Percy v Percy
[2020] NZHC 3537
•19 November 2020
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2019-441-089
[2020] NZHC 3537
IN THE MATTER of claims of breach of contract, breach of trust and fiduciary duty and an application for removal of Trustees UNDER
Section 51 of the Trustee Act 1956 and the Court’s inherent and supervisory jurisdiction
BETWEEN
DOUGLAS WILLIAM PERCY
First Applicant
VIRGINIA FRANCES BENNETT
Second ApplicantAND
VANCE CHARLES PERCY
First Respondent
STEPHEN PETER LUNN
Second RespondentSTEPHEN ALEXANDER GREER
Third RespondentSTEPHEN HUGH ORR REANEY
Fourth Respondent
Hearing: 19 November 2020 Counsel:
J L Bates for Applicants
J O Upton QC and D J O’Connor for Respondents
Judgment:
19 November 2020
JUDGMENT OF GRICE J
PERCY v PERCY [2020] NZHC 3537 [19 November 2020]
[1] This is an application seeking joinder of two additional defendants and for the determination of two pre-trial questions.1
[2] The application seeks to add the third respondent, Mr Greer, and the fourth respondent, Mr Reaney, as defendants in the substantive proceedings. They were appointed as trustees of the Percy Farming Trust by a Deed of Settlement dated 5 June 2020. The applicants say that their appointments as trustees, in effect, was an abuse of process and went against the provisions of the Deed of Settlement, which settled earlier proceedings,2 where a process of appointment of trustees had been agreed.
[3] The first and second plaintiffs in the substantive proceedings (the applicants in this decision) are Mr Douglas Percy (Douglas) and Virginia Bennett (Virginia). The first respondent is Mr Vance Percy (Vance): the first defendant in the substantive proceedings. The second respondent is Mr Stephen Lunn: the second defendant in the substantive proceedings. The third respondent is Mr Stephen Greer and the fourth respondent is Mr Stephen Reaney. The third defendants in the substantive proceedings are Vance and Denise Percy, in their capacities as the partners of the Shiloh Santa Gertrudis partnership.3
Background
[4] The first and second plaintiffs filed these proceedings in November 2019. They allege breaches of trust, breaches of fiduciary duty, that the third defendant knowingly assisted the first defendant to breach his fiduciary duties, and a constructive trust over the profits received from grazing stock on the farm property. In addition, there is a claim for breach of contract. The fourth cause of action is for the removal and appointment of an independent professional trustee. The then trustees whose removal was sought (the first and second respondents/defendants) have now been removed as trustees by a deed dated June 2020.
1 This judgment was delivered orally on 19 November 2020 and has been footnoted and edited for grammar and flow. No change is made to the substance of the decision.
2 Percy v Percy [2017] NZHC 1989.
3 See below at [5] for the background of the Shiloh partnership.
[5] The summary of the background is set out in the decision of Doogue J on an application for prospective costs. She said:4
[6] The trust was established on 15 December 1969 by Frank William Percy (the settlor), the father of Douglas, Virginia and Vance. The beneficiaries were the settlor’s wife and his children and grandchildren and the wives or widows of any sons or grandsons of the settlor.
[7] The F W Percy Farming Company Limited (the company) was incorporated on 16 December 1969. The company operates a farm in Hawke’s Bay. The trust owns 50 per cent of the shares in the company. The third defendants operate the Shiloh Stud and graze their stock on the farm owned by the company.
[8]Vance became a director of the company on 3 August 1995.
[9] The trustees of the trust changed over time. Vance was appointed as a new trustee of the trust on 23 February 2001. He accepted such appointment voluntarily. As a result of his appointment he then held two fiduciary positions, one as director of the company and the other as trustee of the trust.
[10] On 13 November 2002 the settlor signed a memorandum of guidance for the trustees of the trust (the memorandum of guidance). It set out his wishes concerning the administration and management of the trust.
[11]The settlor died in April 2008.
[12] In May 2015 the capital of the company was 200,000 $1.00 shares: 100,000 shares held by the trustees of the trust, 59,999 shares held by Vance, 40,000 shares held by the settlor’s wife, and one share held by Denise.
[13] The settlor’s wife died in July 2015, and she bequeathed her shares in the company to Vance. Virginia contested that bequest in the Family Court and was granted ownership of 4,000 shares in the company.
