McLaren v McLaren
[2018] NZHC 1668
•6 July 2018
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2017-442-000031
[2018] NZHC 1668
UNDER Part 18 of the High Court Rules 2016 BETWEEN
SUSAN MARY MCLAREN
Plaintiff
AND
DAVID MUIR MCLAREN, LENORE MARY MCLAREN and MARK PHILIP
BROWN as Trustees of the MCLAREN FAMILY TRUST
First DefendantsDAVID MUIR MCLAREN and LENORE
MARY MCLAREN as Appointer of the McLaren Family TrustSecond Defendants
Hearing: 3 July 2018 (Determined on the papers) Counsel:
A R Shaw for Plaintiff
M Phillipps for Defendants
Judgment:
6 July 2018
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] On 28 March 2018 the Court issued a judgment in which it declined an application by the defendants to strike out the plaintiff’s claim.
[2] The defendants have applied for leave to appeal against this judgment to the Court of Appeal. In the application it is simply said that “the Judge erred in law”, but in the accompanying draft notice of appeal there is a summary described as “the gravamen of the plaintiff’s claims and the basis for all the plaintiff’s causes of action”,
MCLAREN v MCLAREN [2018] NZHC 1668 [6 July 2018]
after which more detail is provided of the basis on which the defendants maintain this Court erred in law. It is said:
● The plaintiff’s claims are founded on simple contract and are brought more than six years from the date the cause of action accrued and are therefore time barred under s 4 Limitation Act 1950.
● The losses claimed are “essentially contractual losses” which underscores the contractual nature of the claims. These losses cannot be recovered by the plaintiff as a discretionary beneficiary of the McLaren Family Trust or as a beneficiary of the alleged new trust.
● The first cause of action does not give rise to a breach of fair dealing, nor a breach of a fiduciary duty not to profit by the first defendants putting themselves in a position where the interests and their duty conflict.
● The fifth cause of action is speculative and has no factual basis to support it.
[3]The application is opposed.
[4] In Finewood Upholstery Ltd v Vaughan, Fitzgerald J considered the approach the Court is to take to an application for leave to appeal under s 56 of the Senior Courts Act 2016.1 Her Honour referred to the decision of Dobson J in A v Minister of Internal Affairs, in which the learned Judge had considered an application for leave, found that leave was not in fact required in that case, but nonetheless went on to consider whether he would have granted leave had it been required.2 Fitzgerald J said:3
Dobson J observed that the following considerations would be relevant to any such application:
(a)A high threshold exists for the granting of leave. An allegation of error of law or fact is generally insufficient. An applicant should raise an arguable error.
(b)Leave should only be granted where the circumstances warrant incurring further delay.
1 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679.
2 A v Minister of Internal Affairs [2017] NZHC 887.
3 At [9].
(c)The alleged error should be of general or public importance that requires determination, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.
[5]Her Honour concluded:
[14] Ultimately, and taking into account those considerations set out at [9] above, the court hearing an application for leave to appeal from an interlocutory order will need to stand back and assess, in a pragmatic and realistic way, whether the interests of justice are served by granting leave to appeal.
[6] In Malthouse Ltd v Rangatira Ltd, Associate Judge Smith applied these principles and, in declining leave, took into account that an early fixture was available to hear the substantive proceeding, the trial would be relatively short, relatively little would be required in preparation for the fixture, and there was no alleged error in the judgment of general or public importance.4 In Honey v Nottingham, Associate Judge Sargisson, in declining leave, took into account that the question of law in issue was well settled, the application for leave was out of time, no serious injustice would be suffered if leave to appeal were refused, and the intending appellant, who had failed on an application to set aside a bankruptcy notice, would still have the opportunity to defend an application for adjudication in bankruptcy if one were brought.5 Her Honour noted that the threshold for granting leave to appeal was high.
[7] I approach my consideration of the submissions made on the present application in accordance with these principles.
