title to the undivided 50 per cent share in the Trust Assets in which Fairlight held the beneficial interest (Fairlight Trust Assets) assigned to it so that Fairlight holds the legal title to the Fairlight Trust Assets as a tenant in common?

Justitiae says that legal interest could not be transferred to Fairlight and seeks declarations on this issue. The Bradbury defendants say that

Justitiae’s position is contrary to previous statements from Justitiae’s solicitors stating that the Trust had already been “executed, perfected and vested” and that Justitiae and Fairlight were each entitled to an undivided 50 per cent share of the Trust’s Assets to be held as tenants in common. The Bradbury defendants further say Fairlight was entitled to receive legal title to the Fairlight Trust Assets in accordance with the principles in Gough v Strahl.9 Justitiae submits that the principles in Gough v Strahl do not apply and, in any event, regardless of Justitiae’s previously stated position (that the Gough v Strahl principles did apply), this is an issue for the Court.

Section 68 of the Trustee Act

[34]   Justitiae brings its claim under s 68 of the Act. It is common ground that s 68 is the relevant provision (and not s 126 of the Trusts Act 2019).10 Although the Bradbury defendants agree on which statute applies, they say s 68 does not apply on the facts.

[35]Section 68 provides:

68       Applications to court to review acts and decisions of trustee

(1)Any person who is beneficially interested in any trust property, and who is aggrieved by any act or omission or decision of a trustee in the exercise of any power conferred by this Act, or who has reasonable grounds to anticipate any such act or omission or decision of a trustee by which he will be aggrieved, may apply to the court to review the act or omission or decision or to give directions in respect of the anticipated act or omission or decision; and the court may require the trustee to appear before it, and to substantiate and uphold the grounds of the act or omission or decision that is being reviewed, and may make such order in the premises as the circumstances of the case may require:

provided that no such order shall—

(a)disturb any distribution of the trust property made without breach of trust before the trustee became aware of the making of the application to the court:

(b)affect any right acquired by any person in good faith and for valuable consideration.

9      Gough v Strahl [2013] NZHC 3184.

10     Interpretation Act 1999, s 18; and Trusts Act 2019, sch 1, part 1, r 8(b).

(emphasis added)

[36]   Mr Gray submits that ss 15(1)(l) and 47 of the Act apply to the Assignment. He submits s 47 gives a new Trustee power and control over the Trust Assets without more and that section is cited in the Assignment. As to s 15(1)(l), he says the Assignment was an instrument intended to carry into effect trust powers claimed by Clayton so they could be “farmed out” by him. He says neither Clayton nor NZF claim to have executed the Assignment under a co-existent power under the Trust Deed or general law as well as under the s 68 power.

[37]   Mr Robinson submits the Court’s jurisdiction is very narrow, and in this case Justitiae does not allege that any act or omission of either Clayton or NZF was done or omitted “in the exercise of any power conferred by [the] Act”.

Discussion

[38]The Law of Trusts (NZ) states:11

Section 68 of the Trustee Act 1956 gives the Court a very limited power to review the decisions of trustees in the exercise of any power conferred by the Trustee Act 1956; not the exercise of any power conferred by the trust deed.

… If the trustee is only exercising a power conferred by the trust deed, the section does not apply.

[39]   The author goes on to say that s 68 is of little use as it is of very limited application and as such, it needs to be amended urgently.  The amended provision is  s 126 in the Trusts Act 2019. That section provides:

126     Court may review trustee’s act, omission, or decision

(1) The court may review the act, omission, or decision (including a proposed act, omission, or decision) of a trustee on the ground that the act, omission, or decision was not or is not reasonably open to the trustee in the circumstances.

…

[40]As is apparent, the new provision is considerably wider than s 68.

11 Ross Holmes Law of Trusts (NZ) Commentary under the Trustee Act 1956 (online looseleaf ed, LexisNexis) Part 6 at 4.25.1 citing re Havill (dec'd) [1968] NZLR 1116; re Havill (dec'd) [1968] NZLR 217 at 223; and Craddock v Crowhen (1995) 1 NZSC 40,331.

[41]   In a more recent case than those cited in the Law of Trusts (NZ), Associate Judge Smith said:12

Nor is it clear that the Court had jurisdiction under s 68. The section confers power on the Court in respect of a trustee's exercise "of any power conferred by this Act", but it is not clear what act or omission of Mr Slater was done or omitted in the exercise of a power conferred by the Act.  Ms Levy relies on  s 15(1)(l) of the Act, but that subsection itself refers back to "powers and authorities given by this Act", and accordingly does nothing to assist the search for some section or provision within the Act which could be the subject of a s 68 review by the Court.

[42]Turning first to the Assignment, the “Introduction” states:

AClayton is the trustee of the R & A Trust (“the Trust”) created by deed of trust dated 14 November 2008 (“The Trust Deed”) made by R & A Nominees (Anguilla) Incorporated.

BNZF was the trustee under the Trust Deed before Clayton was appointed in its place.

CWhile all the assets of the Trust vested in Clayton pursuant to the operation of s.47 Trustee Act 1956 when he accepted appointment as interim trustee, NZF has yet to file a financing change statement under the Personal Property Security Register transferring an existing registered financing statement to Clayton.

DPursuant to the Trust Deed Clayton holds an undivided one half share in the assets of the trust on a bare trust and as nominee for Fairlight. In accordance with the principles discussed by the High Court in Gough v Strahl [2013] NZHC 3184, Fairlight has requested Clayton and NZF to transfer legal title to that share to Fairlight.

EThe parties have agreed to enter into this Deed in order to give effect to Fairlight’s request.

[43]Clause 1.1 of the Assignment states:

1.1 Assignment: the Transferor [defined as Clayton and NZF (jointly and each of them severally)] hereby assigns and agrees to assign to the transferee [defined as Fairlight] all the Transferor’s right, title and interest in the Fairlight share [defined as the undivided one half share as tenant in common in the Trust Assets which is currently held on trust for Fairlight by the Trustee].

[44]   In this case, Justitiae submits that neither Clayton nor NZF had the power to execute the Assignment, statutory or otherwise. It is variously submitted on behalf of

12     Slater v Slater [2018] NZHC 1766 at [83].

Justitiae that a bare trustee has no power, saving terms of the trust, to alter vested interests; and the Trustees’ powers are simply those either contained in the Trust Deed or otherwise specifically conferred on it from time to time, as bare trustee, by the beneficiaries. Justitiae also submits that the claimed powers, to execute the Assignment do not exist and are in breach of cls 1, 3(f) and 3(g) of the Trust Deed.

[45]   These submissions are inconsistent with Justitiae’s position that the trustee was acting in the exercise of any power conferred by the Act.   Nor do I consider that      s 15(1)(l) or s 47(1)(b) applies. The former provides:

15       Miscellaneous powers in respect of property

(1)Every trustee may exercise the following powers in respect of any property for the time being vested in him:

…

(l) Do or omit all acts and things and execute all instruments necessary to carry into effect the powers and authorities given by this Act or by or under the instrument creating the trust.

[46]   In my view, s 15(1)(l) does not confer powers, it refers to powers already conferred. As was said by Associate Judge Smith, s 15(1)(l) “does nothing to assist the search for some section or provision within the Act which could be the subject of a s 68 review by the Court”.13

[47]As to s 47(1)(b) it provides:

47       Vesting of trust property in new or continuing trustees

(1)Where by a deed a new trustee is appointed to perform any trust, then—

(a)…

(b)if the deed is made after the commencement of this Act and does not contain such a declaration, the deed shall, subject to any express provision to the contrary therein contained, operate as if it had contained such a declaration by the appointor extending to all the estates, interests, and rights with respect to which a declaration could have been made.

13     Slater v Slater, above n 12, at [83].

[48] That subsection simply provides for the vesting of trust property in a new trustee. It does not confer any powers. The reference to s 47 in paragraph C of the Introduction section in the Assignment (at [42] above) is simply a reference to the assets having vested in Clayton as the new Trustee (replacing NZF).

[49]   Mr Gray refers the Court to Rossiter v Wrigley, where Doogue J found that the defendants, as executors of an estate, did not have power under the specific provisions of a will to compromise a claim against the estate.14 The Judge found that the executors had to rely upon the Act. Mr Gray submits that the same applies here. However, in that case the conduct of the executors fell within the provisions of s 20 of the Act which provided a power to compound liabilities.15 In this case there is no relevant statutory power.

[50]    Mr Gray submits the statements in the judgment of O’Regan J in the Supreme Court decision of Erceg v Erceg, help inform the Court’s approach to the interpretation of the statutory provisions in the Act. The judgment contains the following:16

[18]      We consider the correct position is that the Court’s jurisdiction on an application for the exercise of the supervisory jurisdiction is not limited to the grounds of review of a discretionary decision by the trustees. Rather, the Court must exercise its jurisdiction as a court of equity, exercising its own judgment as to whether disclosure ought to be made at all and, if so, to what extent and on what conditions.