[14] On or about 2 May 2016 Douglas filed High Court proceedings against the then trustees: Vance and a Mr Riddell. The Shiloh Stud was later joined as second defendant. Mr Riddell agreed to resign, and Mr Lunn was then appointed as a trustee in 2017.
[15] In those proceedings, Douglas made an interlocutory application for an order appointing auditors and reviewers under s 83B of the Trustee Act 1956 (the Act) to investigate alleged irregularities. That application was declined by Associate Judge Smith in a decision dated 18 August 2017, and costs were awarded in favour of the Shiloh Stud. As part of that claim, Douglas sought the removal of the then trustees, to be replaced by independent trustees.
[16] The proceedings were settled by a deed of settlement in December 2017. Douglas’ claim was settled and a process for the appointment of replacement trustees was established.
4 Percy v Percy [2020] NZHC 828 at [6]–[19] (footnotes omitted).
[17]The deed of settlement provided as follows:
1.The current trustees Vance Percy and Stephen Lunn agreed to resign as Trustees to be replaced by agreed independent professional Trustees and failing such agreement the parties agree that the President of the New Zealand law Society (or her nominee) shall have power to nominate two independent professional Trustees from the Hawkes Bay District, and such nomination shall be accepted by the parties as finding.
2.The two independent Trustees shall have no conflict of interest.
3.One independent Trustee must come from an accounting firm or company.
4.The other professional Trustee must come from a law firm or company.
5.Douglas Percy agrees to discontinue his proceedings and the parties agreed that costs are to lie where they fall.
6.Each party will put forward up to four names as potential professional Trustees within 7 days.
7.Absent agreement as to the composition of the Trustees within 21 days, the power of nomination set out in clause 1 shall vest in the President of the NZLS (or nominee).
8.Vance Percy shall indemnify Douglas Percy in the event Denise Percy claims costs against Douglas upon discontinuance.
9.Clause 1 is an arbitration clause for the purposes of the Arbitration Act.
[18] Contrary to the terms of the settlement, when the parties were unable to agree on replacement trustees, they continued to negotiate the identity of the replacement trustees; a process which took about 18 months.
[19] In June 2019 Douglas referred the matter to the Law Society. Mr Lunn claimed the Law Society had no jurisdiction in the matter and that the deed of settlement was contrary to the Act.
[6] The claims in the present proceedings in some respects resemble those made in an earlier proceeding settled by the deed dated 17 December 2017. Douglas claims that Vance and Mr Lunn repudiated the Deed of Settlement. Vance and Mr Lunn respond that Douglas and Virginia have repudiated the Deed of Settlement. All parties had agreed that Vance and Mr Lunn should be removed, and new trustees be appointed but the parties can now not agree on who those trustees would be.
The substantive proceedings
[7] The judgment of Doogue J went on to comment on the various substantive claims as follows:5
[22] At the heart of Douglas and Virginia’s case is the allegation that Vance has a conflict of interest in being both a trustee of the trust and a director of and controlling shareholder in the company. They allege that Vance is in breach of the self-dealing rule, binding on all trustees, as he is using company property (the farm) for the benefit of the Shiloh Stud, in which he has a personal interest.
[23] Over time Douglas has been concerned about the manner in which the trust has been operated. In particular, he has been concerned at the very low rate of return received by the trust from its shareholding in the company and the low rate of interest (one per cent per annum) paid on a loan of approximately $220,000.00 from the trust to the company.
[24] In addition, Douglas and Virginia allege distributions made by the trustees over the years have favoured Vance’s family over the other beneficiaries.
[25] Douglas and Virginia also harbour concerns about Mr Lunn’s breach of trust and fiduciary duties owed to them. They say Mr Lunn has failed to prevent Vance from personally dealing with the company’s assets.
[26] Finally, Douglas and Virginia allege that Vance and Denise have knowingly assisted Vance in his capacity as trustee to enter into transactions with Shiloh Stud in breach of his duties to the trust. They say Vance and Denise have benefitted from their ability to graze stock owned by the Shiloh Stud on the company’s property.
[27] On the other hand, Vance and Mr Lunn deny that Vance placed himself in a position to self-deal. They say he was placed in that position by the settlor, the settlor’s will, the memorandum of guidance, and the terms of the trust. They say that there has been an implied exemption from the self-dealing rule in this case, as the settlor intended to waive the conflict of interest rule for Vance. They also deny that the Shiloh Stud has profited from the company.
