Public Trust v Conway Madison Group Limited

[2013] NZHC 1329

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-001590 [2013] NZHC 1329

BETWEEN  PUBLIC TRUST Plaintiff

ANDCONWAY MADISON GROUP LIMITED First Respondent

WILLIAM BUCK Second Respondent

BARRY J DACOMBE Third Respondent

DAVID J WARD Fourth Respondent

ANITA LEE CRANSTON AS TRUSTEE OF THE CLEVELAND TRUST

Fifth Respondent

Hearing:                   16 May 2013

Appearances:           R B Hucker for Applicant

K M Wakelin for First Respondent
No appearances for other Respondents

Judgment:                6 June 2013

JUDGMENT OF ELLIS J (FORMAL PROOF)

This judgment was delivered by Justice Ellis on 6 June 2013 at 3.00 pm

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date…………………………

PUBLIC TRUST v CONWAY MADISON GROUP LTD & ORS [2013] NZHC 1329 [6 June 2013]

[1]      The Public Trust applies for directions pursuant to s 66A of the Trustee Act

1956  in  relation  to  its  administration  of  the  Madison  Family Trust  (the  MFT). Although the matter proceeded before me effectively unopposed and by way of formal proof, the background is of some importance and so I set it out in detail below.

Background

[2]      On 21 July 2010 I made orders removing the existing trustees of the MFT and appointing the Public Trust as sole trustee in their stead.  Those orders were made in the context of an application by Nicola Mudgway, who was the estranged wife of Craig Mudgway, the settlor of the Trust.

[3]      Mrs  Mudgway’s  application  had  its  origins  in  some  longstanding  and contentious proceedings between her and Mr Mudgway in the Family Court and, more particularly, a dispute about her right to continue to occupy the family home at

22A Upland Road, Remuera, which was the principal asset of the Trust. Attempts by her and the Family Court to obtain information about the financial position and dealings of the trust (the Mudgway children being the final and discretionary beneficiaries under the trust) had been unsuccessful.

[4]      In any event, the Public Trust was duly appointed.

[5]      In the course of the Public Trust’s administration of the affairs of the MFT it received a number of claims against Trust assets.  The property at 22A Upland Road was in due course sold by the Public Trust.

[6]      As at 7 March 2012 the Trust assets totalled $551,006.86.   That amount principally constituted the proceeds of the sale of 22A Upland Road.  As at the same date the Public Trust was aware of claims against MFT totalling $3,290,362.80.

[7]      In August 2102 the Public Trust asked the Court to appoint receivers to the MFT.  But Wylie J instead ordered that a Court-appointed expert complete a report to assist with the determination of claims against the MFT.   The claims at issue had been made by:

(a)       Conway Madison Group Ltd; (b)         William Buck;

(c)       Barry Dacombe; (d)      David Ward;

(e)       Cleveland No. 2 Trust (Cleveland).

[8]      At that point the Trustees of the Cleveland No. 2 Trust were Craig Mudgway and Anita Cranston.  Mr Mudgway died two months later.

[9]      On 16 October 2012 Lang J directed that the Court-appointed expert, Mr Rea, should answer the following questions in connection with those claims:

(a)       In respect of each of the claims submitted to the Public Trust, are you satisfied, having examined the evidence tendered to you, that the claim is a valid claim, and if so, is it a valid claim against the Madison Family Trust (as opposed to some other entity or person)?

(b)      If you are so satisfied, what is the quantum that, in your view, the

Court should accept?

(c)       If you are not satisfied, please explain why you have reached the view that the claim is not valid?

(d)       If, during the course of your review of the claims, you identify any issue that requires a determination by the Court, or upon which you would seek legal advice, please state what that/those issue(s) are.

[10]     It was intended that once the report was complete, there would, if necessary, be a further hearing and the affected parties would be able to make submissions and the Court would determine any outstanding legal issues.

