McKean v McKean Family Trustee Limited
[2024] NZHC 3927
•20 December 2024
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2022-454-21
[2024] NZHC 3927
BETWEEN JANET ANNE ABIGAIL MCKEAN and JOHN DUGALD STEWART MCKEAN
PlaintiffsAND
MCKEAN FAMILY TRUSTEE LIMITED
First Defendant
IAN MACGREGOR STEWART MCKEAN
Second Defendant
CIV-2022-454-71 BETWEEN
MCKEAN FAMILY TRUSTEE LIMITED
ApplicantAND
JANET ANNE ABIGAIL MCKEAN and JOHN DUGALD STEWART MCKEAN
Respondents
Hearing: 9 December 2024 Appearances:
L McKeown for Janet McKean and John McKean V Bruton KC for McKean Family Trustee Ltd
B Murfitt for Ian McKean
S Campbell for Torwood Trustees LtdJudgment:
20 December 2024
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] These proceedings concern the Torwood Family Trust (the Trust). The main assets of the Trust are a farm property and other non-contiguous blocks of land in Rangiwahia together valued at approximately $3.5 million. The proceedings are set
MCKEAN v MCKEAN FAMILY TRUSTEE LIMITED [2024] NZHC 3927 [20 December 2024]
down to be heard together over seven days from 10 February 2025. The proceedings are:
(a) CIV-2022-454-21 (Removal Proceeding): Janet and John McKean allege misconduct and breaches of duty against McKean Family Trustee Ltd (MFTL) (in its capacity as former trustee of the Trust) and its sole director and shareholder Ian McKean (Ian), and seek various remedies including orders that Ian and MFTL must on a joint and several basis pay Janet and John’s costs of the removal application and reimburse the Trust for costs charged to the Trust fund in the sum of $207,608.75;1
(b) CIV-2022-454-71 (Directions Proceeding): The new trustee of the Trust, Torwood Trustees Ltd (TTL), seeks directions from the Court as to the sale of farm and the other blocks of land and distribution to beneficiaries, and also seeks the Court’s blessing to issue a statutory demand against MFTL for repayment of the sum of $207,608.75.2
[2] The requirement for MFTL to repay the sum of $207,608.75 to the Trust arises from the judgment of Churchman J dated 10 May 2023 (costs judgment).3 At the same time that MFTL commenced the directions proceeding on 13 September 2022, it applied for authorisation that its litigation costs for both proceedings be paid from the Trust’s funds. Justice Churchman found that MFTL was not entitled to a pre-emptive indemnity for its costs on the basis that both proceedings are hostile, and the costs incurred by MFTL were unreasonable or otherwise not properly incurred.4 However, Churchman J found that MFTL should be indemnified for 30% of its costs as costs properly incurred in the administration of the Trust. MFTL was ordered to reimburse
1 Torwood Trustee Ltd (TTL) was appointed trustee of the Trust, replacing MFTL, pursuant to consent orders in the Removal Proceeding (Minute of La Hood J dated 2 November 2023).
2 The Directions Proceeding was commenced by MFTL. TTL was substituted as plaintiff in the Directions Proceeding pursuant to consent orders in the Directions Proceeding and has filed an amended statement of claim. There was also a consent order that MFTL would remain a party to the Directions Proceeding solely to the extent required to advance its right to an indemnity for costs incurred as trustee during the period it was a trustee of the Trust (Minute of Associate Judge Skelton dated 15 August 2024).
3 McKean Family Trustee Ltd v McKean (No 2) [2023] NZHC 1098 [Costs judgment].
4 At [44]-[78].
the balance of its costs paid from the Trust fund ($207,608.75) pending the substantive hearing.5 Justice Churchman found that:
[62] It is unknown what the ultimate result of MFTL’s substantive claims will be. There is no injustice if its costs are not now indemnified by the Trust, and the potential for injustice if they are. If no pre-emptive indemnification is granted and its claims are found to be well-founded, it is likely to have its costs indemnified by the Trust fund. If pre-emptive indemnification is granted and its claims are found not to be well-founded, the beneficiaries will lose out.
