Lobb v Ryan
[2021] NZCA 224
•2 June 2021 at 3 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA135/2021 [2021] NZCA 224 |
| BETWEEN | STUART JAMES LOBB |
| AND | VERENA COLLEEN RYAN |
| Court: | Gilbert and Courtney JJ |
Counsel: | P A Fuscic for Applicant |
Judgment: | 2 June 2021 at 3 pm |
JUDGMENT OF THE COURT
AThe application for leave to appeal is declined.
B The respondent is entitled to costs for a standard application for leave to appeal on a band A basis with the usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Courtney J)
This is an application for leave to appeal an interlocutory decision of the High Court.[1] The substantive proceeding concerns a trust settled by Mr Lobb and his former wife, Ms Ryan. Following their separation, a dispute arose over the fate of the trust’s assets. Ms Ryan brought the proceeding seeking a declaration as to the construction of a clause providing for the resettlement of trust assets in the event of the couple separating. Mr Lobb applied for an order dismissing or staying the proceedings on the ground that the Court’s jurisdiction was excluded by a provision for the arbitration of disputes in the trust deed.[2] Associate Judge Smith dismissed the application.[3] Mr Lobb applied unsuccessfully to the High Court for leave to appeal.[4] Mr Lobb now applies to this Court for leave to appeal.
[1]Senior Courts Act 2016, s 56(3) and (5).
[2]High Court Rules 2016, r 5.49(3)
[3]Ryan v Lobb [2020] NZHC 3085 [High Court decision].
[4]Ryan v Lobb [2021] NZHC 496 [High Court leave decision].
The circumstances in which leave will be given to appeal an interlocutory decision are settled. [5] The threshold for leave is high: there must be an arguable error of law or fact; the asserted error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value; and the circumstances must warrant incurring further delay. The ultimate question is whether the interests of justice are served by granting leave.
Background
[5]Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [9]–[14], cited with approval in Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
Mr Lobb and Ms Ryan settled the Lothbury Trust (the Trust) in 2005. The trust deed made express provision for the breakdown of their relationship; cl 2.5 provided for the resettlement of trust assets in the event of separation or dissolution of the marriage:
2.5Resettlement of Trust
…
(3) If the Settlors separate (or their marriage is legally dissolved), either settlor may give the Trustees written notice requiring them to resettle (on new Trusts acceptable to the Settlor who has given notice) such part of the Trust assets as the Trustees consider fair and equitable having regard to the respective contributions of the Settlors (whether by gifting, inheritance or otherwise) to the total assets of the Trust.
…
(5) Any dispute or failure to agree regarding the provisions of this clause 2.5 is to be treated as a dispute to which clause 3.7 applies.
Clause 3.7 provided a process for the arbitration of disputes arising out of the trust deed or relating to the trust fund. Relevantly:
…
(2)This clause 3.7 applies to all disputes arising out of this Deed or relating to the Trust Fund or any part of it. This includes disagreements of any kind and also includes any dispute as to the validity, breach or termination of this Deed or as to any claim in tort, in equity or under any Act. However, each of the parties to the dispute must be one of the following:
(a)The Trustee or one of the Trustees, or
(b)One of the Discretionary Beneficiaries, or
(c)One of the Final Beneficiaries, or
(d)One of those who have become entitled to benefit under clause 2.8 following the Distribution Date.
(3)None of the parties to any such dispute (the “Disputing Parties”) is to commence any court proceeding relating to that dispute unless that Disputing Party has complied with this clause 3.7.
(4)Subject to any agreement between any of the Disputing Parties for the resolution of the dispute by mediation or in any similar manner; the dispute is to be referred to arbitration by one arbitrator appointed by agreement between all the Disputing Parties. If they cannot all agree, the Protector is to appoint an arbitrator. If the office of Protector is vacant at that time or if there is more than one person acting as Protector and they cannot all agree, then the Public Trust will make this appointment. This is to be treated as an arbitration agreement under the Arbitration Act 1996.
Initially the trustees were Mr Lobb, Ms Ryan and the Public Trust (later replaced by Lockhart Trustee Services No. 56 Ltd (Lockhart)). Mr Lobb and Ms Ryan were the appointed protectors of the Trust, with the power to appoint and remove trustees which had to be exercised jointly and unanimously. The discretionary beneficiaries are Mr Lobb, Ms Ryan and their children. The trust acquired assets from the couple, including the family home.
Mr Lobb and Ms Ryan separated in 2016. In 2017 Ms Ryan gave notice to the trustees under cl 2.5(3) requiring resettlement of half of the Trust’s assets on a new trust she had settled. She indicated that if this could not be agreed she would invoke cl 3.7. Mr Lobb did not agree to resettlement. He maintained that Ms Ryan had contributed little to the trust assets and invited a proposal for resolution of this issue.
Ms Ryan invoked the arbitration provisions of cl 3.7. Mr Lobb did not accept that a dispute had actually arisen that would justify invoking cl 3.7. He contended that it was for Ms Ryan to show her level of contribution to the assets of the Trust. Until then, there was no dispute capable of engaging the arbitration clause.
Further correspondence failed to advance the issue. Ms Ryan considered that the contributions were about equal, though regarded it as a matter for the arbitrator to determine. Mr Lobb considered that the level of each party’s contribution to the purchase price of the assets acquired by the Trust had to be established. He was also concerned that Ms Ryan was withholding financial records that would allow this to be done.
