Mason v Dodd

[2020] NZHC 1508

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-936

[2020] NZHC 1508

BETWEEN

ALEXANDER CHARLES MASON

Plaintiff

AND

PAUL MORLEY DODD

Defendant

Hearing:

18 May 2020

Counsel:

G J Thwaite and W S Kim for plaintiff

S Hunter QC and S T Coupe for defendant

Judgment:

30 June 2020

JUDGMENT OF KATZ J

This judgment was delivered by me on 30 June 2020 at 4:00pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Gilbert Walker, Auckland

Counsel:G J Thwaite, Abraham Lincoln Chambers, Auckland S Hunter QC, Shortland Chambers, Auckland

MASON v DODD [2020] NZHC 1508 [30 June 2020]

Introduction

[1]    Alexander Mason claims that Paul Dodd, his former accountant, gave him incorrect advice in 1994 about setting up a family trust (the Mamari Trust) and transferring his assets to it. Mr Dodd is alleged to have given Mr Mason further incorrect advice and/or failed to correct his earlier advice in 2013 when a second trust (the Mamari (No 2) Trust) was established.

[2]    Mr Mason and his wife, Wendy Mason, were trustees of both trusts. In 2019 they were both removed as trustees by this Court.1 In Mrs Mason’s case this was due to her incapacity, as a result of dementia. In Mr Mason’s case, Fitzgerald J found that he displayed a fundamental lack of understanding of the role and duties of a trustee, instead believing that he was entitled to do “whatever he likes with trust assets”.   Her Honour observed that “a person who does not accept or believe in the very concept of the trust of which they are a trustee is the antithesis of who ought to be a trustee.” Fitzgerald J found that Mr Mason’s deep hostility to his co-trustees and two of the beneficiaries of the trust meant that he was no longer able to discharge his duties as a trustee in a fair and impartial manner. Mr Mason’s hostility had resulted in significant dysfunction in the operation of the trusts and an unsustainable dissipation of trust assets, including large sums spent on legal fees.2

[3]    Mr Mason alleges in this proceeding that Mr Dodd was negligent, and also in breach of contract, in not advising him of the possibility that he could lose control of the two trusts. He seeks summary judgment in respect of liability on all causes of action, with a separate trial to follow later on quantum issues.

Summary judgment applications – the law

[4]    The Court may give judgment on any cause of action if satisfied that Mr Dodd has no defence to that cause of action.3 The words “no defence” have been interpreted

1      Triezenberg v Mason [2019] NZHC 14, (2019) 5 NZTR 29-001.

2      Triezenberg v Mason [2019] NZHC 14, (2019) 5 NZTR 29-001 at [125]–[130].

3      High Court Rules 2016, r 12.2.

to mean “no bona fide defence, no reasonable ground of defence, no fairly arguable defence”.4 The summary judgment procedure exists to:5

…enable a plaintiff to obtain judgment where there is really no defence to the claim made so put an end to the spectacle of a worthless defence being raised and pursued for the purposes of delay … [it] is intended to prevent a man, clearly entitled to money, from being delayed when there is no fairly arguable defence to be brought forward.

[5]    The Court need not accept uncritically evidence that is inherently improbable or lacking in credibility, and assessment of the strength of evidence is a matter of judgment.6 The onus of proving that there is no real defence lies on the plaintiff.

Factual background

[6]    Mr and Mrs Mason engaged Mr Dodd as their accountant in 1993, and in early 1994 they asked him to assist with asset planning, including the establishment of a trust. At the time Mr Dodd (who is now in his early 70s) had been working as an accountant for over 20 years, including seven years at Price Waterhouse and four years at his own firm. He was familiar with the operation of trusts and the duties of trustees.

[7]    Mr Dodd advised Mr and Mrs Mason on the establishment of the Mamari Trust. Once the trust was established, Mr and Mrs Mason transferred personal assets into it. They were the sole trustees.

[8]    Mr Mason says that he made it clear to Mr Dodd that he needed to retain control of his financial affairs. He claims that Mr Dodd advised him that he and his wife would always have control of the trust and the trust assets, given that they would be the settlors, trustees and also hold the powers of appointment of trustees.

[9]    In a reply affidavit filed in Family Court proceedings relating to the care and welfare of Mrs Mason, Mr Dodd stated that:

I did say [Mr and Mrs Mason] would retain control having the powers to appoint and remove trustees, however I should have added that power would

4      Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 4.

5      Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 4.

6      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]; Eng Mee Yong v Letchumanan [1980] AC 331 (HL) at 341 E.

be available if they were acting in the interests of all beneficiaries and they had mental capacity.