[28] Affidavits have been filed by Douglas and Vance. They disclose a complete breakdown in the relationship between Douglas and Virginia and Vance and Mr Lunn. It would be difficult to characterise the relationships as anything other than intensely acrimonious.
[8] The Judge went on to review the strength of each position in the substantive proceedings insofar as she could at that preliminary stage. She said:6
5 Percy v Percy, above n 4, at [22]–[28].
6 At [47].
[47] … I find that Douglas and Virginia have a strong case that Vance is in a position where he has a conflict of interest, where he can self-deal and does not have express authorisation to do so.
[9] The Judge then turned to whether Douglas and Virginia had a strong case that Vance, Denise and the Shiloh Stud had in fact profited from Vance being in a position to self-deal. In relation to the earlier proceedings that had been settled in December 2017, she said:7
[52] Those proceedings were of course settled. But it could not be said on the evidence that existed at that time that Douglas’ case was strong and conclusive proof of profiting from self-dealing by Vance.
[53] The present proceedings had been brought on the basis that there has been self-dealing resulting in losses to the trust and the company between 2016 and now. No financial evidence over and above that contained in Mr Gardiner’s affidavit has been filed. There is a vacuum as to the financial dealings since 2016. There is insufficient evidence before the Court to assess the strength of the plaintiffs’ case in this respect.
[54] Given the background and the outcome of the earlier proceedings and the lack of evidence of current self-dealing to the detriment of the trust, it could not be said that on this cause of action Douglas and Virginia have such a strong case that the only order a judge could make would be to find the cause of action proven.
[10] In relation to the cross claims made in relation to the allegations of repudiation of the Deed of Settlement of December 2017, she said:
[62] … little is to be gained in pursuing this cause of action in my view when it is common ground how acrimonious the history and relationships in this family are, where it is secondary to the other causes of action, and where all parties agree new trustees need to be appointed.
[11]The Judge noted:
[66] I consider that the case for removal of the trustees is strong on the basis that Vance is in a position to self-deal, and that over many years he has failed to adequately provide information to Douglas when reasonably requested to do so. Under the current Act there is no legal obligation on the trustees to provide that information to beneficiaries, but it may have been a measure that would have alleviated the deep level of suspicion harboured by Douglas over the years. Even in the absence of any misconduct and allowing for the fact that Vance and Mr Lunn might have had a reasonable belief that it was Douglas who repudiated the deed of settlement or that the deed did contravene the Act, there is such a high level of distrust and dysfunction that
7 Percy v Percy, above n 4, at [52]–[54].
removal of the trustees and the appointment of replacement trustees seems inevitable.
[67] In fairness to Vance and Mr Lunn, that must be the view they have themselves arrived at. They no longer oppose removal, they simply dispute the mechanism by which successor trustees should be chosen and the appropriateness of the trustees proposed by Douglas and Virginia.
[12] Since that judgment in April 2020, Vance and Mr Lunn have resigned and appointed Mr Greer and Mr Reaney as trustees.
[13] Vance says, as does Mr Lunn, that these appointments were by agreement between the parties and that agreement had followed the provisions of the Deed of Settlement. Nevertheless, they agree that the timeframe in the Deed of Settlement slipped but say that neither party adhered to that. Mr Upton QC took me through the letters and exchanges of emails, which he indicated supported the fact that agreement had been reached between the parties, or at least between the lawyers for the various parties, that Mr Greer and Mr Reaney should be appointed.
[14] On that approach Mr Upton says there was agreement reached evidenced by the exchange of emails and letters by March 2019, but certainly well before the hearing before Doogue J in March 2020, although the formal deed of appointment of Mr Greer and Mr Reaney was not executed until June 2020. Mr Bates says the trails of emails and the correspondence was squarely before Her Honour at the time of her judgment. She made no comment on that issue.
[15] For completeness I note that Her Honour indicated that the discretionary beneficiaries need not be served because the trustees represent them. She said, “[t]here is nothing in the circumstances of this case to warrant service on all discretionary beneficiaries” and the cost of doing so would be “disproportionate in monetary terms and amount to further and unnecessary delay”.8
[16] Douglas says in his affidavit that he and Virginia had invited Vance and Mr Lunn to approach the Court to jointly decide the question as to who should be the
8 Percy v Percy, above n 4, at [73].
replacement trustees. Instead, Douglas alleges Vance and Mr Lunn proceeded to appoint the new trustees without agreement in a deed dated 5 June 2020.
