Public Trust v Kain
[2018] NZHC 1547
•27 June 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000040
[2018] NZHC 1547
BETWEEN PUBLIC TRUST
Applicant
AND
GEORGINA KAIN, GEORGE CHARLES KAIN, GEORGE HARRY COUPER KAIN,
…2/cont’d
Hearing: 20 June 2018 Appearances:
B Gray QC and A Holden for Applicant
T Weston QC and A V Foote for 5th named 1st Respondent (Mary Hutton)
R J B Fowler QC for Settlor (W A X Couper)
V Bruton QC for Georgia Humphreys, Constance & Harriet Hutton
R Raymond QC and J M McGuigan for 1st four-named 1st respondents (Harry, Michael, Charles and Georgina Kain) M J Wallace for children of 1st four named 1st respondents
Judgment:
27 June 2018
JUDGMENT OF VENNING J
This judgment was delivered by me on 27 June 2018 at 11.00 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel: Wilson Harle, Auckland/B Gray QC, Auckland
Izard Weston, Wellington/R Raymond QC/J M McGuigan, Christchurch Burley Attwood Law, Tauranga/M J Wallace, Christchurch
Duncan Cotterill, Christchurch/T Weston QC, Tai Tapu Vicki Ammundsen Trust Law Limited, Auckland
Succeed Legal Limited, Wellington/RJB Fowler QC, Wellington
PUBLIC TRUST v KAIN [2018] NZHC 1547 [27 June 2018]
GEORGE MICHAEL KAIN, MARY HUTTON, MARNIE COUPIE FORCER KAIN, JACK KAIN, MOLLY KAIN, RACHEL KAIN, STANLEY KAIN, WOLSLEY KAIN, GEORGE KAIN, ASTA KAIN, MADELINE KAIN, GEORGE KAIN, MICHAEL KAIN, RUPERT KAIN, SAMUEL KAIN, GEORGIA HUMPHREYS, CONSTANCE HUTTON and HARRIET HUTTON
First Respondents
ANDMARNIE COUPIE FORCER KAIN, JACK KAIN, MOLLY KAIN, RACHEL KAIN,STANLEY KAIN, WOLSLEY KAIN, GEORGE KAIN, ASTA KAIN, MADELINE KAIN, GEORGE KAIN, MICHAEL KAIN, RUPERT KAIN, SAMUEL KAIN, GEORGIA HUMPHREYS, CONSTANCE HUTTON, HARRIET HUTTON, DAVID WHYTE, KIRSTY MARGUERITE COUPER
MASTERSON, and ELIZABETH DIANE COUPER FRENDIN
Second Respondents
Introduction
[1] This application is the latest piece of litigation in the long running dispute amongst members of the Kain family regarding the administration of family trusts.
[2]Public Trust applies for:
·leave to bring an application for directions in relation to the Waitaha Trust and the Middle Road Block Trust by way of originating application under Part 19 of the High Court Rules 2016;
·directions as to costs; and
·directions as to service.
[3] The focus is on the appropriate form of procedure to be used for Public Trust to pursue the directions it seeks.
Background
[4] In a substantive judgment delivered on 3 December 2004 Panckhurst J dealt with an application under the Trustee Act 1956 to remove trustees and various related orders.1 The background facts to the trusts, the relationships and disputes within the Kain family are fully set out in that judgment.
[5] In the course of the dispute some members of the family negotiated a deed of family arrangement in June 1997 (sometimes referred to as the “Deed of Equality”). The deed was between Tom and Charles Kain on the one hand and George Michael Kain, George Harry Couper Kain, Georgina Kain and Mary Hutton on the other. The parties agreed there had been unequal assistance provided from the family’s South Canterbury and Hawke’s Bay interests. They agreed to work towards ascertaining a fair statement over the amounts received by each party and to work towards a position which would ensure so far as practicable, all parties were treated equally. In his judgment Panckhurst J made various observations about the application of the deed,
1 Kain v Hutton (2004) 1 NZTR 14-022 (HC).
including that the new trustee may require directions about it and a later consent order made in October 2002.2
[6] Panckhurst J’s judgment ultimately led to the appointment of Public Trust as an independent trustee of a large group of trusts. The Waitaha Trust and Middle Road Block Trust (the Trusts) are two of the trusts that Public Trust was appointed to administer following Panckhurst J’s judgment.