…
[77] At this stage the outcomes of the substantive proceedings are unresolved. It would be premature to find that MFTL as trustee is entitled to be indemnified for its losses and liabilities when it is unknown whether such losses and liabilities have been “properly incurred by [it] in the conduct of [its] duties for the Trust” and unknown whether such losses have or have not been “caused by” dishonesty, (wilful) misconduct and breach, which are among the allegations contained in Janet and John’s proceeding against MFTL. If it is established following the substantive hearing that MFTL has losses incurred in the conduct of its duties not caused by such things, it will be appropriate for MFTL to be reimbursed for its losses at that point – but not before.
[3] MFTL did not appeal Churchman J’s decision. MFTL presently has an obligation to repay $207,608.75 to the Trust but is yet to do so. MFTL accepts that it is in breach of a Court order. It says it is unable to comply as it does not have the funds to pay the order, unless and until it is able to enforce its indemnity.
[4] Following MFTL’s removal as trustee by a consent order on 2 November 2023, Janet and John sought costs on the application to remove MFTL (first cause of action). In a judgment dated 15 March 2024, La Hood J concluded that costs should be reserved until the conclusion of the trial (that is, the trial now scheduled for February 2025).6 He found that:
[28] Ultimately, I consider an assessment of success on the first cause of action should not occur in isolation from the allegations of misconduct by MFTL and Ian that are the foundation of Janet and John’s overall claim; or indeed Ian’s allegations about Janet and John’s conduct and motivation for bringing their claim. Those respective allegations require determination at a full trial where credibility findings can be made.
5 At [90]-[93]
6 McKean v McKean Family Trustee Ltd [2024] NZHC 162.
[6]Justice La Hood also found:
[22] As noted above, Churchman J has not determined whether MFTL will be entitled (to some extent) to have its legal expenses paid out of the Trust if MFTL and Ian are ultimately successful in defending the substantive allegations. The judgment was only in respect of entitlement to pre-emptive indemnification. Janet and John’s allegations against Ian and MFTL can only be determined as part of the substantive trial. ….
[7] MFTL has filed a statement of defence and counterclaims in the Removal Proceedings. As an affirmative defence/counterclaim, MFTL seeks an indemnity from the Trust fund in respect of legal fees and expenses incurred in the performance of its duties as trustee. MFTL also counterclaims for payment of reasonable charges for trust administration work, farm management work and farm work undertaken by its director, Ian, of up to $332,350. MFTL has pleaded the same counterclaims in the Directions Proceedings. Ian has also counterclaimed in the Directions Proceedings for entitlement as director of MFTL to be paid and/or reimbursed up to $332,250 for reasonable charges for the work undertaken by him for the Trust. Ian’s counterclaim appears to be only to the extent that these charges may be set off against any award of damages or costs made against him personally.
[8] The trial in February 2025 will substantively determine the allegations of misconduct and breach of duty made against MFTL and Ian, and determine MFTL’s entitlement to an indemnity from the Trust and whether Ian/MFTL are entitled to reimbursement for work undertaken by Ian for the Trust.
[9] Against that background, TTL now seeks to enforce the 2023 costs judgment as an interlocutory order pursuant to r 7.48 of the High Court Rules 2016 (HCR). TTL seeks an order that, unless MFTL reimburses the outstanding costs within 10 working days, it is debarred from participating in the proceedings identified by the number CIV-2022-454-71 and CIV-2022-454-21. TTL seeks one of the following orders:
(a)Immediately debarring MFTL from participating further which would be revoked if payment was made to TTL.
(b)An unless order. That order could be that unless payment is made within 10 working days, MFTL is debarred from further participation.
(c)MFTL is ordered to make a partial payment to provide TTL with sufficient funds to see the current legal process through. Torwood
Trustees estimates that $100,000 (plus GST) would be adequate to clear arrears and attend the substantive trial.
[10]Janet and John support the enforcement application and the proposed order in
(b) above. MFTL and Ian oppose the application.
