Moanaroa v Ruwhiu
[2019] NZHC 1406
•19 June 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2780
[2019] NZHC 1406
BETWEEN TAKANGAROA MOANAROA
Plaintiff
AND
VERNON PAUL RUWHIU
First Defendant
DENISE CHARLOTTE RUWHIU
Second DefendantBONNIE RUWHIU
Third DefendantJOHN THERON HETTIG
Fourth Defendant
Hearing: 17 April 2019 Counsel:
P M Hoskins for Plaintiff
Judgment:
19 June 2019
JUDGMENT OF WHATA J
This judgment was delivered by me on 19 June 2019 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Corban Revell, Auckland
MOANAROA v RUWHIU [2019] NZHC 1406 [19 June 2019]
[1] Vernon Ruwhiu promised to manage Takangaroa Moanaroa’s retirement savings for her benefit. He did not do what he promised. Instead, he took her savings and used them for his and his family’s benefit. This is an undefended claim by Mrs Moanaroa for her losses. 1
The facts
[2] Mrs Moanaroa was 65 when she met Mr Ruwhiu at a seminar about mortgagee sales in 2003. At that time, a property part owned by her in Whenuapai was to be sold under a mortgagee sale. She also had savings of about $61,000. She wanted to invest her money with the goal of buying a home in Whangarei for her retirement in 2006. She told Mr Ruwhiu this and he spoke to Mrs Moanaroa about how to manage her wealth as part of a scheme to help families who were struggling to pay their mortgages. He suggested setting up a trust to handle her money. Mrs Moanaroa was impressed. She agreed to the establishment of a trust for this purpose, assuming that her interests would be protected.
[3] Mr Ruwhiu established a trust called the Kaiawhina Family Trust (the Trust) on 22 November 2003, but not on the terms agreed with Mrs Moanaroa. Mr Ruwhiu was the named settlor of the Trust. He and Denise Ruwhiu were the named trustees. Mrs Moanaroa, her daughter, her daughter’s children, Mr Ruwhiu and any company under the control of a discretionary beneficiary were identified as discretionary beneficiaries. As trustees, Vernon and Denise Ruwhiu enjoyed broad powers to use the Trust monies, including to settle trust assets in favour of one of the discretionary beneficiaries. Denise Ruwhiu controlled the bank accounts in the Trust’s name. Mrs Moanaroa’s savings were deposited in the bank accounts.
[4] The sale proceeds came to $238,113.84. Mr Ruwhiu took $223,373.54 of these proceeds and placed them in a bank account in the name of the Trust on 9 July 2004. How these monies were dealt with was not made clear to Mrs Moanaroa at the time, though she assumed they were lent out on short term loans which would mature in time for her to buy a home in Whangarei in 2006.
1 The fourth defendant, John Hettig, is bankrupt. The claim against was him abandoned.
[5] Vernon and Denise Ruwhiu in fact bought a house in Whangarei as trustees of the Trust in May 2006. The purchase involved an instalment arrangement with the vendors. Mrs Moanaroa thought the property was purchased for her. Vernon and Denise Ruwhiu then applied Trust monies, in the sum of $145,200, to pay the instalments. However, the Trust fell into arrears and, on 25 September 2007, the vendors issued a settlement statement for the sum of $162,554.77. Bonnie Ruwhiu, Mr Ruwhiu’s sister, entered the frame at this point. She obtained an interest-only mortgage over the property for $175,000 and paid the settlement sum on 12 October 2007. Mr Ruwhiu then arranged for her to become the sole owner of the property on 15 October 2007. She also became a trustee of the Trust in October 2007.
[6] Mrs Moanaroa stayed on at the property as a tenant. Then, in 2014, Bonnie Ruwhiu defaulted on the interest repayments. This triggered a mortgagee sale. The property was sold to a Mr George Price for $232,000 on 17 December 2014, who would later evict Mrs Moanaroa for non-payment of rent in March 2015.
The claim and evidence
[7] A detailed statement of claim was filed. However, as Mr Hoskins summarised, Mrs Moanaroa’s key causes of action against Vernon and Denise Ruwhiu comprise breaches of fiduciary duty and, against Bonnie Ruwhiu, comprise breaches of fiduciary duty and knowing receipt.