[19]      The supervisory jurisdiction is an inherent jurisdiction of the Court. It is complementary to the Court’s statutory jurisdiction under the Trustee Act 1956.

[51]   However, the judgment contains a footnote to [19] above stating that “The present case related only to the inherent jurisdiction and we do not express any view about the statutory jurisdiction under the Trustee Act 1956”. In my view, the Court is limited to the clear wording of the section. That wording cannot be read more expansively by reference to the position under the Court’s inherent jurisdiction. For the above reasons, Justitiae’s claim does not fall within s 68 of the Act. Its claim therefore fails at the first hurdle. However, in case I am wrong, I will go on to consider all the remaining issues.

14     Rossiter v Wrigley HC Hamilton A105/83, 3 July 1989.

15     At 13.

16     Erceg v Erceg, above n 8, at [18]–[19].

Onus of proof

[52]   Further in relation to s 68, Justitiae submits that once the s 68 jurisdiction is engaged, the onus is then on the Trustee. In support of this submission, Justitiae relies on Rossiter v Wrigley.17 In that case in determining that the onus was on the defendants to substantiate and uphold their act of entering into the deed, Doogue J noted that he was not assisted by the language of the statute.18 The Judge went on to say that the approach he considered appropriate was for him to consider the matter in the same way as if the defendants had applied to the Court for directions under s 66 of the Act. The Judge stated that clearly would have been the alternative manner in which the present orders could have come before the Court. On that basis, the Judge held that the onus of proof fell on the defendants.

[53]   However, in the later case of Jaspers v Greenwood, Kós J disagreed with the proposition that the onus is reversed. Kós J said: 19

[23] Mr Laurenson argued … Also, that the onus reverses. He cites in support the decision of Doogue J in Rossiter v Wrigley. That case is not however authority generally for the proposition that, on a s 68 application, the onus lies on the defendant trustees to justify their actions. Rossiter proceeded on that basis because prior orders to that effect had been made by the Court, without opposition, and an application to review those orders was then dismissed by consent. Absent such orders, which do not here exist, s 68(1) does not alter the ordinary incidence of the onus lying on the applicant for review under s 68. Although there is a delphic reference in Doogue J’s reasons that might suggest otherwise, it is plainly obiter in context and one I would respectfully disagree with. It would turn the High Court into an appellate court from trustees’ decisions where founded on exercise of a statutory power.

[54]   I respectfully agree with Kós J. Accordingly, if I am wrong in my decision that s 68 of the Act does not apply, then the onus for review is on Justitiae and not on any of the Bradbury defendants or the two other interested parties.

[55]I now turn to the issues identified in [33] above.

17     Rossiter v Wrigley, above n 14.

18     At 17.

19     Jaspers v Greenwood [2012] NZHC 2422 at [23].

First issue: was Heather Heazlewood appointed a director of NZF on 1 May 2018 or 2 August 2019?

[56]   The significance of a determination on this issue is that: if Heather Heazlewood was appointed on 1 May 2018 then neither Clayton nor Clive would have been entitled to execute the Assignment on 24 June 2019 because NZF would not have been directorless; cl 3(g) was not triggered and Clayton did not become Trustee of the Trust in his personal capacity; and Clive was never the sole director of NZF.

[57]   Justitiae submits that it appointed Heather Heazlewood as a director of NZF on 1 May 2018 because: it had a power to appoint her as a director of NZF on that date; Justitiae wished for her to be appointed as at that date and Heather Heazlewood (Justitiae’s sole director at that time) was content to be appointed as a director of NZF.

[58]   The Bradbury defendants say that Heather Heazlewood was appointed on     2 August 2019. Mr Robinson says this is what is recorded on the statutory consent form that Heather Heazlewood signed and provided for filing with the Companies Office. He also submits it is consistent with the undisputed evidence and a proper application of the Court of Appeal’s judgment in Norman v ANZ National Bank Ltd.20

[59]I refer to the following evidence:

(a)Clause 25.2 of NZF’s Constitution provides that a majority of shareholders may, at any time, by written notice to NZF, appoint a person to be a director;

(b)The minutes of the first meeting of the shareholders of NZF held on   3 July 2009 contain the following resolution:

(7) De Havilland Investments Ltd and Justitiae Trustee Co Ltd (notwithstanding anything to the contrary in the Company’s Constitution) each have the right to appoint and remove one half of the Company directors (which shall at all times be an even number).

20     Norman v ANZ National Bank Ltd [2012] NZCA 356, 21 PRNZ 261.

(c)Clive’s evidence is that both Justitiae and DHIL forgot about Resolution 7. He says Clayton was not a DHIL director at the time the NZF opening minutes were signed so there is no reason why he would have been aware of Resolution 7. Clive says the only explanation for why he and Garry overlooked Resolution 7, which he had prepared and which Garry had signed, is that they had simply forgotten about it. He says he certainly had. Clive also notes that in his experience it is very unusual to put a provision of this nature in shareholder opening minutes. He says he cannot recall any other instance where this had happened. He does not recollect the background to Resolution 7. Clive’s evidence on this issue is not challenged. Further, that Resolution 7 had been forgotten about is consistent with the way in which appointments proceeded (under cl 25.2 above). That is apparent from the following appointments:

(i)On 22 August 2012, when Clayton was appointed a director of NZF, it was by way of shareholder resolution;

(ii)In March 2013, Justitiae indicated an intention to appoint Heather Heazlewood to replace Garry as a director of NZF. Again, it was to be done by way of shareholders’ resolution. On

12 March  2013,  Clive  emailed  Garry’s  legal  secretary, Anne Kleyn (who had authority to act for NZF on Companies Office dealings) noting that a new director could not be appointed without first having a signed shareholders’ resolution effecting the appointment. Garry emailed back saying “OK, we will prepare and send to you”. He added that he may have overlooked that (i.e. the need for a shareholders’ resolution), and he was making his sister director following Clive’s lead with Clayton. He presumed there would be no issue with this. Further email correspondence on the same day showed an intention that the appointment was to be by way of shareholders’ resolution (in the end Justitiae did not pursue the appointment. Garry Muir remained as director);

(iii)In January 2015, there was email correspondence from Garry to Clive asking if Clive was happy for Garry to resign as the director of NZF without appointing someone in his place. That communication again indicates that Resolution 7 had been overlooked;

(d)Resolution 7 was again overlooked in correspondence commencing on 24 April 2018. On that date, Clive sent Garry an email attaching NZF’s 2018 Annual Shareholder Resolution in lieu of an AGM and asked him to get it signed and returned (by Heather Heazlewood who was by then Justitiae’s sole director). On 28 April 2018, Garry emailed Clive in response saying that he wanted to appoint Heather Heazlewood as a director of NZF and asked for the necessary shareholders’ resolution to be added to those to be passed in lieu of NZF’s AGM. In an email exchange that followed, Clive suggested they discuss the future of NZF and Trinity and that Heather Heazlewood’s appointment could be discussed in that context.

In response, Garry stated that Justitiae had the unconditional right to appoint a director. He relied on cl 3(f) of the Trust Deed and not on Resolution 7;

(e)On 1 May 2018, Heather Heazlewood emailed NZF in her capacity as the sole director of Justitiae in the following terms:

The director

NZF Nominees Ltd

1.NZF Nominees Ltd is a bare trustee for the Company of 50% of the rights granted to NZF Nominees Ltd by Trinity (Services No. 2) Ltd and Trinity (Services No. 3) Ltd pursuant to a deed of trust dated 14^th November 2008.

2.The Company is also a 50% shareholder in NZF Nominees Ltd.

3.By the above deed of trust the Company has a right to appoint a director of NZF Nominees Ltd. I wish to be appointed a

director. Could you please update the Companies Register so I can obtain and complete my consent form?

4.I also direct you as a bare nominee of the Company not to act in any way in relation to the Company’s beneficial interests or purport to do so, without its express consent.

(f)Clive  took  the  view  that  as  far  as  DHIL  was  concerned,  Heather Heazlewood’s appointment as an NZF director had to be made in compliance with NZF’s constitution. The constitution required that appointments be made by a majority of shareholders, which meant both DHIL and Justitiae had to agree to any appointment. He could not see how cl 3(f) of the Trust Deed could prevail over NZF’s constitution and give the Trust’s beneficiaries the right to each appoint a director of NZF without first obtaining the agreement of both NZF shareholders. That is what he believed NZF’s constitution required (again overlooking Resolution 7). He discussed his views with Clayton;

(g)On 9 May 2018, NZF advised Justitiae that the appointment of directors to the board of NZF was governed by its constitution, not the Trust Deed; and

(h)On 11 May 2018, Garry signed a letter on behalf of Justitiae as an authorised signatory as directed by the director Heather Heazlewood responding to the 9 May 2018 letter. The letter was very critical of NZF and Clayton. However, in relation to the issue I am presently considering it was addressed to the director of NZF and in both the letter and in Garry’s covering email addressed to Clayton he referred to Clayton as “sole director NZF Nominees Ltd” (in the email) and “yourself as sole director” (in the letter).