Legal principles – enforcement of interlocutory orders
[11]Rule 7.48 of the HCR provides:
(1) If a party (the party in default) fails to comply with an interlocutory order or any requirement imposed by or under subpart 1 of Part 7 (case management), a Judge may, subject to any express provision of these rules, make any order that the Judge thinks just.
[12] The rule goes on to provide examples of orders the Judge may make, including striking out any pleading of the party in whole or in part, sealing judgment, or staying the proceeding in whole or in part.7 In Kidd v van Heeren, the Court discussed r 7.48 and found:8
[34] The expression “party in default” appears in bold and in parentheses clearly signalling that it is purely definitional. It does not add a further jurisdictional requirement to engage the rule. The sole jurisdictional issue is whether there was a failure to comply with an interlocutory order as specified. We reject the respondents’ submissions that jurisdiction to make an order under the rule is limited to circumstances where there has been deliberate, blameworthy or contumelious conduct. This will usually be highly relevant to whether an order should be made but it is not a jurisdictional requirement.
…
[42] Rule 7.48 is wide in scope — the judge may make any order the judge thinks just. The examples listed are just that, they do not limit the type of order that can be made. The rule empowers a judge to strike out a pleading or enter judgment if, for example, a party persistently fails to comply with a discovery order. An order striking out the proceeding or entering judgment in such a case does not serve to coerce compliance with the primary obligation to give discovery. On the contrary, the entry of judgment would serve to dispense with the discovery obligation.
[13] It is well established that r 7.48(2) permits an “unless order”.9 In exercising the discretion, the question is what the interests of justice require.10 The Court must
7 High Court Rules 2016, r 7.48(2)(a)–(c).
8 Kidd v van Heeren [2019] NZCA 275.
9 SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [29].
10 Parlane v Hayes [2015] NZCA 341 at [30].
balance the applicant's right to have the proceeding progress efficiently and in accordance with the interlocutory orders made to achieve that end and the seriousness of depriving a litigant of having the merits of their claim substantively determined.11 An order that will compromise irretrievably a party's right to a merits judgment for failure to meet some procedural obligation is a serious step that should be taken only when such is necessary to do justice to the other interests at stake.12 The following factors are relevant to the exercise of discretion to enforce non-compliance with interlocutory orders:13
(a)the duration of the non-compliance;
(b)its impact on the progress of the proceeding as a whole;
(c)whether there is an excuse or explanation;
(d)whether non-compliance continued after reasonable opportunities and reminders, particularly where the Court has already made a fresh order, or given a warning due to earlier non-compliance;
(e)whether the non-compliance has substantially prejudiced the innocent party, whether procedurally or due to some wider impact upon the innocent party's interests and affairs;
(f)whether there is any realistic expectation that it will be rectified following further opportunity for compliance.
Analysis
[14] In support of TTL’s application, Mr Campbell, for TTL, refers to cases where the Court has been prepared to grant a stay of the proceedings or part of the proceedings pending payment of interlocutory costs orders. For example, in Water Treatment Products Ltd (in liq) v Falloon, the Court made an order staying the entire proceeding pending payment by the plaintiff of a costs award made in favour of the defendant.14 The Court noted that what was sought was an order for a stay as contrasted with an order dismissing or striking out the proceeding, although “at some point if the proceedings have remained stayed for a long time, their ultimate fate will have to be revisited”.15 In these cases, the defaulting party’s claims are not dismissed