[11]     Mr Rea’s final report was dated 4 February 2013.  In it, he concluded that:

(a)       The Conway Madison Group had a valid claim on the assets of the Madison Family Trust in relation to advances made to the trust and payments made to trades people and others in connection with the renovation of the 22A Upland Road property;

(b)      The quantum of that claim in Mr Rea’s view was $3,260,100.80;

(c)       Additional amounts claimed by Conway Madison Group totalling

$1,166,794.17 were not established to his satisfaction and whether or not they constituted a valid claim on the assets of the trust was a

matter which he would leave for the Court;

(d)       Mr Buck had a valid claim on the assets of the trust in the sum of

$30,000 which related to work done by him for both the Conway

Madison Group and the Madison Family Trust between 2006 and

2008 accounting years.  The $30,000 represented an apportionment of the charges for the work done as between those two entities.  That was regarded by Mr Rea as appropriate;

(e)       Mr Dacombe also had a valid claim agains the trust in relation to architectural  services  provided  by  him in  relation  to  the  Upland Road property.   The amount of the claim regarded by Mr Rea as acceptable  was  $7,065  for  the  services  provided  and  a  further

$3,709.02 for an interest charge that Mr Rea regarded as valid;

(f)       Mr Ward had a valid claim on the assets of the trust in the sum of

$153,000 relating to the project management of the renovation of the property at Upland Road;

(g)       The Cleveland No. 2 Trust had no valid claim on the assets of the trust.

[12]     Cleveland’s claim had been based on a $1.8m debt owing to Cleveland that that had been assigned to MFT.   The debt that was assigned arose because of an advance  that  was  said  to  have  been  made  by  Cleveland  to  Craig  Mudgway. Mr Mudgway had executed a deed of assignment in his capacity as settlor.   But Mr Rea said that:

Despite my request of the present trustee of Cleveland, Anita Cranston, no evidence has been produced to me providing:

1.        Evidence of the original advance by Cleveland to Mr Mudgway.

2.Evidence that the Madison Family Trust received the benefit of the funds loaned.

3.        Evidence that the assignment of the debt to the Madison Family

Trust was approved by its trustee at that time, Timothy Slack.

[13]     As  a  result  of  Mr  Rea’s  findings,  Ms  Cranston,  it  appears,  emailed  the Registry of this Court with a request for an extension of time to provide further information to Mr Rea.  It seems the matter came before Courtney J on 7 February. In her minute she said:

[2]       Now the fifth respondent has emailed the Registry with a request for an extension of time to provide further information to the court-appointed experts.  Two reasons are given.  The first is the death of the settlor of the

Cleveland No. 2 Trust, Mr Craig Mudgway.  However, Mr Mudgway, I am told, died in October 2012 so that would hardly seem to justify an extension and the inevitable further fund that would be required from the trust assets for the expert’s review of further information.

[3]      The second ground advanced is that the trustee, unnamed but presumably a reference to the fifth respondent of the Cleveland No. 2 Trust, has been unwell.   No details are given save the reference to a medical certificate that could be supplied.  This is highly unsatisfactory and it is only out of an abundance of caution that I am prepared to countenance a further delay and allow the fifth defendant more time.

[14]     Courtney J directed that the matter be called again in the Duty Judge list on

7 March.

[15]     What occurred on that day was recorded in a minute of Duffy J’s.  She said:

[6]      Today when the matter was called, Cleveland sought a further adjournment.   Cleveland has filed an affidavit in which its trustee, Ms Cranston,  deposes  that  there  was  an  assignment  of  a  loan  of  $1.8m  to Madison  as  debtor  and  with  Cleveland  as  creditor.    Ms  Cranston  has provided a breakdown of how the funds were expended.  This breakdown shows that those funds ultimately were spent on a property at Upland Road, Remuera that is owned by Madison.   But Ms Cranston has provided no primary documentation to substantiate the narrative account that she has given in her affidavit.   The evidence of the loan and how the funds were expended is currently hearsay.   I am not satisfied that the evidence in this form is reliable to support the debt that Cleveland claims.