[10]   On 1 November 2012, Mr and Mrs Mason, together with their daughter  Vicky Triezenberg, met with Mr Dodd to discuss how the Mamari Trust would operate in the event of the death of either Mr Mason or Mrs Mason. The possibility of resettling the assets of the Mamari Trust into a new trust was discussed. Mr Dodd admits that prior to the formation of the Mamari (No 2) Trust in 2013 he discussed with Mr and Mrs Mason the control they would exercise over trust assets as trustees and the persons holding the power of appointment. He says further, however, that  Mr and Mrs Mason received legal advice on the formation of a new trust from their long-time solicitor, Finn Jorgensen of Sellar Bone & Partners and that Mr Jorgensen and his firm handled the drafting and finalisation of the trust deed.

[11]   Mr Jorgensen was Mr and Mrs Mason’s solicitor for over 30 years. He states in his affidavit that he met with Mr and Mrs Mason, and Ms Triezenberg, for two to three hours on 14 March 2013. They discussed trust matters and also signed enduring powers of attorney at that meeting. A file note of that meeting indicates that the matters discussed included issues relating to control of the proposed new trust, and the appointment of two additional trustees (Mr Dodd and Ms Triezenberg). Following the meeting Mr Jorgensen had further discussions with Mr Dodd and gave further thought to Mr and Mrs Mason’s trust and estate planning issues. He sent a draft deed of trust to Mr Dodd on 17 March 2013. The signed Mamari (No 2) trust deed, signed by all the trustees, is dated 20 May 2013. The Masons appointed themselves, Ms Triezenberg, and Mr Dodd as trustees of the Mason (No 2) Trust.

[12]   On 21 May 2013 Mr Jorgensen wrote to Mr and Mrs Mason in relation to the new trust and new wills.   He set out in that letter that Mr Mason, Mr Dodd and     Ms Triezenberg would be the trustees of the new trust and would also be added as trustees of the existing trust. (This is somewhat puzzling given that the document was signed, or at least dated, the previous day).

[13]   After some correspondence with Mr Mason a meeting was held on 30 May 2013 with Mr and Mrs Mason, Ms Triezenberg and Mr Dodd. Mr Jorgensen says he discussed the various trust and estate planning documents in detail, going through each

document individually and explaining its meaning and purpose before it was signed. The relevant documents included a deed of resettlement, deed of forgiveness, various trust resolutions, and new wills for Mr and Mrs Mason. Mr Jorgensen says that he answered any questions as they arose and states that:

I was satisfied that both [Mr and Mrs Mason] in particular were aware of and understood the effect and implications of the various documents before they were signed.

[14]   Hence, on 30 May 2013 Mr and Mrs Mason (as trustees of the Mamari Trust) resettled the cash assets of the Mamari Trust into the Mamari (No 2) Trust. Other assets remained in the Mamari Trust. Ms Triezenberg and Mr Dodd were added as trustees of the Mamari Trust.

[15]   In late 2015 a dispute arose between the trustees as to whether Mrs Mason, who was suffering from dementia, required residential care. In short, Ms Triezenberg and Mr Dodd were of the view that  Mrs  Mason  required  residential  care,  and they wanted to use trust funds  to  pay  for  that  care.  Their  view  was shared  by Ms Triezenberg’s two siblings and Mrs Mason’s clinical team. Mr Mason did not want Mrs Mason placed into care or to use trust funds for such a purpose.

[16] Matters escalated, resulting in the operation of both trusts becoming dysfunctional. In 2017, Ms Triezenberg and Mr Dodd issued proceedings seeking Mr Mason’s removal as trustee. The claim went to trial in September 2018. On 17 January 2019 Fitzgerald J delivered judgment. She removed Mr Mason, for the reasons I have set out at [2] above. Mrs Mason was also removed as a trustee, on the grounds of incapacity. Ms Triezenberg and Mr Dodd remained trustees. All trust distributions since that time have been for the benefit of either Mr Mason or Mrs Mason.

First and third causes of action: the Mamari Trust

[17]   The first and third causes of action both relate to the Mamari Trust. Mr Dodd’s alleged failure to advise of the possibility that Mr Mason could lose control of the trusts is said to be in breach of both his contractual obligations and/or his duty of care

to Mr Mason. To obtain summary judgment in respect of the professional negligence cause of action, Mr Mason must establish that:

(a)Mr Dodd failed to use the standard of care reasonably expected of skilled members of his/her profession holding themselves out as having the relevant skills (here, advising on trusts). The relevant conduct must be judged as at the time the work was done.7

(b)Mr Dodd’s failure to meet the relevant standard caused the loss, damage or injury for which Mr Mason seeks a remedy.