[8]The primary facts pleaded in relation to Mr Ruwhiu are:
(a)Mr Ruwhiu and/or Mr John Hettig (the fourth defendant) mentioned to Mrs Moanaroa that they assisted homeowners with the sale of their properties and the investment of the proceeds.
(b)Mrs Moanaroa mentioned to Mr Ruwhiu and Mr Hettig that she had
$60,000 in the bank and wanted to sell her interest in her Whenuapai properties and invest the proceeds which she estimated would be about
$200,000. She told them she needed assistance with her investment and home ownership needs going forward.
(c)Mr Ruwhiu and Mr Hettig told Mrs Moanaroa that they wanted to buy her interest in the Whenuapai properties.
(d)Mr Ruwhiu said, words to the effect of, “give me the $60,000” and told Mrs Moanaroa that he and Mr Hettig would set up a trust to invest that money and the proceeds from the sale of her Whenuapai properties.
(e)Mrs Moanaroa, being wholly reliant on Mr Ruwhiu and/or Mr Hettig to act honestly and in her best interests, agreed to pay the $60,000 into the Trust and to allow Mr Ruwhiu and/or Mr Hettig to invest the
$60,000 and also manage the sale of her interest in the Whenuapai properties and invest the proceeds from that sale.
[9]This is said to give rise to an express trust in respect of her properties and the
$60,000 and in furtherance of this express trust, the statement of claim pleads that Mr Ruwhiu agreed to:
(a)assist with the formation of a trust to hold Mrs Moanaroa’s property, including the preparation and finalisation of a trust deed, according to Mrs Moanaroa’s wishes, and her investment and home ownership objectives;
(b)invest the $60,000 via the Trust;
(c)assist regarding the sale of the Whenuapai properties; and
(d)invest the proceeds from the sale of the Whenuapai properties via the Trust when those monies became available.
[10]And further:
(a)Mr Ruwhiu sought Mrs Moanaroa’s instructions to form the Trust and advised her that he was to be the Trust Manager and trustee. She was to be the Trust settlor, and that she and her god-daughter, Kym Oliver, would be included as beneficiaries of the Trust.
(b)At all material times, Mrs Moanaroa intended that the Trust should be formed with her as settlor and with Mr Ruwhiu as trustee. She also intended that the Trust should be a vehicle for the prudent management of monies and real properties owned by Mrs Moanaroa but held and/or managed by the Trust, including the Whenuapai properties and/or the Whenuapai sale proceeds.
[11] The basis for fiduciary claim against Denise Ruwhiu largely rests on the following pleadings:
(a)Mr Ruwhiu formed the Trust in order to further his own financial interests and/or the financial interests of his wife, Denise Ruwhiu; and
(b)Denise Ruwhiu became a trustee of the Express Trust and/or Kaiawhina Family Trust in order to further her own financial interests and/or the financial interests of Mr Ruwhiu, and/or the interests of their children and/or Bonnie Ruwhiu’s interests, and/or the interests of John Hettig and/or the interests of John Hettig’s company, Save Family Home Limited (SFHL).
[12]As to Bonnie Ruwhiu, it is alleged:
(a)Bonnie Ruwhiu, knowing:
(i)Mrs Moanaroa was to be the beneficial owner of the Whangarei property under the Whangarei Property ASP;
(ii)The Trust had entered into the Whangarei Property ASP as purchaser of the Whangarei property;
(iii)Mrs Moanaroa had an existing beneficial interest in the Whangarei property in that Vernon and/or Denise Ruwhiu and/or John Hettig had used the Trust monies, or part of them, to pay the deposit and the instalment payments;
agreed to obtain the bank loan, pay the settlement amount, and become the registered proprietor of the Whangarei property.
(b)Accordingly, Bonnie obtained from ANZ National Bank Limited (ANZ) under loan agreement dated 8 October 2007 a loan for $175,000 to be secured by a first charge registered mortgage against the Whangarei Property (the ANZ mortgage).
[13] It is then alleged that all three of them provided Mrs Moanaroa with services regarding the Trust property and exercised control of the Trust property, including under the Express Trust.
