Koanga Institute Incorporated v Kotare Community Land Trust Board
[2021] NZHC 169
•15 February 2021
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2019-441-92
[2021] NZHC 169
IN THE MATTER OF a proceeding to put a Charitable Trust Board into liquidation and for other relief under equity and common law UNDER
the Charitable Trusts Act 1957 and the general law
BETWEEN
KOANGA INSTITUTE INCORPORATED
Plaintiff
AND
KOTARE COMMUNITY LAND TRUST BOARD
First Defendant
KOTARE VILLAGE INCORPORATED
Second Defendant
MATTEO GARBAGNATI
Third Defendant
WENDY BOOYENS
Fourth Defendant
ANNE HURLY
Fifth Defendant
RENEE MORIN
Sixth Defendant
AND
ROBERT BRUCE CORKER
First Counterclaim Defendant
ELEANOR KAY BAXTER
Second Counterclaim Defendant
PETER IAN ALEXANDER
Third Counterclaim Defendant
WENDY GRAY
Fourth Counterclaim Defendant
KOANGA INSTITUTE INCORPORATED v KOTARE COMMUNITY LAND TRUST BOARD [2021] NZHC
169 [15 February 2021]
KOANGA GARDENS LIMITED
Fifth Counterclaim Defendant
Hearing: 2 February 2021 Appearances:
J Bates for the Plaintiff
A Butler and K Lawrence for the Defendants and Counterclaimants
Judgment:
15 February 2021
JUDGMENT OF COOKE J
(Application to strike out counterclaim)
Table of Contents
Counterclaiming parties[12]
Sufficient connection with claim[18]
Fourth counterclaim: Restructuring[26]
Third counterclaim: Breach of trust[28]
First and second counterclaims: Fair Trading Act and contractual misrepresentation[31]
Counterclaims must be against plaintiff[34]
Are the claims sufficiently arguable?[40]
Fourth counterclaim: Restructuring[41]
Third counterclaim: Breach of trust[52]
Second counterclaim: Contractual misrepresentation[54]
First counterclaim: Fair Trading Act 1986[59]
Undue delay and appropriate case management[65]
Fifth counterclaim[68]
Resource Management Act issue[69]
Result and orders[71]
[1] These proceedings concern a breakdown in the legal structure and the personal relationships of those who are involved in the Kotare Village. Kotare Village can be described as a cooperative eco-village. It is based north of Wairoa in northern Hawkes Bay between Napier and Gisborne.
[2] A key feature of the village is an area owned by Koanga Institute Incorporated (Koanga Institute) which is used for the cultivation of heritage plants and bio-intensive gardening. The Koanga Institute is a registered trust under the Charitable Trusts Act
1957. The first defendant, Kotare Community Land Trust Board (Kotare Trust) is also registered under that Act. It is the owner of the adjacent land forming the other aspect of the village. That land is subject to individual leases. Those leases were purchased by individuals who wanted to join the village and participate in its lifestyle. The constitution of the Kotare Trust includes the following description of the position in its introduction:
The principal purpose of Kotare Community Land Trust is charitable, that is to use the Kotare Village land in a way that is regenerative of the environment. For a village to function , it needs people and people need to live on the village land. So for Kotare Village to be created, residents will use their own capital to acquire an interest in the Village land for them to live on. To enable the principal purpose to be carried out, it is necessary to have a secondary purpose that resident’s capital will be used by Kotare Community Land Trust for their mutual benefit, but always limited to their actual contributions. Those residents are the members of the Kotare Community Land Trust.
[3] The second defendant, Kotare Village Incorporated is a separate incorporated society that exists to facilitate the management of the affairs of the village.
[4] Unfortunately the relationship between the initial founders of the village and key members of those who have joined has broken down. The plaintiff, the Koanga Institute, is associated with those who originally founded and promoted the concept of the village, particularly Mr Robert Corker. Whilst its proceedings were originally broader in scope, Koanga Institute now advances two claims in the proceedings — one that the Kotare Trust be liquidated, and a further claim for declarations that a property management agreement between the first and second defendants dated 28 June 2019 was entered in breach of trust.
[5] A statement of defence and counterclaim has been filed by the defendants, and other parties associated with the first and second defendant. It includes claims that the original promoters of the village engaged in misleading and deceptive conduct when promoting investment in the village in contravention of the Fair Trading Act 1986 (the first counterclaim), contractual misrepresentation (the second counterclaim) and breach of trust (the third counterclaim). They also seek orders from the Court restructuring the trust arrangements applicable to the Kotare Trust (the fourth counterclaim).
