McLaughlin v McLaughlin
[2019] NZHC 2597
•11 October 2019
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2017-442-000052
[2019] NZHC 2597
BETWEEN MARK JAMES MCLAUGHLIN AND ANDREW ASHLEY MCLAUGHLIN
PlaintiffsAND
JOHN DAVID MANUEL MCLAUGHLIN, GLASGOW HARLEY TRUSTEE
LIMITED AND MARK WILLIAM RUSSELL
First DefendantsAND
BRIAN JAMES MAURICE NELSON
Second Defendant
AND
BRETT MCLAUGHLIN
Interested Third Party
Hearing: 8 October 2019 Appearances:
S D Campbell and J R Halligan for Plaintiffs
O D Peers and G G Dill-Russell for Defendants J M McGuigan for Interested Third Party
Judgment:
11 October 2019
JUDGMENT OF DUNNINGHAM J
This judgment was delivered by me on 11 October 2019 at 4.15 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: 11 October 2019
[1] These proceedings involve a dispute between beneficiaries of a family trust, the Ashley Trust, and the trustees of that Trust.
MCLAUGHLIN v MCLAUGHLIN [2019] NZHC 2597 [11 October 2019]
[2] The Trust was settled in February 2004 by the late Jim McLaughlin and his wife Edna. Its only asset was a large block of farm land situated in Stoke, Nelson (the Trust property). The settlors’ wishes, as expressed in the Trust Deed, was that the trustees should “realise the value of the farm property by way of subdivision into individual or lifestyle allotments to better benefit the discretionary beneficiaries”.
[3] The plaintiffs are two of the four sons of the McLaughlins and are beneficiaries of the Trust. They have expressed concerns about the way current and former trustees, including their brother John, have managed the Trust Property. They filed proceedings seeking removal of the current trustees and damages from the trustees for alleged breaches of their duties as trustees.
[4] They now seek an interim injunction to restrain the trustees from proceeding with the next stage of development of the Trust Property, including signing contracts with a prospective purchaser of lots within that development, until a new trustee is installed to replace Glasgow Harley Trustee Ltd (Glasgow Harley). Their brother Brett McLaughlin who appears as an interested party, is generally in support of this application.
[5] The trustees oppose the application on the grounds that to grant the injunction would risk serious harm to the Trust in both the short and long term.
[6] On 8 October 2019, after hearing from the parties, I declined the interim injunction sought.1 This decision provides my reasons for doing so.
Background
The Ashley Trust
[7] Jim and Edna McLaughlin purchased the Trust property in the 1960s, as farm land, but with a long term view to subdivide it as they could see its development potential.
1 McLaughlin v McLaughlin [2019] NZHC 2561.
[8] Their son, John, and his wife purchased five hectares of land from Jim and Edna in 1979 and John assisted Jim in the preparation and pursuit of various subdivision and rezoning applications in respect to both the McLaughlins’ land and John’s land.
[9] When the McLaughlins settled the Trust Property upon the Ashley Trust on 26 February 2004, Edna explains that her husband’s health was deteriorating and “[w]e wanted to keep the land safe for the family and to ensure that Jim’s subdivision wishes would be carried through”. This is reflected in cl 9.2 of the Trust Deed which states:
9.2 It is declared as the further wish of the Settlor that the Trustees shall realise the value of the farm property by way of subdivision into individual or lifestyle allotments to better benefit the discretionary beneficiaries.
[10] Jim and Edna’s four sons, Andrew, Brett, John and Mark, are all beneficiaries of the Trust. The other beneficiaries are Edna, the sons’ spouses and their children.
[11] The original trustees were Jim, Edna, John, and the second defendant, Brian Nelson, a solicitor at Glasgow Harley lawyers. However, since the formation of the Trust there have been a number of changes to the trustees. These include Edna retiring as a trustee in 2015, and Glasgow Harley Trustee Ltd being appointed in place of Mr Nelson in his personal capacity. Other trustees have been appointed but have not remained as trustees.2
[12] Although subdivision consents had been applied for and granted in relation to the Trust Property during Jim’s lifetime, they did not enable full residential development of the property. It was only once a plan change was initiated by John to rezone the Trust Property to permit residential use, that development was pursued in earnest.