[17] Douglas and Virginia say they did not agree to the appointment and that it flies in the face of the application to the Court. They say the Court was seized of the matter in its supervisory jurisdiction over trusts. They say that, while they did not obtain prospective costs, they were heartened by the Court’s preliminary findings, when dealing with that application, as to the strength of their case.
[18] The reply submissions of Douglas and Virginia begin by taking issue with the respondents’ submissions, which had alleged misquotes and fundamental errors, misinterpretations and inadmissible evidence filed by the respondents. This exchange underscores the significant disputes on the facts and illustrates the heightened tensions between the parties.
[19] While counsel took me through the various emails and factual matters that, counsel submit, indicate agreement or not as to the appointment of Mr Reaney and Mr Greer in 2019, that cannot be resolved today.9 The matter is heavily disputed and I have little, if any, more evidence before me than did Doogue J before her.
Joinder of defendants
[20]A Court order is required to join new defendants to a proceeding. In
McLachlan10 Potter J said:
An application for joinder does not make the party the subject of an application, a plaintiff or defendant in proceedings. That requires a Court order.
9 There are a number of disputes over the comments made in the affidavit of Douglas. At a case management conference Cooke J struck out paragraph [10] of Douglas’ affidavit as inadmissible: Percy v Percy HC Wellington CIV-2019-441-89, 7 September 2020.
10 McLachlan v MEL Network Ltd HC Auckland CIV-1998-404-253, 9 December 2004, at [60].
[21] The Courts take a liberal approach to the joinder of parties and imposes a fairly low threshold.11 Joinder is governed by r 4.56 of the High Court Rules 2016 (Rules).
It says:12
(1)A Judge may, at any stage of a proceeding, order that—
…
(b)the name of a person be added as a plaintiff or defendant because–
(i) the person ought to have been joined; or
(ii) the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
…
[22]Rule 4.3 refers to joinder of defendants and says:
(1)Persons may be jointly, individually, or in the alternative as defendants against whom it is alleged there is a right to relief in respect of, or arising out of, the same transaction, matter, event, instrument, document, series of documents, enactment, or bylaw.
(2)It is not necessary for every defendant to be interested in all relief claimed or every cause of action.
…
[23] The authors of McGechan on Procedure note that the object of the Rules is to provide for the inclusion of necessary parties, rather than judgment being obtained in the absence of necessary parties.13 The Court must be in a position to do complete justice by deciding upon and settling the rights of all persons interested in the subject of the suit. This Court explained the reasoning for this approach in McKendrick Glass Manufacturing Company Ltd v Wilkinson, where Richmond J said:14
It is the constant aim of a Court of equity to do complete justice by deciding upon and settling the rights of all persons interested in the subject of the suit, to make the performance of the order of the Court perfectly safe to those who
11 Chan v Seyip Association of NZ Inc [2008] NZAR 37 (HC) at [12]; Beattie v Premier Events Group Ltd [2012] NZCA 257 at [24]; and Newhaven Waldorf Management Ltd v Allen [2015] NZCA 204, [2015] NZAR 1173 at [46].
12 High Court Rules 2016, at r 4.56.
13 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) [McGechan on Procedure] at [HR4.56.04].
14 McKendrick Glass Manufacturing Co Ltd v Wilkinson [1965] NZLR 717 (SC) at 723; citing John Mitford A Treatise on the Pleadings in Suits in the Court of Chancery (5th ed, 1847) at 190.
are compelled to obey it, and to prevent future litigation. For this purpose all persons materially interested in the subject ought generally to be parties to the suit, plaintiffs or defendants, however numerous they may be, so that the Court may be enabled to do complete justice by deciding upon and settling the rights of all persons interested, and that the orders of the Court may be safely executed by those who are compelled to obey them, and future litigations may be prevented.
[24] The two separate tests contemplated under r 4.56(1)(b)(i) and (ii) indicate a two-stage inquiry:
(a)first, whether, objectively there is jurisdiction to join the proposed party; and
(b)secondly, if there is jurisdiction, whether the Court should exercise its discretion to order joinder.
