Moses v Stark
[2023] NZHC 427
•7 March 2023
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-353
[2023] NZHC 427
UNDER Section 73 of the Partnership Law Act 2019 IN THE MATTER
of the GJ & EM STARK PARTNERSHIP
BETWEEN
JULIET ANNA MOSES in her capacity as executor and trustee of the Estate of GEORGE JOHN STARK
Plaintiff
AND
EILEEN MARY STARK
First Defendant
KEITH RICHARD STARK in his capacity as attorney in relation to property of
EILEEN MARY STARK
Second Defendant
Hearing: On the papers Counsel:
JWA Johnson and ST Dymond for the Plaintiff
Judgment:
7 March 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 7 March 2023 at 4.30pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
North End Law, Hamilton
Bankside Chambers, Auckland Copy to: Mr K Stark
MOSES v STARK [2023] NZHC 427 [7 March 2023]
Introduction
[1] The plaintiff has filed proceedings seeking the dissolution of a partnership. At the same time an interlocutory application has been filed seeking the interim appointment of a receiver over the partnership assets to protect those assets until the substantive proceeding is determined.
[2] The proceedings are brought by the estate of George John Stark (George) and relate to a farming partnership formed in 1965 by George and his wife, Eileen Mary Stark (Eileen). The partnership is called the GJ and EM Stark Partnership (Partnership).
[3] George passed away on 13 July 2020. Since his passing, his interest in the Partnership has been carried on by his estate (Estate).
[4] Ms Juliet Moses (Juliet) was appointed on 2 June 2021 to act as the sole independent trustee of the Estate in place of the executors appointed pursuant to the will. Originally the will appointed Eileen, Keith Richard Stark (Keith), Eileen and George’s son (and the second defendant), and two of Eileen and George’s other children to be executors and trustees of the will. The will:
(a)made certain conditional bequests;
(b)provided a life interest for Eileen in the Estate’s assets; and
(c)divided the residue of the Estate on Eileen’s death amongst George’s five children.
[5] The will also purported to direct the executors and trustees to retain the farm property owned by George and the shares in Waitotara Farms Limited for five years after George’s death to enable Keith to continue utilising the land to fulfil the terms of a sharemilking contract.
[6] The Estate owns 2188 shares in Waitotara Farms Limited alongside Eileen’s 2186 shares, together treated as Partnership property. The remaining shares are held by Keith (1 share), Keith and his wife Linda (although they appear to be separated) (1 share) and Keilin Farms (5624 shares).
[7] Juliet deposes that Keilin Farms is jointly owned and directed by Keith and Linda. The directors of Waitotara Farms Limited are Keith, Linda and Eileen.
[8] In June 2021 Eileen and all five of her and George’s children signed a deed agreeing to appoint Juliet as an independent executor because very little progress had been made in respect of the administration of the Estate due to an inability to reach a unanimous decision amongst the executors.
[9] Eileen is sadly no longer competent to manage her own affairs and is now represented in relation to property by Keith. Keith acts pursuant to an enduring power of attorney.
[10] A notice of opposition was not filed in time or at all in response to the application to appoint an interim receiver. The application is therefore being determined on the papers.
Jurisdiction of Associate Judges
[11] When the matter was first called, I indicated that I did not consider that Associate Judges had jurisdiction to appoint interim receivers. Following that call, I reconsidered the question of jurisdiction and determined that Associate Judges do have such jurisdiction for the following reasons.
[12] The application is an interlocutory application required to be heard in chambers by r 7.34 of the High Court Rules 2016. By r 2.1, Associate Judges have the same jurisdiction and powers as a High Court Justice in chambers except in relation to the matters set out in s 22(4) of the Senior Courts Act 2016 and rr 5.35A to 5.35C of the High Court Rules.
[13] The matters in s 22(4) of the Senior Courts Act include at s 22(4)(i) “a proceeding for a writ or an order in the nature of mandamus, prohibition, or certiorari, or for a declaration or an injunction”.
[14] In Osiris Properties Investments Number One Ltd v Meadows, Harrison J held that:1
The effect of an order appointing a receiver is to operate as an injunction, combining both mandatory and prohibitory elements.
[15] Walker J relied on this passage in Armani v Armani to support her view that an undertaking as to damages was required because the:2
… appointment of a receiver is akin to the grant of an interim injunction restraining the defendant’s control over assets. There are both prohibitory and mandatory elements.
