Justitiae Trustee Company Limited v NZF Nominees Limited

[2020] NZHC 1249

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-001954

[2020] NZHC 1249

UNDER

Part 18 of the High Court Rules

IN THE MATTER OF

Section 68 Trustee Act 1956

R&A Trust, a trust declared by Deed Poll by R&A Nominees (Anguilla) Incorporated
14 November 2008

BETWEEN

JUSTITIAE TRUSTEE COMPANY LIMITED

Plaintiff

AND

NZF NOMINEES LIMITED

Defendant

Hearing:

5 May 2020

Counsel:

R B Hucker and M W Swan for Plaintiff S C D A Gollin for Heather Bradbury and De Havilland Investments Ltd

K T Glover for Clayton Bradbury
M V Robinson for Fairlight Forestry Ltd and Clive Bradbury

Judgment:

9 June 2020

JUDGMENT OF EDWARDS J

This judgment was delivered by me on 9 June 2020 at 10.00 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Counsel:     K T Glover, Auckland

M V Robinson, Auckland

Solicitors:    Hucker and Associates, Auckland Minter Ellison Rudd Watts, Auckland

JUSTITIAE TRUSTEE COMPANY LTD v NZF NOMINEES LTD [2020] NZHC 1249 [9 June 2020]

[1]    The applicants, Heather Bradbury, Clayton Bradbury and De Havilland Investments Ltd (DHI), have filed appearances reserving rights in this proceeding. They now apply for an order granting them leave to file and serve a statement of defence and other documents necessary to prosecute that defence.

[2]    The application is brought under r 5.51(3) of the High Court Rules 2016. That rule provides that a defendant who has filed an appearance may “at any time, by leave of the Court, file and serve a statement of defence and any other document within the time and upon any terms and conditions prescribed by the Court when granting leave”.

[3]    The plaintiff, Justitiae, opposes the application on the grounds that the applicants made an irrevocable choice to file a notice of appearance, and that they do not have a substantial defence.

Factual background

[4]    The background to the claim is helpfully summarised by Gordon J in a judgment released earlier this year.1 The following draws heavily on that summary.

[5]    The proceeding arises  out of a fall-out between interests  associated  with  the Muir family, including Justitiae, on the one hand, and interests associated with the Bradbury family on the other. The applicants fall into the Bradbury camp.

[6]    Specifically, the proceeding concerns the R&A Trust which was formed in 2008. Justitiae and DHI were equal beneficiaries of that trust. DHI was replaced by Fairlight Forestry Ltd (FFL), another entity associated with Clive Bradbury.

[7]    The defendant to this proceeding, NZF Nominees Ltd (NZF), is the trustee of the R&A Trust. NZF is not taking any active steps in the proceeding. Justitiae and DHI are equal shareholders in NZF.

[8]    Justitiae’s key claim is for breach of trust. It says that NZF, Clive Bradbury, and some of the applicants refused to consent to, and register the appointment of,

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

Justitiae’s nominated director to NZF. Justitiae says this is contrary to a shareholder’s resolution allowing each beneficiary to appoint a director.

[9]    In addition, Justitiae says that NZF, Clayton Bradbury, Heather Bradbury and FFL acted in breach of trust either because they executed or caused to be executed an assignment of debt despite being instructed not to do so. The assignment relates to debts owed by third parties collectively referred to as Trinity.

[10]   Justitiae commenced proceedings under part 18 of the High Court Rules 2016 on 17 September 2019. In accordance with directions made by Lang J, the proceedings were served on the applicants, and FFL and Clive Bradbury. The claims against the applicants, FFL and Clive Bradbury, are interrelated and overlapping.

[11]   When the proceeding was called in the duty Judge list on 11 November 2019, Walker J directed as follows:

All parties directed to  be  served  by  the  interim  order  of  Lang J  dated  18 September 2019 are to file a statement of defence or take any other step available to them under Part 18 of the High Court Rules by 5 December 2019.

[12]   On 5 December 2019, FFL and Clive Bradbury filed and served a statement of defence and counterclaim. Each of the applicants filed a notice of appearance reserving rights pursuant to r 5.51 of the High Court Rules.

[13]   By memorandum dated 20 December 2019, Justitiae sought the allocation of a formal proof hearing in regard to the claims against the applicants. Justitiae relied on the terms of the appearances filed, all of which indicated that there was no opposition to Justitiae’s claims.

[14]   The applicants filed these applications for leave to file a statement of defence in response. The applications are supported by affidavits annexing the statements of defence to be filed. These statements of defence mirror those already filed by FFL and Clive Bradbury. In essence, the grounds of defence are the same.

[15]   A formal proof hearing has not been set down pending determination of these applications.