[14] Two written briefs in support of the claim were provided by Mrs Moanaroa. The first of the briefs largely affirms various parts of the pleadings. While it literally supports her statement of claim, it did not tell Mrs Moanaroa’s story of what happened. I therefore invited her to give oral evidence. She did so. As she so aptly put it, her story is “a book with a whole lot of blank pages.” Nevertheless, the following is clear: Mr Ruwhiu promised to manage her money for her sole benefit and to invest it so that by 2006 she might retire to a home in Whangarei. This was to be achieved via the formation of a trust according to Mrs Moanaroa’s interests.
[15] In breach of his promise, Mr Ruwhiu established a trust which enabled him and his family to benefit directly from the use of her money. There is also sufficient evidence to show that Denise Ruwhiu was complicit and involved in the knowing mismanagement of Mrs Moanaroa’s money including through, among other things, her active involvement in Mr Ruwhiu’s company, Ruwhiu Consultants Limited, and her trusteeship of the Trust. There is further evidence that she applied Trust monies for her own purposes, also in breach of obligations as a trustee of the Trust.
[16] The evidence against Bonnie Ruwhiu is not so clear. A generous reading of the available documentary record suggests she intervened, taking on debt, to enable the Whangarei property to be retained so that Mrs Moanaroa could stay in it. But, in the absence of any denial by her of the allegations that she was aware of the basis upon which Mr Ruwhiu and then the Trust held Mrs Moanaroa’s money, I prefer a less
generous reading of the documentary record. That is, Bonnie Ruwhiu knowingly took an opportunity to secure the Whangarei property for her personal benefit using the Trust’s equity. That opportunity was plainly taken at Mrs Moanaroa’s expense and to the detriment of the Trust’s interests.
[17] Curiously, there is a minute of a meeting of the Trust, dated 10 January 2015, after the mortgagee sale, which records a unanimous resolution from the trustees (including Bonnie Ruwhiu) to “brainstorm options to pursue in order to resolve housing” for Mrs Moanaroa, to pay her rent, to try to recover monies and to find help to purchase a home for Mrs Moanaroa. It appears then the trustees were aware of their obligations to Mrs Moanaroa or, it might be inferred they were trying to make it look like they were.
The fiduciary claim
[18] To succeed for breach of fiduciary duty, the plaintiff must show three things: first, that the defendant owed a fiduciary duty; second, that the defendant was in breach of that duty; and, third, that the plaintiff has suffered loss arising out of a transaction or circumstance to which breach was material.2
[19] On the facts as pleaded and proven, Mr Ruwhiu was in a fiduciary relationship with Mrs Moanaroa. As Tipping J stated in Chirnside:3
[80 It is clear from the authorities that relationships which are inherently fiduciary all possess the feature that justifies the imposition of fiduciary duties in a case which falls outside the traditional categories; all fiduciary relationships, whether inherent or particular, are marked by the entitlement (rendered in Arklow as a legitimate expectation) of one party to place trust and confidence in the other. That party is entitled to rely on the other party not to act in a way which is contrary to the first party’s interests….
[20] I am satisfied Mrs Moanaroa placed her trust and confidence in Mr Ruwhiu to manage her monies on her behalf and for her benefit only in 2003. There is insufficient evidence, however, to support an inference of an express assumption of trust and confidence by Denise Ruwhiu or Bonnie Ruwhiu. Arguably, a fiduciary relationship
2 Everist v McEvedy [1996] 3 NZLR 348 at 355.
3 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.
could be implied or imposed,4 but the claim against them more clearly rests in knowing receipt for reasons I will explain below. A separate claim for breach of their obligations as trustees of the Trust might also be available. But, as that was not pleaded, I make no further comment about this.