[8] The defendants take issue with the plaintiff’s case, and thus with the Court’s judgment declining to strike it out, on two fundamental bases. The first is that the plaintiff’s claims are in fact derived from a contract or contracts, proceedings on which would be statute barred under the Limitation Act, and the claim as presented is an attempt to dress up contractual rights in equitable terms to avoid that situation. The plaintiff’s position is that each of the causes of action is based on equitable rights, and equitable remedies are sought, and the notion that her claims are contractual claims in disguise is ill-founded.
4 Malthouse Ltd v Rangatira Ltd [2017] NZHC 3063.
5 Honey v Nottingham [2018] NZHC 575.
[9] This is most evident in relation to the issue of whether the trustees, in considering the exercise of their discretion to allocate income to the plaintiff as a discretionary beneficiary, were entitled to take into account the terms of an agreement between them relating to the use of infrastructure. The Court has found, approaching this issue in the manner required on an application to strike out, that it cannot be said that it is inarguable that the trustees were obliged to take the terms of agreement into account. The defendants argue that this is an error.
[10] The Court cannot, however, on an application to strike out, make a finding circumscribing the matters which, in a particular case, trustees are required to take into account when exercising their discretion. As noted by Mander J in Masters v Stewart,6 there is a rule that:7
a trustee when exercising a power (for example) of appointment or of advancement shall take into account all relevant considerations and refrain from taking into account any irrelevant consideration, and opens his decision to challenge if he fails to do as so required.
[11] It is a matter of fact whether the issues the plaintiff says should have been taken into account by the trustees were relevant considerations which the trustees should have taken into account, and for that matter whether they did or did not do so. Mr Phillipps argues that it would be wrong for the trustees to take into account contractual arrangement regarding the purchase of non-trust property made by the trustees with one of the discretionary beneficiaries in his or her personal capacity, when considering distributions to the beneficiaries. Contract law provides remedies for breaches of contract. He does not cite any authority for that proposition and given that the matters to be considered by trustees are those which are relevant, the issue of what the trustees should have taken into account is in my judgment a matter of fact for trial, not for submission on a strike out. On this point the defendants have not identified an arguable error, on an application to strike out, in terms of the first principle identified by Dobson J.
6 Masters v Stewart [2014] NZHC 2419, [2018] NZAR 233 at [33].
7 Known as “the Rule in Hastings-Bass”, derived from Re Hastings-Bass (decd) [1975] Ch 25. This wording of the rule comes from Abacus Trust Co (Isle of Man) v Barr [2003] EWHC 114 (Ch); [2003] Ch 409 at [2], endorsed in Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108.
[12] The second fundamental issue the defendants take with the judgment is based on the proposition that the Court cannot order a financial remedy in favour of the plaintiff. They rely on Johns v Johns:8
To obtain damages for a breach of trust a beneficiary must be able to show some loss of or damage to what the beneficiary was entitled to receive. The word “entitled”, as used in the proviso, is significant. Unless there is an entitlement which has been damaged or lost, the beneficiary has suffered no loss.
[13] The defendants acknowledge that compensatory damages may be awarded for breach of trustees’ duties, noting this occurred in Stevens v Premium Real Estate Ltd,9 but say that this is “entirely different and distinct” from a claim by a discretionary beneficiary under a trust deed for a breach of the trustees’ duty. They say that such a breach can only give rise to the rights and entitlements the beneficiary has under the deed or at law, which cannot include a loss of profit arising from an expectation or right the plaintiff had as an owner of property sold or used by the trust.
[14] The plaintiff, however, also relies on a passage from Stevens v Premium Real Estate Ltd:10
The remedy of equitable compensation (by which defaulting trustees can be compelled to make good any loss to the trust fund) is different. It has been applied to losses caused by breach of fiduciary duty since Nocton v Lord Ashburton. The remedy of compensation for breach of fiduciary duty makes good losses resulting from the breach of duty. It must be causally connected with the breach and no more than is necessary to make good the loss, or its effect will be as penalty rather than compensation.