[7] Following the judgment an “unwind” has been put in place. Mr Gray QC confirmed that the unwind is still some two to three years from completion. Once completed the accounts of the various trusts and entities will be balanced and resolved as at 2006 when Public Trust assumed responsibility.
The application
[8] Public Trust proposes to seek directions from the Court under s 66 of the Trustee Act on matters it may be required to take into account in the administration and distribution of the Trusts.
[9] All parties agree that directions of the general nature sought may be appropriate but disagree as to the process that should be followed to seek them from the Court. Public Trust proposes that the directions be sought by originating application under Part 19 of the High Court Rules. Public Trust’s application is supported by Mary Hutton and her daughters, Georgia Humphreys and Constance and Harriet Hutton. It is opposed by the remaining proposed first respondents, Georgina, Charles, Harry and Michael Kain, and their children (for convenience called the Kain interests). The Kain interests argue that the application for directions should be brought under Part 18 of the rules. The remaining second respondents, David Whyte, Kirsty Masterson, and Elizabeth Frendin have taken no steps.
[10] The settlor of the Trusts, W A X Couper, supports the Public Trust. He asks the Court to deal with the application in the most effective way possible and with
2 Kain v Hutton, above n 1, at [303]–[305].
expedition. Mr Couper is now 92 years old. It is his firm wish to see matters resolved while he is still alive.
[11]As noted the application also seeks directions as to costs and service.
The rules framework
[12] The starting point is that an application for directions under s 66 of the Trustee Act should normally be brought under Part 18 of the High Court Rules. The rules expressly provide for that procedure to apply.
[13]Rule 18.1 relevantly provides:
Types of proceedings
This Part applies to the following types of proceedings:
Equitable jurisdiction
(a)proceedings in which the relief claimed is wholly within the equitable jurisdiction of the Court such as—
(v)the giving of directions to persons in their capacity as … trustees, …
Determinations by court under statutes
(b)proceedings in which the relief is claimed solely under the following enactments:
(xiii) the Trustee Act 1956.
[14] McGechan on Procedure confirms the most obvious types of applications the rule applies to under the Trustee Act are s 64 for expanded powers, s 64A for variation, and s 66 for directions.3
[15] Public Trust acknowledges that the rules provide for applications under s 66 of the Trustee Act to be brought under Part 18. Despite that, it seeks leave to commence its application for directions under Part 19. The originating procedure under Part 19 is designed to be a speedier and less expensive mechanism than that under Part 18.
3 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR18.1.23], citing Re Havill (Deceased) [1968] NZLR 1116 (CA) and Clark v Clark (1991) 5 PRNZ 278 (HC).
With that said, the Part 18 procedure is still more efficient and confined than a general proceeding.
[16] Public Trust relies on the general provision in r 19.5 which provides that the Court may, in the interests of justice, permit any proceeding not mentioned in rr 19.2 to 19.4 to be commenced by originating application.
[17] Rule 19.2 identifies applications under a number of specific statutory provisions which must be made by originating application. Rule 19.3 provides that Part 19 applies to originating proceedings for contempt of court and for relief against forfeiture. Finally, r 19.4 identifies a number of office holders who may seek directions of the Court by originating application. The office holders are liquidators, receivers, and judicial and statutory managers. There is no reference to trustees.
[18] There is one last provision of the rules that is of relevance. Rule 18.4(2) provides:
(2) The application of this Part to a proceeding does not prevent the commencement of that proceeding by originating application if it is eligible to be so commenced under Part 19, in which event [Part 18] does not apply.
[19] A clear example of an eligible application under the Trustee Act is an application under s 76 of the Trustee Act. Although r 18.1(b)(xiii) provides that Part 18 applies to applications under the Trustee Act, r 19.2(x) expressly requires an application under s 76 of the Trustee Act to be brought under Part 19. There is no equivalent reference to an application under s 66 in r 19.2.
