Justitiae Trustee Company Limited v NZF Nominees Limited
[2020] NZHC 471
•11 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1954
[2020] NZHC 471
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: 20 February 2020 Appearances:
R B Hucker and M W Swan for the Plaintiff
No appearance by or on behalf of the Defendant
J Storey for Trinity Foundation (Services No. 2) Ltd and Trinity Foundation (Services No. 3) Ltd (Interested Parties)
M V Robinson for Fairlight Forestry Ltd and Clive Bradbury (Interested Parties)Judgment:
11 March 2020
JUDGMENT OF GORDON J
This judgment was delivered by me
on 11 March 2020 at 3.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Hucker & Associates, Auckland
Christopher Taylor Lawyers, Auckland Harrington Law Limited, Auckland
Counsel: J Storey, Auckland
M V Robinson, Auckland
JUSTITIAE TRUSTEE CO LTD v NZF NOMINEES LTD [2020] NZHC 471 [11 March 2020]
Application
[1] The plaintiff, Justitiae Trustee Company Ltd, (Justitiae) seeks leave to discontinue proceedings against Trinity Foundation (Services No 2) Ltd and Trinity Foundation (Services No 3) Ltd (together Trinity). Both were parties directed to be served with the proceeding.
[2] Fairlight Forestry Ltd (FFL) and Clive Bradbury, also parties directed to be served in the proceeding, oppose the grant of leave. Trinity supports the application.
[3] In the substantive proceeding Justitiae seeks directions under s 68 of the Trustee Act 1956, the inherent equitable jurisdiction of the Court to supervise trusts, and Part 18 of the High Court Rules 2016.
[4] Justitiae applies (by memorandum rather than by way of a formal application) under r 15.20 of the High Court Rules. Leave is required on two counts: there is a multiplicity of parties and an interim injunction has been granted.
Background
[5] The R&A Trust (the Trust) was declared on 14 November 2008 by R&A Nominees (Anguilla) Inc (Original Trustee). The Original Trustee was subsequently replaced by the defendant, NZF Nominees Ltd (NZF).
[6] NZF is owned in equal shares by Justitiae and De Havilland Investments Ltd (DHI). Justitiae is one of two beneficiaries of the Trust. Justitiae is a company associated with the Muir family and Garry Muir. Initially the other beneficiary of the Trust was DHI but Fairlight Forestry Limited (FFL) was subsequently substituted as the other beneficiary of the Trust. DHI and FFL are both associated with the Bradbury family.
[7] Each of the beneficiaries is entitled, under the terms of the trust deed, to appoint a director of NZF. Initially Clive Bradbury and Dr Muir were directors. Mr Bradbury is currently a director. The other director is currently Heather Heazlewood.
[8] Mr Bradbury, in his affidavit sworn in support of the opposition to the application to discontinue, says that the initial purpose of the Trust was to enter into a sale and purchase agreement dated 5 January 2009 under which R&A Nominees purchased certain debts and supporting securities from CSI Insurance Group (BVI) Ltd. Those debts were owed by Trinity. The supporting securities had been granted by Trinity.
[9] NZF and Trinity entered into a deed on 23 July 2009 confirming assignment of debt. That 2009 deed was subsequently amended by a Modification Deed dated 27 May 2014. In accordance with the terms of the Modification Deed, NZF (as trustee of the Trust) and Trinity entered into a Security Agreement dated 27 May 2014.
Causes of action
[10] The families have now fallen out. The Muir family, through Justitiae, seeks declarations on matters relating to the administration of the Trust, the capacity of NZF to exercise certain powers and actions taken by NZF in purporting to exercise powers under the Trust deed. In broad terms the proceedings are concerned with the rights, powers and entitlements of Justitiae and the Bradbury interests in trust property in the Trust. One of the issues is whether the use of present or future powers must be exercised jointly or may be exercised separately.
[11] The declarations sought by Justitiae, some in the alternative, include as to movements in the directors of NZF, the status of NZF, breaches of directors’ duties and breaches of fiduciary duties, division of the Trust’s assets equally between the beneficiaries and the status of the security given by Trinity. (As to this latter declaration I will come to a concession made by Mr Hucker in the course of his oral submissions).
Interlocutory matters
[12] On 17 September 2019, Justitiae applied without notice for directions as to service1 and for interim orders.