[6] The present application is an application by the plaintiff and counterclaim defendants dated 20 March 2020 that the counterclaims should be struck out on the basis that they are not properly raised as counterclaims in this proceeding, they are not sufficiently connected to the plaintiff’s claim, and are otherwise not arguable.
[7] The proceedings have a complex background, and many points have been advanced by counsel by way of submission. I will not lengthen this judgment by setting out a fuller background but by simply addressing the various issues that seem to me to be of most significance. Ultimately it appears to be accepted by both sides that the current arrangements between them should not continue, and that there is a need for restructuring. The difference between them arises from what restructuring should occur.
[8] The plaintiff group believes that the Kotare Trust should be liquidated, that the leases should be honoured by the liquidator, but that the underlying freehold should be sold, and the proceeds of the sale of the freehold and the residual leasehold interests should be divided equally.
[9] The defendant group believes that such a liquidation will improperly financially benefit the plaintiff group, that the group should provide some compensation for the misleading way in which the involvement in the village was promoted, and that the Kotare Trust should be restructured so that it can operate as originally intended.
[10] I note that notwithstanding the considerable distrust between the two sides, there is nevertheless agreement that a new framework will need to be put in place, and that the village will continue in some form.
[11] This judgment is simply directed at the procedural course for the proceedings. How are the various matters raised by the parties to be appropriately addressed? Even on that question there is some complexity. This demonstrates that there is a need to find the most efficient path for dealing with the disputes, as the proceedings have the capacity to become long, complex, and expensive which is not in anybody’s best interest. I bear that in mind when addressing the current application.
Counterclaiming parties
[12] The first ground of the plaintiff’s application to strike out the counterclaims is based on the identity of the counterclaimants. Rule 5.57 of the High Court Rules 2016 provides:
5.57 Counterclaim against plaintiff and another person
(1) A defendant who has a counterclaim against the plaintiff along with any other person (whether a party to the proceeding or not) for any relief relating to or connected with the original subject matter of the proceeding may, within the time allowed for filing a statement of defence, file a statement of the counterclaim and serve a copy on the plaintiff and that other person (to be referred to as a counterclaim defendant).
…
(6) The court may at any time order that a counterclaim to which subclause (1) applies be struck out, upon such terms as it thinks just, if it appears—
(a)that, by reason of the counterclaim, the plaintiff is likely to be unduly delayed in obtaining relief; or
(b)that the trial (if a trial is necessary) is to be held at a place where it could not be held if a counterclaim defendant had been made defendant to an independent proceeding by the defendant in respect of the subject matter of the counterclaim; or
(c)that the relief sought in the counterclaim is not related to or connected with the original subject matter of the proceeding.
[13] Mr Bates argues that the counterclaims ought to be struck out as the counterclaimants are not defendants to the proceedings and accordingly may not bring their proceedings as of right under r 5.57. Whilst other parties can be added as counterclaim defendants that is not the case for counterclaim plaintiffs. They must already be defendants. He relies on Nippon Credit Australia Ltd v Girvan Corporation New Zealand Limited where the Court held that another party could not join with a defendant under this rule, and the proper course was for it to bring separate proceedings and seek them to be consolidated.1
[14] I accept Mr Butler’s submission that there is an answer to this point. In particular most of the additional counterclaimants were originally defendants to more
1 Nippon Credit Australia Ltd v Girvan Corporation New Zealand Limited (1991) 5 PRNZ 44.
broad ranging claims brought by the plaintiff in its original statement of claim. The plaintiff discontinued those causes of action. But under r 5.59 if a claim against a defendant is stayed, discontinued or dismissed a defendant may nevertheless continue with a counterclaim.2 The statement of defence and counterclaim is dated 17 February 2020. The plaintiff’s notice of discontinuance was dated 9 September 2020. Notwithstanding the discontinuance, the counterclaimants may continue with their counterclaims.
[15] In addition I note, but do not decide, that the definition of “defendant” in r 1.3 includes a person “served or intended to be served with a proceeding”.3 There may be a question of whether r 5.57 was intended to give an automatic right to file counterclaims on behalf of each and every served person, but on the face of it that may be the position.