2 The affidavits refer to Messrs Fred Westrupp, Ian Kearney and Mark Russell all being trustees at different points in time.
The Chings Block subdivision
[13]In December 2006, the Trust applied for a resource consent to subdivide
18.3 hectares of land which was known as Chings Block. This block consisted of
12.72 hectares of Trust Property and 5.5 hectares owned by John and his wife, Wendy. When Jim died in 2007, the resource consent application for this subdivision was largely complete. On 8 November 2007, a 10 year consent was granted for the staged subdivision of 117 residential lots.
[14] John assumed responsibility for completing the subdivision which Edna says was in accordance with her and her husband’s wishes. However, the fact he has taken on a paid role as project manager of the subdivision is the subject of criticism by Mark and Andrew, the plaintiffs. Furthermore, in their proceedings they claim that their subdivision of Chings Block has failed to better benefit the beneficiaries because:
(a)the return on development has been less than what would have been achieved through a sale of the consented land and investment of the sale proceeds; and
(b)there have been minimal distributions to the discretionary beneficiaries, with the two trustees and associated entities profiting from the development.3
The Homestead Block subdivision
[15] In 2014, the trustees, through a related company, Marsden Park Ltd, applied for a resource consent to do preparatory earthworks on a further 22.6 hectares of Trust Property, known as the Homestead Block, in preparation for a further subdivision. The following year, the same company applied for resource consent for a subdivision to be undertaken in stages on the Homestead Block.
3 A distribution of $2.2 million was made in 2015 between the four sons and a further distribution was proposed at the end of 2017, but John says was delayed by the issue of the substantive proceedings.
[16] Consent was granted in August 2017 although objections were lodged to the conditions imposed. Those objections were heard in late 2018 and resulted in more favourable conditions being imposed which will materially reduce construction costs for the subdivision.
[17] The subdivision consent for the Homestead Block allows 211 lots to be built in a number of stages for both residential and commercial use. The trustees have been working on implementing Stage 1 which constitutes 24 residential sections adjacent to Marsden Valley Road. That work has included:
(a)preliminary earthworks;
(b)construction of a dump site for the subdivision; and
(c)design and procurement of pressure water mains headworks.
[18] The next stage of activity is to sign contracts for the sale of at least half the sections with a building company, and to uplift funding in order to do the balance of the work on Stage 1 and have titles issue.
The substantive proceedings
[19] It was in August 2017, when the subdivision consent for the Homestead Block was granted, that two of the beneficiaries, Mark and Andrew, commenced proceedings against the trustees. In the proceedings they seek:
(a)removal of the trustees;
(b)directions ordering the trustees to stop work on the proposed Homestead Block development and only do the work necessary to enable the land to be sold with subdivision consent;
(c)a direction that the Trust Property be sold once the relevant consents are obtained in order to maximise its value and provided that Edna’s wish to remain in her home is respected;
(d)that the proceeds of sale, except for any amount required for the continued support of Edna, be distributed to the sons;
(e)damages against the trustees for breach of various duties under the Trust deed and in law;
(f)an account of “unauthorised profits” against the first defendant, John, for breach of fiduciary duties; and
(g)an account of “unauthorised profits” against the second defendant for breach of fiduciary duties.
(The substantive proceedings)
The Beddoe Application
[20] In 2018, the trustees made a Beddoe application to authorise payment of their legal and associated costs incurred in responding to and defending the substantive proceedings from the assets of the Ashley Trust, provided such costs were approved in advance by senior counsel as reasonable and legitimate.4
[21] That application was heard by Thomas J and a decision issued on 6 December 2018 granting the Beddoe application in respect of the reasonable and proportionate legal and associated costs of defending the second cause of action (being the application for directions as to the management and distribution of the Trust property).5 However, in respect of the claims against the trustees for alleged breaches of trust and fiduciary duty, she determined costs would need to await the outcome of the proceedings. If the trustees’ actions were upheld, then they would likely be entitled to an indemnity from the Ashley Trust, but if the trustees were found to have breached their duties, then it would have been inappropriate to use Trust’s assets to conduct their defence.6
4 Re Beddoe [1893] 1 Ch 547 (CA).
5 McLaughlin v McLaughlin [2018] NZHC 3198, [2019] NZAR 286 at [133].
6 At [120].
[22] The parties were urged by Thomas J to go to mediation. That has occurred but has not achieved resolution. However, the trustees have agreed to appoint a new independent trustee in place of Glasgow Harley.