[20] The strong inference to be drawn from the above consideration of the rules is that an application for directions under s 66 of the Trustee Act is to be brought under Part 18. As in a number of areas of the law however, there are exceptions.
[21] Rule 18.4(2), read purposively in conjunction with r 19.5, would enable an application which is otherwise expressly provided for by Part 18 to be brought under Part 19 if the interests of justice permit it.
The directions sought
[22]In short, the proposed directions sought by Public Trust are:
(a)Public Trust is required to take into account the terms of the respective Trust Deeds.
(b)Public Trust is required to take into account the interests of the beneficiaries. This depends on the particular circumstances of the Trust and the beneficiaries, but, by way of example, can include the extent to which a beneficiary would benefit from a distribution, the financial needs of the beneficiaries and, if the beneficiaries are children, the extent to which their needs will be met by their parents.
(c)Public Trust is not required to take into account what the beneficiaries who are also beneficiaries of other trusts have received from the other trusts.
(d)Public Trust is required to take into account the wishes of the settlor, provided that they are not inconsistent with the terms of the respective Trust.
(e)Public Trust may consider the settlor’s wishes expressed after each of the respective Trusts were created and where subsequent wishes are inconsistent Public Trust is entitled to consider the most recent wishes as overriding earlier wishes.
(f)The Deed of Equality is not binding on Public Trust and is not binding on all of the beneficiaries of the Waitaha Trust. The Deed of Equality is not binding on any of the beneficiaries of the Middle Road Block Trust.
(g)Public Trust may take the Deed of Equality into account in relation to the Waitaha Trust but is not required to. Public Trust cannot take the
Deed of Equality into account in relation to the Middle Road Block Trust.
(h)Public Trust is not required to ensure that all of the beneficiaries of the Waitaha Trust and Middle Road Block Trust receive equal amounts from the particular Trusts.
(i)Public Trust is not required to ensure that all of the beneficiaries of the trusts in the Couper/Kain group receive equal amounts from the group.
(j)Such other orders as the Court considers just.
Applicant’s case
[23] Mr Gray submitted the proposed application for directions is a straightforward application under s 66 of the Trustee Act. It only involves questions of construction and interpretation of a judgment and questions of law. There are no material issues of fact that require detailed pleadings or discovery. The relevant background is set out at length in the judgment of Panckhurst J and in other documents that will be before the Court.
[24] He submitted that allowing the application for directions to be brought under Part 19 in this case would be consistent with the purpose of the s 66 jurisdiction which is to provide an easy and inexpensive method to bring applications before the Court.
[25] While Mr Gray noted that Public Trust accepts some discussion of common law will be required to resolve the status of the settlor’s wishes and that the proposed directions are likely to be contentious, he submitted the existence of a legal dispute is no bar to an application for directions under Part 19 nor does it justify full pleadings and discovery. Determination of the questions would not be assisted by a statement of claim and statement of defence. Public Trust does not intend to take an adversarial position.
[26] Mr Gray emphasised that while the Court was being asked to give guidance as to the considerations to be taken into account it was not being asked to give directions
about the distributions that will ultimately follow. The directions sought are for the limited purpose of resolving contentious issues prior to any distributions being made so that hostile proceedings challenging the distributions can be avoided.
[27] Mr Gray submitted that if the application had to be pursued under the Part 18 procedure the objective of an expeditious resolution of the directions would be lost. He suggested full pleadings, counterclaims, cross-claims, interrogatories and full discovery would inevitably follow. He suggested that the Kain siblings could take advantage of the Part 18 process to expand the scope of the application and transform it into a hostile proceeding concerning Public Trust’s administration of the group of trusts generally. He noted that in the notice of opposition at 3(d)(vi) the Kain siblings had flagged that they considered discovery would be required. The notice of opposition records:
vi. theproposed directions proceeding may involve contested factual issues evidence and necessitates discovery, including to ensure the Court may properly consider evidence of the nature and extent of distributions made by the Applicants from the trusts, or related trusts to date.