[18]   Mr Thwaite, counsel for Mr Mason, did not draw any material distinctions between the contract and negligence claims. The factual allegations underpinning both the first and the third causes of action are essentially the same.

Summary judgment in a negligence context

[19]   Negligence cases are seldom amenable to summary judgment, and professional negligence cases even less so. Such cases usually involve disputes in relation to both factual issues and the relevant standard of care to be applied. Resolving such issues will often require a credibility assessment. Professional negligence cases also require an assessment of the relevant professional standards at the time the disputed events took place.

[20]   Cases where plaintiffs have been successful in obtaining summary judgment in a professional negligence context generally involve a clear breach of a contractual obligation. For example, where a solicitor fails to seek an order that a caveat not lapse within the permitted time frame.8 As McGechan J explained in Economy Services Ltd v Smith & Hughes:9

Given the usual nature of negligence cases, and a fortiori professional negligence cases, in reality the required degree of satisfaction as to absence of defence is not easily achievable. Frequently, there will be differences over

7      Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at 430.

8      As in Ball v NZ Debt Repay (in liq) HC Auckland CIV-2002-404-2006, CP 490/02 and Economy Services Ltd v Smith & Hughes (1989) 2 PRNZ 657 (HC).

9      Economy Services Ltd v Smith & Hughes (1989) 2 PRNZ 657 (HC) at 660.

matters of primary fact with decisions required upon credibility. Any motor vehicle collision case furnishes an example. Frequently, there will be disputed factual questions relevant to foreseeability, standard of care, and remoteness. Often factual questions bearing on contributory negligence will arise. In the particular professional negligence area, particularly if matters actually reach the litigation stage, there may well be a sharp conflict as to both the events which occurred and the professional standards involved. In the residue of cases which pass through these barriers, there will of course remain the question of ultimate discretion under r 136.¹⁰

The standard of care

[21] The passage of Mr Dodd’s evidence set out at [9] above lies at the heart of Mr Mason’s summary judgment application. To reiterate, the relevant passage states:

I did say [Mr and Mrs Mason] would retain control having the powers to appoint and remove trustees, however I should have added that power would be available if they were acting in the interests of all beneficiaries and they had mental capacity.

[22]   Mr Thwaite submitted that this evidence, without more, establishes both negligence and breach of contract on the part of Mr Dodd. In light of this evidence, he submitted, there can be no reasonably arguable defence to Mr Mason’s claims.  Mr Dodd, he submitted, has admitted a breach  of  his  duty  of  care  to  Mr  and  Mrs Mason.

[23]   Even on its face, however, the relevant statement is open to differing interpretations. The statement was made with hindsight, many years after the relevant events, in circumstances where Mr Dodd had become embroiled in protracted and expensive litigation relating to the Mamari Trust and Mamari (No 2) Trust.

[24]   The first part of Mr Dodd’s statement, namely that he told Mr and Mrs Mason they would retain control of the trust, having the powers to appoint and remove trustees, does not appear to be controversial. Mr and Mrs Mason were the sole trustees and did hold the power to appoint and remove trustees. Pursuant to the trust deed, they were entitled to apply the whole of the trust capital and income to themselves “in their sole and uncontrolled discretion”. As Mr Hunter QC (counsel for Mr Dodd)

10     Rule 136 was the predecessor of what is now r 12.2 of the High Court Rules 2016.

noted, in Clayton v Clayton the Supreme Court referred to such powers as “tantamount to ownership”.11

[25]   The real issue, therefore, is whether Mr Dodd should have qualified his advice by informing Mr and Mrs Mason that they could be removed by the court if they were to either breach their obligations as trustees or become mentally incapable. However, even if Mr Dodd’s statement were interpreted as an admission that he now believes he should have caveated his advice in this way, that is not determinative of either negligence or breach of contract. As I have noted above, the appropriate standard of care is determined objectively, with reference to the standards of a reasonable person in the position of the defendant at the relevant time. Mr Dodd’s subjective views may be relevant to that assessment, but they will not be determinative.

[26]   Determining the relevant standard of care is ultimately a matter of law for the court. In most cases, expert evidence as to the usual or accepted professional standards and practice at the time of the relevant advice or conduct will be necessary to assist the court in its task. As McHugh J observed in Dovuro Pty Ltd v Wilkins:12

To hold defendants to standards of conduct that do not reflect the common experience of the relevant community can only bring the law of negligence, and with it the administration of justice, into disrepute.