[23] The plaintiffs now bring this application for interim injunction to restrain the defendants from taking any further steps in respect of the land owned by the Ashley Trust until a new trustee is appointed. The event which prompted the application was the advice that the trustees proposed to enter contracts with a “reputable building firm” for the sale of 12 lots from the 24 lot Stage 1 Homestead Block development. To enable the application to be heard and determined with urgency, the signing of the contracts was postponed to 10 October 2019 and I heard the application on 8 October 2019.
The application for interim injunction
[24] The grounds on which the current application is brought reflect the concerns set out in the statement of claim in the substantive proceedings. In particular, the plaintiffs say:
(a)the trustees have given notice to the plaintiffs that they intend to commence work on the next stage of the Homestead Development, in the nature of a of two year development project;
(b)Glasgow Harley has stated that it will resign as a trustee of the Trust and be replaced by an independent trustee selected by the trustees in consultation with the beneficiaries;
(c)the plaintiffs have asked the first defendants not to proceed with the development until a new trustee is installed to replace Glasgow Harley and the first defendants have refused;
(d)Glasgow Harley has indicated that if it cannot be replaced with another independent trustee, at least before it is required to make a decision, it will support the intended development;
(e)the first named first defendant stands in a position of conflict of interest because he will benefit financially from the proposed course of action, owing to:
(i)his interest in, and association with, the development company employed by the Trust, Marsden Park Development Ltd; and
(ii)being a trustee of the Trust, in the form of remuneration for the role of trustee;
(f)if the next stage of the development does proceed before a new independent trustee is appointed, the discretion of the new independent trustee will be fettered;
(g)there is no reason why the decision to commence work on the next stage of the development must be taken pending the determination of the substantive proceedings;
(h)it is inappropriate that the development proceed while the legitimacy of the trustees’ actions in relation to the same development is before the Court;
(i)there is a serious question to be tried;
(j)the balance of convenience favours granting the interim injunction;
(k)damages would not be an adequate remedy for the plaintiffs, particularly because of the risk the Trust funds will be dissipated in a development that will yield no return or cause loss to the Trust fund; and
(l)the overall justice favours the grant of an interim injunction.
[25] The trustees oppose the application for interim injunction pleading the following grounds of opposition:
(a)there is no jurisdictional basis to found the application other than the second cause of action in the plaintiffs’ statement of claim;
(b)there is no serious question to be tried;
(i)Thomas J in the Beddoe application, held that it was in the interests of the Trust that the second cause of action be defended;
(ii)the plaintiffs seek to revisit issues already considered in substance by Thomas J; and
(iii)the plaintiffs effectively seek to challenge the continued pursuit of the objective of the Trust as recorded in the Trust deed, and which the surviving settlor has confirmed still applied;
(c)the balance of convenience lies against the orders sought by the plaintiffs:
(i)no adjustment of the parties’ rights is necessary to preserve the relief sought in the plaintiffs’ statement of claim;
(ii)the Trust requires ongoing funding to maintain its development operations;
(iii)the orders sought would prevent the trustees from signing contracts that have been negotiated for the sale and purchase of lots within Stage 1 of the Homestead Block development and uplifting the funding necessary for that to occur, and therefore deprive the Trust of ongoing funding and ultimate profit; and
(iv)there is a significant risk of loss to the Trust by not signing the contracts referred to in (iii) above and by not completing Stage 1 of the Homestead Block development as already provided for by the trustees;
(d)the overall interests of justice and fairness require the application to be declined because:
(i)the plaintiffs have unreasonably delayed the bringing of this application, causing prejudice;
(ii)damage is an adequate remedy; and
(iii)the plaintiffs’ undertaking as to damage is inadequate.