[60]   On 13 May 2018, having regard to the strongly worded criticism of him in Justitiae’s 11 May 2018 letter, Clayton resigned as a director of NZF. He did so by sending a letter to NZF’s shareholders resigning with immediate effect.

[61]   I agree with the submission Mr Robinson makes, that from that point the evidence shows that Justitiae proceeded in its dealings with the Bradbury defendants on the basis that NZF was without a director. I refer to the following correspondence.

[62]   By letter dated 15 May 2018 to Clayton and Clive, sent on 16 May 2018, Justitiae’s solicitors wrote saying that they had reviewed correspondence between Justitiae and Mr Bradbury of NZ Nominees Ltd. The letter then goes on to say:

Mr Clayton Bradbury under the terms of clause 3(g) of the Trust Deed has become the trustee of the R and A Trust, assuming all responsibilities and liabilities arising out of the operations of the trust vehicle upon his resignation as a director of NZF.

There has been no satisfactory explanation as to why there was a refusal to act on the request of Heather Heazlewood (on behalf of Justitiae) to be appointed as a director of NZF.

[63]   There is also a letter of 8 February 2019 from Cathy Odgers (one of Justitiae’s directors at that time) which she emailed to Clive (for DHIL and Fairlight). She also referred to NZF as being “without directors”.

[64]   On 29 May 2019, when reviewing NZF’s minute book in preparation for Justitiae’s s 216 inspection, Clive located Resolution 7. He advised Garry of this discovery by email on the same day, copying in Heather Heazlewood. He attached a copy of the NZF opening minutes containing the resolution. In his email he noted that both he and Garry had seemed to have lost sight of Resolution 7 and went on to say that DHIL had appointed him a director of NZF under Resolution 7 as at that day and offered to assist if Justitiae wanted to make an appointment.

[65]   On 17 June 2019, Justitiae’s solicitors wrote to NZF thanking it for forwarding a copy of Resolution 7 to Justitiae’s director, allowing Justitiae to appoint a director to NZF. The letter stated that any decision to do so would be made after Justitiae had completed inspection of NZF’s records. The letter did not suggest that Justitiae had already appointed Heather Heazlewood as a director.

[66]    On 31 July 2019, Heather Heazlewood sent an email to Clive referring to his email of 29 May 2019 accepting his offered assistance to obtain a s 152 consent form “for new directors to NZF Nominees Ltd from the NZ Companies Office”. There was

no suggestion in the letter that the appointment should be backdated. Clive responded on 1 August 2019 saying that he would be more than happy to assist with her consent form. Clive sent Garry an email the same day confirming that he was happy to assist Heather Heazlewood with her director consent form for NZF.

[67]   On 2 August 2019, Clive arranged for AIL Advisory (which handles Companies Office registrations for NZF) to apply to the Companies Office to register Heather Heazlewood as a director of NZF. The Companies Office emailed a consent form which AIL then emailed to Heather Heazlewood stating, “If you complete, scan and return the attached consent form to us we will get it uploaded to the Companies Office”. The consent form was pre-populated with Ms Heazlewood’s name, address and the date of appointment as 2 August 2019. Heather Heazlewood signed the form and also dated it 2 August 2019.

[68]   Heather Heazlewood has sworn a short affidavit. She refers to her 1 May 2018 letter. She acknowledges signing the consent form that already contained the date of 2 August 2019 when she received it from Clive. She says she did so even though she considered that was not the date of her appointment. She says she apprehended that if she made any alteration to the form or date, Clive would not lodge the details of her appointment with the Companies Office.

[69]   Mr Gray submits that Heather Heazlewood’s letter of 1 May 2018 satisfies the requirements of s 152 of the Companies Act 1993. That section provides:

152     Directors consent required

A person must not be appointed a director of a company unless he or she has consented in writing to be a director and certified that he or she is not disqualified from being appointed or holding office as a director of a company.

[70]   Mr Gray submits that Heather Heazlewood’s statement in her 1 May 2018 letter of her wish to be appointed a director indicates her consent and by implication it can be taken that she is not disqualified from being appointed or holding office as a director of a company. Mr Gray relies on Norman v ANZ National Bank Ltd, where the Court said the appointment of a person as a director of a company is not necessarily invalidated by failure to comply with the requirement in s 152 that the person consents

in writing to act as a director.21 The section does not provide that failure to obtain consent will render the appointment of no effect.22

[71]   I do not consider that Norman assists Justitiae. One of the issues was whether an alternate director was validly appointed as a director of the company. However, the facts are materially different from the facts here. In that case, the alternate director had executed a guarantee from the company for the benefit of ANZ the day before she signed the s 152 certificate. In signing the certificate she had acted as a director. The company’s solicitor had held the guarantee in escrow for a day until the director signed the s 152 certificate, and ANZ did not allow draw down until after the director’s consent to act as a director had been clarified.

[72]   The Court of Appeal stated that in its view, the requirement in s 152 that the person consent in writing to act as a director is for the protection of the director, not the company. Among other things, s 152 was designed to avoid people being appointed a director without their knowledge.23 The Court of Appeal rejected the shareholders’ argument that the guarantee was not binding because the director had signed it the day before signing the s 152 certificate.

[73]   This is consistent with the concern of the Companies Act to ensure that when someone acts as a director, even though they were not validly appointed or there was a defect in their appointment: they are treated as a director (s 126); and their acts are treated as if they were acts of a director (s 18, s 158). This is in order to protect the company and third party dealing with the company through its directors.

[74]   In both Norman and in Paape v Fahey,24 (the latter approved by the Court of Appeal in Norman) the directors were acting as directors. In Paape v Fahey, the Court held that a breach of s 152 did not mean that a person appointed as a director was exonerated from any action taken while purporting to act as a director before consent was provided.25

21     Norman v ANZ National Bank Ltd, above n 20 at [27].

22 At [27].

23     Norman v ANZ National Bank Ltd, above n 20, at [29].

24     Pappe v Fahey, [2005] 2 NZCCLR 346 (HC).

25     See Norman v ANZ National Bank Ltd, above n 20, at [28].

[75]   That is not what happened here. Heather Heazlewood took no steps to act as a director until her appointment on 2 August 2019. She made no attempt to act as director of NZF including complying with statutory duties she would have had in that role. She asserted no control over its business and affairs. Although there was no cross-examination on the affidavits, Heather Heazlewood’s evidence that she signed the s 152 certificate believing the date to be wrong, is, at best inconsistent with the documentary evidence referred to above. At worst it would have been an offence under s 377(1) of the Companies Act if she had been appointed on 1 May 2018 but recorded the date of appointment as 2 August 2019.

[76]   In the correspondence I have set out above, Justitiae acknowledged in various communications that Heather Hazelwood had not been appointed as a director, from 11 May 2018 onwards, referring to Clayton as the sole director of NZF. Justitiae’s solicitors were of the view that upon Clayton’s resignation on 13 May 2018 as director of NZF, Clayton had become Trustee of the Trust pursuant to cl 3(g) of the Trust Deed. Whether or not cl 3(g) operated in that way is for this Court, but the point is that the solicitors, on Justitiae’s behalf, could only have adopted that position if they were acting on the basis that Clayton’s resignation left NZF without directors.

[77]   For all the above reasons, I find that Heather Heazlewood was not appointed a director of NZF on 1 May 2018. She was appointed a director on 2 August 2019.

Second issue: did Clayton resign on 13 May 2018?

[78]   On 13 May 2018, Clayton sent a letter to NZF’s shareholders resigning as a director with immediate effect. The original letter was, on the same day, delivered to NZF at its address for service and inserted into its minute book, and NZF’s directors’ register was updated to record the fact of Clayton’s resignation.

[79]   It is necessary to determine whether Clayton’s resignation was effective on 13 May 2018. If it was not, NZF was not without a director, in which case Clayton could not rely on cl 3(g) to argue that he had become Trustee in place of NZF.

[80] On 15 May 2018, Justitiae stated that Clayton’s resignation had triggered cl 3(g) because the resignation had rendered NZF without a director. See [62] above.

Justitiae now submits that Clayton’s resignation was ineffective on 13 May 2018 because it would have rendered NZF directorless. (I note that this submission contradicts its submission on the first issue that Heather Heazlewood was appointed a director on 1 May 2018). Justitiae says that Clayton remained a registered director of NZF until Clive was appointed on 29 May 2019.