[16] Moreover, as a more general point, the High Court Rules should be applied in accordance with the objective of the rules set out in r 1.2 — “ to secure the just, speedy, and inexpensive determination of any proceeding or interlocutory application”.4 The rules are a means to an end. There are frequently alternative pathways available within the rules to regulate the procedural course of a proceeding. Rather than applying those rules in a technical manner, the Court should endeavour to apply them to achieve that objective. For example, here the argument that the counterclaimants are not parties in a way contemplated by r 5.57 could simply be addressed by joining them as parties under r 4.56.5 What is more important is the requirement in r 5.57(1) and (6)(c) that the counterclaim is related or connected to the original subject matter of the proceeding
— that is an important question for deciding whether the matter should be addressed in that proceeding. So the real question is what is the best approach for managing the disputes that are subject to the rules. It is in that spirit that I address these points.
[17] It is also for that reason that I address the final point about the identity of the counterclaiming parties. One of the counterclaimants, Ms Carolyn Campbell, was not originally a defendant to the plaintiff’s claims. Accordingly Mr Butler’s technical
2 High Court Rules 2016, r 5.59.
3 At r 1.3.
4 Rule 1.2.
5 See r 4.56(1)(b).
answer to Mr Bates’ technical point is unavailable to her. But as Mr Butler argued she should be allowed to pursue her counterclaim just as much as the others. Once the counterclaims are in, they are in, and any technical impediments should be avoided. Accordingly, I add her as a party to allow her to pursue her counterclaim. Mr Butler suggested that could be done under r 4.23(3) on the basis that she was a beneficiary of the Kotare Trust, but for at least some of the counterclaims she proceeds in a personal capacity rather than as a trust beneficiary, so it may instead be joinder under r 4.56.
Sufficient connection with claim
[18] The second basis for the application to strike out is that the counterclaims are not sufficiently connected to the plaintiff’s claim to allow them to be introduced under r 5.57. The rule only allows a counterclaim for “relief related to or connected with the original subject matter of the proceeding”.6 That phrase is very similar to that allowing for third party proceedings under r 4.4. Mr Bates argued that the commonality of issues was not enough, and referred to JKA Holdings Ltd v Wallis where the High Court struck out a counterclaim because it was distinct from the plaintiff’s claims.7
[19] Again I approach the application of the rules in the way described in [16] above. Rule 5.57(6) involves a discretion, and the efficient and effective case management for proceedings is important. The considerations would appear to be very similar to those that arise in relation to where matters should be determined as separate questions under rr 10.4 or 10.15. If the Court decides that the prerequisite is met under r 5.57, it can consider whether an issue should nevertheless be determined as a separate question, if there are some reasons why that might be appropriate. In addition, even if a prerequisite under r 5.57 is not met, such that the claim should be struck out of the proceeding and dealt with in a separate proceeding, it may be appropriate for those two proceedings to be jointly case managed with directions given to facilitate that. That is consistent with the overall objectives of the rules.
[20] In making the assessment, it is appropriate to first consider the plaintiff’s claims. Then it must be considered whether each of the causes of action subject to the counterclaims relate to, or are connected with, the subject matter of the claims.
6 Rule 5.57(1).
7 JKA Holdings Ltd v Wallis [2019] NZHC 1072.
[21] Mr Bates accepted that the claim advanced by the plaintiff for the liquidation of the Kotare Trust would require a comprehensive assessment of the facts and circumstances of the dispute that has arisen concerning the village and the Trust. He also accepted that the liquidation claim would not be able to be dealt with on affidavit evidence alone, even if dealt with as a proceeding under Part 18, as it would be necessary to have some viva voce evidence and cross-examination to deal with some issues of fact.
[22] I agree with these assessments. The liquidation application requires the Court to understand why the affairs of the Trust have broken down, and accordingly requires an assessment of the various disagreements that have developed. There are factual disputes. The plaintiff’s first cause of action is that a management agreement that has been implemented by those on the defendants side is in breach of trust. Mr Bates submitted that this was only an alternative claim should the liquidation claim be unsuccessful, but in my view illustrates the fact that a full assessment of all the facts and circumstances is necessary.