…

[9]       I see no reason why Cleveland’s wish to pursue repayment of the debt that it claims is due should further delay the distribution of Madison’s estate.  The expert has rightly recognised that it is for the Court to determine whether  an  assignment  of a  personal  debt  by the settlor  of Madison to Madison creates a valid claim on the assets of the trust.  Thus, there is no need for Cleveland to have a further opportunity to persuade the expert of the bona fides of its claim.

[10]      Accordingly, I consider the appropriate next step is for this Court to make timetable directions to prepare this matter for a fixture before a Judge to hear and determine the distribution of the Madison estate.   During that hearing, Cleveland can, if it wishes, address the Court as to why its claim should be recognised as part of the distribution.

[16]     To that end, Duffy J then made a series of timetable directions including directions that Cleveland was to file affidavit evidence in support of its claim by

11 April 2013.  She said that that affidavit should exhibit the primary documents in support of its contention that Madison had agreed to assignment of the loan and

enjoyed the benefit of the loan.  More particularly, she said that the evidence filed should include:

(i)       Evidence of the original advance by Cleveland to Mr Mudgway; (ii)          Evidence of Madison receiving the benefit of the funds loaned;

(iii)      Evidence that the assignment of the debt to Madison was approved by its trustee at the time, Timothy Slack; and

(iv)      Any further evidence that would support the proposition that the assignment of a personal debt by the settlor to Madison creates a valid claim on the assets of Madison.

[17]     Duffy J also directed that Cleveland was to file a Notice of Opposition if it wished to oppose the proposed distribution by the Public Trust and that any other party seeking to oppose Cleveland’s claim or any aspect of the proposed distribution also file Notices of Opposition.  She directed that the matter was to be placed again in the Duty Judge List on 15 May 2013 in order that compliance with the timetable could be ascertained and for the Court to allocate a hearing date for the application for distribution.

[18]     It  was  on  that  basis  that  the  matter  came  before  me  on  15  May  2013. Ms Cranston had  complied with none of Duffy J’s directions  and there was  no appearance by her or on behalf of Cleveland in the list.  Ms Wakelin, who appeared for the first respondent, indicated that in light of the absence of opposition from Ms Cranston the first respondent also had no opposition to the distribution proposed. On that basis I indicated to her and to her Mr Hucker, who appeared on behalf of the Public Trust, that I would hear the application for distribution by the Public Trust the following day (16 May) and that that hearing would proceed by way of formal proof.

[19]     But just prior to the formal proof hearing on 16 May, Ms Cranston filed a memorandum on behalf of Cleveland seeking yet another adjournment.  She said:

(2)       The trustee  of  the  Cleveland  No.  2 Trust  asks  that Justice  Ellis postpone the date of the hearing due to medical reasons.

(3)       It has been impossible for the trustee of the Cleveland No. 2 Trust to prepare and file documentation that has previously been asked for due to medical reasons.

(4)       The trustee of the Cleveland No. 2 Trust has an appointment with a psychiatrist on Friday 17 May 2013 at 11 am, which will provide evidence that the trustee of the Cleveland No. 2 Trust has not been fit till this date to provide any of the documentation requested due to medical reasons.   This report has been requested by the District Court.   It would be appreciated if Justice Ellis can wait for this report to come through before making any final decisions in relation to the Cleveland No. 2 Trust.

(5)       Once again the trustee of the Cleveland No. 2 Trust firmly believes that the Public Trust has not been acting in the best interests of the Madison Family Trust.

(6)       The trustee of the Cleveland No. 2 Trust apologises for the delay in placing new evidence before the Court but believes that there is valid reason for an adjournment.

(7)       The trustee  of the Cleveland  N. 2 Trust asks  that this matter is adjourned until a date in August 2013.

[20]     As I have said, Ms Cranston’s memorandum was provided to me less than

15 minutes before the hearing on 16 May.   It appeared that Ms Wakelin had just received a copy of that memorandum on her phone.  Mr Hucker, for the Public Trust, had not seen the memorandum at all.  Nonetheless, he advised that the Public Trust would abide the decision of the Court on the adjournment request.  The request was, however, opposed by Ms Wakelin.