11 Jaques v Main [2017] NZHC 857 at [25]–[27].
12 Parlane v Hayes, above n 10, at [31].
13 Smith v Antons Trawling Company Ltd HC Auckland CL40/98, 24 March 2000 at [3]–[5].
14 Water Treatment Products Ltd (in liq) v Falloon [2012] NZHC 1141.
15 At [13]. In Ballantyne Trustees Ltd v Papprill Hadfield & Aldous Solicitors Nominee Company Ltd [2016] NZHC 713, the Court made an unless order requiring outstanding costs to be paid
or struck out and it is likely that the stay would have to remain in place for a period before the ultimate fate of the proceeding would have to be re-visited.16
[15] In the present case, with the substantive trial commencing on 10 February 2025, TTL seeks an order debarring MFTL from further participation in both proceedings. In Stephens v Cribb,17 which involved non-payment of costs and failure to give ordered particulars, the Court of Appeal set aside an order debarring the defendant from defending:18
We do not doubt that, in its inherent jurisdiction to control its own procedure and deal with contempt of Court, the High Court could make an order debarring a defendant from defending. But such an extreme order could be proper in an extreme case only. Provoking though the defendant’s conduct in not providing particulars earlier had been, this case was not in that extreme category…As for the $300, the ordinary execution processes were available to enforce the order, including removal of the order into a District Court and a distress warrant.
[16] In Spak (1996) Ltd v Leroy, Venning J made the following comments when considering costs on an application for an unless order debarring a party from defending a proceeding for non-payment of costs:19
[10] It would be extremely unlikely the Court would make an unless order based solely on the failure by a party to pay a previous costs award, particularly where the order was an open order, in other words, where it did not prescribe a date for compliance. Unless orders are normally reserved for circumstances where a party has failed to comply with a specific direction of the Court or is otherwise failing to advance their proceeding.
[11] The purpose of an unless order is to enforce compliance with Court orders and to ensure the efficient progress of litigation. They are made because a defaulting parties’ actions may be affecting not only the existing case but may be a waste of limited Court resources. Failure to promptly pay a
within 10 working days or the proceeding would be stayed against the second respondent pending payment. See also Jindal v Kamal [2023] NZHC 2990 where an order was made that the defendants were not required to progress any further steps in the proceeding unless and until costs ordered against the plaintiff were paid.
16 In Kidd v van Heeren HC Auckland CIV-2004-404-6352, 16 November 2006 the Court ordered the plaintiff to pay costs within 21 days and made a further order that the plaintiff’s claim be dismissed as to the whole of the relief claimed by him in the proceeding, if the costs were not paid within that time. However, in that case, the proceeding was already stayed, and the Court considered there would be no force in the repetition of the threat of staying the proceeding.
17 Stephens v Cribb (1991) 4 PRNZ 337. See also Elvidge v ASB Bank Ltd [2015] NZHC 44 at [201]-[205] where the Court was not satisfied that the non-payment of an order for costs called for a permanent or temporary stay, and the bank had other means of enforcing the order.
18 At 343-344.
19 Spak (1996) Ltd v Leroy [2021] NZHC 3278.
costs award does not fall into that category. Costs awards can also be enforced in a number of ways without recourse to unless orders. …
[17] In this case, it seems to me the effect of the proposed order would be to compromise irretrievably MFTL’s right to a merits hearing and judgment. The order would prevent MFTL defending itself against the serious allegations of misconduct and breach of duty levelled against it, including allegations of breach of the duty to act honestly and in good faith. The order would also operate as a permanent stay or strike out of MFTL’s affirmative defence/counterclaim for an indemnity, and its counterclaim for reimbursement for work undertaken by Ian. If such an outcome is to be sanctioned, I need to be satisfied on the basis of the factors set out at [13] above that this is an extreme case.
Duration of non-compliance, impact on progress and whether there is an excuse
[18] It is approximately 18 months since MFTL was ordered to reimburse the Trust. However, TTL acknowledges that the proceeding has continued to progress over that period. As noted, the proceedings are scheduled for a substantive hearing commencing on 10 February 2025. The non-compliance has not significantly impacted on the progress of the proceedings.
[19] MFTL says that there is good reason for the non-compliance in that it does not have any funds of its own with which to reimburse the Trust. TTL and Janet and John submit that MFTL’s position is of its own making having taken the risk of incurring significant legal costs without first applying for a Beddoe order20 and having been warned of the costs risk. TTL and Janet and John submit that Ian, as MFTL’s sole director and shareholder, who appears to be funding MFTL’s ongoing legal costs, should take some responsibility for the position MFTL is now in, and can afford to procure MFTL’s compliance with the reimbursement order. However, it is MFTL which has failed to comply with the reimbursement order, not Ian as sole director and shareholder. There is no current obligation on Ian personally to reimburse the Trust or fund reimbursement of the Trust.