[16] This does not however mean that the application is a proceeding for a writ or an order in the nature of mandamus, prohibition or certiorari or for a declaration or an injunction. Jurisdiction is excluded for proceedings “in the nature” of mandamus, prohibition or certiorari but this application does not fit that description. It is an application to appoint an interim receiver. The remaining proceedings excluded by s 22(4)(i) are those “for a declaration or an injunction”. This does not exclude proceedings in the nature of an injunction, or that “operate as an injunction”,3 but only for injunctions themselves. Whether the appointment of a receiver is akin to the grant of an interim injunction (as Walker J found in Armani v Armani) or not, Associate Judges still therefore have jurisdiction.
Court’s jurisdiction to appoint an interim receiver
[17] Unlike the Trusts Act 2019, the Partnership Law Act 2019 does not provide for the appointment of an interim receiver (or any receiver) to a partnership.
1 Osiris Properties Investments Number One Ltd v Meadows HC Auckland CIV-2007-404-251, 1 June 2007 at [6].
2 Armani v Armani [2021] NZHC 3145, [2022] 2 NZLR 547 at [59].
3 Above n 1.
[18] The Court has an inherent jurisdiction to appoint receivers as expressly recognised by the Receiverships Act 1993 in its definition of “receiver”. The definition provides that it includes someone appointed “by the court in the exercise of a power conferred on the court or in the exercise of its inherent jurisdiction”.4
[19] Counsel relies on Rea v Omana Ranch Ltd where Katz J observed the typical situations in which the Court has appointed receivers in its equitable jurisdiction, including, relevantly, where:5
There was a need for the interim protection of property (and the income of property), including disputes about partnerships…
[20] The Estate submits therefore that the Court’s jurisdiction to appoint receivers is engaged when the appointment is necessary to preserve or protect property.
[21] The Estate goes so far as to submit that in the context of partnerships where there has to be a dissolution (and particularly where there is a dispute or state of dysfunction between the partners), the interim appointment of a receiver is almost a matter of course. They refer to the circumstances noted by the learned authors of The Laws of New Zealand in which receivers may be appointed prior to the resolution of substantive proceedings.6
(a)where there is danger to partnership property;
(b)where dissolution has already occurred or is inevitable (including where the substantive proceeding before the Court is for the dissolution of the partnership); or
(c)if the Court is satisfied that special grounds, such as misconduct, exist for the appointment.
[22] In support of this, counsel for the Estate refers to Re a Company (No 00596 of 1986), where the Court said:7
4 Receiverships Act 1993, s 2(1) definition of “receiver”, para (b).
5 Rea v Omana Ranch Ltd [2012] NZHC 2639, [2013] 1 NZLR 587 at [10(a)].
6 P R H Webb The Laws of New Zealand — Partnership and Joint Ventures (online ed, LexisNexis) at [153].
7 Re a Company (No 00596 of 1986) [1987] BCLC 133 at 135.
In a partnership dispute it is almost as of course for the court, where the partners have fallen out and there has to be a dissolution, to order the appointment of a receiver, on motion, at an early stage of the partnership action. That is done to hold the ring, to ensure that the partner or partners who happen to be in possession of the partnership trading assets do not obtain advantage, nor damage the partnership assets to the harm of the dissenting partner, nor siphon them away or otherwise maltreat the partnership affairs. It is done without any judgment of the rights or wrongs in the partnership action or any attempt to take a view as to why the partnership is broken up. It is simply designed to hold the ring and ensure that the status quo of the assets is preserved, that the value of the business is there, so that the whole thing may best be realised for the advantage of all partners in due course. That is particularly the case where there is a business with a going concern and a goodwill.
[23]Counsel for the Estate emphasise this application is for the appointment of an
interim receiver pending the substantive determination of the dissolution issue.
Difficulties in administering Estate
[24] The independent executor, Juliet, has filed an affidavit setting out the significant difficulties and delays that she is experiencing in the administration of the Estate as the sole asset of the Estate is its interest in the Partnership.
[25] The Estate holds no bank accounts nor any source of income other than what it derives from its interests in the Partnership.
[26]The Partnership’s notable assets include:
(a)a farm on Tahuna Road, Ohinewai;
(b)a homestead on Rutherford Road, Ohinewai (subject to Eileen’s claim that this may be her separate property);
(c)loans to Keith, Linda and Keilin Farms Limited (an entity jointly owned and directed by Keith and Linda);
(d)shares in Waitotara Farms Limited; and
(e)a bank account.
[27] The Partnership’s farm on Tahuna Road is managed by Keilin Farms Limited. Keilin Farms Limited is also the majority owner of Waitotara Farms Limited.
[28] The Partnership’s assets cannot be dealt with without cooperation from Eileen (or rather, through Keith as Eileen’s attorney).