[27]   Here, Mr Mason has provided no expert evidence as to the usual or accepted professional standards applying to accountants involved in the establishment of trusts, as at 1994. It is far from obvious that a reasonable accountant would have caveated his or her advice in the way now suggested by Mr Thwaite. On the issue of incapacity, it must be at least arguable that even an unsophisticated client would appreciate that if they later lost mental capacity they may no longer be able to continue to act as a trustee or exercise their power of appointment. Indeed, such a loss of control may occur even if assets are owned personally.13

11     Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551 at [61].

12     Dovuro Pty Ltd v Wilkins [2003] HCA 51, 215 CLR 317.

13     For example through appointment of a property manager by the Family Court under the Protection of Personal and Property Rights Act 1988.

[28]   As for the second caveat (the possibility of a trustee being removed by the court for misconduct), Mr Dodd says that he would have explained that trust assets are held for the beneficiaries and must be dealt with in accordance with the trust deed. The issue is whether a reasonable adviser in his position would have gone further, and expressly advised their client that if they ignored that advice, and breached their duties as a trustee, they risked being removed by the court for misconduct. There is no evidence before me that a reasonable adviser, in 1994, would have given such advice.

[29]   Removal of trustees for misconduct is a relatively rare occurrence, given the number of trusts in New Zealand. It may well be that professional trust advisers, as at 1994, would not have felt it necessary to expressly advise of this risk. We simply do not know, however, in the absence of any expert evidence. Indeed, the need for evidence on matters such as foreseeability and the standard of care is why summary judgment is “reasonably rare in negligence cases.”14

Causation

[30]   Mr Mason must establish that Mr Dodd’s failure to meet the relevant standard caused the loss, damage or injury for which Mr Mason seeks a remedy. If there is no causative link between the breach of the duty of care and Mr Mason’s loss, there can be no liability for negligence. Mr Thwaite sought to sidestep this issue by seeking summary judgment on liability only, with a later trial on issues of quantum. To succeed in obtaining summary judgment, however, Mr Mason must show that there has been at least some loss (and it is not reasonably arguable otherwise).

[31]   Mr Mason asserts that he would not have signed the Mamari trust deed, or subsequently transferred assets into the trust, if he had known the trustees could be removed for misconduct or incapacity. It may well be that there is a significant element of hindsight in that assertion. Mr Dodd is clearly entitled to test such evidence at trial.

[32]   Indeed, Mr Hunter submitted (and I accept) that it is open to argument whether there has been any loss at all. All of the trust assets, and therefore the wealth generated

14     See Daisley v Whangarei District Council [2018] NZHC 2211 at [26] per Hinton J.

by Mr and Mrs Mason, has been applied for their benefit. There have been no distributions to other beneficiaries. Legal costs have been incurred, but it is arguable that that is a consequence of Mr Mason’s own actions (including breaches of his obligations as a trustee). Again, these are the types of issues that can only be determined at trial.

[33]   I further note that liability only judgments are extremely rare in a summary judgment context, given the frequent overlap between liability and damages issues. As Eichelbaum J observed in Ghent v Brinkman:15

Even had I taken a different view of the issues discussed so far, I would not have felt able to accede to the plaintiffs’ application for judgment on liability. This is not a case where there is any clear dichotomy between issues affecting liability on the one hand and damages on the other. The claims for aggravated and exemplary damages appear to open up virtually the whole field of the conduct of the respective parties, necessarily leading to an examination of all aspects of the relationship between them. Likewise with the question of the possible reduction of the plaintiffs’ damages, whether on the basis  dealt with in Day v Mead or (on the second cause of action) by way of a plea of contributory negligence on conventional grounds. Thus the Court would perforce have to examine and pronounce upon the very issues which by virtue of a summary judgment would have been presumed to have been decided in favour of the plaintiffs. Not only would that mean that the summary judgment procedure would have conferred little advantage from the point of view of saving expense and time but it would put the Court in the position where it might make findings which would not readily be reconciled with a holding that there was no tenable defence. For these reasons therefore I would in any event decline to enter summary judgment.

Limitation

[34]   For the reasons I have outlined, the first and third causes of action are clearly unsuitable for summary determination. As a result, it is not necessary for me to consider limitation issues in any detail. I note, however, that Mr Dodd’s advice was given in 1994, 25 years before the proceedings were issued. Mr Thwaite submitted that the cause of action did not accrue until 2013, when Mr Dodd lost control of the trust. That appears to be a fairly novel argument, and certainly not one that could succeed on a summary judgment basis.