Principles relating to the granting of interim injunctions
[26] It is well established that in considering an application for an interim injunction, the Court should have regard to:7
(a)whether the plaintiff can show there is a serious question to be tried;
(b)the balance of convenience between the parties; and
(c)the overall justice of the case.
Can the plaintiff show there is a serious question to be tried?
The plaintiffs’ submissions
[27] Mr Campbell submitted that there was jurisdiction to seek the injunction, not just on the second cause of action (as the defendants submitted), but on the claims of breach of trust.
[28] Mr Campbell submitted that the claims of breach of trust were supported by the plaintiffs’ evidence which indicated that the Chings Block development had not performed well financially, there was hostility between the trustees and the plaintiffs and their brother Brett, there had been a failure to engage with the plaintiffs, and that
7 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at [133]; and NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12].
John is in a position of conflict of interest. There was therefore a serious question to be tried on the claims that the trustees are acting in breach of their duties. In such circumstances, a beneficiary can apply to the court for an injunction restraining the trustees, even if the proposed action would not necessarily lead to an irreversible loss.8
[29] Mr Campbell also pointed to the duties of an outgoing trustee to “co-operate fully and actively in the vesting of trust property” to the new trustees and to “give effect to the vesting as soon as reasonably possible”.9 Furthermore, the outgoing trustee must avoid taking any step that would serve as an inappropriate fetter on the future decisions of the incoming trustees.10 These legal principles give jurisdiction to grant the interim injunction restraining the current trustees from continuing to act as proposed. Furthermore, the trustees were not granted a Beddoe order in respect of the claims of breach of trust and conflict of interest. Mr Campbell says that that being shown, it is not the function of the Court to enquire any further into the merits of the claim and there is a serious question to be tried.
The defendants’ submissions
[30] The defendants’ position is that there is no evidence of potential loss or harm to the Trust such as would justify the exceptional nature of the remedies the plaintiffs seek. The plaintiffs’ evidence does not substantiate any assertion of loss or harm or anticipated loss or harm arising from the continued development of Stage 1 except to make some “speculative allegations of loss” based on evidence that was before the Court in the Beddoe application.
[31] Mr Peers goes on to submit that only the second cause of action in the substantive proceedings is realistically engaged by this application for an injunction. That is the cause of action which seeks a direction requiring the trustees to stop work on the proposed Homestead Block development. However, Mr Peers refers to a number of passages in Thomas J’s decision on the Beddoe application which support
8 Noel Kelly, Chris Kelly and Grey Kelly Garrow and Kelly: Law of Trusts and Trustees (6th ed, LexisNexis, Wellington, 2005).
9 Ogier Trustee (Jersey) Ltd v CI. Law Trustees Ltd (2006) JRC 158 at [7], cited in Linton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (19th ed, Sweet and Maxwell, London, 2015) at [17-004].
10 Oakhurst Property Developments (Lowndes Square No. 2 Ltd v Blackstar (Isle of Man) Ltd) [2012] EWHC 1131 (CH) at [52].
the defendants’ position on that cause of action. She noted that the “question of the future subdivision is a matter of the trustees’ commercial judgment in accordance with their obligations”.11 She also observed that, as framed, the claim in the second cause of action has the flavour of asking the Court to advantage the final beneficiaries over the discretionary beneficiaries and therefore questioned the prospect of its success. She concluded that “[i]t is right that the trustees defend this cause of action. It is in the best interests of the Trust. The trustees are in the best position to defend the claim”.12 For that reason, she granted the trustees’ Beddoe application to use the assets of the Trust to pay the reasonable costs associated with defending that cause of action.13
[32] Relying on those observations, Mr Peers submits that the plaintiffs’ injunction application invites the Court to do the very thing Thomas J cautioned against, which is usurping the role of the trustees and interfering with their legitimate commercial activities. The question of whether there is a serious question to be tried should be seen as more than just a filter for frivolous or vexatious cases, but should also address cases where the plaintiffs’ claim is simply not strong enough to warrant the exceptional remedy of injunctive relief before trial.14 Given the statements by Thomas J on the second cause of action, it does not meet the requisite threshold.