[23] It is also significant that any liquidation may require the Court to consider the terms and conditions of such a liquidation. In the cases that Mr Bates relied upon — Tilaima and Ors v Congregational Christian Church of Samoa (Westmere) Trust Board (No 3) and Re Mabel Elizabeth James QSM Charitable Trust Board (Inc) — the High Court liquidated charitable trusts on such terms and conditions.8 That may be particularly important here as the critical difference between the parties may turn out to be financial. It would appear that the plaintiff is seeking a liquidation on the basis that the liquidator will sell the freehold, and the residual leasehold interests, and then distribute the proceeds on an equal basis. Mr Bates suggested that “the settlor’s intention” would guide the liquidation. I understand the counterclaiming defendants to be of the view that this approach would improperly financially advantage the plaintiff, and those associated with the plaintiff, and allow them to achieve a benefit obtained by misleading conduct. It is noteworthy in that connection that Mr Bates indicated at the hearing that there was a potential purchaser of the freehold interest,
8 Tilaima and Ors v Congregational Christian Church of Samoa (Westmere) Trust Board (No 3) [2014] NZHC 835; Re Mabel Elizabeth James QSM Charitable Trust Board (Inc) [2014] NZHC 581.
although he was not at liberty to advise me who that was. The defendants were concerned to hear that kind of information.
[24] It may well be that the Court would control any liquidation by terms and conditions, including those directed to how assets were to be distributed. But to do so it will need to have a thorough understanding of all the issues that have emerged in the case.
[25] I assess the counterclaims under r 5.57 on that basis. I will do so not in the order they appear in the counterclaim, but in an order focussed on their connection with the claims.
Fourth counterclaim: Restructuring
[26] I first deal with the counterclaim defendants’ claim for a restructuring of the Kotare Trust. At this stage I deal only with the question of whether the relief sought relates to or is connected with the original subject matter of the proceeding. I will deal with the plaintiff’s other argument that the claim could not achieve what is sought separately below.
[27] I accept Mr Butler’s argument that this counterclaim meets the requirements of r 5.57. Not only do the defendants wish to oppose the plaintiff’s application to appoint a liquidator, but they seek an alternative to liquidation, being the restructuring. The claims each side make clearly relate to the same subject matter. They are simply different avenues by which each side wishes to change the present arrangements. They will involve the same matters of fact, and the only difference will be the ultimate orders that the Court is asked to make.
Third counterclaim: Breach of trust
[28] The counterclaim plaintiffs allege that the original arrangements surrounding the establishment of the Koanga Institute village involved a number of illegitimate steps, and that they were taken in breach of trust. That includes a contention that the Kotare Trust purchased the land on which the leases were to be granted at under value, and that there were breaches of obligations in relation to GST. They seek a series of orders directed to the alleged breaches of trust arising as a consequence.
[29] These allegations go beyond the breach of trust contended for by the plaintiff in relation to the property management agreement. But both claims involve allegations of breach of trust arising out of the same matters. Moreover the plaintiff’s claim for liquidation will necessarily involve the Court enquiring into the factual circumstances leading to the breakdown between those involved in the Kotare village when deciding whether liquidation, restructuring or something in between is the appropriate response. The analysis I undertake below for the purpose of determining whether the counterclaim is sufficiently arguable to proceed further expands on this.
[30] For these reasons it is clear that this counterclaim relates to, or is connected with, the original subject matter of the proceedings.
First and second counterclaims: Fair Trading Act and contractual misrepresentation
[31] I deal with the remaining causes of action together. They involve allegations that the counterclaim defendants engaged in pre-contractual misrepresentation, or false, misleading or deceptive conduct, when the original arrangements were entered.
[32] There is an important difference between these claims and the other proposed counterclaims. The relief sought involves the award of compensation — that is that the counterclaim defendants pay damages to the counterclaim plaintiffs as a remedy for the misrepresentations or false/misleading/deceptive conduct. For that reason these two causes of action could be treated as distinct matters, separate from the other claims raised in the proceedings.
[33] But they are nevertheless interrelated. When the Court investigates what has happened to determine whether the Kotare Trust should be wound up, or restructured, it will need to investigate the factual matters that are subject to these two proposed counterclaims particularly when addressing the terms of any liquidation or restructuring. It may be a different form of relief — monetary relief — but it is still “relief related or connected with the original subject matter of the proceeding”.9 For that reason I conclude that these claims also meet the requirements of r 5.57.