Should leave be granted?

[16]    Rule 5.51 of the High Court Rules governs the filing of an appearance reserving rights. That rule provides:

5.51Appearance reserving rights

(1)This rule applies to a defendant who does not oppose the plaintiff's claim but who wishes to reserve the defendant's rights—

(a)in the event that any other person may become a party to the proceeding; or

(b)in the event that any person, already a party, may take some steps in the proceeding adverse to the defendant's interests.

(2)The defendant—

(a)may, without filing a statement of defence, file and serve an appearance reserving those rights; and

(b)is subsequently entitled to be served with all documents relevant to the rights so reserved that are filed in the proceeding by a person who is or becomes a party.

(3)A defendant who has filed an appearance under subclause (2) may at any time, by leave of the court, file and serve a statement of defence and any other document within the time and upon any terms and conditions prescribed by the court when granting leave.

[17]   Although the applicants are not named as defendants in the proceeding, the rule nevertheless applies to them because “defendant” is defined to include a person served or intended to be served with a proceeding.2

[18]   Counsel for Justitiae places emphasis on the words in r 5.51(1) that an appearance may be filed by a defendant “who does not oppose the plaintiff’s claim”. He submits that this amounts to an admission of the claim and it is on that basis that a formal proof hearing was sought.

2      High Court Rules 2016, r 1.3(1).

[19]   I respectfully disagree. There is a difference between “not opposing” a claim and “admitting” it. The authors of McGechan on Procedure opine that “the filing of an appearance amounts to no more than the advice of an election to abide the decision of the Court on the principal claim. In itself, such an appearance does not assist the plaintiff on matters of proof”.3 I endorse that view.

[20]   Underscoring that view is the fact that the appearance filed under r 5.51(3) is an appearance “reserving rights”. Such an appearance allows a party to keep a watching brief on a proceeding without actively participating in it, and to become involved (with leave) should steps be taken that are adverse to the interests of the party filing the appearance. A reservation of rights to become involved in the proceeding at a later stage is inconsistent with a party admitting a claim.

[21]   Next, counsel for Justitiae submits that the applicants’ decision to file an appearance, rather than a statement of defence, was an irrevocable one. Again, I do not agree. There is nothing in Walker J’s direction, nor the Rules, which binds a defendant to an election to file an appearance as opposed to a statement of defence. Such a construction would run counter to r 5.51(3) which allows a defendant to serve a statement of defence “at any time” by leave of the Court. That sub-rule specifically contemplates a change of position by a defendant and is at odds with the suggestion of an irrevocable election.

[22]   The direction made by Walker J did not override this rule as counsel submits. Rather, the Judge’s direction is to be read alongside, and together with, the High Court Rules. Therefore, it cannot be said that any of the applicants failed to comply with the directions of Walker J, or took steps that constituted a breach of her orders.

[23]   Counsel also submits that there must be a proper basis for seeking leave, and that a party cannot simply say that its election was mistaken, or that it misunderstood the law at the time it was made. This submission is premised on an election to file an appearance being irrevocable. For reasons already canvassed, that submission holds no weight.

3      HR5.51.03 and HR5.50.02.

[24]   In addition, I am satisfied that the applications for leave are properly made in this case. The applicants were not filing an appearance as a way of extending the time limit for filing a statement of defence. Rather, they elected to fall in behind the defence put forward by Clive Bradbury and FFL, and in doing so, minimise costs and unnecessary duplication.

[25]   Circumstances changed when Justitiae sought a formal proof hearing in respect of the claims made against the applicants. This was a step taken in the proceeding that was adverse to the applicants’ interests. An application for leave to file a statement of defence was properly made in those circumstances.

[26]   There is nothing to substantiate Justitiae’s claim that by filing the appearances, and then subsequently seeking leave to file statements of defence, the applicants were attempting to delay the hearing of Justitiae’s claims. Proceedings were only issued last year and are still at an early stage. Justitiae requested a formal proof hearing by memorandum dated 20 December 2019, shortly before the Court closed for the summer break. The applications for leave were filed and served in January 2020. I am satisfied the applicants acted promptly and properly in bringing their applications.

[27]   The substantial part of Justitiae’s opposition to the applications concerns the merits of the proposed defences. Justitiae’s submissions may be summarised as follows:

(a)The applicants must prove that they have a substantial defence to the claim for leave to file a statement of defence to be granted.

(b)There is no substantial defence to the claim because the applicants are in breach of the terms of the R&A Trust.

(c)The Court can summarily determine the question of breach of trust at this stage and make findings on the merits of the claim.