1 As it was required to do under r 18.4(1)(b) of the High Court Rules.
[13]One of the grounds was:
(f)There are serious issues to be tried as to whether, and to what extent, the security granted to the defendant [by Trinity] is enforceable and whether it is able to be enforced by one of the two named beneficiaries of the R&A Trust severally or whether the exercise of such power is required to be exercised jointly.
[14] On 18 September, Lang J made orders as sought directing that the following parties be served: NZF; Trinity Foundation (Services No 2) Ltd; Trinity Foundation (Services No 3) Ltd; FFL; DHI; Clive Richard Bradbury; Clayton Maurice Bradbury and Heather Anja Bradbury.
[15] In its application, Justitiae also sought injunctive relief. This was on the grounds, as set out in the application, that in claiming the right to enforce the security by way of purported assignment, although not a party to it, FFL had issued a Notice of Default to Trinity threatening to appoint a receiver to its assets and exercise other unspecified self-help remedies. Justitiae’s position was that the exercise of any remedies under the security requires its consent which it had not given and had no intention of giving in the future.
[16] Lang J made a further order for an interim injunction restraining NZF from acting in any of the the following ways:
(a)Dealing with Justitiae’s severable 50 per cent share in certain property identified in the statement of claim without the prior written consent of Justitiae or DHI;
(b)Exercising any power in relation to the security granted by Trinity to NZF;
(c)Taking any steps in relation to the default notice issued by FFL to Trinity on 16 August 2019 and requiring compliance by 20 September 2019;
(d)Seeking to amend, enforce or exercise any rights or powers under the security granted by Trinity and/or to act in breach of the Trust Deed.
Discontinuance under r 15.20
Submissions of Justitiae in support of discontinuance
[17]On behalf of Justitiae, Mr Hucker submits leave should be granted because:
(a)The proceedings are focused on the rights and entitlements of Justitiae and the Bradbury family interests in the Trust property and the exercise of powers under the Trust deed;
(b)It does not seek to amend any agreement Trinity entered into;
(c)Trinity should not be bound by the future interpretation of documents where the issue is the exercise of powers by NZF;
(d)Trinity is not a beneficiary of the Trust and cannot exercise powers under the Trust deed.
(e)The nature of the supervisory jurisdiction of the Court makes it an unsuitable procedure to pursue claims against third parties (in this case Trinity) who are strangers to the administration of the trust being supervised.
[18] Mr Hucker acknowledges that Justitiae could make small amendments to its pleadings to ensure that directions are only sought (can only be sought) in relation to those who are not strangers to the trust. He acknowledges that Justitiae could still do that if ordered to.2 In that context Mr Hucker said that two Declarations sought in the relief, which follow [158] of the statement of claim, could be deleted. They are:
(a)Declarations that:
(i)Recourse to the Security is only possible if Trinity owes money or money’s worth to the Defendants, subject always to Trinity
2 Turners & Growers Ltd v Wetpac Merchant Finance Ltd [1998] 2 NZLR 365 at 370.
being able to prove the Security is otherwise invalid and/or enforceable;
(ii)Trinity owes no money or money’s worth to the defendant;
[19] Justitiae also submits that the Trinity companies were “required to be joined to the proceeding as a result of the Bradbury interests threatening to appoint a receiver and it not then being known if Trinity had done or omitted to do any relevant act to that threat.” Mr Hucker noted that the notice of default has now been withdrawn so the threat had passed.
[20] As to the first part of ground (f) in the 17 September 2019 application for directions as to service set out in [12] above, while that ground was stated at the time, Justitiae does not seek any orders or declarations against Trinity as a stranger to the administration of the trust. Mr Hucker acknowledged that the two declarations referred to in [18] above could consequently be deleted from the statement of claim.
Submissions of Mr Bradbury and FFL in opposition to discontinuance
[21] Mr Robinson, who appears for Mr Bradbury and FFL, submits leave should be refused because:
(a)The rights and obligations of Trinity are affected by the issues raised in the statement of claim, including the 2009 transaction and the security granted in 2014;
(b)The outcome of the proceedings in relation to those rights and obligations would be binding on Trinity;
(c)Remedies may be available to either Justitiae or FFL against Trinity for breach of its obligations to them;
(d)FFL’s counter-claim directly addresses the enforceability of the security granted by Trinity.
