Public Trust v Conway Madison Group Limited (in liquidation)

[2012] NZHC 2071

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-001590 [2012] NZHC 2071

UNDER  the Public Trust Act 2001 and the Trustee

Act 1950

IN THE MATTER OF     Part 7 of the High Court Rules and

Receiverships Act 1993

AND IN THE MATTER OF an application for directions by the

Public Trust

BETWEEN  PUBLIC TRUST Applicant

ANDCONWAY MADISON GROUP LIMITED (IN LIQUIDATION)

First Respondent

ANDWILLIAM BUCK Second Respondent

ANDBARRY J DACOMBE Third Respondent

ANDDAVID J WARD Fourth Respondent

ANDANITA LEE CRANSTON Fifth Respondent

Hearing:         9 August 2012

Counsel:         R B Hucker for the Applicant

N H Malarao for the Respondents

Judgment:      9 August 2012

[ORAL] JUDGMENT OF WYLIE J

PUBLIC TRUST V CONWAY MADISON GROUP LIMITED (IN LIQUIDATION) & ORS HC AK CIV 2012-

404-001590 [9 August 2012]

Introduction

[1]      The Public Trust has applied to the Court for directions.   It seeks first that receivers be appointed under rr 7.59 – 7.67 of the High Court Rules, so that the receivers can determine whether or not those persons who have made a claim against the assets of the Madison Family Trust have a valid claim.  In the alternative, it seeks an order that the Court should direct that the Public Trust itself should determine whether such claims should be admitted or rejected.

[2]      The application is opposed by the first respondent, Conway Madison Group Limited (in liquidation).   It claims to be a creditor of the trust.   I have also heard today from a Ms Cranston.   She also claims to be a creditor of the trust in her capacity as trustee of the Cleveland No.2 Trust.

Background

[3]      The Public Trustee was appointed as a trustee of the Madison Family Trust pursuant to an order made by Ellis J on 21 July 2010.  The power of appointment of trustees in the Madison Family Trust was also vested in the Public Trust.

[4]      The Public Trust was appointed on the application of a Mrs Mudgway, who had made a claim in the Family Court.   Mrs Mudgway had sought that the trust property should be sold, and that the proceeds of sale should be used to repay the trust’s secured debts, purchase a suitable substitute debt-free property for her and her children and to establish and maintain a trust fund for the ongoing support of the children.

[5]      The trust property at the time of appointment of the Public Trust consisted of a house at 22A Upland Road, Remuera, Auckland.  The property has since been sold by the Public Trust.  The secured creditor has been repaid.  As at 7 March 2012, the trust assets totalled $551,006.86 in cash.

[6]     Pursuant to a direction made by Heath J, the Public Trust placed an advertisement in various newspapers seeking that notice of claims by creditors of the

trust should be advised to it.   It received notice of five claims.   It has prepared a report detailing those claims. They are as follows:

(a)       The first respondent, Conway Madison Group Limited — $1,894,987; (b)     William Buck — $30,000;

(c)       Barry J Dacombe — $7,065; (d)          D J Ward — $153,000;

(e)       Mrs Cranston, as trustee of the Cleveland No.2 Trust — $1,800,000; (f)       BDO — $509.52.

[7]      The  Public  Trust  has  filed  an  affidavit  by  a  Mr  Gibbons  detailing  the preliminary steps it has taken.  It has considered the documents filed by the potential claimants and it takes the view that a number of the claims require further investigation before they can be accepted or rejected.

Submissions

[8]      The Public Trust has made the present application because it considers that there is a conflict of interest between its role as trustee of the trust and the steps which need be taken to determine the validity of the claims against the trust assets. The Public Trust considers that it has responsibilities to the beneficiaries of the trust. It considers that it has an obligation to ensure that only bona fide creditor claims against trust property are met.   It therefore proposed that receivers should be appointed by the Court to undertake, on an inquisitorial basis, an investigation into the claims made by each of the persons claiming to be creditors against the trust property.

[9]     Both Mr Malarao, appearing for Conway Madison Group Limited (in liquidation), and Ms Cranston, as a trustee of the Cleveland No.2 Trust, opposed the application.  Primarily, both are concerned at the likely costs of appointing receivers.

They noted that the assets of the trust against which creditors can claim are limited. They observed that notified claims against the trust substantially exceed the available assets.  They also advised that not insignificant fees have already been incurred, and they were keen to ensure that matters are advanced as expeditiously as possible and at the cheapest possible cost.

[10]     In addition, Mr Malarao raised various jurisdictional issues.  He accepted that the Court does have an inherent power to appoint a receiver, but submitted that that power should only be exercised sparingly, and only where creditors have no other remedy at common law, or otherwise, which is likely to be effective owing to the particular or peculiar nature of the property involved.  He also noted that the Conway Madison Trust and Ms Cranston are, between them, the largest creditors and that the debts they claim are far and away the largest amounts said to be owed by the trust.