[33] Finally, Mr Peers points out that the only developments since the Beddoe application judgment which are material to the injunction are the potential appointment of an independent trustee, Comac Trustees Ltd, and the advancement of negotiations to the point where there is an interested purchasing company for at least
12 lots within the Stage 1 Homestead Block development. Neither of these developments alter the circumstances from those which were before Thomas J such as to provide a proper foundation for injunctive relief to be granted.
11 McLaughlin v McLaughlin, above n 5, at [97].
12 At [122].
13 At [123].
14 Peter Blanchard (ed) Civil Remedies New Zealand (2nd ed, Bookers, Wellington, 2011) at 286.
Discussion
[34] I accept that there is a serious question to be tried and that is not precluded by the findings in the Beddoe application. The plaintiffs seeking to restrain the trustees from taking steps which they consider are in breach of the trustees’ duties as alleged. While, for the reasons I will go on to outline, the current decisions to pursue Stage 1 of the Homestead Block subdivision appear to be rational on their face and in the beneficiaries’ interest, I do not preclude there being findings in the long run that the trustees were in breach of duties owed by the trustees, or were acting where there was a conflict of interest. Clearly there will be occasions where such obligations would warrant restraining the trustees from taking further steps.
[35] I am satisfied that there is a serious question to be tried as to whether the current trustees are in breach of their duties to the Trust or are acting in a conflict of interest by continuing with the subdivision development in a way which would warrant injuncting them from further steps being taken.
[36] In my view, the far more critical considerations for this application fall to be considered under the next heading.
Where does the balance of convenience lie?
[37] The balance of convenience has often been described as “the balance of the risk of doing an injustice”.15 The court is required to balance the injustice or harm that may be caused to the Trust if it is prevented from signing contracts for the sale of Stage 1 of the Homestead Block subdivision as against the injustice to the beneficiaries if, when a new independent trustee is appointed, that trustee reaches the view that progressing the subdivision of the Homestead Block is not in the interests of the beneficiaries and that the trustees should take a different course of action.
15 Cayne v Global Natural Resources Plc [1984] 1 All ER 225 (CA) at 237. See also Auckland International Airport Ltd v Air New Zealand Ltd (2006) 9 NZCLC 264, 179 (HC) at [62].
[38] Although the determination of where the balance of convenience lies is a broad and flexible inquiry, unrestrained by any rigid or flexible rules,16 the court usually has regard to the following factors:17
(a)the adequacy of damages to both parties;
(b)the status quo;
(c)the relative strength of each party’s case;
(d)the effect on innocent third parties; and
(e)the conduct of the litigants.
Are damages an adequate remedy?
[39] The rationale for the plaintiffs’ application is set out in Mark’s affidavit in support of the application. He explains that:
… this application is not about the substance of the proposed development or any potential offer (about which we know little). Rather, it is about the process and propriety of decision-making. The trustees should not be making decisions with significant long term implications for the Trust, where:
(a)one trustee, John, is conflicted as he stands to benefit personally from any decision to proceed with the development;
(b)the other Trustee, Glasgow Harley, has said it will resign to be replaced by a new independent trustee, and steps are being taken to facilitate the appointment of Comac Trustees;
(c)proceedings have been issued against them – for breaches of trust and fiduciary duty, and seeking their removal and replacement – and these claims are seriously arguable …; and
(d)we have asked them not to undertake any further development until this proceeding has been resolved.
[40] The plaintiffs’ concerns are that if the contracts are signed, the new independent trustee will be committed to completing at least Stage 1 of
16 Factortame Ltd v Secretary of State for Transport (No 2) [1991] 1 All ER 70 at 118.
17 American Cyanamid Co v Ethican Ltd, above n 7, at 408.
the development, thus fettering their decision-making for perhaps two years, instead of being able to sell the land in its current consented state, at an earlier point, which the trustee may wish to do having regard to the best interests of the Trust (including the age and the needs of the beneficiaries). Because the purpose of the Trust was to enable the sons of Jim and Edna to enjoy the “fruits of their success” during their lifetime, this time delay cannot be compensated in damages. The four sons are all in their sixties and seventies now, and a further delay of at least two years before profits could be realised is not remediable in damages.