[25] The first requirement is that the person ought to be joined.15 The word “ought” means in order to do justice. The jurisdictional threshold is met if the proposed defendant’s presence is necessary to enable the Court to adjudicate upon the precise issues raised in the proceedings.
[26] The alternative requirement is the question of whether the person’s presence before the Court may be necessary to adjudicate on all and settle all questions involved in the proceeding.16 The jurisdictional question is whether the proposed defendant’s rights against or liabilities to any party in the proceedings will be directly affected by any order that may be made in the proceedings. In Tourplan Pacific Ltd v Australian Tours Management Pty Ltd, Venning J noted:17
[22] It is not for the Court on an application such as this to determine the merits of the proposed claim. As Randerson J noted in Bridgeway Projects Ltd v Webb the Court will ordinarily accept the applicant’s factual assertions relevant to the proposed causes of action against the parties to be joined and what is required is a tenable cause of action.
15 High Court Rules 2016, at r 4.56(1)(b)(i).
16 Rule 4.56(1)(b)(ii).
17 Tourplan Pacific Ltd v Australian Tours Management Pty Ltd [2017] NZHC 2310 (footnotes omitted).
[27] If the Court is satisfied the jurisdiction has been established, the discretionary question of whether the joinder should be granted, in respect of additional defendants, is almost always answered positively.18
[28] There is no specified procedure, but established practice is for the application to be served on existing parties but not the person sought to be added.19
[29] The applicants say the new trustees (the third and fourth respondents) are necessarily parties because, as trustees, they represent all persons beneficially interested under the trust. If a beneficiary has a contribution or opposes the order sought, they may be heard through those trustees. Rule 4.23 of the High Court Rules provides:
4.23 Trustees, executors, and administrators
(1) Trustees, executors, and administrators may sue or be sued on behalf of, or as representing, the property or estate of which they are trustees …
(2) There is no need to join persons beneficially interested in a trust or an estate … because the trustees … represent those persons.
…
[30] The applicants first submit that it was an abuse of process that Vance and Mr Lunn appointed the third and fourth respondents as trustees after the Court’s decision in April 2020.20 The applicants submit that given that action Vance and Mr Lunn interfered with a lawful process that had been set in train before the High Court and under the Deed of Settlement the President of the New Zealand Law Society should have been allowed to determine the appointment of trustees. Therefore, Vance and Mr Lunn have repudiated or breached the Deed of Settlement.
[31] Vance and Mr Lunn say that the new trustees (third and fourth respondents) need not be part of the proceedings in order for the claims to be determined. They submit that Douglas is incorrect in his comments in his affidavit that the third and fourth respondents need to be joined to be bound by the judgment.
18 McGechan on Procedure, above n 1313, at [HR4.56.11].
19 At [HR4.56.02].
20 The appointment was made by deed, dated June 2020.
[32] Mr Upton says the issue before the Court is about the fact of their status as trustees and not their conduct. He says they have done nothing since their appointment and therefore a judgment in rem, which is binding on everybody without the third and fourth respondents needing to be parties to the proceedings, would suffice. He cites The Laws of New Zealand on that topic:21
…all persons, whether parties to the proceedings or not, are estopped from averring that the status of persons or things, or the right or title to property, is other than the Court has declared or has made it to be such a judgment.
[33] Mr Upton also noted that the third and fourth respondents say in their affidavits that they do not want to take an active part in the proceedings, and that as professional trustees they must remain neutral between the parties. In addition, the respondents note that Mr Greer and Mr Reaney have not taken any active steps in the administration of the trust pending the outcome of these proceedings. Furthermore, no allegations concerning their conduct have been made, nor are they made, in the proposed draft amended statement of claim submitted to the Court.
[34] The respondents say that the existing fourth cause of action, which relates to the appointment of new trustees, allows the issue to be argued before the Court. That is, the removal of the present trustees and the appointment of new trustees.
[35] The applicants reply that the fourth cause of action does not allow for proper argument on the present situation. They say that the Court must be able to remove the present trustees who are not the trustees initially named in the statement of claim. The Court will not have that jurisdiction on the basis of the current pleadings which was directed at the former trustees. The power to appoint a trustee is consequential on the jurisdiction to remove a trustee.22
[36] The applicants also say that the third and fourth respondents need not take an active or partisan approach in the proceedings, but they do represent the views and
21 C Fraser The Laws of New Zealand: Estoppel (online looseleaf ed, LexisNexis) at [8]; citing
Castrique v Imrie (1870) LR 4 HL 414, [1861-73] All ER 508.