(d)This Court’s jurisdiction, either inherent or under  s 68  of  the  Trustee Act 1956, to supervise the administration of trusts can and must

be exercised at this juncture to ensure trust property is restored to the rightful trustee.

[28]   There are several difficulties with this line of argument. I address each of them in turn.

[29]   First, I do not accept that the applicants must prove that they have a substantial defence to the claim for leave to be granted in this case. The application is made under r 5.51(3). That rule does not contain any stated grounds for the exercise of the discretion. Justitiae seeks to read into the rule a threshold that is not expressed on its face.

[30]   Whether there is a substantial ground of defence is a consideration in determining applications made under r 15.9(3). That rule provides that a statement of defence may not be filed after a proceeding is listed for a formal proof hearing without the leave of the Judge “granted on the ground that there will or may be a miscarriage of justice if judgment by default is entered”. This Court has held that the exercise of the discretion under this rule involves the following considerations:4

(a)whether the defendant has a substantial ground of defence;

(b)whether the delay is reasonably explained; and

(c)whether the plaintiff will suffer irreparable injury if leave to defend is belatedly granted.

[31]   Rule 15.9(3) does not apply in this case as the proceeding has not yet been listed for a formal proof hearing. That rule imports a much higher threshold for leave than r 5.51(3), which is unfettered. I accept that the merits of the proposed defence may be relevant to the grant of leave under r 5.51(3). At the very least, the Court would need to be satisfied that the defence to be put forward is not vexatious or an abuse of process. But that is different to establishing whether there is a substantial

4      Neumayer v Kapiti District Council [2014] NZHC 417, [2015] NZAR 1185 citing Shoye Venture Ltd v Wilson [2013] NZHC 2339 and Russell v Cox [1983] NZLR 654 (CA) at 659.

ground of defence, and I consider the Court should be cautious in grafting the principles applying to r 15.9(3) on to the exercise of the discretion under r 5.51(3).

[32]   In any event, it is not necessary for me to finally determine the point, because I am satisfied that in this case there are substantial grounds of defence. They are set out in draft statements of defence annexed to the affidavits filed by the applicants. It is unnecessary, and undesirable, to canvass the merits of those proposed defences in any detail except to note that there is nothing to suggest that they are advanced in anything other than good faith, and they are matters that should be aired at trial.

[33]   That brings me to the second major difficulty with Justitiae’s approach. Justitiae’s submissions go well beyond a broad level assessment of the merits of the defence for the purposes of the leave application. Rather, Justitiae seeks to transform the leave application hearing into a ruling on the merits of the claim. More than that, Justitiae seeks to have the substantive proceeding summarily determined without affording the opportunity to any of the applicants to put forward their defence.

[34]   More concerning again is the fact that the tactic appears to be to secure judgment against the applicants which, because the grounds of defence are the same, may then be used to secure judgment against Clive Bradbury and FFL. In other words, the leave application is being used to pre-empt any decision on the substantive proceeding, without Clive Bradbury and FFL being heard. This approach offends against the cornerstone principle of natural justice, and Justitiae’s tactics in opposing the application for leave for that purpose verge on an abuse of process.

[35]   To the extent that the other considerations applying to r 15.9(3) guide the exercise of the discretion under r 5.51(3), then they too weigh in favour of the grant of leave. As I have already observed, any “delay” in seeking leave to file a statement of defence is reasonably explained. This is not a case where the defendants took no steps at all in the proceeding, only to belatedly file a statement of defence on the eve of a formal proof hearing. Appearances reserving rights were filed by the applicants, and the application for leave was promptly and properly made once the application for a formal proof hearing was made.

[36]   In addition, Justitiae will not suffer any prejudice if leave is granted. The proceedings are at an early stage. The claims are being defended by Clive Bradbury and FFL and so a trial will be necessary in any event. The defences the applicants seek to put forward are substantially the same as those that will be presented at trial. Justitiae will not be disadvantaged if leave is granted and the applicants are entitled to defend the claims against them.

[37]   The lack of any prejudice to Justitiae if leave is granted stands in stark contrast to the possibility of a miscarriage of justice if the applicants are denied an opportunity to defend the claim. This consideration is determinative. I am satisfied that leave to file statements of defence and other documents must be granted.

Result

[38]The applications are granted.

[39]   The applicants are entitled to costs.  I  will  entertain  an  application  by Clive Bradbury and FFL on the basis that their rights were potentially affected by the application necessitating their participation at the hearing. The parties are urged to confer with a view to reaching agreement on quantum. If quantum cannot be agreed, memoranda in support of a claim of costs may be filed within 15 working days of this judgment. Memoranda in opposition shall be filed 10 working days thereafter. Memoranda are to be no longer than five pages in length.

Edwards J