[28] Mr Weston QC confirmed his client’s support for the Public Trust’s application. He expressed his client’s concern that the Kain siblings were likely to turn the application into a “full Commission of Inquiry” into past distributions including from the South Canterbury Trusts even though the Public Trust has had nothing to do with them. He emphasised that Public Trust was not seeking directions regarding the decisions it ought to make but rather the application was limited to the considerations it ought to take into account in reaching its decision.
[29] Mr Fowler QC drew the Court’s attention to Panckhurst J’s summary at [256] of his judgment where the Judge noted that he considered Mr Couper to be a hardworking and able farmer who had made it his life’s work to expand the farming base for the benefit of the family. Personal wealth had not greatly motivated him. He emphasised Mr Couper wants all matters resolved as expeditiously as possible.
[30] Ms Bruton QC confirmed that her clients supported the position of Public Trust and, unsurprisingly, that of Mr Weston’s client, their mother. She submitted the
directions sought were capable of resolution under the Part 19 procedure. She noted for example that generally speaking the law relating to settlor’s wishes is settled. Settlors are entitled to express their wishes for the benefit of trustees and trustees are entitled to take them into account. They can be important guidance in the exercise of discretionary powers but whatever the settlor’s wishes, the trustees must conscientiously apply their independent discretion in exercising their powers.4
[31] For the Kain interests both Mr Raymond QC and Mr Wallace submitted that the proposed originating application lacked sufficient particularity to properly inform the Court and the respondents about the questions that Public Trust seeks directions on. For example, the draft application refers generally to “distributions to beneficiaries”. That raises the issue of whether:
(a)the distributions are to be of capital as well as income;
(b)whether the distributions are a winding-up of the Trust; or
(c)whether the vesting day is to be the date of distribution defined in the trust or some accelerated date.
[32] Mr Wallace made the point that the date of vesting or distribution will have a bearing on whether the class of beneficiaries is closed or not. He also suggested particularity was lacking in relation to a number of the phrases used in the application such as:
·“Interests of the beneficiaries”.
·The “particular circumstances” of the Trust and the beneficiaries.
·The “financial needs” of the beneficiaries.
·If the beneficiaries are children the extent to which their “needs” will be met by their parents.
4 Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131, [2017] NZAR 882 at [36].
Further, the reference to “other trusts” was not entirely clear. Both counsel made the point that to date the full extent of the settlor’s wishes (of which apparently there have been a number of iterations) have not been disclosed to all parties.
[33] Counsel noted that Tom Kain was now deceased, so that raised another issue, particularly in relation to the Deed of Equality and its effect.
[34] While the Kain interests support an application for directions, they submit it should follow the usual, Part 18, procedure.
Discussion
[35] Under the High Court Rules, the primary procedure for resolving disputes is Part 5 by way of general proceeding. Parts 18 and 19 provide alternative means for proceedings where Part 5 may not be appropriate. Part 18 requires proceedings to be commenced by statement of claim, accompanied by an application for directions as to service and representation. It also provides for evidence to be given by affidavit. In other respects the relevant rules in other parts of the High Court Rules apply as appropriate. The originating application procedure in Part 19 is, broadly speaking, analogous to the interlocutory application procedure.5 Part 19 was initially designed as an expedient for cases where there was in reality no opposing party but that narrow approach is no longer strictly applied. Its procedure is generally used where it is not necessary to have full pleadings and interlocutory steps such as discovery for proper determination of the issues. While it is possible for orders as to discovery to be made in originating application proceedings, the Court will generally adopt a conservative approach towards such applications.6
[36] The onus is on the applicant Public Trust to satisfy the Court that, despite the express provisions of Part 18, leave should be granted to it to permit the current application to be made by way of originating application under Part 19.
