Lynx Trustees Limited (in liq) v Memelink
[2021] NZHC 1311
•9 June 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-374
[2021] NZHC 1311
UNDER the Insolvency Act 2006 AND IN THE MATTER
of the bankruptcy of Quentin Stobart Haines
BETWEEN
LYNX TRUSTEES LIMITED (IN LIQ)
Applicant
AND
HARRY MEMELINK and
CISCA FORSTER in their capacities as the trustees of the Link Trust (No. 1) Respondents
Hearing: 20 May 2021 Appearances:
G Neil for the applicant
D G Livingston for respondents
Judgment:
9 June 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] In my judgment of 18 December 2020, which followed an earlier consent judgment, I granted the plaintiff, Lynx Trustees Ltd (in liq), summary judgment against the trustees of the Link Trust (No. 1), Harry Memelink and Cisca Forster, but declined to grant certain remedies.1 The company seeks leave to appeal from my judgment. That application is opposed by the trustees.
[2]In my judgment I set out the background in the following terms:2
1 Lynx Trustees Ltd (in liq) v Memelink [2020] NZHC 3415.
2 At [3]–[12].
LYNX TRUSTEES LIMITED (IN LIQ) v MEMELINK [2021] NZHC 1311 [4 June 2021]
[3] BC 68792 is the body corporate connected with a block of residential apartments at 408 Hutt Road in Lower Hutt. For some years, Mr Memelink has been instrumental in the acquisition of apartments in the block. He has procured the acquisition of several unit titles by the trustees of the Link Trust No. 1. The trustees ultimately acquired and still apparently own six units – more than half of the units in the complex.
[4] The trustees of the Link Trust (No. 1) have changed more than once, but for present purposes it is only necessary to record that:
(a)between April 2017 and 26 August 2019 the trustees were Mr Memelink and the plaintiff, Lynx Trustees Ltd (in liq) (“Lynx Trustees”);
(b)the current trustees are Mr Memelink and Ms Cisca Foster.
[5] BC 68792 and the trustees have been embroiled in a long dispute concerning levies, a significant proportion of which were rendered while Mr Memelink and Lynx Trustees were the trustees of Link Trust (No. 1).
[6] Primarily, as I understand the position, as a result of this dispute, BC 68792 has been placed in administration. It has had three administrators. The third and current administrator is Mr Tony Gambitsis.
[7] More recently Mr Memelink has been adjudicated bankrupt and an order has been made appointing liquidators over the affairs of Lynx Trustees.
[8] In July 2020 Lynx Trustees commenced this proceeding in which it applies for summary judgment against the (current) trustees.
[9] Lynx Trustees’ core claim is for indemnity in respect of any liability it has to BC 68792 for levies.
[10] At the first call of the matter, counsel for the parties invited me to enter judgment by consent in respect of some of the remedies sought. I issued a consent judgment on 30 September 2020. As a result, Lynx Trustee’s claim is now confined to the following:
(a)a declaration that the Company is entitled to be indemnified out of the trust fund of the Trust in respect of:
(i)debts incurred by the company as trustee in respect of the Body Corporate’s claim in the sum of
$664,250.67;
(ii)the Liquidators’ reasonable remuneration and expenses for the period 15 September 2020 to 30 November 2020 in the sum of $31,017.73;
(b)judgment for the Company against the trustees in respect of the above sums;
(c)interest pursuant to s 10 of the Interest on Money Claims Act 2016 on the sum of $664,250.67;
(d)an order in equity for sale of the Trust’s properties to satisfy the Company’s lien or charge in respect of the admitted debts and the Liquidator’s remuneration and expenses; and
(e)costs.
[11] BC 68792 has lodged proofs of debt with both the Official Assignee in Mr Memelink’s bankruptcy and the liquidators in Lynx Trustees’ liquidation.
[12] There have been some complications concerning quantum. However, BC 68792’s claim for outstanding levies has been determined to be
$664,250.67. That figure is now acknowledged to be correct by both the Official Assignee and the liquidators.
[3] I then dealt with a procedural issue concerning the correct defendants, and the principles governing summary judgment, before addressing the substantive application.3
[4]The conclusions I reached are set out in paragraphs [29]–[34]:
[29]That brings me to the remedies now sought by Lynx Trustees.
[30]As already said, Lynx Trustees’ claim is primarily one for indemnity.
[31] It is common ground that Lynx Trustees is prima facie entitled to indemnity pursuant to the Link Trust (No. 1) deed of trust, and Mr Livingston did not contend otherwise.
[32]However, the question is, indemnity against what?