[21] I am also satisfied Mr Ruwhiu breached his fiduciary duty to Mrs Moanaroa. The distinguishing obligation of a fiduciary is the obligation of loyalty. This means a fiduciary must act in good faith; s/he must not make a profit out of his or her trust; s/he must not place himself or herself in a position where his or her duty and his or her interest is in conflict; s/he may not act for his or her own benefit or the benefit of a third person without the informed consent of his or her principal.5
[22] When Mr Ruwhiu took Mrs Moanaroa’s money and put it into the Trust’s bank account, he placed it in a vehicle over which he (and Denise Ruwhiu) had complete control and through which he could directly benefit. Conversely, Mrs Moanaroa enjoyed a mere discretionary interest from that point. He did this without Mrs Moanaroa’s consent, in clear breach of his fiduciary obligation of loyalty to her. There is also documentary evidence that he and/or Denise Ruwhiu then used those monies in the Trust for their personal benefit and for the benefit of Mr Ruwhiu’s sister, Bonnie Ruwhiu. This serves to reinforce the inference that Mr Ruwhiu intentionally acted in breach of his fiduciary obligation of loyalty when he took Mrs Moanaroa’s money.
[23] I address causation and loss below. Before doing so I address the knowing receipt claim.
Knowing receipt
[24] As Woolford J recently explained in Torbay Holdings the key elements for knowing receipt are:6
4 As to implied or imposed fiduciary obligations, see Chirnside, above n 4, at [82].
5 Premium Real Estate v Stevens [2009] NZSC 15, [2009] 2 NZLR 384 at [67], citing Bristol and West Building Society v Mothew [1998] Ch 1 at 18.
6 Torbay Holdings Ltd v Napier [2015] NZHC 2477 at [184].
(a)Disposal of the plaintiffs’ assets in breach of a fiduciary duty;
(b)The beneficial receipt of assets which are traceable as representing the assets of the plaintiff; and
(c)Knowledge on the part of the defendant that the assets received were traceable to a breach of fiduciary duty.
[25]Woolford J also explained that there are five categories of knowledge:7
(a)Actual knowledge;
(b)Wilfully shutting one’s eyes to the obvious;
(c)Wilfully and recklessly failing to make such enquiries as an honest and reasonable person would make;
(d)Knowledge of circumstances which would indicate the facts to an honest and reasonable person; and
(e)Knowledge of circumstances which would put an honest and reasonable person on enquiry.
[26] More recently the Court of Appeal in McLennan found that the circumstances of imputed knowledge, as set out in Westpac New Zealand v MAP and Associates Ltd, can be applied to determine whether the circumstances under which someone receives property make it unconscionable for them to retain it. 8 Westpac New Zealand held that knowledge will be imputed where there is sufficiently strong suspicion of a breach of trust, coupled with a deliberate decision not to make an inquiry lest the inquiry result in actual knowledge.9
7 At [185].
8 McLennan (as Liquidators of Neil Timber Ltd (in liq)) v Livaja [2017] NZCA 446 at [45].
9 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 at [27].
[27] For the reasons expressed at [11]-[12], I am satisfied that each of the elements of knowing receipt are established in respect of both Denise Ruwhiu and Bonnie Ruwhiu. Denise Ruwhiu took Mrs Moanaroa’s money as a trustee of the Trust in 2004, knowing that those monies were subject to Mr Ruwhiu’s promise to take care of Mrs Moanaroa’s interests. Bonnie Ruwhiu must, at least, have had a strong suspicion the Whangarei house was purchased with Mrs Moanaroa’s money, in circumstances that breached Mr Ruwhiu’s promise to manage her money on her behalf and solely for her benefit. She did not inquire further. She then acquired the Whangarei property, pursuant to an interest-only mortgage, taking to herself the full benefit of the equity in the house obtained representing the instalments in the sum of
$145,200 at Mrs Moanaroa’s expense.
Relief
[28] The statement of claim takes a blunderbuss approach to relief, including orders seeking to have the defendants removed as trustees, an account of profits, orders for account, a report dealings with the Trust property, an inquiry, orders to disgorge any profit from the Trust property, equitable special damages in any amount to be determined after an account or the inquiry or the report, equitable damages for compensation for “the loss”, equitable general damages for distress in the sum of
$50,000, exemplary damages of $50,000, and interest.