9 High Court Rules 2016, r 5.57(1).
Counterclaims must be against plaintiff
[34] A further aspect of the application advanced by the plaintiff/counterclaim defendants is that r 5.57 requires there to be a “counterclaim against the plaintiff along with any other person”.10 Mr Bates argued that even if the counterclaims were related to or were connected with the original subject matters of the proceeding they nevertheless did not come within r 5.57 as the counterclaims were not against the Koanga Institute. They were only against the additional new counterclaim defendants.
[35]For several related reasons I do not accept this argument.
[36] First it seems to me that, at the least, the fourth counterclaim is properly brought against the Koanga Institute. It is an alternative proposal for changing the arrangements for the Kotare Trust that might be said to be contrary to the Koanga Institute’s interests. All the potentially affected beneficiaries are potentially parties to the counterclaim. Once there is a counterclaim against the plaintiff properly within r 5.57, and that counterclaim has joined other parties as counterclaim defendants, it may well be that other counterclaims can be advanced under r 5.57 even though they are not against the plaintiff, but only the other counterclaim defendants. It is at least arguable that r 5.57 can operate, or should be applied, in that way.
[37] Even if that is not the correct interpretation of r 5.57, as I have emphasised the rules should be applied in a way that facilitates their overall objective. It would make no sense for only some of the counterclaims be able to be brought in this proceeding, and not others. Therefore in addressing the application for strike out under r 5.57(6) I decline to do so as this would not make sense for the efficient dealing with the proceedings.
[38] Finally I note that in relation to the other counterclaims the counterclaim defendants argue that the counterclaim defendants were acting as agent for the plaintiff, and that relief is properly sought against the plaintiff. Some of those arguments may be a little artificial, but it may provide a technical response to what seems to me to be a technical point.
10 High Court Rules 2016, r 5.57(1).
[39] In any event, I do not accept that the application for strike out should be granted on this basis.
Are the claims sufficiently arguable?
[40] The plaintiff and counterclaim defendants also contend that the counterclaims should be struck out because, on analysis, they have insufficient prospects of success. The formal application relies on r 15.1 of the High Court Rules as well as r 5.57. Whilst Mr Bates’ written submissions tended to frame his argument in this respect around r 5.57, and I accept that the strength of a counterclaim might be a relevant consideration under r 5.57, it seems to me that for the claims to be struck out because they are not sufficiently arguable they will need to meet the standard prescribed under r 15.1(a) as summarised by the Court of Appeal in Attorney-General v Prince.11 The counterclaim must disclose no reasonably arguable cause of action in accordance with that approach. Again I address the claims individually on that basis.
Fourth counterclaim: Restructuring
[41] Mr Bates argued that the Court had no jurisdiction to address the counterclaim that the Kotare Trust be restructured, and that it should be struck out.
[42] First he argued that any such restructuring needed to comply with Part 3 of the Charitable Trusts Act 1957 as the Kotare Trust was a charitable trust registered under that Act. Any proposal to modify such a Trust under s 33 had to involve the preparation of a scheme under s 34, with that scheme to be laid before the Attorney- General under s 35, and the other formal steps then set out in the Act followed. No such steps had been taken here.
[43] However, I accept Mr Butler’s point that on the face of things it appears that the Kotare Trust is not a trust for a charitable purpose at all, or at the least it is strongly arguable that is so, and that for this reason it is arguable these provisions do not apply. Without purporting to decide that question, I note that the purposes of the Trust include private benefits as well as suggested charitable purposes, and this might in itself be fatal to charitable status. Mr Butler pointed out that by letter dated 1 August 2019
11 Attorney-General v Prince [1998] 1 NZLR 262.
from the Crown Law Office to the plaintiff’s solicitors, the Deputy Solicitor-General has advised that the Attorney-General is of the view that he cannot become involved in this dispute because Kotare Trust is not in substance a charity under New Zealand law even though registered under the Act, and accordingly he has no jurisdiction. The parties also agree that the registration under the Act is not determinative of this question. The restructuring power under s 33 arises when the relevant trust appears to have a charitable purpose, and that requirement applies whether or not the trust is so registered.
[44] These points also respond to Mr Bates’ argument that the counterclaims should be struck out because proceedings against trustees of a charitable trust need to be brought in accordance with s 60 of the Charitable Trusts Act 1957. He relied on Fagerlund v Saunders in support of that argument.12 But if this is not a trust for charitable purposes this section does not apply.