[22] Mr Robinson observes it was Justitiae who sought directions for Trinity to be served because it was a party with an interest in the Trust’s property. Resolution of the dispute requires Trinity to remain a defendant to achieve finality and ensure the proceedings are efficiently conducted. He submits this is a relevant consideration in determining whether leave should be granted and points to r 4.56 which empowers a judge to join parties to a proceeding where their presence is necessary to adjudicate on and settle all matters arising.
Discussion
[23] The point of contention between the two parties goes to the substance of the proceedings. Mr Hucker submits the proceedings are concerned only with the rights and obligations of the individuals and entities associated with the Trust. He submits that the contractual relationships with Trinity are not a feature of this dispute and to allow these issues into the proceedings would mean that they are no longer wholly within the equitable jurisdiction of the Court. I have my doubts that the proceeding is wholly with the equitable jurisdiction of the Court. For example, there are allegations of breaches of the Companies Act 1993. Putting that to one side, however, and focusing instead on the issues in dispute between the parties, the matters raised in the statement of claim are primarily concerned with the scope and exercise of powers conferred by the Trust deed and the validity of decisions made by NZF.
[24] The proceedings, so far as they concern Trinity, are about the exercise of powers by NZF under the Trust deed and the agreements with Trinity. They are concerned with NZF’s rights under the agreements and the manner in which those rights can be exercised. Trinity has no role or interest in these issues. Mr Hucker submits, as I have already noted, that now the default notice against Trinity has been withdrawn, the proceedings are solely about the relationships between the entities connected with the Trust and their rights, powers and entitlements under the Trust deed. He further submits that matters in the statement of claim outside this, and which refer to Trinity, are for context and do not go to the relief claimed.
[25] This is perhaps most clearly illustrated by Mr Robinson’s submission during the hearing on Mr Hucker’s diagram of the structure and relationships of the entities.
Mr Robinson submits Mr Hucker’s diagram should be amended by adding Trinity to the picture and by way of two lines pointing to NZF. One line represents the confirming deed and the other represents the Security Agreement. A copy with that amendment (and removing some of the details of Mr Hucker’s diagram) is attached to this judgment.
[26] However, Mr Robinson’s submission only supports Mr Hucker’s point. All of the relationships identified in the unmodified diagram are equitable in nature. They are about the relationships between beneficiaries and a trustee and the obligations of a trustee to beneficiaries. The proceeding is about the internal activities and operation of this fiduciary relationship.
[27] This also goes to Mr Robinson’s repeated submission that the enforceability of the security and how it can be enforced is an issue which affects Trinity. It cannot and it does not. That is a matter which concerns only the Trust and those interested in it. As I have noted, Trinity has no interest in the Trust. Adding Trinity to the mix alters the nature of the proceeding. The relationship between NZF and Trinity is a contractual one. It is the only contractual relationship in the diagram. This relationship does not, in my view, go to the heart of the dispute.
[28] Mr Robinson submits that even if Justitiae’s statement of claim does not include relief relative to Trinity, FFL and Mr Clive Bradbury have filed a counter- claim which puts the question of the enforceability of the security “squarely in issue.” Mr Hucker responds that Justitiae has applied to strike out the counter-claim by Mr Clive Bradbury and FFL on multiple grounds, including that Mr Bradbury has no standing to bring it.
[29] Mr Robinson submits it would “be unjust” to grant leave for the plaintiff to discontinue against Trinity until the counter-claim is finally determined. He does not, however, specify the nature of the injustice his clients would suffer. I comment on this latter point below.
[30] The application to strike out the counterclaim is not before me. It is the subject of a separate hearing. I confine my remarks to repeating Justitiae’s position that it will
not pursue the declarations referred to in [18] above. It will be for another Court to determine if that deletion removes the springboard for the counterclaim as well as all other matters relevant to the strike out application.
[31] Mr Robinson further submits a defendant in Part 18 proceedings can simply file an appearance reserving rights under r 5.51. Trinity does not have to actively participate in the proceedings, so can effectively avoid the cost, but still remain able to enter the fray to defend its interests if necessary.