22 Thurston v Thurston [2013] NZHC 1886, (2013) 3 NZTR 23-023 at [6]. The Court has inherent jurisdiction to control a trust and it may remove a trustee in the exercise of that jurisdiction: Thurston v Thurston, above n 22, at [7]; citing Letterstedt v Broers (1884) 9 App Cas 371 (PC); Miller v Cameron (1936) 54 CLR 572 (HCA); and Hunter v Hunter [1938] NZLR 520 (CA).
interests of all the beneficiaries. In addition, the applicants indicate that the presence of the third and fourth respondents will be necessary as there are issues raised in the claim such as seeking an audit of the trust, which would necessarily involve the present trustees.
Analysis
[37] Rule 5.46 sets out the appropriate steps. In this case, the Court needs to have jurisdiction over the trustees in the event that it decides to make an order to remove those trustees. That was the order that was originally sought in the proceedings against the previous trustees. They have now removed themselves, therefore it follows there must be an amendment to the pleadings. It is necessary to have them before the Court to adjudicate on their removal and the appointment of new trustees.
[38] I acknowledge Mr Upton’s submission that the removal of trustees involves status and nothing more and that, in any event, they will abide the decision of the Court. However, in the circumstances of this case, those trustees have been trustees since June 2020. Regardless of what steps they have taken, it will be necessary to consider what the trust has done since that time given the wide-ranging allegations that have been made in these proceedings. There were already indications, although they were not set out in the draft proposed amended statement of claim, the applicants consider the new trustees should have been doing more than they have been doing. For instance, in Douglas’ affidavit, at paragraph [11], he says that the trustees appear to be taking a passive role. That is disputed by the respondents, who say that all the new trustees have done is await the outcome of these proceedings. Nevertheless, it is apparent that the new trustees will be drawn into the controversy one way or the other.
[39] As I noted, an amended draft statement of claim is annexed to the memorandum of counsel, dated 17 July 2020. It appears appropriate that the amendments are made. The correct trustees should be before the Court.
[40] Mr Bates, for the applicants, indicated there may have been another way to get the trustees before the Court: by filing specific applications in relation to the removal of the trustees and the appointment of new trustees and then seeking a consolidation
of that action with this action. However, that seems to be a round-about, time-consuming and costly way to achieve the same outcome as sought here.
[41] There are likely to be disputes about the financial statements concerning whether the trust is receiving proper returns from its investments. Those are matters that are now under the control of the third and fourth respondents and have been since June 2020. The end of the financial year for the trust is 31 March 2020. It is not clear whether final accounts have been prepared for that year-end. If they have not been, it will be the new trustees who are responsible for the preparation of those accounts. No doubt these actions will be under scrutiny.
[42] In addition, the trustees will be involved in the proceedings for the beneficiaries. As I noted, there was no order to serve the beneficiaries separately, nor should there have been. The beneficiaries include children of the parties, not just the parties who are now before the Court.
[43] In my view, the trustees should be joined as defendants. The trustees’ presence may be necessary to adjudicate and settle all questions involved in the proceedings. The extent to which they wish to be involved is a matter for them. In my view, they should be joined. I make that order accordingly.
Pre-trial preliminary questions
[44] The applicants set out the two preliminary questions that they suggest should be dealt with at a pre-trial stage. First, who should be appointed as trustees of the Percy Farming Trust; and, secondly, whether the power of removal and appointment of trustees should vest in the new trustees.
[45] The applicants say that there may be a duty on the new trustees, or any new trustees, to take on or continue proceedings against the former trustees in relation to the self-dealing claims.
[46] Secondly, they submit that if the preliminary questions are determined in their favour (that is, if either Perpetual Guardian or the Public Trust, both of which are statutory trustee corporations, are appointed as trustee) the applicants might abandon
their substantive claims. That, however, is subject to Perpetual Guardian or the Public Trust determining whether to pursue the present claims and, if not, whether the applicants decide to continue to pursue them.
[47] The applicants also sought another precondition of discontinuance of the substantive claim: that their costs for the previous proceedings and this application be paid out of the trust assets.