[45] These points also respond to Mr Bates’ argument that the counterclaims seek to pierce the corporate veil. He argues that the Kotare Trust is incorporated, and it is not appropriate to bring proceedings against the individual trustees. But if the Trust is not a charitable trust, and is not covered by s 60, I doubt whether that means the claims cannot succeed against the individuals. At the very least it is arguable that they can still be pursued.
[46] Mr Bates further argued that, if Kotare Trust is not a charitable trust under that Act, then there was no power to engage in a restructuring. No such powers arise under the Trustee Act 1956, or under the Court’s inherent jurisdiction. The power of the Court under s 64A of that Act did not arise, and the power under s 51 to appoint new trustees was limited. In terms of the inherent jurisdiction he relied on the decision of Paterson J in Re CP Clifton Children’s Trust who said:13
[43] The Court's inherent jurisdiction to alter trusts has been restricted by the House of Lords decision in Chapman v Chapman [1954] AC 429, as applied in Re Ebbett [1974] 1 NZLR 392. However, what is sought here is not, in my view, a variation of the trust. As noted above, it is a variation of an administrative provision and not an alteration of the trust itself. This trust was sanctioned by this Court to protect infant beneficiaries. In my view, the Court
12 Fagerlund v Saunders HC Auckland, CP 203/97, 24 August 1999.
13 Re CP Clifton Children’s Trust HC Auckland, CIV-2004-404-4185, 5 November 2004 at [43].
must have a supervisory jurisdiction to modify an administrative provision which has been shown can be used in a manner which may be to the detriment of the infant beneficiaries. The Court, in its inherent jurisdiction, should intervene to modify that administrative provision so that the interests of the infant beneficiaries cannot be readily jeopardised. In the circumstances, I intend to use the inherent jurisdiction of this Court to modify this administrative provision.
[47] He argued that what the counterclaim defendants were seeking here was a restructuring of the Kotare Trust itself rather than a variation of administrative provisions.
[48] In response Mr Butler argued that the counterclaims were not seeking to change the Trust itself, but only alter some of the provisions regulating how it was administered. He referred to the power for the Court to make consequential orders following from the replacement of trustees. So in Mudgway v Slack Ellis J not only replaced trustees under s 51, but altered the power of appointment in a trust deed to allow the orders to be effective.14
[49] I accept that the power of variation of an ordinary trust is confined in scope. Whether what the counterclaim defendants seek goes beyond variation of administrative provisions is a question of degree. It may be that the replacement of trustees, and changes to associated provisions (such as powers of appointment) might be a sufficient restructuring for their purposes. At this point, the Court is not in a position to make that assessment. I am satisfied that the claim should not be struck out.
[50] Moreover there is possibly an approach that lies in-between the plaintiff’s application for liquidation, and the defendants’ claim for restructuring. The constitution of the Kotare Trust itself contemplates what is to occur if the Trust is brought to an end. Clause 11 provides:
11 WINDING UP
The Trust may at any time by a resolution of a Special Meeting of the Trust Members resolve that the Trust be wound up if:
(i)the trust purpose is no longer of practical benefit to the community; or
14 Mudgway v Slack HC Auckland, CIV-2010-404-2058, 26 July 2010.
(ii)the trust purpose has been substantially achieved; or
(iii)the trust property is sufficient to adequately implement the trust purpose,
if such a resolution is passed then the affairs of the Trust will be wound up and the balance of the trust property remaining distributed to an organisation or organisations within New Zealand which have charitable purposes similar to the Trusts, and upon such conditions as the Trust by Special Resolution may decide.
[51] Under this clause the trust property could be resettled in a new trust with similar purposes. Perhaps the counterclaim defendants can simply put forward a new entity that meets cl 11 and which responds to the concerns they raise. Whether this clause could be applied in the absence of a special resolution is not something that needs to be considered at this stage. The key point is that, as a matter of substance, the defendants’ counterclaim should be allowed to be pursued as, in substance, it is a claim for an alternative approach to how the arrangements should be changed.