[21]     In the circumstances I have set out above I indicated to counsel that the hearing would proceed.  Ms Cranston has been on notice since receipt of the expert’s report in February that the information she now seeks further time to provide was required if the fifth respondent was to have any chance of opposing the distribution. She has also been on notice that the Court does not look kindly on applications for adjournment based on medical reasons in the absence of a formal certificate.  Again, she has had ample time to obtain one of these if necessary.  And, as I have said, she did not appear or attempt to file a memorandum in advance of the Duty Judge List on 15 May.  Counsel and the Court have made preparations accordingly.

The orders sought

[22]     The specific orders sought are that the following directions be given to the

Public Trust by the Court:

(a)      The Applicant be directed to recognise the claims of Conway Madison Group Limited (in liquidation), William Buck, Barry J Dacombe and David J Ward as creditors entitled to claim against the assets of the Madison  Family Trust  in  such  amounts  as  outlined  in  the  Court- appointed expert’s report of 4 February 2013;

(b)The Applicant recognise the claim of BDO Spicers for $590.52 as representing  a  cost  incurred  by the  applicant  in  the  course  of  its appointment as trustee of the Madison Family Trust;

(c)      The applicant be directed that the fifth respondent (in accordance with the Court-appointed expert’s report dated 4 February 2013) has no claim on the assets of the Madison Family Trust;

(d)Of the funds available to be distributed to creditors from the assets of the Madison Family Trust (being the net trust assets available after the payment of the costs of administration, legal expenses and other expenses incurred by the applicant in the course of its appointment) the applicant be directed to apply the assets in the following proportions:

(i)       Conway Madison Group Limited as to 94.49%; (ii)     William Buck as to 0.87%;

(iii)     Barry J Dacombe as to 0.21%; (iv)       David J Ward as to 4.43%.

(e)      The   applicant   be   relieved   of   any   liability   arising   out   of   its appointment as trustee of the Madison Family Trust insofar as any claim is made against Public Trust and/or its employees by any person claiming an interest and/or an entitlement in the assets of the Madison Family   Trust   provided   the   applicant   distributes   the   assets   in accordance with the directions of the Court;

(f)      Upon the filing with the Court and service upon those creditors whose claims are approved by the Court in this proceeding of the final accounts of the Madison Family Trust during the period in which the applicant was acting as trustee of the Trust the applicant be removed as trustee of the Madison Family Trust under section 51 of the Trustee Act and the Trust Deed is to be varied by revoking cl 11.1 as varied by Ellis J on 21 July 2010 and replacing cl 11.1 with the original cl 11.1 and 11.2 as appeared in the Original Trust Deed dated 7 February

2006;

(g)      The costs of an incidental to this application be reserved.

Discussion

[23]     I have read Mr Rea’s report.   He sets out his reasons for accepting all the claims (other than Cleveland’s) clearly.  In my view he was right to accept them, and there is no basis on which I could reasonably differ.

[24]     As far as Cleveland is concerned, I also agree with Mr Rea (and the various judges who have considered the matter since) that considerably more information was required in order to satisfactorily establish its claim.   The transaction which forms the basis of it is not one that, on its face, appears plausible.  In the absence of corroborating information, and in light of the history of this  matter, there is an inference to be drawn that the assignment of the putative debt was merely a device for creating significant indebtedness to another entity controlled by Mr Mudgway, following his removal as trustee of MFT.   But I do not need to go that far.   Put simply, the necessary evidence is lacking.   It should have been readily available. Ms Cranston has been given more than enough opportunity to provide it. There is no basis upon which Cleveland’s claim should be recognised.

[25]     As  between  the  remaining  creditors,  the  actual  distribution  proposed  is simply a pro-rated one.  Again, that seems to me to be entirely orthodox.  No other possible mode of distribution has been suggested and nor does one occur to me.

[26]     I make the orders set out at [22] of this judgment accordingly.

Rebecca Ellis J