[81]   In support of this proposition, Justitiae relies on McCullagh v Registrar of Companies.26 But McCullagh does not provide the necessary support. The case did not concern the effectiveness of the director’s resignation itself, rather it was concerned with the administrative function of the Registrar. Harrison J said:27

[6]        Mr McCullagh signed a notice of change of directors and particulars of directors in Form 10 as required by the Registrar to ensure compliance with s 159. The notice recorded details of his resignation – that is, full name, residence and date of resignation. Mr Caro mounts a compelling submission that Mr McCullagh had no standing or authority to sign the document. He was functus officio from the moment of his resignation which occurred earlier. However, it is not necessary for me to determine this point.

[7]        In my judgment the appeal must fail on a discrete ground. Mr McCullagh’s notice did not comply with s 159(2)(b). It omitted any particulars of new directors or, more importantly, the full names and residential addresses of every person who was a director of Gore Street from 11 April 2007. It is common ground that there were no other directors as from that date. That obligation to give the nominated particulars of remaining directors is absolute and is consistent with the terms of s 150, which briefly provides:

A company must have at least one director.

[82]   McCullagh is not authority for the proposition that a person is required to continue as a director of a company with all the duties of a director where the person no longer wishes to do so. The case is about the Registrar’s function under s 159 of the Companies Act.

[83]   Although Harrison J did not decide the point, I note the Judge refers to the submission that Mr McCullagh did not have standing or authority to sign the document as a “compelling” one and that he was functus officio from the moment of his earlier resignation.

26     McCullagh v Registrar of Companies HC Auckland CIV-2007-404-002427, 12 September 2007.

27     At [6]–[7].

[84]   Section 157, which governs the position of a director ceasing to hold office, provides:

157     Director ceasing to hold office

(1)The office of director of a company is vacated if the person holding that office—

(a)resigns in accordance with subsection (2); or

(b)is removed from office in accordance with this Act or the constitution of the company; or

(c)becomes disqualified from being a director pursuant to section 151; or

(d)dies; or

(e)otherwise vacates office in accordance with the constitution of the company.

(2)A director of a company may resign office by signing a written notice of resignation and delivering it to the address for service of the company. The notice is effective when it is received at that address or at a later time specified in the notice.

…

[85]   In this case, the relevant parts of s 157 are subs (1)(a) and (2). The notice of resignation stating that it had immediate effect was delivered in accordance with subs (2). It was therefore effective on delivery. Although the other parts of s 157(1) do not apply in this case, s 157(1)(c) (a person becoming disqualified) and s 157(1)(d) (where a person dies) both contemplate that the company may be without a director. Section 157(1)(a) should be interpreted consistently with the operation of those two subparagraphs.

[86]   In my view, s 159 does not mean that the resignation is ineffective prior to the records being updated. The notice under s 159(2) effectively does two things. It records the resignation or appointment. In the case of an appointment, it requires consent and a certificate under s 152.

[87]   This interpretation is consistent with the decision of van Bohemen J in Latumbo v Pacific Auto Carrier (NZ) Ltd,28 where the Court held that the legal consequences of insisting on compliance with s 157 for a departed director could be severe even if the director had evinced a clear intention to cease being a director and this had been accepted by the company but no steps had been taken to formalise the position.29 The Judge did not accept the proposition that the date the resignation was notified to the Companies Office was the effective date of resignation.30

[88]   For  all  the  above   reasons,  Clayton’s  resignation  was  effective  from    13 May 2018. For completeness, it was then proper for Clive, upon his appointment as a director of NZF on 29 May 2019, to file a s 159 notice recording the cessation of Clayton’s directorship as at 13 May 2018 (and Clive’s appointment on 29 May 2019). This was not a misrepresentation of the factual and legal position.

Third issue: Did Clayton’s resignation trigger cl 3(g)?

[89]   Justitiae (contrary to its position in its solicitors’ letter of 15 May 2018 that Clayton had become Trustee of the Trust under the terms of cl 3(g) upon his resignation as director of NZF) says in this proceeding that cl 3(g) was never triggered and Clayton never became Trustee of the Trust because NZF was never without a director. I have found against NZF regarding to the date of Heather Heazlewood’s appointment.

[90]   Justitiae advances an alternative argument and that is, even if NZF was without a director, cl 3(g) did not operate to make Clayton Trustee because:

(a)cl 3(g) refers to the last directors (plural) and Clayton was not the last directors;

(b)Clayton could not claim to be Trustee because his interest as a member of the Bradbury family conflicted with his duty as a trustee to obey the directions of Justitiae;

28     Latumbo v Pacific Auto Carrier (NZ) Ltd [2018] NZHC 2773.

29 At [46].

30 At [53].

(c)either of the shareholders could have applied to the Court for appointment of a director under s 154 of the Companies Act. NZF’s inability to give effect to its trust obligations could not therefore be assumed; and

(d)as a shareholder, Justitiae was always ready, as part of the AGM to discharge NZF’s directors’ powers until new directors were appointed.

[91]   The Bradbury defendants all say Justitiae’s original position in its solicitors’ letter was correct.

Chronology

[92]The chronology of relevant correspondence follows.

[93]   In its letter of 15 May 2018 sent the following day, Justitiae emailed Clayton (c/- NZF) and Clive (care of DHIL) stating that:

Mr Clayton Bradbury, under the terms of clause 3(g) of the Trust Deed has become a trustee of the R and A Trust, assuming all responsibilities and liabilities arising out of the operations of the trust vehicle upon his resignation as a director of NZF. …

Given the refusal to comply with the terms of the Trust Deed … it is now inevitable that the Trust assets ought to be distributed in equal shares for each of the two beneficiaries of the R and A Trust. … If of interest to you we have attached a broadly drafted Settlement document which can form the basis of resolution of this dispute through the equal distribution of trust assets to the beneficiaries of the R and A Trust.

[94]   On 18 May 2018, Clive responded by letter on behalf of DHIL and stated he had referred the 15 May 2018 letter to Fairlight because it would obviously have to agree to the proposal for the distribution of the Trust Assets.

[95]   On 22 May 2018, Clive advised Fairlight’s response saying it would not enter into the proposed settlement deed and raised possible alternative structures for ownership of the Trust Assets.

[96]   On 6 November 2018, Clive emailed Garry attaching draft documents for discussion purposes. Following on from Justitiae’s assertion that NZF had retired as

Trustee on 13 May 2018, the draft Shareholders’ Agreement recorded that, “NZF has agreed to accept re-appointment as sole trustee of the R and A Trust.” The documents also included a draft deed of retirement recording the retirement of Clayton as Trustee and the reappointment of NZF as Trustee in place of Clayton.

[97]   On 17 November 2018, Clive emailed Garry to correct a clause in the draft Amended and Restated Trust Deed, which was one of the other documents attached to his 6 November 2018 email.

[98]   On 18 and 19 December 2018, there was an exchange of emails between Clive and Garry in relation to the appointment of Lily (Garry’s wife) as a replacement for Garry as primary representative on Trinity’s main NZETR account. In his email, of 19 December 2018, Garry referred to NZF being without a director saying:

Kevin appointed himself as a PR [primary representative on Trinity’s NZETR accounts] with me being precipitously (and unexpectedly) removed, and NZF being without a director, the R & A beneficiaires [sic] would have no-body [sic] to act for them. NZF could no longer represent them.

[99]On 27 December 2018, Clive emailed Garry saying:

… [I] thought that your point about the R & A beneficiaries having no-body [sic] to act for them should be clarified less there be any misunderstanding going forward.

By virtue of cl 3(g) of the R & A Trust Deed, NZF is deemed to have resigned as trustee and Clayton appointed as interim trustee in its place. This is what JTCL’s lawyer Robert Hucker concluded in his letter of 15 May 2018 and I concur.

As previously advised Clayton has accepted that appointment but is more than willing to stand aside for NZF to be re-appointed. In the draft documents I sent you in early November I proposed that you and I agree to re-appoint NZF as trustee. On reflection the preferable approach might be for the R & A beneficiaries to amend the trust deed so they can make the re-appointment themselves.

[100]   On 3 February 2018, Clive emailed Garry saying that he had been mistaken about Clayton’s appointment as Trustee. He said Clayton had not yet accepted appointment as interim Trustee and would only do so if necessary to facilitate the orderly transfer of the Trust Assets to a new Trustee.