Third counterclaim: Breach of trust
[52] In relation to the third counterclaim for breach of trust, Mr Bates argued that it could not be sustained as it was being advanced purportedly on behalf of all beneficiaries of the Kotare Trust, and that this was not permissible. He referred to Cowan v Martin for the principles indicating when and how proceedings could be brought on behalf of beneficiaries of a trust.15
[53] To the extent that the counterclaims are advanced on behalf of the individual counterclaimants there can be no issue. A beneficiary can bring proceedings against a trustee for breach of trust. I accept Mr Bates’ argument that such a counterclaim cannot be advanced on a representative basis. That is that a beneficiary cannot sue on behalf of another beneficiary. There has been no order under r 4.24 for the counterclaimants to proceed in a representative capacity, or any agreement that they do so. It is possible to read this counterclaim as being advanced on the basis that the counterclaimants seek orders for the benefit of all of the beneficiaries. That could be problematic. But each of the individual counterclaimants can proceed in relation to the consequences for them, and any loss arising for them. So I am not prepared at this
15 Cowan v Martin [2014] NZCA 593 particularly at [53].
stage to strike out the counterclaims on this basis. I will, however, give directions requiring amended pleadings to be filed that remove any contention that the contentions are advanced on a representative basis without r 4.24 being complied with.
Second counterclaim: Contractual misrepresentation
[54] In this counterclaim the counterclaim defendants contend that they were induced to enter their leases by misrepresentations made by Messrs Corker and Alexander (the first and third counterclaim defendants) and the plaintiff (the Koanga Institute).
[55] Mr Bates argued that these claims were untenable as neither the first or third counterclaim defendants or the plaintiff were parties to any such contract. The contracts pleaded were the leases, and the leases were between the Kotare Trust (the first defendant) and each of the lessees, including the counterclaimants.
[56] This proposed cause of action is titled “Contractual misrepresentation”. Although it does not specifically refer to the provisions of the Contract and Commercial Law Act 2017, it is clearly a claim for loss for being induced to enter contracts because of misrepresentation. Mr Butler did not raise any other basis for such a cause of action.
[57] I see Mr Bates’ argument as being unanswerable. There may be an arguable basis to bring other claims against the first and third counterclaim defendants or the plaintiffs because of the alleged misrepresentations, but a cause of action for contractual misrepresentation cannot arise if there is no contract entered between the counterclaim plaintiffs and the counterclaim defendants.
[58] For this reason I accept that this cause of action should be struck out under r 15.1(a) on the basis it discloses no reasonably arguable cause of action.
First counterclaim: Fair Trading Act 1986
[59] The point just made in relation to contractual misrepresentation does not dispose of the claim under the Fair Trading Act 1986, however. Under that Act I see no inherent problem with maintaining a claim that, by reason of false, misleading or
deceptive conduct by a defendant, the plaintiff has suffered loss as a consequence of entering a contract with a third party. That seems to me to be at the heart of the alleged counterclaims here.
[60] Apart from the other arguments I have already addressed in this judgment, Mr Bates contended that there was a difficulty with this claim in terms of the requirement that the counterclaim defendant be “in trade”. The pleading alleges that the Kotare Trust trustees were in trade, and then pleads that the first and third counterclaim defendants and the plaintiff made misrepresentations leading to the counterclaimants entering the leases.
[61] I accept Mr Butler’s point, however, that there is an arguable basis for the claims. As he pointed out, those associated with the plaintiff who originally promoted the village concept to the ultimate lessees were described as “promoters”. That is how they are described in the constitution of the Kotare Trust. And I accept that it is arguable that in promoting the investment into the village concept, involving the entry of leases, any such promoter was in trade for that purpose. I also note, without deciding, the possibility that promoters were acting as agent for the plaintiff in that context.
[62] Mr Butler also pointed to material which demonstrates that there was substance to the factual allegations of misleading conduct, and in particular the report from Crowe New Zealand Audit Partnership dated 29 July 2020 identifying a number of issues with the background with these arrangements. That includes the observation that there is “an overall theme that evidence is suggesting that the parties involved in the arrangement have not acted in the best interest of [the Kotare Trust] and its members (including future intended members)”. For the purposes of r 15.1(a) the allegations made in a claim are treated as if they are true. So it is unnecessary to conduct any inquiry into the factual basis for a claim for the purpose of a strike out application. The assessment under r 5.57 may include an assessment for the factual basis for the claim, but as indicated above it seems to me that the requirements of r 5.57 are met in any event.
[63] For these reasons I accept there is a proper basis for the claims under the Fair Trading Act and they ought not be struck out. On the other hand, however, I accept Mr Bates point that these claims also cannot be pursued on a representative basis. That is that the claims can only be advanced by individual counterclaimants for losses arising to them from the alleged breaches. The requirements for a representative action under r 4.24 have not been satisfied.