[15] There is force in the submission for the defendants, and the principle relied on by them might in the end succeed. However, should the plaintiff succeed at trial in establishing that the defendants should have taken into account other contractual arrangements between them when exercising their discretion, the prospect of her succeeding cannot be ruled out either. On that basis it is not established, on this application for leave, that there is an arguable error which can be remedied without the hearing of evidence at trial. The high threshold required is not met.
8 Johns v Johns [2004] 3 NZLR 202 (CA) at [34].
9 Stevens v Premium Real Estate Ltd [2009] NZSC 15, [2009] 2 NZLR 384.
10 At [32].
[16] A third issue raised is whether it can be shown that there was a conflict of interest between Mr and Mrs McLaren senior, and the plaintiff such that it may be found that the former preferred their own interests over that of their daughter. Her argument is that as a result of that potential conflict of interest they should have informed her that she should seek legal advice in relation to the agreements which she entered.
[17] The plaintiff relies on the principle in Boardman v Phipps11 in relation to fair dealing, and the defendants say that the principle does not apply in the present circumstances. The defendants say that Boardman v Phipps concerns trustees who were not beneficiaries, who used trust information to make a personal profit for which they had to account, though retaining part of that profit in recognition of the work and skills they brought to bear in securing it. Counsel says that the “real sensible possibility of conflict” identified in this case referred to trustees who make a personal unauthorised profit from the trust, and he says that in this case there is no allegation of personal profit.
[18] That is not as I understand the plaintiff’s case. Rather she alleges that the trustees were in a position of conflict and, in that position, failed to take into account matters they should have taken into account.
[19] It must be remembered that on an application to strike out it is for the applicant to show that the claim cannot succeed, even if pleaded facts are established. When considering whether to grant leave to appeal on an unsuccessful application to strike out it must also be remembered that an appellate court would approach the issue the same way. In my opinion it is not established to the high required standard that there may be an error on this issue because in my view the defendants have not shown that there is a principle of law which demonstrates that the plaintiff cannot succeed. The question of whether a fiduciary duty is owed in the circumstances, as alleged, an argument based on the plaintiff’s interpretation of the principle in Boardman v Phipps, is dependent on facts being established at trial which show that such a duty existed. As recorded in the judgment under appeal it is not for a Court considering an
11 Boardman v Phipps [1967] 2 AC 46.
application to strike out to make a summary decision on such an issue. As I understand counsels’ submissions neither suggests that the Court applied the wrong tests when considering an application to strike out, and in my view the defendants have not shown an error on this issue to the required standard.
[20] Other matters to be considered on this application, in my view, are these. First, this case is far from trial, so unlike the position in Malthouse, it cannot be said that trial of the substantive proceeding is imminent. This factor might favour the granting of leave, as does the fact that all interlocutory procedures lie before the parties, no doubt at some expense to the defendants. On the other hand, this case does not raise any matters of general or public importance. As with all applications to strike out the outcome is obviously of importance to the defendants as it is to the plaintiff, but I do not see this case as being out of the ordinary, certainly not sufficiently to outweigh the lack of any general or public importance.
[21] Overall, I am not satisfied that the high threshold for the granting of leave has been met. Whilst the defendants allege errors of law, and might ultimately be found to be correct, they have not shown errors that are arguable given that they are based on propositions which require the establishment of an evidentiary foundation before they can be decided. It is always the position when considering an application to strike out, that in the end the defendants might be right, but that is not in itself a reason to strike out. Should that be the case the defendants would have been put to the cost of pre-trial work and trial itself, which might have been avoided, but the same applies to the plaintiff. Whilst the additional time that would be taken in an appeal process is not of significant weight in this case, the combined effect of all other factors is that leave to appeal should be declined.
Outcome
[22]The application for leave to appeal is dismissed.
[23] Counsel did not make submissions on costs in their memoranda. My provisional view is that costs should follow the event, and be on a 2B basis. If counsel
think otherwise they may agree a different position, and only as a fall-back position may file submissions within 10 working days limited to three pages each.
J G Matthews Associate Judge
Solicitors:
C & F Legal, Nelson
Vicki Ammundsen Trust Law Limited, Auckland
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