[32] However, I do not consider this is the correct approach based on the authorities. In situations where the right to discontinue is constrained, the focus is whether discontinuance is an abuse of process or if some injustice will arise. In Jack v Carver, Whata J stated:3
Firstly, the discretion on an application to discontinue is not unfettered. A plaintiff has a prima facie right to end proceedings it no longer wishes to pursue. After all, it is the plaintiff’s claim that is before the Court. If the plaintiff does not wish to pursue it, there is no dispute for the Court to adjudicate on, subject to any claims that the defendant may have properly pleaded and put before the Court. Even then, the plaintiff must be entitled to discontinue its part of the proceedings, subject, of course, to resolution of any issues as to costs or abuse of process in the discontinuance.
[33] Robertson J adopted a similar approach in Clemance v Cleary in finding that refusing leave to discontinue “will only be where there is clearly established an abuse of the process of the Court.”4 Lastly, in Perpetual Trust Ltd v Mainzeal Property and Construction Ltd, Associate Judge Doogue stated:5
The starting point is that a party has a right to discontinue. The party will only be constrained in exercising that right where it is necessary to address some injustice that would otherwise occur due to the way in which the discontinuing party has conducted the proceedings to that point – for example, by obtaining an order for an interim injunction. In such circumstances, the discontinuance may not be permitted at all, or only permitted on certain conditions.
[34] The starting point is that Justitiae has a right to discontinue. As Associate Judge Doogue also observed, a plaintiff should not be forced to continue against a
3 Jack v Carver HC Auckland CIV-2008-404-5910, 25 May 2011 at [14].
4 Clemance v Cleary (1995) 9 PRNZ 194 (HC).
5 Perpetual Trust Ltd v Mainzeal Property and Construction Ltd [2012] NZHC 223 at [6].
defendant it does not wish to bring to trial.6 That right is subject to leave under r 15.20(4). However, an abuse of process or injustice is required to deny leave. Mr Robinson’s submission that denying leave to prevent Justitiae discontinuing against Trinity is justified because it should cause Trinity no inconvenience is inconsistent with the authorities. I also note that whether a defendant could be joined to the proceedings under rr 4.4 or 4.56 or otherwise is not a relevant consideration.
[35] As to the obtaining of the interim injunction, that was sought because of circumstances existing at the time. That position has now changed.
[36] Mr Robinson did not identify any injustice or abuse of process in his written submissions. In response to a question from the Court Mr Robinson submitted that Trinity would not be bound by any judgment and this would render the proceeding pointless. It is challenging, to say the least, to characterise this as an injustice to his clients. Trinity carries the greater risk of an injustice if matters involving its rights are determined in this proceeding in its absence, but Trinity supports the application for leave to discontinue. Moreover, this submission appears to have little substance given the proceedings are primarily concerned with the internal workings of the Trust. This was emphasised by Mr Robinson’s focus on how the security can be enforced, which is not a matter which concerns Trinity.
Result
[37] For all the reasons referred to above, leave is granted to Justitiae pursuant to r 15.20(4) to discontinue proceedings against Trinity.
[38] The statement of claim is amended by deleting the following paragraphs from the prayer for relief which follows [158] in the statement of claim:
(a)Declarations that:
(i)Recourse to the Security is only possible if Trinity owes money or money’s worth to the Defendants, subject always to Trinity
6 Citing O’Brien v New Zealand Social Credit Political League Inc (No 2) [1984] 1 NZLR 68 (CA) at 73.
being able to prove the Security is otherwise invalid and/or enforceable;
(ii)Trinity owes no money or money’s worth to the defendant;
Costs
[39] I reserve costs. If the parties can agree costs a joint memorandum of counsel should be filed within 20 working days of the date of this judgment. If costs cannot be agreed, Justitiae is to file and serve its memorandum within 10 working days of the date for the joint memorandum. FFL and Clive Bradbury are to file and serve their memorandum within a further 10 working days. Memoranda should not exceed four pages (excluding attachments). I will determine costs on the papers.
Gordon J
MUIR-FONG SUM INTERESTS
Justitiae Trustee Company Ltd
BRADBURY INTERESTS
De Havilland Investments Ltd
50 %
Justitiae Trustee Company Ltd
NZF Nominees Ltd
R&A Trust
f0%
Confirming deed *’'*")" ***“
Security agreement " *** "'' ” ' ”
Fairlight Forestry Ltd
3
1
0