20 See generally Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR19.4A].
[20] TTL also submits that MFTL’s position that it should not be required to reimburse the Trust because it might be indemnified later undermines the purpose and policy of Beddoe orders. TTL submits that, if MFTL’s position is correct then there would be no reason for any trustee in any proceeding to seek pre-emptive indemnification. Janet and John contend that if MFTL’s position is correct then that would effectively give MFTL pre-emptive indemnity, which is what Churchman J found MFTL was not entitled to. However, I do not understand MFTL’s position to be that it should not be required to reimburse the Trust because it might be indemnified later. Clearly, MFTL has been required to reimburse the Trust since the costs judgment in May 2023 notwithstanding the possibility that it may ultimately be indemnified. That is not in dispute. Rather, MFTL’s position is, as discussed above, that it does not have funds of its own to comply with the reimbursement order, and it says the potential indemnity is a significant factor to be considered in weighing up whether MFTL should be debarred from further participation in the proceedings for non-compliance.
Opportunity to comply, fresh orders or warnings, rectification
[21] TTL and Janet and John contend that MFTL has had ample opportunity to reimburse the Trust since 2023 and that, since appointment, TTL has repeatedly asked for payment. They submit that there is no realistic prospect of payment. I agree that MFTL has had ample opportunity to pay, but the point is that MFTL says it does not have funds of its own to do so. This has been known since at least August 2023 when it was noted by the Court as one of the reasons that a proposal for replacement of MFTL with an independent trustee had been raised.21 However, no fresh order or unless order was sought or made against MFTL at that time or in the intervening period.
Prejudice to other parties
[22] TTL and Janet and John contend that MFTL’s failure to pay the Trust is causing significant prejudice to TTL, the Trust and the beneficiaries as a whole.
21 Minute of Churchman J dated 23 August 2023 at [6].
[23] TTL contends that it finds itself in a “parlous financial situation”. There is evidence that there was approximately $100,000 in cash remaining in the Trust fund as at October 2024, but Mr Campbell submits that the cash assets are now exhausted and TTL and its legal counsel are now invoicing without payment and interest is being incurred.
[24] MFTL contends that the depletion of the Trust funds is a direct result of the way TTL has run the proceedings since becoming involved, engaging in steps of significant cost but little value, including this application and obtaining an opinion from an independent barrister on the costs judgment. MFTL also contends that all parties have agreed for TTL to sell the non-contiguous blocks of land which would provide funds to the Trust.
[25] I do not propose at this stage to analyse TTL’s conduct in the litigation since it has been involved and the costs it has incurred, nor whether it is in a position to immediately sell the non-contiguous land. On any view, TTL as the current trustee, has been prejudiced by MFTL’s failure to pay the Trust over $200,000 since May 2023. The cash reserves available to it to carry out its role as trustee are reduced by this amount. However, while Mr Campbell submits that TTL does not have the means to continue litigating, TTL’s evidence and submissions stop short of stating that TTL is unable to, and will not, participate and be represented in the substantive hearing in February 2025. Further, while acknowledging the current difficulty faced by TTL, the prejudice is temporary. Ultimately, TTL and its counsel will be reimbursed for their reasonable costs of involvement in the proceedings from the sale of the Trust’s assets.22
[26] It is also clear that the Trust and the beneficiaries as a whole (including Ian) are currently prejudiced by MFTL’s non-compliance because the Trust has not had the use of the money since May 2023. However, to the extent that MFTL is ultimately entitled to be indemnified out of the Trust funds, the prejudice will not be substantial. And, to the extent that MFTL is not indemnified, the Trust may still seek to enforce the costs judgment against MFTL.