15     Ghent v Brinkman HC Wellington CP379/87, 11 September 1987 at 12-13.

[35]   In the alternative, Mr Thwaite sought to invoke s 28 of the Limitation Act 1950 to extend the limitation period. However, the pleading does not provide any particulars of fraud by Mr Dodd. In his third affidavit Mr Mason says that “the word ‘fraud’ is used in a specialised legal sense” and “refers to the failure on the part of Mr Dodd to ever advise that his advice to me in 1993 and 1994 was incomplete and misleading.” Section 28 only applies, however, where there has been fraudulent concealment. Fraudulent concealment requires a duty to disclose and a wilful failure to do so.16 In Trustees Executors v Murray the Supreme Court stated that a plaintiff “cannot … simply make an unsupported assertion in submissions that s 28 applies.”17

[36]   Yet again, these are complex issues that will require full particularisation and comprehensive legal submissions (and possibly also evidence). On the information currently before the Court, however, a limitation defence to the first and third causes of action appears to be strongly arguable.

Second and fourth causes of action: the Mamari (No 2) Trust

[37]   The second and fourth causes of action both relate to the settlement of the Mamari (No 2) Trust. Again, one cause of action is in contract, the other in tort.

[38]   As with the first and third causes of action, the key allegation is that Mr Dodd failed to advise Mr Mason that he might “lose control” of assets transferred into trust and, further, that he failed to correct the allegedly incorrect or incomplete advice he had given on this issue in 1994.

[39]   These causes of action cannot succeed on a summary basis for the reasons I have outlined in relation to the first and third causes of action. There is no expert evidence before me as to usual or accepted professional standards and practice at the time of the alleged advice (or lack of advice). Whether or not Mr Dodd fell short of the relevant standards, viewed objectively, is strenuously disputed and will need to be resolved at trial. Further, there are issues with causation.

16     See Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC).

17     Trustees Executors v Murray [2007] NZSC 27, [2007] 3 NZLR 721 at [34].

[40]   A further complicating factor is that Mr Mason appears to have received legal advice on the establishment of the Mamari (No 2) Trust from his longstanding solicitor, Mr Jorgensen. Mr Dodd says he did not advise Mr Mason on the trust deed or associated documents. I have set out the timing of events relating to the establishment of the Mamari (No 2) Trust at [10] to [14] above. What advice (if any) Mr Dodd gave in relation to the Mamari (No 2) Trust, and how such advice interfaces with any advice given by Mr Jorgensen, are factual issues that will need to be explored at trial.

[41]   Mr Hunter also noted that the assets transferred into the Mamari (No 2) Trust were held by Mr and Mrs Mason as trustees of the Mamari Trust and not personally. He submitted that the status of the assets as trust assets, held subject to fiduciary obligations, did not change in 2013. Any claim against Mr Dodd in relation to the transfer of assets from the Mamari Trust to the Mamari (No 2) Trust would need to be brought by the relevant trustees, not Mr Mason personally. Again, these are issues that are potentially relevant to liability. They will need to be explored at trial.

[42]   Taking these various matters into account, it is clear that the second and fourth causes of action are also entirely unsuitable for summary judgment.

Limitation

[43]   There also appears to be a potential limitation defence to the second cause of action. Mr Mason’s allegations relate to “services in forming the Mamari (No 2) Trust”. The trust was settled on 20 May 2013 and any breach of contract must have occurred by that date (being more than six years before the statement of claim was filed). The statement of claim was filed on 29 May 2019.

[44]   In respect of the fourth cause of action, the relevant duty is also said to have related to “services in forming the Mamari (No 2 Trust)”. Mr Mason’s loss, however, is said to have arisen when he and Mrs Mason transferred assets into the trust. This occurred on 30 May 2013. Arguably the fourth cause of action accrued on this date. As the statement of claim was filed on 29 May 2013, a limitation defence does not currently appear to arise in respect of this cause of action.

Conclusion

[45]   For the reasons outlined, Mr Mason has failed to establish, by a very wide margin, that Mr Dodd has no reasonable ground of defence to any or all of the causes of action pleaded.

Result

[46]The application is dismissed.

[47]   As the successful party, Mr Dodd is entitled to an award of costs. If costs cannot be agreed between counsel, then any memorandum on behalf of Mr Dodd is to be filed by 20 July 2020. Any memorandum on behalf of Mr Mason is to be filed by 27 July 2020.

Katz J