[101]   On 8 February 2018, Cathy Odgers emailed Clive, DHIL and Fairlight. She stated that Garry  had  passed  on  to  Justitiae,  Clive’s  email  and  attachments  of  6 November 2018. She said:

Justitiae is of the opinion that if both itself and DHIL appoint a director to NZF Nominees Ltd before either the annual return is due or the security must be re-registered clause 3(g) of the Trust deed would not have been triggered as while without directors there is nothing that NZF has been required to do (therefore not being unable to give effect to the Trust deed). Justitiae is willing to do this without conditions being attached. If DHIL does not agree then it is likely the Trust will be without a trustee and a court application may be required to appoint one.

[102]   On 18 February 2019, Clive responded to Cathy Odgers. Garry was also a recipient of the letter. Clive stated that he believed it was clear that cl 3(g) was triggered as soon as NZF was without any directors and thus unable to act. He noted that  Justitiae’s  solicitors  had  come  to  the  same  conclusion  in  their  letter  of   15 May 2018. Clive went on to say that it would be necessary for Clayton to accept the appointment but repeated that Clayton was willing to do so if necessary to facilitate the transfer of the Trust Assets to a new Trustee.

[103]   He repeated his suggestion that the beneficiaries approve the reappointment of NZF (obviously preceded by NZF appointing new directors) and retirement of Clayton.

[104]   On 18 April 2019, Clive emailed Garry requesting a response to his letter of 18 February 2019. He noted that if NZF did not appoint new directors and file its 2019 annual return by 30 April 2019, it would be struck off by the Companies Office.

[105]   On 23 April 2019, Garry emailed Clive saying he would get something to him in the next 24 hours.

[106]   Later on 23 April 2019, Clive acknowledged Garry’s email and said he had spoken to Clayton again and Clayton had agreed to accept appointment as interim Trustee if NZF was not reappointed by 30 April. Later again on 23 April 2019, Garry sent an email to Clive, attaching two documents providing for the shareholders of NZF to jointly appoint two directors, one nominated by each of them, and for NZF to then be reappointed as Trustee of the Trust. In response, and still on 23 April 2019, Clive

emailed Garry inquiring whether that was all he could expect to receive from Justitiae by way of a response to his letter of 18 February 2018.

[107]   On 26 April 2019, Garry responded that he had only that night been able to contact Cathy Odgers and he had passed Clive’s request on to her.

[108]   On 26 April 2019, Clive emailed Garry noting Justitiae’s 10 week delay in engaging and stated that DHIL would not want to continue its relationship with Justitiae (as shareholders in NZF) if the parties could not reach agreement by 30 April 2019. If there were no resolution by that date, DHIL would allow NZF to be struck off.

[109]On 29 April 2019, Justitiae’s solicitors wrote to Clive:

(a)asserting that DHIL had refused to appoint a director to NZF before 30 April 2019. Pursuant to the law of Anguilla, the Trust would be executed in favour of the beneficiaries when NZF was struck off.

Justitiae would proceed on that basis; and

(b)saying the law of Anguilla prevented Clayton being a new Trustee of the Trust as disclaimers of trusteeship cannot be revoked. But in any event there was no mechanism for a non-existent entity to transfer property on trust to a new trustee.

[110]Clive responded to Justitiae’s solicitors on the same day saying that:

(a)He did not accept that the law of Anguilla applied;

(b)NZF was deemed to have resigned as Trustee under the Trust Deed by virtue of the operation of cl 3(g) but it continued to hold the Trust property as a bare trustee until a new Trustee was appointed and the appointee accepts the appointment; and appointment of new directors of NZF would not change that fact;

(c)Clayton had agreed to accept appointment as interim Trustee, pursuant to cl 3(g) if NZF was not reappointed by 30 April 2019. That was not a disclaimer of trusteeship, nor was anything else Clayton had done or said. Therefore, the issue of revocation of disclaimer was irrelevant; and

(d)If there was no reappointment of NZF by the following day, then Clayton would accept appointment and confirm this in writing to the beneficiaries.

[111]   On 30 April 2019, Clive emailed Justitiae’s solicitors attaching Clayton’s acceptance of appointment as Trustee again noting there may be a risk of the Trust Assets being in jeopardy if NZF were struck off before those assets were vested in a new Trustee.

[112]   On 1 May 2019, Justitiae’s solicitors sent a letter of 30 April 2019 to Clayton via Clive putting Clayton on notice that Justitiae considered that Clayton was not, and could not be, Trustee of the Trust, if indeed it still existed.

[113]   On 1 May 2019, Clive wrote to Justitiae’s solicitors noting that in May the previous year, Fairlight had rejected the proposed “settlement deed” but had invited Justitiae to meet to discuss ownership restructuring options for the Trust. He stated that Fairlight had asked him to renew the invitation and, in particular, that it would like to discuss options for winding up the Trust pursuant to cl 3(b) of the Trust Deed.

[114]   On 1 May 2019, Justitiae’s solicitors wrote to Clayton via Clive referring to his acceptance of appointment as Trustee dated 30 April 2019 restating their previous advice that Justitiae did not accept Clayton had been appointed and asked him to provide a list of information and to follow certain directions.

[115]   On 6 May 2019, Justitiae’s solicitors wrote to Clive repeating Justitiae’s position that the Trust had already been executed (perfected by vesting in the beneficiaries, it did not fail) and that Clayton’s appointment was invalid.

[116]   In none of the correspondence did Justitiae, either through its solicitors or director, suggest that cl 3(g) was not triggered by NZF being without a director.

Interpretation of cl 3(g)

[117]   It is first necessary to ascertain the meaning of cl 3(g), which I set out again for ease of reference:

If the Trustee shall for any reason be liquidated, struck off or otherwise placed under any legal restraint on its ability to give effect absolutely to this deed and its obligations as a trustee, the Trustee shall have been deemed to have resigned before that liquidation, striking off, or restraint, and the last directors of the Trustee shall be deemed to be appointed as interim trustees in the place of the Trustee.

(emphasis added)

[118]   The approach to interpretation of a trust deed is essentially the same as the approach for the interpretation of contracts. But parole evidence should be received more sparingly when construing trusts.31 The object is to search for the intention as revealed by the words used by the parties and amplified by the facts known to all of them.

[119]   I accept the submission made by Mr Robinson and Mr Glover for Clayton, that the words of cl 3(g) indicate an intention to ensure that the Trust is never left without a Trustee capable of holding the Trust property and administering the Trust in accordance with the Trust Deed. The clause was necessary because NZF, like its predecessor, Anguilla, was a corporate trustee. As a company, NZF was at risk of being subject to legal restraints that might affect its ability to perform its role of Trustee. Clause 3(g) ensures that in the event of any legal restraint occurring, the corporate trustee is deemed to have retired and be immediately replaced with one or more unrestrained natural persons. As Mr Glover put it, it is the “failsafe switch”.

[120]   With that intention in mind, I turn to a textual analysis. The phrase “or otherwise placed under any legal restraint on its ability to give effect absolutely to the deed and its obligations as a trustee” follow the two specific situations, namely of

31     Re Marianne Caughey Smith-Preston Memorial Rest Homes Trust Board [2018] NZHC 3014, [2019] NZAR 92, at [21] citing New Zealand Māori Council v Foulkes [2014] NZHC 1777.

being “liquidated, struck off”. I do not consider the preceding words somehow limit the words “any legal restraint”. Given the intention of the clause, the words must be read broadly so that the expression applies to any legal restraint affecting the Trustee’s ability to act. In other words, exactly what the words of the clause say. As a consequence, it does not matter whether the restraint is complete or partial. What is required is that the restraint affects the Trustee’s ability to “give effect absolutely” to the Deed and its obligations.

[121]   It similarly does not matter whether the restraint is permanent or able to be reversed. In this case that would have been by the appointment of a new director(s) and the re-appointment of NZF as trustee.

[122]   It also does not matter how the Trustee came to be placed under the restraint. Again, having regard to the intention to the clause, in order for it to achieve its purpose it must apply whether the restraint is imposed by an external act or as a result of an internal matter such as is the case here, as a consequence of a director resignation.

[123]   The issue is whether the Trustee is under a restraint on its ability to perform its obligations, not whether it is unable to take a specific and immediately required action. That is consistent with what I have found to be the purpose of the clause.

Was cl 3(g) triggered when Clayton resigned at its sole director?

[124]   When Clayton resigned, NZF was without any directors and therefore without a board. It could not act without a board.

[125]Section 128 of the Companies Act provides:

128     Management of company

(1)The business and affairs of a company must be managed by, or under the direction or supervision of, the board of the company.

(2)The board of a company has all the powers necessary for managing, and for directing and supervising the management of, the business and affairs of the company.

(3)Subsections (1) and (2) are subject to any modifications, exceptions, or limitations contained in this Act or in the company’s constitution.

[126]   NZF’s constitution does not allocate any management powers to shareholders, in terms of s 128(3). It expressly confirms s 128(1) and (2). It provides:

29.1Management of Company: Except as provided in clause 29.3, the business and affairs of the Company shall be managed by or under the direction or supervision of, the Board.