[33] In my judgment, Lynx Trustees can only claim indemnity against liability that comes home to roost, that is to say a liability established at the suit of BC 68792 and in respect of any amount recoverable or recovered against it.
[34] Against that background, in my judgment, Lynx Trustees’ prayer for relief (quoted at [10]) is misconceived in several respects. Taking the remaining components of the claim in order:
(a)For the reasons already outlined, it appears to me that Lynx Trustees is entitled to a declaration that it has a right of indemnity in respect of any liability arising from its trusteeship between April 2017 and September 2019. The trustees are entitled to such an order under the Link Trust (No. 1) deed of trust. In my view, it would be both inappropriate and unnecessary for the Court to put a figure on this. The indemnity will extend to levies legitimately determined to be payable to BC 69892 in respect of the relevant units over that period of time together with any other
3 At [13]–[28].
costs, interest and the like ordered to be paid to BC 688792 or its administrators in respect of the same period of time;
(b)I am not satisfied that in addition to a declaration in the terms referred to in (a) above Lynx Trustees is entitled to a money judgment. It strikes me that the two would cover the same ground and that the declaration is the appropriate remedy;
(c)In (a) above I have already dealt with the question of interest;
(d)I am not prepared to make an order in the terms sought in para
[d] of the prayer for relief. This is not the appropriate point to make such an order. The declaration of indemnity is sufficient. What Lynx Trustees effectively seeks is a pre-emptive order for the enforcement of any indemnity. Such enforcement mechanisms will only become relevant at a later stage, no doubt following a demand and a failure to meet the same. I am not prepared to make any pre-emptive order at this stage;
(e)As the successful party, the Lynx Trustees’ is prima facie entitled to an award of scale costs. However, not having heard from counsel in relation to costs I am not prepared to reach a concluded view at this stage. I would expect counsel to be able to resolve costs but if that is not possible then they may file memoranda in the usual way and I will deal with costs on the papers.
[5] As my judgment was interlocutory in its nature, and Lynx Trustees Ltd seeks to appeal against those aspects in which I declined to grant relief, leave to appeal is required.4
[6]The principles that apply to such applications are well settled:5
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of precedential value;
4 Senior Courts Act 2016, s 56.
5 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13], endorsed by the Court of Appeal in Greendrake v The District Court of New Zealand [2020] NZCA 122 at [6].
(d)the circumstances must warrant incurring further delay;
(e)the ultimate question is whether the interest of justice is served by granting leave.
[7] The papers filed and served in support of this application are voluminous. The common bundle of documents runs to four volumes and more than 900 pages. Counsel’s submissions between them run to some 19 pages. These were accompanied by a substantial bundle of authorities. I mean no disrespect to counsel’s careful arguments in saying that I propose to deal with the application as expeditiously as possible.
[8] The conclusion that I reached was that Lynx Trustees Ltd was entitled to the primary remedy it sought, that is to say a declaration that it has a right to be indemnified against any liability incurred by it whilst it was a trustee of the Link Trust (No. 1), together with the liquidators’ reasonable remuneration and expenses. However, I declined to quantify the amount of any such liability and enter a money judgment or to order that any property owned by the trustees be charged to secure any such judgment.
[9] My judgment could no doubt have expressed this more clearly, but I reached that conclusion because I was not satisfied, on the evidence, that the defendant did not have an arguable defence as to quantum.
[10] Lynx Trustees Ltd says that there is well settled law that would have justified me in taking those steps with which my judgment was inconsistent.
[11] In the course of argument Mr Neil focussed largely on Gilbert J’s judgment in Ranolf Co Ltd (in liq) v Bhana.6 In that case, his Honour referred to earlier authority. And Mr Neil referred to later cases. But, as he put Ranolf front and centre of the argument, and I accept that that case is authoritative, I need not refer to any others.7
6 Ranolf Co Ltd (in liq) v Bhana [2017] NZAR 1047.
7 Ranolf Co Ltd (in liq) v Bhana, above n 6.
[12] Mr Neil summarised the approach adopted by Gilbert J in Ranolf, correctly, as it appears to me, in these terms:8
4.1The Company sought orders it did by way of summary judgment following the approach that was taken by this Court in the judgment delivered by his Honour Justice Gilbert in Ranolf Co Ltd (in liq) v Bhana, and in reliance upon firmly established law that:
(a)a company in liquidation which is a former trustee is indemnified out of the assets of the trust for the purpose of meeting the trust’s creditor claims, as well as the liquidators’ costs (Ranolf);
(b)the indemnity is supported by a lien on the trust property that applies not only where the trustee has paid the trust creditor but also it applies where the debt has been incurred but not paid (Ranolf);
(c)a company in liquidation which is a former trustee may have recourse to trust property to meet the admitted claims of its creditors which were debts incurred in his capacity as trustee, as well as the liquidator’s costs (Ranolf); and
(d)The liquidator of a former trustee company requires an order of the Court to enforce the company’s right of indemnity in order to meet admitted claims.