[48] The applicants say the preliminary question can be dealt with on the papers without the need for further evidence other than affidavit evidence from the third and fourth respondents if they wish to be heard.
[49] The respondents respond and submit that determining the preliminary questions separately at a pre-trial stage is inappropriate for the following reasons:
(a)First, the normal assumption is that all matters in issue are to be determined in one trial.
(b)Secondly, the preliminary questions must be considered in the context of all the evidence and cannot be isolated. The findings in the preliminary determination would be the same matters that would need full evidence and arguments in the trial. The applicants’ claim for the removal of the third and fourth respondents and replacement with Perpetual Guardian or Public Trust relies on the same pleaded allegations.
(c)Thirdly, there is a risk of res judicata and issue estoppel becoming a problem at trial.
(d)Fourthly, there is a prospect of multiple appeals.
(e)Fifthly, a split trial would cause substantial delay and substantial extra expense.
(f)Finally, that answering the preliminary questions will not resolve the proceedings.
[50] The respondents say that answering the preliminary questions will involve adducing considerable disputed evidence which requires cross-examination. That should await a full hearing where questions about credibility and interpretation can be confronted. A split trial will not avoid the need for calling witnesses at the second hearing, which will necessarily cover matters dealt with at the pre-trial stage. Therefore, there will be a duplication of time, both for the Court and for counsel, to come up to speed again for the second hearing.
[51] Mr Upton emphasised there have been judicial warnings emphasising the risks of ordering split trials. They are too often treacherous shortcuts and their price can be delay, anxiety and expense. As Mr Upton put it, the shortest cut inevitably turns out to be the longest way around. In support of those propositions, he cited Tilling v Whiteman23 and Windsor Refrigeration Co v Branch Nominees.24
[52] In response, the applicants submit the preliminary questions are narrow, significant costs may be saved, and the Court has the information before it to make a preliminary assessment in much the same way that Doogue J set out her preliminary views.25
[53] The comments by Doogue J indicated a preliminary assessment of the strength of the case. However, the facts upon which any preliminary findings would need to be made are hotly contested. They can only be finally determined with all the evidence duly tested before the Court.
[54] Even dealing with the questions posed on a pre-trial basis, if that were possible, would not lead to the inevitable abandonment of these proceedings. The applicants have made it clear that that would depend on whether the appointed trustee, (Perpetual Trust or the Public Trust), deciding it should take on the claims, and,
23 Tilling v Whiteman [1979] UKHL 10, [1980] AC 1 (per Lord Scarman).
24 Windsor Refrigeration Co v Branch Nominees [1961] 1 Ch 375 (CA) (per Lord Evershed MR).
25 Percy v Percy, above n 4, at [66]–[67]. See above at [11].
secondly, that the applicants’ costs be paid not only for these proceedings but the earlier proceedings, which are no longer extant.
Legal position on preliminary questions
[55] Rule 10.15 of the High Court Rules deals with the issues of preliminary questions which provides:
The court may, whether or not the decision will dispose of the proceeding, make orders for—
(a)the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding, and
(b)the formulation of the case for decision and, if thought necessary, the statement of the case.
[56] The Court has a broad discretion under r 10.15, to take into account not only the interests of the immediate parties but also parties to other cases before the Court.
[57]Eichelbaum J, as he then was, in Innes v Ewing observed that:26
Clearly the underlying purpose is to expedite the proceedings by limiting or defining the scope of trial in advance or obviating the need for a trial altogether.
[58] McGechan on Procedure, in its commentary suggests the following criteria to be taken into account when determining whether to order a split trial.27 That list of criteria is based on Turners & Growers Ltd v Zespri Group Ltd28and Karam v Fairfax NZ Ltd29 as follows:
(a)the likelihood of delay in finally resolving the proceedings;
(b)the probable length of hearings if there is a split trial;
26 Innes v Ewing (1986) 4 PRNZ 10 (HC) at [18].
27 McGechan on Procedure, above n 13, at [HR10.15.06](1); citing Turners & Growers Ltd HC Auckland CIV-2009-404-4392, 5 May 2010.