Ms Ryan brought the proceedings seeking a declaration as to whether cl 2.5 required her to show the extent of her contribution to the assets that the Trust now held. Mr Lobb responded with a statement of defence and a protest to jurisdiction, the latter on the basis that the procedures under cl 3.7 ought to be followed rather than having the issue determined in the High Court. He continued to maintain that it was for Ms Ryan to substantiate the basis on which she had contributed any assets to the Trust and that her failure to do so did not amount to a failure to agree for the purposes of cl 2.5(5) of the trust deed.
The High Court decision
Before Mr Lobb’s application to dismiss or stay the substantive proceedings was determined, Lockhart brought separate proceedings seeking an order that it be discharged as a trustee and an interim trustee or a receiver be appointed. Edwards J discharged not only Lockhart but also Mr Lobb and Ms Ryan and appointed a receiver.[6] No order was made for the appointment of new trustees.
[6]Lockhart Trustee Services No. 56 Ltd v Ryan [2020] NZHC 1823. Mr Lobb applied unsuccessfully for an extension of time to appeal this judgment: Lobb v Lockhart Trustee Services No. 56 Ltd [2021] NZCA 180.
By the time Associate Judge Smith came to consider Mr Lobb’s application for an order dismissing or staying Ms Ryan’s proceeding the Trust was under the control of the receiver and there were no trustees. The Associate Judge considered whether determination of the proceeding ought to be deferred pending new trustees being appointed. However, following a telephone conference with counsel for the receiver, who advised that the receiver did not regard himself as authorised to step into the shoes of the trustees, the Judge proceeded to determine the application.[7]
[7]High Court decision, above n 3, at [16]–[18].
The Associate Judge considered that the circumstances in which cls 2.5 and 3.7 might be engaged had been overtaken by the appointment of the receiver; cl 2.5 required trustees to make the resettlement decision but there no longer were any trustees and therefore no dispute that could engage cl 2.5(5) or cl 3.7.[8]
[8]At [98]–[99] and [105].
The Associate Judge acknowledged that Mr Lobb and Ms Ryan retained their status as discretionary beneficiaries and, in that capacity, could seek to invoke cl 3.7. However, he treated cl 3.7 as being effective only if it could be shown that all the parties affected by it had agreed to that procedure. The children, also discretionary and named final beneficiaries, would have equal standing to be heard but had never agreed to the cl 3.7 procedure. Therefore, to the extent cl 3.7 purported to bind all discretionary beneficiaries other than the settlors, it was invalid.[9]
Application for leave to appeal
[9]At [106]–[109].
Mr Lobb asserts that there are arguable errors by the Associate Judge in holding that (1) the arbitration provisions were not effective because Mr Lobb and Ms Ryan were no longer trustees and (2) the arbitration provisions did not bind all of the discretionary beneficiaries. Mr Lobb wishes to argue that these conclusions were wrong because by the time the parties were removed as trustees Ms Ryan had already invoked the resettlement provision in cl 2.5(3) with the result that the arbitration process under cl 3.7 was engaged and, as a matter of law, cl 3.7 bound all the beneficiaries.
Mr Lobb says that the following questions arise which are important to the parties themselves and of general and/or public importance such as to justify the delay caused by the appeal:
(a)whether a dispute over the correct interpretation of clauses in the trust deed can be arbitrated — both prior to 30 January 2021 and currently — under the Trusts Act 2019;
(b)the construction of the arbitration clause in the trust deed; and
(c)the enforceability of arbitration trust clauses in trust deeds generally and, in particular, the deed for the Trust.
Mr Lobb also raises an issue regarding jurisdiction. The point appears not to have been raised in the High Court. Mr Lobb says that the application to dismiss or stay the proceeding engaged the High Court’s inherent jurisdiction to supervise the administration of trusts and should have been determined by a High Court Judge. We do not accept this submission. Under s 21 of the Senior Courts Act 2016 an Associate Judge has the same jurisdiction as a High Court Judge in any proceeding on an interlocutory application, except for those specified by s 22(4) (none of which are relevant here). The application fell within the chambers jurisdiction of the Associate Judge.[10] It follows that the Associate Judge had jurisdiction to consider the issues raised in the application. It is evident that this jurisdiction is routinely exercised by Associate Judges in cases relating to the administration of trusts.[11]
[10]High Court Rules, rr 2.1 and 7.34(1).
[11]See, for example, Johnston v Brown [2021] NZHC 507; and Docherty v Docherty [2013] NZHC 1885.
We accept that there is little authority on the enforcement of arbitration provisions in a discretionary trust. Also, it is evident that there is general interest in the alternative dispute resolution provisions of the Trusts Act.[12] However, the facts of this case are very unusual and, ideally, the general question of the enforceability of an arbitration provision in a trust deed should await a case in which the issue is directly engaged and this Court has the benefit of full consideration by the High Court.
[12]See, for example, Andrew Butler “Arbitration of Trusts Disputes under the Trusts Act 2019” [2021] NZLJ 106.
The more significant consideration is the delay that would result from an appeal. It is evident from both Edwards J’s decision and Associate Judge Smith’s decision that virtually no progress has been made towards the resolution of the issues between the parties. Five years after separation, they are still engaged in a number of proceedings, resolution of which is an ongoing cost to both. Had Mr Lobb acceded to the proposal for arbitration in 2017 it is very likely that the issues between the parties, including his contention as to the basis on which resettlement should proceed under cl 2.5, would have been resolved by now. After so long, and given the history of the dispute, the interests of justice make prompt resolution of the substantive proceeding the determinative factor.
Result
The application for leave to appeal is declined.
The respondent is entitled to costs for a standard application for leave to appeal on a band A basis with the usual disbursements.
Solicitors:
McVeagh Fleming, Auckland for Applicant
Patterson Hopkins, Auckland for First Respondent
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