[Footnotes omitted.]
[13] Gilbert J’s judgment followed a trial in which both liability and quantum were in issue, and his Honour concluded on the evidence that the claims in respect of which the liquidators were seeking indemnity were well founded.
[14] In this case, the company sought summary judgment as to both liability and quantum. Insofar as the latter is concerned, the affidavit evidence as to the trustees’ liability for levies ultimately relied on my judgment of 15 October 2020 in earlier proceedings between different parties where I assessed and determined the quantum of the Body Corporate’s claim for levies against Lynx Trustees Ltd.9 The evidence as to the liquidators’ remuneration and expenses certainly quantified these, but did not, in my view, provide a sufficiently detailed analysis of how they were made up or address adequately the issue of reasonableness.
8 Ranolf Co Ltd (in liq) v Bhana, above n 6.
9 Memelink v The Official Assignee [2020] NZHC 2709.
[15] As already said, my conclusion was that the evidence was insufficient to justify a determination as to quantum. Mr Neil submits that I was in error, and seeks leave on that basis. Mr Livingston for the trustees submits that there was no error of law (at least on the grounds advanced on behalf of Lynx Trustees Ltd).
[16] Mr Livingston contends that, notwithstanding my judgment in the earlier proceeding, there is still scope for the quantum of Lynx Trustees Ltd’s claim in this proceeding to be challenged.10 He argued that it was open to the trustees to contest the liability of the trustees for the levies claimed by the body corporate, and that the liquidators’ costs have never been agreed nor fixed in any way that is binding on the current trustees, and there has been an ongoing dispute as to whether the claim for expenses and costs — currently in excess of $320,000 — could have been properly incurred. Ultimately, I accepted Mr Livingston’s submission, concluding that I could not be satisfied to the necessary standard that Lynx Trustees Ltd could establish that there was no arguable defence available to the trustees as to quantum.
[17] I accept Mr Neil’s submission that there is an appellate issue, that is to say whether, on the evidence, my exercise of the discretion to decline summary judgment as to quantum was correct.
[18] I do not accept that that issue is one of general and public importance. Mr Neil’s contention to that effect is predicated on the proposition that my judgment is inconsistent with Ranolf.11 I do not accept that Ranolf is authority for the proposition that once the Court accepts there is a right of indemnity it must then take the further step of confirming the quantum of the indemnified debt. I did not depart from Ranolf. It is simply a matter of having concluded — in the context of a summary judgment application — that there was still an opportunity for the trustees to challenge the quantum of the claim, and that the quantum issue should go to trial where it could be determined once and for all.
[19] I do accept Mr Neil’s contention that this is an important issue from the perspective of Lynx Trustees Ltd. However, this is simply because the company would
10 Memelink v The Official Assignee, above n 9.
11 Ranolf Co Ltd (in liq) v Bhana, above n 6.
have preferred a different outcome. That is no different from the position of any disappointed litigant. I cannot see that that outweighs the absence — certainly as I see it — of any issue of general or public importance.
[20] Moreover, it appears to me that there is a practical reason why the additional time and expense of an appeal is not justified.
[21] My judgment means that Lynx Trustees Ltd will have to have this matter set down for a quantum trial.
[22] Although it may be necessary to go through some interlocutory steps — such as focussed discovery — it seems to me that if the matter is managed appropriately the plaintiff should be able to secure a quantum hearing before a Judge or Associate Judge promptly.
[23] Mr Neil observed that all the liquidators of Lynx Trustees Ltd want to do is to pay out the creditors. That of course is an entirely laudable objective on their part. But it seems to me that setting the matter down for a quantum hearing as I have described is by far the most efficient means of achieving just that.
[24]For those reasons, I decline leave.
[25] I reserve costs. If counsel are unable to sort these out, as I would expect them to be able to do, they may come back by memorandum in the usual way.
[26] In the meantime, I direct the Registrar to liaise with counsel to arrange a case management conference as soon as possible with a view to having this matter set down for a quantum hearing.
Associate Judge Johnston
Solicitors:
Meredith Connell, Wellington for applicant
Livingston & Livingston, Wellington for respondents
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