22 Minute of Associate Judge Skelton dated 15 August 2024 at [7(c)].
[27] TTL and Janet and John also contend that they are prejudiced because MFTL continues to take an active role in both proceedings (including filing unsubstantiated counterclaims) and this is putting TTL and Janet and John to significant further expense. In particular, Janet and John submit that they are unlikely to be able to enforce an adverse costs award against MFTL at the conclusion of the proceedings.
[28] However, with regard to the Removal Proceedings, it seems to me that MFTL must be entitled to defend the various allegations of misconduct and breach of duty levelled against it in the pleadings and pursue its affirmative defence/counterclaim for indemnity. Janet and John criticise MFTL for defending their third cause of action for disclosure of trust information. However, the cause of action alleges that “Ian and/or MFTL refused and/or omitted to provide trust information”, and that “[t]here is no proper basis for MFTL to assert privilege in respect of the withheld documents”, and Janet and John seek an order that “MFTL and Ian” provide copies of certain documents and that the costs of the application are met by “Ian and MFTL, on a joint and several basis”. It is difficult to see how MFTL does not have a legitimate interest in defending these allegations. There is some suggestion in the submissions that the fact that Ian is MFTL’s sole director and shareholder and separately represented as a party, and will give evidence at the trial and be cross-examined, means that it is not necessary for MFTL to participate and be represented. However, it is trite that MFTL is a separate entity from Ian, and their interests are not necessarily aligned which is why they are separately represented. In my view it is appropriate and in the interests of justice that MFTL should be able to participate in the trial to defend itself and be separately represented.
[29] With regard to the Directions Proceeding, TTL and Janet and John agreed in August 2024 to MFTL remaining a party “solely to the extent required to advance its right to an indemnity for costs incurred as trustee during the period it was a trustee”.23 TTL and Janet and John did not propose any conditions on MFTL’s ongoing participation, for example a condition that it must pay the amount owing to the Trust since May 2023. TTL contends that even though it consented to MFTL remaining a party, it reserved its right to file interlocutory applications, for example an application
23 Minute of Associate Judge Skelton dated 15 August 2024 at [7(d)].
for security for costs. However, having consented unconditionally to MFTL’s ongoing involvement in August, I do not consider it was reasonably contemplated that less than two months later TTL would file an interlocutory application seeking an order debarring MFTL from participation in the proceedings.
[30] TTL and Janet and John contend that MFTL has gone beyond its anticipated participation in the proceedings to advance its right to an indemnity, in particular by filing its counterclaims for payment of reasonable charges for work undertaken for the Trust. Janet and John submit that these counterclaims lack any merit. However, neither TTL nor Janet and John applied to strike out the counterclaims, for example on the basis that they disclose no reasonably arguable cause of action, are likely to cause prejudice and delay, are frivolous or vexatious, or otherwise an abuse of the process of the Court.24 Further, neither TTL nor Janet and John applied for security for costs in the proceedings. TTL says that it considered making an application for security for costs but chose not to and instead looked to a path that would see some costs paid quickly. Another factor in TTL’s decision may well have been that, as noted above, there is already a consent order that its reasonable costs of involvement in both proceedings will be met by the Trust (after the sale of assets). With regard to Janet and John’s potential exposure to being unable to enforce any adverse costs awards against MFTL, I note that Janet and John have previously received full reimbursement from the Trust of their costs of defending MFTL’s application for a pre-emptive indemnity.25 In respect of their own causes of action involving MFTL, Janet and John are claiming costs against MFTL and Ian, jointly and severally, and seeking alternative orders that their costs be paid from the Trust fund.
[31] Further, even if MFTL was debarred from participating in the trial, it is difficult to see how that would substantially reduce the issues to be determined, the length of the trial, and the costs likely to be incurred by Janet and John and TTL. Janet and John’s causes of action in their amended claim are against MFTL and Ian, or Ian alone. Therefore, even if MFTL was debarred from participating, most of the issues arising from Janet and John’s amended claim would still need to be tried and determined as between Janet and John and Ian. Similarly, the issues raised in the Directions
24 See High Court Rules, r 15.1.
25 Costs judgment, above n 3, at [89] and [93].
Proceeding need to be tried and determined regardless of whether MFTL is debarred from participating. Further, MFTL submits that Ian’s counterclaim for unpaid services can be run at trial by Ian and his counsel, and that MFTL’s counterclaim for reasonable charges for these services is simply a “mirror counterclaim” which will add nothing to the trial time.