[11]     Mr  Malarao  submitted  that  Conway  Madison  Group  Limited’s  claim  is relatively straightforward, but that other claims may not be in the same category.  He argued that there are other remedies available.   First, he submitted that the Court could simply determine the claims itself.  In the alternative, he argued that it may be possible for the creditors to apply to put the trust into liquidation, relying on s 17A of the Judicature Act 1908.  Other alternatives, such as interpleader proceedings, were discussed, although these were not pressed before me.

Analysis

[12]     Having considered the matter, I am not persuaded that it is appropriate to appoint receivers.   I accept that the Court has an inherent jurisdiction to appoint receivers.  Nevertheless, the authorities make it clear that that jurisdiction should be exercised sparingly.   Here, the creditors do have other remedies.   Moreover, the majority of the creditors by value oppose the appointment of receivers.  It also seems to me that the appointment of receivers is likely to be a very expensive option, notwithstanding  that  the  Court  can,  to  an  extent,  control  the  fees  charged  by receivers under the relevant provisions contained in the High Court Rules.   Put simply, it seems to me that the appointment of receivers in the circumstances applicable in the present case would be using “a sledgehammer to crack a nut”.

[13]     I am not, however, persuaded by Mr Malarao’s argument  that the Court should simply determine the applications itself, effectively adopting an inquisitorial process.  It seems to me that that proposal is fraught with difficulty.  It is likely that some creditors, given the amount which they claim is owing to them, might choose not to appear.  The Court would then be placed in a difficult position where it would be left to determine, effectively in a vacuum, whether or not their claims are valid. Other creditors might choose to appear in person.   It is possible that any hearing might have to be adjourned part-heard so that further papers in support of claimed debts could be produced and made available to the Court.   The Court is not well equipped to undertake the inquisitorial investigation that will be necessary.  It is not immediately obvious to me that leaving the matter in the hands of the creditors will result in an early or cheap resolution of the claims here outstanding against the trust.

[14]     I do not consider it appropriate to agree to the Public Trust’s alternative suggestion that it should be left to it to determine the validity of the various claims. There is force in Mr Hucker’s argument that the Public Trust is conflicted, given its position as a trustee.

[15]     It seems to me there is another mechanism which can be put in place to inquire into the claims.  The Court, of its own volition, or on the application of a party, can appoint an independent expert to inquire into and report upon any question of fact not involving questions of law or of construction.1   It seems to me that this is an appropriate course to adopt in the present circumstances.  I am, however, mindful that application was not made in this regard by the Public Trust, and that the parties

have not had the opportunity to discuss the appointment of an appropriate person or, in the alternative, to name persons that they consider are appropriate.  I have in mind the appointment of a single expert to inquire into the claims made by those persons asserting to be creditors of the trust.  That person would be required to report back to the Court on his or her investigation into the validity of the outstanding claims.

[16]     To this end, I make the following directions:

1      High Court Rules, r 9.36(1).

(a)      A copy of this judgment is to be sent by the Registrar to each of the five persons named as respondents to this application and to BDO at an address to be provided to the Registrar by the Public Trust.  They are the only potential creditors who have responded to the Public Trust’s public notification;

(b)The Public Trust, the respondents and BDO are to endeavour to reach agreement on the appointment of an appropriate expert.  In the event that agreement can be reached, the Public Trust is to prepare and circulate a joint memorandum advising who has been agreed as the appropriate expert to undertake the inquiry into the validity of the outstanding claims.  Such memorandum is to be filed and served no later than 5.00 pm on Friday, 24 August 2012.

In  the  event  that  agreement  cannot  be  reached,  then  each  of  the parties,  including  BDO,  is  to  name  one  or  more  person(s)  they consider may be appropriate appointees as the Court-appointed expert. They should also advise insofar as is possible as to the estimated charges of such person(s), and give details of that person(s) expertise and experience which is likely to be relevant to the matters in issue in these proceedings.  Memoranda are to be filed and served by each of the parties in the event that this step is necessary no later than 5.00 pm on Friday, 31 August 2012;

(c)      I also invite the Public Trustee to circulate a memorandum detailing the question(s) of fact it considers should be submitted to the Court- appointed expert.  That memorandum is to be filed and served no later than 5.00 pm on Friday, 24 August 2012. The respondents are to reply to that memorandum suggesting any alterations they consider appropriate no later than 5.00 pm on Friday, 31 August 2012.

[17]     The Court will then proceed to consider the appointment of an appropriate expert and it will give directions as to the scope of the report sought by it and fixing the date by which any report by the expert is to be prepared and filed.  A further

hearing date will then be scheduled at a convenient time thereafter to consider the report and to hear from the parties in relation to the same.

Costs

[18]     The costs of today’s application are reserved.

Wylie J

Distribution:

R B Hucker: [email protected]
N H Malarao: [email protected]