[29] Juliet’s evidence is this has proved problematic for a number of reasons including the following:
(a)Keith occupies several different and conflicting roles. For example, Keith is, as Eileen’s attorney, a partner in the Partnership. The Estate alleges Keith is also (both personally and through Keilin Farms) a debtor of the Partnership (although Keith disputes liability for such debts).
(b)Keith is hostile to Juliet and refuses to cooperate with her on Partnership matters.
(c)Juliet considers that Keith is not competent to manage the Partnership’s farm and, in her view, is likely to be jeopardising the farm’s value.
(d)Keith has refused to transfer a key bank account into the Partnership’s name after it was put in Eileen’s name in error and has refused to provide key financial information to the Partnership’s accountant to enable the preparation of accounts and GST returns.
[30] The Estate submits that the Partnership is presently in a state of deadlock and that the grounds for the dissolution of the Partnership are undoubtedly present, referring to s 72 of the Partnership Law Act.
[31]Section 72 provides:
72 Court may dissolve partnership
The court may, on an application under section 73, declare a partnership to be dissolved if—
(a)a partner is a mentally impaired person who, in the opinion of the court, permanently lacks wholly or partly the competence to manage their own affairs; or
(b)a partner is in any other way permanently incapable of performing the partner’s part of the partnership agreement; or
(c)a partner is guilty of conduct that, in the opinion of the court after having regard to the nature of the business, is calculated to prejudicially affect the carrying on of the business; or
(d)a partner—
(i)wilfully or persistently breaches the partnership agreement; or
(ii)otherwise acts in matters relating to the partnership business in such a manner that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with the partner; or
(e)the partnership business can be carried on only at a loss; or
(f)circumstances have arisen that, in the opinion of the court, make it just and equitable to dissolve the partnership.
[32] The Estate relies in particular on s 72(a), (d)(ii) and (f). The statement of claim pleads that the circumstances warranting the dissolution of the partnership are present because:
(a)Eileen has lost the competence to manage her own affairs;
(b)Keith (in his capacity as Eileen’s property attorney) is acting in a manner such that it is not reasonably practicable for the Estate to carry on the business of the Partnership; and
(c)it is generally just and equitable for the Partnership to be wound up so the Estate (whose sole asset is its interest in the Partnership) can be properly administered for the benefit of its beneficiaries.
[33] The Estate, as a partner, can bring an application under each of these three categories.8
[34] Juliet goes into further detail in her affidavit about the difficulties with Partnership administration and why a decision has been taken to apply to dissolve the Partnership. Juliet annexes a report dated 15 June 2022 from Mr Dave Miller, a farm management consultant from AgFirst, commissioned by the Estate, as to the state of
8 Partnership Law Act 2019, s 73.
the Partnership’s farm. A copy of the report is annexed to Juliet’s affidavit. Mr Miller concludes in the report:
The overall appearance of the property is of a poorly maintained and neglected farming operation that has reached the point where significant investment in time and money will be required to bring it up to what would be considered an acceptable standard.
[35] Juliet’s evidence is that were Keith not Eileen’s attorney, the Partnership would in all likelihood have terminated Keilin Farms as manager of the farm or at least have put in place a management agreement that clearly sets out the terms of its appointment including performance expectations and would be monitoring that closely.
[36] Juliet says that, additionally, Keith (either personally or through Keilin Farms) is significantly indebted to the Partnership. The Partnership accounts record such debts as assets, but Keith denies liability for those debts. Juliet understands that these debts were agreed to in a family meeting dated 29 May 2019 at which Keith was present, but that Keith has since resiled from that position. A copy of the minutes of that meeting with a spreadsheet attached indicating the debts owed is annexed to Juliet’s affidavit. Juliet considers that it is likely the Partnership will either have to undertake alternative dispute resolution or litigation with Keith and/or Keilin Farms to resolve these matters.
Family Court proceeding
[37] Because of these concerns, Juliet deposes that the Estate commenced proceedings in the Family Court9 in approximately August 2022 (the exact date is not referred to in Juliet’s affidavit) to revoke Keith’s power of attorney for Eileen and to appoint a property manager (Family Court Proceedings). The correspondence and draft documents annexed to Juliet’s affidavit in respect of these proceedings suggest that the Estate is seeking the appointment of Mr Jeffrey Meltzer as Eileen’s property manager, but this cannot be confirmed as copies of the final documents filed are not annexed to Juliet’s affidavit.