28 Turners & Growers Ltd v Zespri Group Ltd, above n 27, at [11].
29 Karam v Fairfax NZ Ltd [2012] NZHC 1331 at [58]–[59].
(c)whether a decision one way or the other on the separate questions would end the litigation;
(d)the impact on the length of any subsequent hearing;
(e)a balancing of the advantages to the parties and the public interest in shortening the litigation against any disadvantages asserted by the parties opposing a split trial;
(f)demarcation difficulties in defining issues to be addressed at the first trial and those left for the second;
(g)resulting difficulties of issue estoppel;
(h)inadvertent disqualification of a judge who has expressed views at the first trial on matters for decision at the second trial;
(i)inadvertent findings at the first trial upon matters that are for full evidence and argument at the second hearing;
(j)the need to recall witnesses at the second hearing;
(k)the duplication of time involved in the Court and counsel coming up to speed for the second hearing;
(l)the prospect of multiple trials;
(m)the need for a second round of discovery and other interlocutories and amended pleadings following the first trial; and
(n)rostering difficulties in ensuring the same Judge is available for the second hearing.
[59] This Court, in Haden v Attorney-General, adopted in Karam v Fairfax NZ Ltd, considered that the following five questions represented the appropriate approach to the question of split trials.30
(a)Question 1: Will there be difficult demarcation questions between the issues to be addressed at the first trial and those for the second?
(b)Question 2: Will the proceedings be brought to an end?
(c)Question 3: What potential time saving does the separate question offer?
(d)Question 4: How will appeals be dealt with?
(e)Question 5: Are there any practical considerations tending one way or the other?
[60] The parties disagree about whether the preliminary questions can be disposed of in an efficient manner, on the papers and without calling new evidence. The applicants did note that, in addition to the evidence before the Court, further evidence would be necessary from the newly appointed trustees, but that could be by affidavit.
[61] It is not clear whether the pre-trial determination would result in resolving the questions posed by the substantive proceedings and so leading to not requiring a second trial. The applicants say that it depends on what Perpetual Guardian or the Public Trust determines. Even then there would not be a final decision. If those corporations decided not to proceed, it would be up to the applicants as to whether they did in any event and, in addition of course, they seek the payment of costs.
[62] Mr Bates indicated essentially that the Court needed to enter the fray to take a view in equity and have the “imbroglio” that the parties find themselves in resolved.
30 Haden v Attorney-General (2011) 22 PRNZ1 at [50]–[67]; and Karam v Fairfax NZ Ltd, above n 29, at [54]–[89].
He implied that needed to be done in a summary manner in much the same way as Doogue J had reached preliminary conclusions in relation to the strength of the claims.
[63] However, that is not what would happen in a pre-trial determination. The Court requires proper evidence and on any assessment of this matter the evidence involved is contested. There is a question as to whether the new trustees were properly appointed and if not, who should be appointed. There may be appeals from any pre-trial determination. It would be appropriate that the same Judge should preside over both the pre-trial questions and the trial, which creates rostering complications.
[64] In my view, there are substantial risks of delay by the risk of appeals, as well as duplications of time and cost if the trial were to be split.
[65] In relation to the questions posed in Hannan, there are demarcation issues between the pre-trial issues proposed and the trial matters. The issues are inextricably woven, particularly in relation to the appointment of the new trustees.
[66] The proceedings would, in my view, not likely be brought to an end. It is unlikely there will be much timesaving gained by dealing with only part of the matters in issue at a pre-trial determination. There are likely to be delays, as I said, resulting from the possible appeal of pre-trial determinations. Given the longevity of the dispute, including the unsuccessful attempts at settlement and the acrimonious exchanges between the parties, the indications are that the proceedings will continue on those lines. It is better that all the allegations and all the disputes are dealt with at once. I also take to heart the prior judicial warnings against splitting the trials.
[67] Therefore, in my view, there would be little to be gained by having a pre-trial determination of the questions as posed by the applicants.
[68] In those circumstances I dismiss the application for the determination of pre-trial questions.
Costs
[69]Counsel sensibly indicated costs should follow the event.
[70] Costs should go to the applicants for the application to join and costs should go to the respondent for the application for pre-trial questions. They are both awarded on a 2B basis together with reasonable disbursements as counsel agreed.
[71] If there is any difficulty concerning the quantification counsel should file a schedule. Accordingly, I make those costs orders by consent.
Grice J
Solicitors:
Brown & Bates Limited, Napier for Applicants. Lunn & Associates, Napier for Respondents.
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