29.2Exercise of powers by Board: Subject to the provisions of clause 29.3, the Board may exercise all the powers of the Company which are not required, either by the [Companies] Act [1993] or this Constitution, to be exercised by the Shareholders.

29.3Delegation of powers: The Board may delegate to a committee of Directors, a Director, an employee of the Company, or to any other person, any one or more of its powers, other than a power set out in the second schedule to the Act.

[127]   On the facts as soon as Clayton resigned as director, NZF was left without a board, and without a board, NZF had no ability to act. It was therefore immediately under a legal restraint on its ability to perform its obligations as Trustee and to give effect to the Trust Deed, thus triggering cl 3(g).

[128]   Mr Robinson and Mr Glover make an alternative submission that if cl 3(g) is only triggered when the Trustee is required to actually take action, then on that basis the clause was triggered when NZF was required to file its annual return by 30 April 2019 but was unable to do so. They say it was in that context that Clayton accepted appointment as interim Trustee on 30 April 2019. It is not necessary to consider whether this is the correct position. Clayton did not undertake any acts as Trustee between 13 May 2018 and 30 April 2019. In other words, for present purposes, it does not in fact matter whether the relevant date is 13 May 2018 or 30 April 2019.

Can a single director be appointed as interim trustee?

[129]   Justitiae submits, by reference to the wording “… and the last directors of the Trustee shall be deemed to be appointed as interim trustees in place of the Trustee”, that cl 3(g) must be read so that a single director cannot be appointed as interim Trustee. It submits Clayton was not the “last directors” and so he cannot be deemed to have been appointed as “interim trustees”.

[130]   Mr Robinson and Mr Glover submit that cl 3(g) must be read so that a single (ex) director of NZF can be appointed as interim Trustee, regardless of how many directors NZF had at the time the clause was triggered. They submit the Deed falls within the wide definition of “instrument” in the Property Law Act 2007 (PLA) and  s 23(2) of the PLA provides that words in an “instrument” in the plural include the singular unless the context otherwise requires. They submit that the context and the words of the clause support reading the plural “directors” as including the singular, “director”.

[131]I accept that submission:

(a)At the time the Trust Deed was drafted, it was envisaged there would be two directors, one appointed by each of the Muir and Bradbury interests;

(b)However the reality was, as Mr Gray accepted, for periods of time NZF had only one director. In those circumstances, it cannot have been contemplated that, if cl 3(g) were triggered, the Trust would be left without a capable Trustee; and

(c)If, when drafting the Trust Deed, Garry and Clive had intended that there would always be two interim trustees or none at all, they could have drafted cl 3(g) to provide for that.

[132]   For the above reasons, I consider a single director can become Trustee under cl 3(g) of the Trust Deed.

Did a conflict of interests prevent Clayton from being Trustee?

[133]   Justitiae submits that Clayton could not be Trustee because his interest as a member of the Bradbury family conflicted with his duty to obey the directions of Justitiae. In support of that proposition Justitiae cites Spencer v Spencer,32 where the Court of Appeal said:

32     Spencer v Spencer [2013] NZCA 449, [2014] 2 NZLR 190 at [90].

[90] … It is a general principle of equity that a trustee must act gratuitously. There are two reasons for this rule. First, a trustee is not permitted to derive a benefit from the trust property. Second, the interest and duty of the trustee must not conflict.

(citations omitted)

[134]   However, that submission by Justitiae overlooks the following paragraph of the judgment where the Court of Appeal said, “A well-established exception to these general principles is that a trustee may be employed by a trust if authorised to do so by the trust deed”.33

[135]   As Mr Robinson and Mr Glover submit, that is the reality of what happened in this case, as is routine in family or other closely held arrangements, where the settlor can overlook such restrictions as to the appointment of trustees.

[136]   They both refer to the fact that the Trust was settled by Anguilla when Garry and Clive were its only directors and shareholders, and at a time when each was connected to one of the two beneficiaries, Justitiae and (then) DHIL. If cl 3(g) had come into operation during the time when Anguilla was Trustee, then Clive and Garry would have become the Trustees in their personal capacity. That must have been what Anguilla, as settlor, intended.

[137]   When NZF replaced Anguilla its directors were again Garry and Clive. Only those two and one of each of their siblings, Clayton and Heather Heazlewood respectively, had been directors of NZF. When Garry resigned his directorship of NZF in 2015, he did not arrange a replacement (although as previously noted some preliminary steps were taken to arrange for the appointment of Heather Heazlewood).

[138]   For the above reason, it must have been intended that persons connected with the beneficiaries could, and should be able to, become interim Trustees or Trustee associated with either the Muir or Bradbury families.

33     Spencer v Spencer, above n 32, at [91].

Could Heather Heazlewood have applied to the Court to have a director of NZF appointed under s 154 Companies Act 1993?

[139]   Justitiae says that cl 3(g) was not triggered because Heather Heazlewood, as a director of one of the shareholders (Justitiae), could have applied to the Court to have a director appointed to NZF under s 154 of the Companies Act. That section provides:

154     Court may appoint directors

(1)If—

(a)there are no directors of a company, or the number of directors is less than the quorum required for a meeting of the board; and

(b)it is not possible or practicable to appoint directors in accordance with the company’s constitution,—

a shareholder or creditor of the company may apply to the court to appoint 1 or more persons as directors of the company, and the court may make an appointment if it considers that it is in the interests of the company to do so.

(2)An appointment may be made on such terms and conditions as the court thinks fit.

[140]   I accept the submission made by Mr Robinson and Mr Glover that the fact that the shareholders (as opposed to NZF), could theoretically, have taken steps to replace Clayton as a director, is irrelevant to the assessment of whether cl 3(g) was triggered:

(a)The purpose of cl 3(g) is to enable replacement of the Trustee (NZF) with an interim Trustee who is fully capable as soon as there is a legal restraint, so that the Trust is never without a capable Trustee;

(b)The purpose of the clause would be frustrated if NZF could not be replaced so long as there remained a possibility, even if it were a remote possibility, of the legal restraint being lifted;

(c)In this case, as is apparent from the correspondence summarised above, the reality was that the shareholders did not come close to appointing one or more directors by ordinary resolution (so that NZF could file its annual return). They had both forgotten about Resolution 7 (under

which each of the two shareholders could have appointed a director of NZF) and neither of the shareholders took any steps to have the Court appoint a director.

[141]   For the above reasons, I do not consider that the theoretical ability of the shareholders to appoint a director or have one appointed prevents the triggering of   cl 3(g).

Could Justitiae have discharged the powers of the NZF Board pending appointment of a new director?

[142]   Justitiae submits it was always ready, as part of the AGM, to discharge the powers of NZF’s directors until new directors were appointed. In other words, the submission is that NZF was not under “any legal restraint” because its shareholders could act as directors. Justitiae cites three English cases in support of its proposition that the shareholders can exercise the powers of the board until replacement directors are appointed or the board can again act.34

[143]   Mr Robinson and Mr Glover submit it is doubtful whether the principle from those cases has ever been part of New Zealand law and that Justitiae does not cite any New Zealand authority  in  which  the  principle  has  been  endorsed  or  applied.  Mr Robinson says that Fairlight has not been able to locate any such cases.

[144]   Even if principle referred to above had once been part of New Zealand law, it would not have survived the passing of the Companies Act. In Ririnui v Land Corp Farming Ltd,35 O’Regan J expressed doubts (but without deciding) that a related principle regarding unanimous assent to a particular action by a company (the “Duomatic” principle) had survived the enactment of the Companies Act.

[145]   In this case relevant to the present issue, in its 1989 report, Company Law: Reform and Restatement the Law Commission said:36

34 Barron v Potter [1914] 1 Ch 895; Foster v Foster [1916] 1 Ch 532, [1916-17] All ER Report 856; Alexander Ward & Co Ltd v Sam Yang Navigation Co Ltd [1975] 1 WLR 673 [HL], [1975] 2 All ER 424.