[64] For these reasons the application to strike out this cause of action is dismissed. It will, however, be necessary for an amended pleading to be filed to remove the allegations purportedly advancing the claim on a representative basis, however.
Undue delay and appropriate case management
[65] As part of the plaintiff’s arguments, Mr Bates also relied on r 5.57(6)(a) — that a counterclaim should be struck out by reason of causing undue delay for the plaintiff in obtaining the relief it seeks. In addition, as I have already indicated, it seems to me the Court should pay attention to the appropriate case management of a proceeding when dealing with applications of this kind. It may be that a counterclaim that survives analysis under r 5.57 and r 15.1, might still be dealt with in a particular way from a procedural point of view.
[66] I do however accept Mr Butler’s arguments that the counterclaims that remain should not be struck out for reasons of undue delay, and I also accept that it is better for all matters to be dealt with together. Mr Butler accepted that this was a difficult and potentially fraught case, and recognised that the Court would want to see if there were ways to avoid long or protracted proceedings. But he submitted that the best way forward was for there to be a single hearing where all issues were aired. I accept this. There is an argument that the Fair Trading Act cause of action is sufficiently distinct to be dealt with separately. It only seeks an inquiry into damages, such that a further hearing is already contemplated. But given that all of the factual matters surrounding the defendants’ grievances will need to be investigated not much will be added to that inquiry by assessing whether particular persons were in trade, and whether the matters complained of amount to false, misleading or deceptive conduct in terms of that Act. Notwithstanding Mr Bates’ arguments it seems to me that it is
most appropriate for all the complaints by both sides to be addressed by the Court at the same time.
[67] I note Mr Bates point that if the counterclaims continue it may become necessary to join the other original trustees of the Kotare Trust. But I see that as a matter for the plaintiff/counterclaim defendants whether they take that step. It does not persuade me that there would be undue delay in the resolution of the proceedings, or that dealing with the proceedings together is inappropriate from a case management point of view.
Fifth counterclaim
[68] Finally I briefly mention the fifth counterclaim, which is described as “debt or, alternatively, quantum meruit”. The submissions of the parties did not make particular mention of this counterclaim. I understood Mr Bates’ more general submissions referred to earlier to be those he wished to advance in relation to this counterclaim. Given I have rejected those arguments, the application to dismiss this cause of action is also dismissed. It appears to be a specific matter complained of that would be inquired into as part of the inquiry into the other complaints in any event.
Resource Management Act issue
[69] Finally, at the hearing I raised a question as to whether the whole structure of the village complied with the requirements of the Resource Management Act 1991. I gave counsel the opportunity to file memoranda about that issue and separate memoranda have been filed by counsel for the defendants and the plaintiff dated 9 and 10 February accordingly.
[70] Whilst these issues may be relevant to the ultimate determination of the proceedings they do not appear to be relevant for present purposes. As I understand it the relevant RMA requirements have been met, and the leases were structured as leases for 34 years given that s 218 of the Resource Management Act 1991 provides that a lease for more than 35 years would amount to a subdivision.16 Accordingly I do not need to address this matter further.
16 Resource Management Act 1991, s 218.
Result and orders
[71] As a consequence of the finding outlined above I make the following orders and directions:
(a)The second counterclaim for contractual misrepresentation is struck out.
(b)The application by the plaintiff/counterclaim defendants is otherwise dismissed.
(c)Ms Carolyn Campbell is jointed to the proceedings as a counterclaim plaintiff.
(d)The counterclaim plaintiffs are to file an amended statement of counterclaim removing any contention that the counterclaims are pursued on a representative basis within 20 working days of the release of this judgment.
[72] As to costs, my preliminary view is that the counterclaim claimants have been substantially successful in resisting the application for strike out, and accordingly should be awarded costs. However, that award should be reduced to reflect that the application has been successful in relation to the second counterclaim, and given my direction that the pleading needs to be amended. I would suggest that the award be reduced by one third. If costs cannot be agreed I will receive a memorandum from counsel for the counterclaimants which should be responded to by a memorandum of counsel for the plaintiff/counterclaim defendants five working days later. Both memorandum should be no more than five pages.
Cooke J
Solicitors:
Brown & Bates Ltd, Napier for the Plaintiff
Greg Kelly Law Ltd, Wellington for the Defendants and Counterclaimants
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