[32] Regarding other means of enforcement of the costs judgment, TTL submits that it considered issuing a statutory demand against MFTL but ultimately landed on an application under r 7.48 of the HCR because a statutory demand may adversely affect a beneficiary (Ian) in a way that r 7.48 does not. TTL submits that a liquidator could make a decision to pursue Ian as a director because MFTL is continuing to trade and expose itself to contingent liabilities. However, in the Directions Proceeding, TTL is seeking the Court’s blessing to issue a statutory demand against MFTL. Deirdre Morris, a director of TTL, states in her affidavit evidence that “[a]lthough possible consequences of a statutory demand for Ian are noted, Torwood Trustees must have regard to the beneficiaries as a whole. Torwood Trustees considers it is in their interests to take steps to recover the amount owing to the Trust. Indeed, it considers it is duty-bound to take these steps”. TTL submits that it did not consider it appropriate to issue a statutory demand against MFTL without the blessing of the Court. However, that does not explain why TTL could not have made an application to the Court with regard to the issue of a statutory demand prior to August 2024 or prior to filing the current interlocutory application on 4 October 2024.
Conclusion
[33] For the reasons set out above at [18]–[32], I do not consider that this is an extreme case such that, as a result of MFTL’s non-compliance with the costs judgment, MFTL should be denied the right to participate in the trial to defend itself against the serious allegations of misconduct and breach of duty levelled against it, and to pursue its affirmative defence/counterclaim for indemnity.
[34] There is prejudice to other parties as a result of MFTL’s non-compliance with the costs judgment, including TTL which says that the Trust’s cash assets are exhausted, and this is impacting on its ability to continue litigating and to advance its
application for directions. However, as noted above, while acknowledging the current difficulty faced by TTL, the prejudice is temporary. TTL and its counsel have the comfort of knowing that the Trust has substantial property assets which are to be sold, and that there is an order in place that TTL’s reasonable costs of involvement in the proceeding will be met by the Trust’s funds. There is ongoing prejudice to the Trust and the beneficiaries as a whole in not having the use of the money owed by MFTL. However, to the extent that MFTL is not indemnified after the substantive hearing, the Trust may still seek to enforce the costs judgment against MFTL.
[35] Ultimately, weighing the competing prejudices, I consider that the irretrievable prejudice to MFTL of being debarred from defending itself including pursuing an indemnity outweighs the prejudice currently suffered by TTL, the Trust and the beneficiaries. It seems to me that the absence of MFTL would also make it difficult for the Court to properly and fairly determine the issues of alleged misconduct and breach of duty levelled against MFTL and the costs issues.
[36] I have considered making an order that, unless MFTL pays the outstanding costs to the Trust within 10 working days, it is debarred from pursuing its counterclaims for reasonable charges for work undertaken for the Trust by Ian. However, in the circumstances I do not consider that such an order would serve any significant purpose. If the order was made and the costs were not paid, MFTL would still participate in the trial to defend the allegations against it and pursue an indemnity, and Ian would pursue his counterclaim for reasonable charges for work undertaken by him.
Result
[37] TTL’s interlocutory application for orders that MFTL is debarred from participating further in the proceedings is dismissed.
[38] I have not heard fully from the parties on costs. The parties should endeavour to agree costs. However, if agreement cannot be reached then memoranda may be filed (not exceeding three pages, excluding costs schedules) and costs will be
determined on the papers.
Associate Judge Skelton
Solicitors:
Duncan Cotterill, Wellington for Plaintiffs in CIV-2022-454-21 and Respondents in CIV-2022-454-71 Wynn Williams, Christchurch for First Defendant in CIV-2022-454-21 and Applicant in CIV-2022-
454-71
Russell McVeagh, Wellington for Second Defendant
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