44     Re Marshall [1914] 1 Ch 192.

(1)Income derived directly or indirectly from a business carried on by, or for, or for the benefit of a trust, society, or institution of a kind referred to in section CW 41(1)⁴⁵ is exempt income if—

…

(c)no person with some control over the business is able to direct or divert an amount derived from the business to the benefit or advantage of,—

(i)if subparagraph (ii) does not apply, a person other than the trust, society, or institution except for a purpose of the trust, society, or institution:

…

[176]“Control” is defined in s CW 42(5) of the Income Tax Act as follows:

Control over business

(5) For the purposes of subsection (1)(c) and section CW 42B(2)(c) and

(4) for an income year, a person is treated as having some control over the business, and as being able to direct or divert amounts from the business if, in the tax year,—

(a)they are, in any way, whether directly or indirectly, able to determine, or materially influence the determination of,—

(i)the nature or extent of a relevant benefit or advantage; or

(ii)the circumstances in which a relevant benefit or advantage is, or is to be, given or received; and

(b)their ability to determine or influence the benefit or advantage arises because they are—

(i)a settlor or trustee of the trust by which the business is carried on; or

(ii)a shareholder or director of the company by which the business is carried on; or

(iii)a settlor or trustee of a trust that is a shareholder of the company by which the business is carried on; or

(iv)a person associated with a settlor, trustee, shareholder, or director referred to in any of subparagraphs (i) to (iii).

45     Trinity would fall within the definition in s CW 41 of the Income Tax Act 2007.

[177]   I do not consider Mr Gray’s submission can be sustained. First, it makes no difference whether the security holder is a single entity or whether there are two separate entities, Justitiae and Fairlight.   That does not affect the application of        s CW 42(5) of the Income Tax Act, which determines whether a party is exercising control.

[178]   Second, Trustee and Fairlight do not fall within s CW 42(5)(b). They are not a settlor or a trustee of the trust by which the business is carried on; nor a shareholder or director of the company by which the business is carried on; nor a settlor or trustee of a trust that is a shareholder of the company by which the business is carried on; nor a person associated. They are a security holder. They cannot use the security to get more out of the Trust. They can simply use the security for what the security provides for.

[179]   There are therefore no special circumstances that operate to prevent the principle in Gough v Strahl applying to this case.

[180]   The absence of special circumstances also disposes of Justitiae’s argument that Clayton was in breach of his fiduciary duty in entering into the Assignment because he failed to consider the interests of NZF and Justitiae. It was argued that the alleged breach resulted in the risk that Trinity would lose its tax exempt status as a charity. I have not upheld that argument in the context of my consideration of special circumstances. As there is no risk of the loss of tax-exempt status, then there can have been no breach of fiduciary duty by Clayton in this context.

[181]   I therefore conclude that the Assignment of 24 June 2019 is binding on the Trust.

Breaches of trust

[182]   In its submissions, Justitiae alleges a number of other breaches of fiduciary duty against some of the interested parties but without having pleaded those alleged breaches. The only breach of trust alleged in the third amended statement of claim relates to the execution of the Assignment by Clayton. I have addressed that issue. I will nevertheless consider the other breaches alleged. While he did not respond to

Justitiae’s submissions in his written submissions (on the basis that they had not been pleaded) Mr Robinson had the opportunity to, and did, make submissions at the hearing.

Allegation 1: failing to act in good faith

[183]   There are two parts to this allegation. First, Justitiae says that the covenant in the Assignment of 24 June 2019 to keep the contents of the Assignment confidential was a breach of good faith. Justitiae submits that, as a vested beneficiary, it had the right to information to ensure its Trustee acted in accordance with the terms of the Trust Deed and instructions given to it, and could therefore seek direction if it may not be.46

[184]   The second aspect of the alleged failure to act in good faith was said to be a refusal to provide Justitiae, as a vested beneficiary, with trust records. For the same reason, this is said to be a breach of trust. Justitiae submits that these two breaches being indefensible, the Assignment can be declared void as against any Trustee and the other signatories also, as they did not act for valuable consideration and in good faith.47

[185]   First of all in relation to the Assignment, there is the following correspondence most of which I have referred to already but it is necessary to mention it again, albeit briefly, in this context:

(a)On 20 June 2019, Clive emailed Justitiae’s solicitors saying that Fairlight agreed that Gough v Strahl meant that each beneficiary was entitled to request that its share of the Trust Assets be transferred to it with the result that it then became the legal owner of the assets; and that Clayton, after conferring with his lawyer had agreed to effect that transfer by Deed of Assignment;

(b)On 24 June 2019, Clive emailed Justitiae’s solicitors advising that legal title which had been held by Clayton as Trustee had now been assigned

46     Schmidt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 2 AC 709 at [66].

47     Rossiter v Wrigley above n 14.

to Fairlight by an absolute and unconditional assignment made pursuant to Subpart 5 of the PLA and that NZF, acting on instructions from Clayton as Trustee as far as the PPSA registration of the security agreement was concerned, had filed a financing change statement recording that the registered security interest was held by Fairlight and NZF (as a secured property group). He said, again on Clayton’s instructions, NZF stood ready (together with Fairlight) to file a second financing change statement recording that the registered security interest was held by Fairlight and Justitiae (as a secured property group);

(c)Also, on 24 June 2019, shortly after the above email, one of Justitiae’s solicitors visited NZF’s registered office to carry out a s 216 Company Law Act inspection on behalf of Justitiae. She was provided with NZF’s minute book and company registers. These were the same documents that Clive had sent to Justitiae’s solicitors on 31 May 2019 but now additionally included a director’s minute of 21 June 2019 authorising NZF’s execution of the Assignment;

(d)On 28 June 2019, Clive emailed Garry advising him of the Assignment and giving notice that an undivided one-half share as tenant in common in the original Deed and the security agreement had been assigned to Fairlight. The notice stated that in future one-half of the assigned Receivables must be paid or delivered to Fairlight or as it otherwise directed;

(e)Clive’s evidence is that Justitiae’s solicitors never responded to his  24 June 2019 email and did not ask for a copy of the Assignment. He says he assumed the reason why Justitiae was not interested in the Assignment was because it believed that legal ownership of the Trust Assets had already vested in the beneficiaries (as co-owners) and therefore such Deed was otiose; and

(f)On 6 August 2019, Clive emailed Heather Heazlewood (following her appointment as a director of NZF) a list of the correspondence/documents generated/received by him as NZF’s director since his appointment on 29 May 2019. Attached to the email was a copy of the Assignment. He noted the existence of the confidentiality  clause.   The   email   stated   that   obviously   Heather Heazlewood, as a director of NZF, would be entitled to see the Assignment. Clive said he had discussed with Fairlight whether she may disclose it to other persons and Fairlight agreed that she could disclose it to Garry (as her advisor).

[186]   In summary, what the above correspondence discloses is that Justitiae was told about the Assignment but did not ask for a copy of it or request any further information about it. Ultimately, even though it did not ask for a copy, it was provided with one.

[187]   With that background, can it be said that covenanting to keep the Assignment confidential was a breach of good faith?

[188]   Clive denies Justitiae’s claim that the confidentiality clause was included for the purpose of denying Justitiae knowledge of the terms of the Assignment. He says it is a clause he customarily includes in a range of commercial documents. He says, for example, he had previously included substantially the same confidentiality clause in the draft documents he had sent to Justitiae as part of the settlement offers which Fairlight/DHIL had made on 6 November 2018 and 12 May 2019. It was Clive’s belief and intention that the Assignment related solely to Fairlight’s share of the Trust Assets and that as far as those assets were concerned Fairlight had simply ended up with legal ownership of that which it already owned beneficially.

[189]   The Court will presume that a trustee has acted bona fide and the onus of proving that the trustee acted in bad faith lies on those impeaching the actions of the

trustee.48 The Court will not intervene if it merely disagrees with a decision reached by a trustee and would have exercised the power differently.49

[190]In Fruit Shippers Ltd v Petrie,50 Associate Judge Bell said:

[101] … In Armitage v Nurse,  Millett LJ held that a trustee’s irreducible core obligation was to to perform the trusts honestly and in good faith for the benefit of the beneficiaries. In Karger v Paul, McGarvie J said that acting honestly is the same as acting in good faith. Honest blundering and carelessness do not amount to an absence of good faith. An act falling short of good faith is done in bad faith. …

(citations omitted)

[191]   In this case, Clive’s evidence (acknowledging that this comes from Clive rather than Clayton) contains a reason for the inclusion of the confidentiality clause. The fact of the Assignment had been proactively disclosed to Justitiae.

[192]   I do not consider Clayton was under an obligation to proactively disclose the Assignment itself. It is not “basic trust information” which trustees must provide to beneficiaries under the Trusts Act 2019;51 nor did the Assignment in any way relate to Justitiae’s beneficial interest in the Trust Assets.52 And in any event the Assignment was in fact disclosed to Justitiae. The inclusion of the covenant was not a breach of the Trustee’s duty to Justitiae.

[193]   The second part of the allegation relates to the allegation of a failure to provide Justitiae with Trust documents. In summary, the background facts are that:

(a)Garry was a director of NZF until January 2015;

(b)When Clayton resigned as director of NZF on 13 May 2018, his resignation letter of that date refers to Heather Heazlewood’s letter of

48 Greg Kelly and Chris Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at 496 citing Edmonds v Millett (1855) 20 Beav 54; Re Brittlebank, Coates v Brittlebank (1881) 30 WR 99.