9 Under file number FAM-2022-019-613.
Grounds for urgency
[38] Juliet explains in her affidavit that the delay in bringing these proceedings is principally because she regarded such an application as a last resort especially because it occurs in a family context in which she had hoped to avoid exacerbating an already fraught situation. Juliet explains that since her appointment in June 2021, she has worked diligently and in good faith to resolve the issues regarding the Partnership by agreement, first with Eileen and subsequently with Keith, annexing correspondence with Keith and his solicitors to her affidavit. Juliet hoped matters could be resolved without the Court’s assistance but this has not proved possible, owing primarily to Eileen losing capacity and, as Juliet describes it, Keith’s recalcitrance. Juliet says that she is becoming increasingly conscious of the need to progress matters for the Estate’s beneficiaries.
[39] Juliet further explains her principal obligation is to act in the best interests of the Estate’s beneficiaries and she does not see expensive litigation as something that would be consistent with that. However, she has now reached the point where it is obvious that the status quo cannot continue and the Court’s assistance is required.
[40] The Estate submits that in the intervening period until the hearing of the dissolution proceeding, the appointment of a receiver is required to safeguard the Partnership’s assets. The Estate says the Partnership’s assets are presently in danger by reason of:
(a)the dysfunction between the Estate on the one hand and Keith on the other;
(b)Keith’s incompetent management of the Partnership’s farming operation and neglect of the Partnership’s farm; and
(c)the Estate’s lack of access to Partnership funds which are presently being held in an account controlled solely by Keith.
Defendants’ Position
[41]As set out above, no opposition has been filed to the Estate’s application.
[42] An affidavit of service was filed prior to the first call confirming that the proceedings, including the interlocutory application to appoint an interim receiver, were served on Keith on 21 December 2022.
[43] I have been advised by the Registry that an email was received from Keith on 17 February 2023 confirming that he had been served with papers in this matter and saying that he would like to know when his response had to be filed by. Keith advised that he would be defending himself in the proceedings. Keith did not distinguish between this interlocutory application and the substantive proceeding. The case officer responded and advised Keith to contact plaintiff’s counsel or to obtain legal advice.
Discussion
[44] Having reviewed the evidence and considered the circumstances, I am not prepared to appoint an interim receiver at this stage. The reasons for this are that:
(a)The current status of the Family Court Proceedings is not known. If Keith has been replaced as Eileen’s attorney by a property manager (or is to be shortly), then many of the difficulties may be able to be resolved without the appointment of an interim receiver and the inevitable costs associated with that.
(b)The Partnership’s bank account appears from the correspondence to be frozen (although Juliet does not confirm this in her evidence).
(c)There does not appear to be any imminent threat to the remaining assets if an interim receiver is not appointed (although there may be stock sales that will need to be accounted for).
(d)The farm expert’s report does not compare the state of the farm prior to George’s death and has a number of matters on which the expert requires further information.
(e)The delay in bringing proceedings to dissolve the Partnership is understandable, as explained by Juliet, in that she was attempting to resolve matters without litigation. But it does not support an application for the appointment of an interim receiver. If there was a serious risk of dissipation of assets then the application would have been brought sooner.
(f)Keith was willing to attend a roundtable meeting or mediation as recently as November 2022 to attempt to resolve matters.
(g)Keith has contacted the Court and advised he intends to defend the proceedings.
(h)The authorities relied on by the Estate as supporting the position that the appointment of an interim receiver is a matter of course to “hold the ring” were all cases where there was a real risk of dissipation of assets.10 There does not appear any real urgency to “hold the ring” here.
[45] I therefore decline the application to appoint an interim receiver at this stage. However, I reserve leave to the applicant to re-apply if, following a further call of this matter, the Family Court Proceedings do not appear likely to result in the removal of Keith as attorney for Eileen in the near future and there is a risk of dissipation of the Partnership assets.
[46] I record that no statement of defence appears to have been filed to the substantive proceedings although due in mid-February 2023. I make directions below for a telephone conference in this matter next week in order to ascertain whether a statement of defence is intended to be filed and to make further necessary directions. I encourage Keith to seek legal advice and file a statement of defence prior to that conference if possible.
Orders
[47]I order:
10 See above at [23] and [24]. See also Catch a Ride Ltd v Gardner [2014] EWHC 1220 (Ch).
(a)The Estate’s application for the appointment of an interim receiver is declined at this stage although leave is reserved to re-apply if circumstances warrant it as discussed above in paragraph [45].
(b)A case management conference by telephone is to be allocated by the Registry on Wednesday or Friday next week (15 or 17 March 2023) prior to which memoranda (preferably joint) are to be filed addressing:
(i)current progress in the Family Court Proceedings;
(ii)whether Keith intends to defend the proceeding;
(iii)if so:
1. whether a judicial settlement conference ought to be allocated and proposing directions; and
2. proposing further directions to progress to a substantive hearing;
(iv)if not, proposing directions for a formal proof hearing.
(c)Costs are reserved.
Associate Judge Sussock