[41] The plaintiffs also assert that the ability to be paid damages is in question. They say that the Chings Development was undertaken unprofitably. If their claims are substantiated, their only remedy is to sue the trustees and hope they have sufficient funds to meet those costs, although that is not guaranteed. They also say that there is a risk that by “blindly adopting the course that the trustees have” the ability for an even more profitable outcome, such as selling the land now, is lost.
[42] Mr Campbell submits that it is difficult to envisage what damage the trustees could suffer through an injunction and if there is a loss, that would be compensable in damages.
[43] Furthermore, there are provisions in the Trust deed which purport to indemnify the trustees from a damages claim for “any investment made by the trustees in good faith”,18 and for “any loss or liability which they may incur by reason of exercise, manner or exercise or non-exercise of any of the powers, authorities or discretions conferred on them by this deed or by law”.19 If those provisions are held to apply in the present circumstances, then damages may not be available in any event.
[44] The defendants, however, submit that damages are an adequate remedy. The plaintiffs are already seeking damages and an account of profits against the trustees. If damages are not an adequate remedy, that does not explain why such a remedy is sought.
18 Clause 7.3.
19 Clause 12.
[45] The plaintiffs’ concerns are primarily about the effects of the trustees’ actions on the timeframe in which a new trustee could implement a sale of Trust Property if they considered that the best course of action. However, for reasons I set out in more detail below, I consider the plaintiffs’ concerns about delay are overstated. While committing to Stage 1 of the development will preclude an immediate sale of the land, a decision on whether that is appropriate will inevitably take time, and enhancing the value of the land in the interim is, as I will discuss, beneficial. Once I put to one side the issue of delay, the balance of the beneficiaries’ concerns are remediable by an award of damages or an account of profits, as is claimed in the substantive proceedings.
Are there adverse consequences for innocent third parties?
[46] Mr Campbell submits that granting an injunction would not have any impact on third parties. The contracts have not been signed so the building company is not adversely affected and if, as the defendants assert, employees will have to be made redundant if work is brought to a halt, then that will simply have to happen and new employees can be hired at a later date.
[47]However, refusal of the injunction could mean that:
(a)all non-party beneficiaries may be negatively affected because the chance of them receiving a distribution from the Trust Property will inevitably be deferred; and
(b)if a new trustee is appointed, then his or her discretion would be fettered by the entry into these contracts.
[48] The defendants, however, say that the consequences of an injunction will include the Trust’s permanent employees being made redundant. This will be adverse for the Trust as the staff will be difficult to replace and will mean the Trust has to meet immediate additional costs including holiday payments and severance payments. While acknowledging that the plaintiffs are discretionary beneficiaries, they do not have a vested property interest but simply a right to be considered as the object of a
discretion. It would be rare for a discretionary beneficiary to obtain an injunction in those circumstances.
[49] I consider that the granting of an injunction would have an impact on third parties. While I accept that no formal contracts have been signed with the building company in question, it will be affected to the extent that its time spent on due diligence to get to the point where it proposed signing formal contracts, would be wasted. More importantly, though, employees of the Trust (whether employed directly or via a company established by the Trust), will need to be made redundant. While that could still happen at some future point if the incoming trustee or trustees decide not to go further with the subdivision development, allowing the development to continue defers that occurring when it may not need to happen. I consider that is a relevant consideration in determining whether to grant the injunction.
Preserving the status quo
[50] The plaintiffs argue that granting the injunction would maintain the status quo by holding the position as it is currently, instead of embarking on the development of the Homestead Block, and this is a factor in favour of granting the injunction.
[51] However, the defendants submit it will have the opposite effect, saying the injunction would “disturb” the status quo. The status quo is that the trustees, acting as they see fit in accordance with the Trust deed, have been carrying out subdivision activities since the consent for Chings Block was obtained, which includes pursuing subdivision of the Homestead Block. The signing of the contracts is simply another step in that work.
[52] In my view, neither position truly maintains the status quo. Allowing the contracts to be signed does mark a material development in the Trust’s activities as it commits it to completing Stage 1 of the subdivision. On the evidence of Mr Sewell, this will take about 18 months, although the actual construction works are likely to take significantly less time. He clarifies that the two-year timeframe referred to for completing Stage 1 is the total timeframe and it should be understood that the work on Stage 1 is already substantially underway.