49     Lynton Tucker, Nicholas Le Poidevin & James Brightwell Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2015) at 29-036.

50     Fruit Shippers Ltd v Petrie [2020] NZHC 749.

51     Section 51(3).

52     Re Tillott, Lee v Wilson [1892] 1 Ch 86 at 89.

1 May 2018 and her request that he update the company’s register so that she could contain and complete her consent form. Clayton says this was the first act he had ever been asked to do on behalf of NZF since he became the sole director;

(c)Following his appointment as director of NZF on 29 May 2019, on   30 May, Clive sent Justitiae’s solicitor a copy of NZF’s minute book and company register. He noted that this comprised not only the documents referred to in s 216 of the Companies Act but also all minutes of meetings and resolutions of NZF’s directors. (Clive also notes in his evidence that over the years Garry had on countless occasions asked him to provide him with copies of documents in relation to the Trust and Clive had invariably done so);

(d)As noted above, in his 6 August 2019 email to Heather Heazlewood, Clive provided her with a list of documents received or sent during his directorship; and

(e)There is no suggestion in the evidence that there are trust records that would not be known to Justitiae.

[194]   Justitiae has not established this alleged breach (and in any event the allegations appear to relate to a time after the Assignment on 24 June 2019).

Allegation 2: Clayton’s failure to follow Justitiae’s directions

[195]   Justitiae submits that even if Clayton became Trustee in his personal capacity (which Justitiae denies) it was a breach of trust (and an excess of power) to execute the Assignment. He had been asked in a letter of 1 May 2019 by the solicitors for Justitiae to confirm he would not enter into any transaction with a third party in his alleged capacity as Trustee and would not do anything in his alleged capacity as Trustee pending the outcome of an application to the Court, by Clayton, seeking confirmation whether or not the Trust had already been perfected and if it had not whether he had been validly appointed. Justitiae submits Clayton was obliged to do

what he had been told by Justitiae and it did not matter if he received contrary instructions from the other beneficiary.

[196]However cl 3(b) of the Trust Deed provides that:

The Trustee shall act at the written direction of each beneficiary as to their beneficial interest in half the undivided share of the assets.

[197]   Justitiae therefore could not give Clayton any directions as to what he did in relation to Fairlight’s beneficial interest; and on the other hand Clayton was required to comply with Fairlight’s directions in relation to its beneficial interest.

[198]   But in any event, the principles in Gough v Strahl apply. In this case, and at the time, both beneficiaries had agreed that legal title to the Trust’s Assets had either already vested or could be transferred on demand under Gough v Strahl.

[199]Justitiae has not established this alleged breach.

Allegation 3: altering and jeopardising Trust property

[200]   Justitiae submits that the execution of the Assignment without directions resulted in other breaches of trust. Mr Gray submits that giving effect to the Assignment altered the character of trust property, the security agreement no longer being solely in NZF’s name. Consequently, Justitiae was no longer in control of the security agreement (it could no longer veto its exercise). That placed Justitiae’s legal and economic interests in jeopardy, contrary to a trustee’s duty to protect them. Further, if effective, the Assignment left the Trust without the two beneficiaries which cl 3(b) required to wind up the trust.

[201]   First, the ability to veto was not trust property. Second, Justitiae’s position at the time was that the Trust had already vested and therefore did not need to be wound up. If that was not the case and the Trust did need to be wound up, cl 3 can be interpreted so that either the beneficiaries or remaining beneficiary, if there was only one, can wind it up.53

53     Property Law Act, s 23(2).

[202]   I have already addressed Justitiae’s submission that Fairlight took powers from NZF and that those powers remain impressed with the trust in favour of beneficiaries. I have held that that was not the case. The Assignment transferred trust property not the Trustees’ powers. Powers attached to the property are not trust powers, but are powers under the security agreement which are Trust Assets.

[203]   After Assignment, the powers under the security agreement were held by Fairlight and NZF as tenants in common. Fairlight could not do anything which would prevent NZF from possessing and using its rights.

[204]   Any alteration of Trust property is simply the outcome of the application of the principles in Gough v Strahl. I have already held that there are no relevant special circumstances.

[205]Justitiae has not established this alleged breach.

Allegation 4: Clayton declaring himself as the Trustee

[206]   Justitiae submits the Trust Deed did not provide for Clayton to be the Trustee and it was therefore a breach of trust for him to assert he was.

[207]I have already found against Justitiae on this issue.54

Allegation 5: not seeking directions before acting

[208]   Justitiae submits that quite apart from a bare trustee having to seek directions if told to, where there is genuine dispute as to compliance with the terms of the Trust Deed, or legal action is in contemplation, any trustee must seek directions. Justitiae relies on Wong v Burt,55 where the Court said:

[55]     Mr Scott argued that the trustees acted on the advice of their solicitors that the proposed payment was within the power conferred on them, and that

54    Justitiae does not plead that Clayton was a Trustee if cl 3(g) was not triggered.  Earlier versions   of the statement of claim pleaded that Clayton was a Trustee de son tort (Proprietors of Wakatū v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [449]. That pleading does not appear in the third amended statement of claim.

55 Wong v Burt [2005] 1 NZLR 91 (CA).

the trustees’ conduct could not be characterised as “dishonest”. But acting on incorrect advice cannot of itself provide trustees with a shield. …

…

[57] In our view, this is not a case in which the trustees can claim the protection of s73 of the Trustee Act 1956. The expression “honestly and reasonably” is conjunctive. It was not merely unreasonable - it was downright foolish - to proceed to implement a scheme of this kind knowing that it could come under critical legal scrutiny, as being an allegedly unlawful device. There may well be cases in which trustees are entitled to put to one side a quite untenable proposition. But with all due respect, in this case, patently, the appropriate course to have followed would have been to obtain directions under s66 of the Trustee Act 1956. This case would never have come about had that course been followed.

[209]   I do not consider Wong v Burt stands for the proposition that Justitiae states above. What that case makes clear is whether a trustee has sought directions will be relevant to whether or not they can claim protection under s 69 of the Act or be granted relief under s 73 of the Act

[210]   I accept Mr Robinson’s submission that it was reasonable for Clayton not to seek directions in relation to the Assignment given that both beneficiaries had agreed that legal title to the Trust Assets had either vested or could be transferred on demand under Gough v Strahl. Further, the Assignment only related to Fairlight’s share of the trust property and Fairlight had clearly consented to the execution of the Deed.

[211]Justitiae has not established this alleged breach.

Breaches of trust: other served defendants

[212]   Justitiae notes that unlike Clayton and NZF, the other defendants do not admit to being a trustee. However, it submits that if Clayton or NZF are in breach of trust,  s 68 of the Act allows a Court, if the circumstances require, to make any order against any defendant who has not acted in good faith and for valuable consideration.

[213]   As far as NZF is concerned, Justitiae submits it acted in breach when it was under the de facto control of the Bradbury interests who each covenanted not to let Justitiae, as NZF’s shareholder and a trust beneficiary, know what they were doing. I have already found in relation to Clayton that the inclusion of the confidentiality clause in the Assignment was not a breach of trust. The same therefore applies to NZF.

[214]   There being no breaches by Clayton and NZF, it is not necessary to consider the position of the other interested parties: Fairlight, Clive, Heather Bradbury and DHIL. No breaches against them can be established. I note in particular in relation to DHIL that Justitiae makes no submission regarding its conduct and indeed submits that it may not be necessary to seek remedies against DHIL.

Result

[215]The result in summary is that:

(a)Justitiae’s claims do not fall under s 68 of the Trustee Act 1956. In case I am wrong, I considered a further submission in relation to the onus of proof and the claims on their merits;

(b)Justitiae bears the onus of proof on its claims (the onus of proof is not reversed as Justitiae submits); and

(c)The two causes of action fail on the merits.

Costs

[216]   The defendant/interested parties as the successful parties are prima facie entitled to costs. I did not hear submissions on costs and therefore reserve costs. In the unlikely event that the parties are able to agree costs, a joint memorandum should be filed within 20 working days of the date of this judgment.

[217]   In the absence of agreement, the defendant/interested parties are to file their memoranda in support of a claim for costs within five working days of the date for the joint memorandum. Justitiae is to file and serve its memorandum within a further five working days. Costs memoranda should not exceed five pages (excluding any attachments). I will determine costs on the papers.

Gordon J

ANNEXURE

MUIR INTERESTS  BRADBURY INTERESTS

Justitiae Trustee Company Ltd

De Havilland

Investments Ltd

50 %

50 %

NZF Nominees Ltd

Confirming deed

Trinity

Security agreement

R&A Trust

Justitiae Trustee Company Ltd

Beneficiary

Beneficiary

Fairlight

Forestry Ltd