[29] Affidavit evidence from Mr Clifford Mancer, an expert accountant, then identifies three scenarios under which Mrs Moanaroa may have fared had there been no breach:
(a)Scenario A – no sale of the Whenuapai properties;
(b)Scenario B – retention of the Whangarei property combined with proper husbandry of her monies;
(c)Scenario C – investment in a managed fund.
[30] Scenario A is a fanciful proposition given that Mrs Moanaroa was under financial pressure to sell the Whenuapai properties at the time of the breach. Scenarios
B and C are not fanciful, but, as Mr Hoskins agreed, damages for the sum of the monies transferred by Mr Ruwhiu and/or Denise Ruwhiu to the Trust in breach of their fiduciary duty, together with interest from the date of breach, is the most appropriate form of relief in this case. The outcome is comparable to the outcome under both of those scenarios and provides a more robust measure of Mrs Moanaroa’s losses.
[31] I am also satisfied that with independent advice Mrs Moanaroa never would have assented to the transfer of her monies to a Trust over which she had no control and through which Mr Ruwhiu or his family could directly benefit. I have also considered whether she may have lost the monies, in any event, through the agreed investment strategy, including to provide short term loans to benefit needy families as had been discussed between them. Again, with the benefit of proper fully independent advice, it is at least reasonably possible she would have not agreed to it. She was therefore entitled from the point of transfer to be, among other things, compensated for any corresponding losses she suffered and/or restored to the position she should have been in but for the breach of fiduciary duty.10 The quantum is the sum of her monies placed into the Trust’s bank account by Mr Ruwhiu, any sums paid to Mr Ruwhiu for services rendered and other unaccounted-for sums.
[32] I am also satisfied that Mrs Moanaroa should be entitled to interest from the date of the transfer of monies to the Trust’s bank account. I return to the interest calculation below. But, for present purposes, it can be reasonably assumed that with proper advice, Mrs Moanaroa would have (at least) invested her money in an interest- bearing account.
[33] The claim against Bonnie Ruwhiu involves following the proceeds of sale and Mrs Moanaroa’s savings into the Trust accounts and then to the purchase of the Whangarei property. There is sufficient evidence to follow the proceeds in this way, but this claim does not sit comfortably with a simultaneous claim to compensation for the monies transferred, plus interest from the date of initial transfer. Mr Hoskins submitted that I should treat this as alternative relief to cover off a situation where any
10 She could have sought disgorgement remedies had there been any clear profit to disgorge. See
Premium Real Estate v Stevens, above n 5, at [85] and [99].
judgment debt might not be recoverable from Mr Ruwhiu or Denise Ruwhiu. I am content to proceed on that basis.
[34] As to quantum, Bonnie Ruwhiu had the benefit of $145,200 of the Trust monies which were used to purchase the Whangarei property. These monies derived from the monies taken from Mrs Moanaroa. Bonnie Ruwhiu is therefore liable to Mrs Moanaroa for that sum, plus interest from the date of her purchase of the Whangarei property.
Limitation/Laches
[35] In the absence of a pleaded affirmative defence based on limitation or laches, I proceed on the basis that the present claims are not time barred. Moreover, on the evidence before me, Mrs Moanaroa was effectively duped at least until it became clear she would not be able to stay in the Whangarei home.
Interest
[36] Mr Hoskins submits that, as these proceedings commenced before the Interest on Money Claims Act 2016 came into force, the Act that applies is the Judicature Act 2016. Section 87(1) of that Act relevantly states:
87 Interest on debts and damages
(1)In any proceedings in the High Court, the Court of Appeal, or the Supreme Court for the recovery of any debt or damages, the court may, if it thinks fit, order that there shall be included in the sum for which judgment is given interest at such rate, not exceeding the prescribed rate, as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment.
[37] The “prescribed rate” is defined at s 87(3) as the rate of 7.5 per cent per annum, or such other rate as may from time to time be prescribed for the purposes of this section by the Governor-General by Order in Council. Mr Hoskins submits that the relevant prescribed rates are as follows (as per annexure A):
(a)26 November 2003 to 30 June 2008: 7.5 per cent;
(b)1 July 2008 to 30 June 2011: 8.4 per cent;
(c)1 July 2011 to 23 April 2019: 5 per cent.