[53] The alternative, which is to grant the injunction, would also not hold the status quo but rather, would have a number of adverse consequences which are outlined in detail in the affidavits of Mr John McLaughlin, Mr Nelson and Mr Sewell.
[54] I have already referred to evidence that an injunction would mean the loss of employees and the incurring of costs by the Trust in paying them out holiday pay and redundancy. However, Mr Sewell’s affidavit fully and compellingly outlines a number of other consequences for the Trust. Mr Sewell has significant experience in property development and in particular, was the Chief Executive of Ngāi Tahu Property Ltd for 21 years. During that time he developed large and successful residential subdivisions in Christchurch and elsewhere. His evidence is that an injunction would have the following effects:
(a)There would be a “reputational risk” for the Trust in turning away the current buyer.
(b)The Trust is cash-strapped and capitalising on Stage 1 will give the Trust the cash it needs to keep staff, remain operational and keep its operations open.
(c)Using the current entities for the contract works results in a number of savings, whereas if the development was to be managed by a professional project manager and the contracted works put to tender, additional costs would be incurred and there would be a significant reduction in the ultimate profit margin.
(d)A reduction in profit margin may have effects on whether a funder will take the project on.
(e)There is a real risk of brand damage if the development loses momentum because it stalls in an uncompleted state.
[55] In short, he concludes that the loss of the current purchaser will seriously disadvantage the Trust, and stalling Stage 1 may put buyers off and place the market reputation of the Trust’s subdivision development at substantial risk.
[56] In my view, this would be an outcome that does not protect the status quo but rather, imperils it. It would adversely affect the ability of the new trustee to pursue the subdivision development if he or she thought it advantageous to do so. It could also adversely affect the value of the Trust property so disadvantaged the beneficiaries if the new trustee chose to sell it.
[57]This factor clearly points against granting the injunction.
The conduct of the parties
[58] The plaintiffs say they have engaged in no disqualifying conduct, including no unreasonable delay. They say that although proceedings were issued in 2017, the parties have been liaising since then with a view to settle. Furthermore, the plaintiffs have sought assurances in the form of undertakings from the defendants that the Homestead Block development would not be progressed. However, instead of agreeing that, the defendants have continued on and “forced the plaintiffs’ hands”. It was not until formal notice of the decision to proceed was given by the defendants on 24 August 2019, that the plaintiffs became aware that the defendants were committing irrevocably to progress the Homestead Block subdivision. They then filed and served their application as soon as they were aware of that. In those circumstances, they can not be accused of unreasonable delay.
[59] The plaintiffs levy a number of criticisms at the conduct of the defendants, although I note most of those criticisms are those raised in the substantial proceedings and which were aired in the Beddoe application. These include the complaints of pursuing the development of Chings Block which they say was not a successful investment, failing to consult with the beneficiaries or keep them informed, engaging in active hostility to the beneficiaries, particularly when the trustees’ actions were queried, and acting in circumstances where conflicts of interest arose.
[60] In my view, these allegations are matters for determination in the substantive proceedings. In this decision, however, I have focused on the conduct of the parties as it relates to the events which give rise to the application itself.
[61] In that regard, I take into account the views expressed by Thomas J that the ongoing development of the property through subdivision is authorised by the Trust deed. Furthermore, the decision to embark on the Stage 1 development of the Homestead Block (which is, as pointed out by the defendants, development of only around 2.5 per cent of the total Trust Property), has only been progressed on the advice of independent experts, in particular, Mr Sewell. His clear view is that there is a “compelling, if not overwhelming commercial case for finishing Stage 1 of the Homestead Block subdivision”. It is difficult to see how the trustees’ conduct can be criticised when they are acting on such advice.
[62] Equally, though, I see no reason to criticise the plaintiffs’ conduct either in bringing the application at this juncture. They hold genuine concerns about committing the Trust to a course of action which meant the option of selling the Trust property immediately was foreclosed. It is understandable that they only sought injunctive relief at the point where they became aware such a commitment was being made.