[38] Accordingly, Mr Hoskins submits the plaintiff should have total interest on the Mrs Moanaroa’s monies provided to Mr Ruwhiu and Denise Ruwhiu in the amount of
$299,113.84.
[39] I am not satisfied that the prescribed rates should be applied in this formulaic way. A return of 7.5 per cent to 8.4 per cent on the monies would be very fortuitous through the periods in question. I prefer therefore to apply a flat rate of 5 per cent throughout the period. This broadly accords with the deposit rates identified by Mr Mancer in his affidavit through the relevant periods.
General damages
[40] Mrs Moanaroa is entitled to general damages for the severe distress caused to her, particularly through and following the period in which she was evicted from the Whangarei home. Prior to that, while she was plainly frustrated by her circumstances, I am not satisfied Mrs Moanaroa was fully aware of the deceit. While there is no fixed rule for general damages, I am satisfied $25,000 is an appropriate recognition of the distress which Mr Ruwhiu, Denise Ruwhiu and Bonnie Ruwhiu caused to her.11
Exemplary damages
[41] Mr Hoskins submits that, in addition to ordinary damages plus interest, Mrs Moanaroa should receive exemplary damages. He refers to Fisher J’s observations in Cook v Evatt about the ingredients needed for a claim to exemplary damages, namely:12
(a)Outrageous conduct;
11 Body Corporate No 189855 v North Shore City Council HC Auckland CIV-2005-404-5561; Dicks v Hobson Swan Construction Ltd (in liq) (2006) 7 NZCPR 881 (HC); Bronlund v Thames Coromandel District Council CA 190/98 26 August 1999.
12 Cooke v Evatt (No 2) [1992] 1 NZLR 676 (HC) at 706.
(b)Other remedies fall short of an adequate punishment; and
(c)Exceptional circumstances.
[42] I am not satisfied these criteria are met. Plainly, the breach of fiduciary duty involving the deceptive taking of an elderly women’s savings is outrageous. But Mr Ruwhiu, Denise Ruwhiu and Bonnie Ruwhiu did not simply take Mrs Moanaroa’s money and abscond. It appears they tried to invest the monies to obtain a return to the Trust of which Mrs Moanaroa was a beneficiary. They, in fact, obtained accommodation for Mrs Moanaroa – though I accept she found herself paying rent in later years. I also think the ordinary damages sum, inclusive of interest (at a rate which is reasonably generous given the period in focus) adequately punishes the defendants. There is also sparse evidence to show they made significant gains from their breaches which are not already accounted for with an award of ordinary damages. Unfortunately, also, the circumstances are not as exceptional as one would hope. I therefore decline to make an award of exemplary damages.
Outcome
[43]There shall be judgment as follows:
(a)Against Mr Ruwhiu and Denise Ruwhiu, in the sums specified in schedule A, plus interest at 5 per cent on those sums from the dates shown, together with $25,000 in general damages.
(b)Against Bonnie Ruwhiu, in the sum of $145,200 plus interest at 5 per cent from 15 October 2007, being the date the Whangarei property was vested in Bonnie, together with $25,000 in general damages.
[44] The defendants shall also pay 2B costs and disbursements to be fixed by the registrar.
[45] I record Mr Hoskins’ acknowledgment that the judgment sum in respect of Bonnie Ruwhiu is to be recovered only in the event the judgment sums are not recoverable from Mr Ruwhiu and Denise Ruwhiu.
APPENDIX A
ITEM PERIOD
$ AMOUNT
INTEREST RATE
$ ACCRUED INTEREST FOR PERIOD 1
26 November 2003 to
26 November 2003
$50,000
7.5%
$10.27
2
27 November 2003 to 8
July 2004
$61,000
7.5%
$2,807.67
3
9 July 2004 to 27
January 2006
$299,113.84
7.5%
$34,910.27
4
28 January 2006 to 30
June 2008
278,534.29
7.5%
$50,594.03
5
1 July 2008 to 30 June
2011
278,534.29
8.4%
$70,190.64
6
1 July 2011 to 23 April
2019
278,534.29
5.0%
108,819.14
7
TOTAL INTEREST:
$267,332.02
0
4
1