Relative strength of each parties’ case
[63] Neither party focused on the relative strength of their cases in submissions. The plaintiffs simply submitted that “from the documents provided, and the analysis of causes of action set out in submission that the plaintiffs’ case is strong”. Equally, though, the defendants assert that the allegations of breach of trust are unfounded and should not halt the trustees making day to day decisions on the Trust’s business activities.
[64] I refrain from making any comments about the relative strengths of the parties’ cases in the substantive proceedings. I have preferred to focus on the consequences for the Trust (and therefore, ultimately, the beneficiaries) of granting the injunction sought.
[65] In my view, the defendants’ evidence is compelling as to the merits of the current course of action in terms of maintaining the value of the Trust property. The plaintiffs’ concerns that a new trustee should not be fettered by the commitment to develop Stage 1 is, in my view, overstated. First, the timeframe in which a new trustee could be appointed, then acquaint themselves with the activities of the Trust and come to a reasoned view on whether the Trust should continue with subdividing the Trust property or divest itself of some or all of the land, will be considerable. The email sent by Mr Gary Fitzpatrick from Comac Trustees Ltd, the prospective new trustee, says “it would take some time for me to be in a position to make an informed decision taking all matters into account”. Given that it may take several months before the new trustee is in a position to decide what direction the Trust should take, and Mr Sewell’s advice that development of Stage 1 only commits the Trust over a 12 to 18 month timeframe, the plaintiffs’ concern that the trustees’ discretion will be fettered for a long period of time is overstated. I balance that with the risks identified to Mr Sewell if the Stage 1 development is not progressed, which includes to the saleability of the Trust property should that be the trustees’ decision, and I am satisfied by some margin that the defendants’ position on the current issue is the stronger one.
[66] In summary, I am satisfied that the balance of convenience favours declining the application for interim injunction. That is the course of action which best protects the value of the assets of the Trust, allowing an incoming trustee to fully consider the options of continuing to subdivide or selling some or all of the Trust property within a timeframe that is still meaningful to the beneficiaries, including the plaintiffs.
Overall justice
[67] While the balance of convenience will normally determine the exercise of the discretion to grant an interim injunction, having regard to where the overall justice lies, it will not always do so.
[68] However, in this case there is nothing which displaces my view that, having regard to the balance of convenience, the application should be declined.
[69] In respect of the plaintiffs’ submissions on this issue, I make the following observations. I accept that allegations of financial mismanagement have been levelled
against the trustees. However, they relate to the Chings Block development and are strongly contested, with supporting evidence. Granting the injunction would not alter that and the present actions of the trustees have been taken with the advice of well-qualified independent consultants.
[70] The concern that the current trustees will bind any new trustee to a long term contract are, in my view, overstated given the timeframes actually involved and are countered in any event, by the financial benefits to the Trust of continuing on the current path.
[71] The alleged hostility by the trustees towards the beneficiaries is an allegation that pre-dates the events that give rise to this application and, while it is clearly relevant to the question of whether new trustees should be appointed, it has no material bearing on this application. Similarly, the allegation that John has substantial conflicts of interests is an allegation made in the substantive proceedings rather than a matter which has an immediate bearing on whether, in the interests of justice, the application for interim injunction should be granted.
[72] Finally, the plaintiffs’ claim that the trustees have “artificially contrive[d] a situation of urgency, to justify the refusal of the injunction” has had no bearing on my decision. My decision has been made on what the evidence indicates is the best course of action to maintain the value of the Trust property for the benefit of the beneficiaries.
[73] There is nothing in these submissions which overrides my view that, having regard to the balance of convenience and the interests of all beneficiaries, the application for interim injunction should be declined.
Costs
[74] When I gave my decision orally, I noted the question of costs would be reserved. If costs cannot be agreed between the parties, then the following will apply:
(a)Any application for costs by the defendants is to be filed and served within 20 working days of this decision. Submissions are to be limited to six pages.
(b)Any response to such application is to be filed and served within a further 10 working days. Submissions are to be limited to six pages.
(c)Costs will be determined on the papers unless I need to hear from the parties.
Solicitors:
Wynn Williams, Christchurch Buddle Findlay, Christchurch
J M McGuigan, Barrister, Christchurch
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