[37] Mr Gray submitted the interests of justice supported such a procedure. He sought to rely on the case of Macedonian Orthodox Community Church St Petka Inc
5 Fisk v X [2014] NZHC 2797 at [17]–[18].
6 Manchester Securities Ltd v Body Corporate 172108 [2015] NZCA 29 at [15].
v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand in which the High Court of Australia discussed the New South Wales equivalent to s 66 of the Trustee Act and the historical background to the section.7 However aspects of s 63 of the Trustee Act 1925 (NSW) are in different terms to s 66. Relevantly, s 63 provides that unless the rules of Court provide or the Court directs, applications can be made ex parte and without evidence. Despite that, I note in the Macedonian Orthodox case itself, the application had been by statement of claim.
[38] Mr Gray also submitted that in England and Wales applications for directions can proceed by way of originating application. Rule 64.3 of the Civil Procedure Rules 1998 requires that a claim for a court to determine any question arising in the execution of a trust be brought under Part 8 of those rules. The Part 8 procedure replaces in a simplified form the High Court originating summons procedure.
[39] The authority for a trustee to seek directions, now confirmed by statute, arises from the equitable jurisdiction exercised by common law courts but overseas authorities are of limited assistance, given the different procedural provisions which apply to the application for the exercise of the jurisdiction.
[40] The background to and application of s 66 Trustee Act was recently considered by the Court of Appeal in Chambers v S R Hamilton Corporate Trustee Ltd. The Court confirmed that s 66 was an enactment of the broad equitable jurisdiction that had long resided in the Chancery Courts.8 It approved the following statement by Lord Oliver in Marley v Mutual Security Merchant Bank and Trust Co Ltd:9
[32] … A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper and professional advice and, if so advised, to protect his position by seeking the guidance of the court.
7 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42, (2008) 237 CLR 66.
8 Chambers v S R Hamilton Corporate Trustee Ltd, above n 4.
9 At [32], citing from Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 (PC) at 201.
[41]The Court then went on to note that:10
[33] … [trustees] are entitled to come to court on the limited basis of seeking particular directions. …
[34] Applications under s 66 will not usually be appropriate where important facts are contested. This application was for directions on a substantive issue that was in dispute (what the Trustees should do in relation to the property), but which in the end did not involve any significant disputes of fact. We do not regard any differences about the correct value of the property as being significant, because in the end, as we will set out, the property has to be sold at a fair market value and the proceeds divided equally. The issues in the Directions Proceedings did not therefore involve contentious facts, and the separate ordinary proceeding for removal of the Trustees was effectively neutralised by the sensible and practical steps taken by the Judge.
[42] While the ability to seek directions is common to common law jurisdictions generally, the procedural mechanism by which such directions are sought varies. In New Zealand the prescribed procedure is on application under Part 18. There will be exceptions to that procedure, but they are limited. In Courteney v Pratley Cull J permitted use of the Part 19 originating application procedure for a Beddoe application.11 In Atchison v Boyd Heath J was faced with an application for directions under s 66.12 He confirmed that it is generally inappropriate to use the originating application procedure when disputed questions of fact exist, but went on to appoint an expert under r 9.36 to determine the issue of costs.
[43] The Public Trust, Mrs Hutton and Mrs Hutton’s children are concerned that the Kain interests could employ the Part 18 procedure to expand the scope of the application and to seek to obtain, via discovery, confidential trust information, including memoranda of wishes and financial information regarding distributions to other beneficiaries which it is said they would not otherwise be entitled to and which are, on Public Trust’s view, irrelevant to the narrow issues in question.
[44] Given the history and background to the litigation in this matter I have some sympathy for the concerns expressed about the proceeding becoming complicated. However, the matter has to be approached on a principled basis. I also record Mr
10 At [33]–[34], footnotes omitted.
11 Courteney v Pratley [2017] NZHC 3285.
12 Atchison v Boyd [2017] NZHC 1942.
Raymond’s advice to the Court that there was no prospect that the Kain interests he represents would pursue a counterclaim if the Part 18 procedure was mandated.
[45] Despite the persuasive submissions in favour of permitting the application, I am unable to accept that the resolution of the directions will be as straightforward as suggested. I accept Mr Raymond’s and Mr Wallace’s submission that for the Court to be able to consider the directions sought in a responsible way further background or context will be necessary. That will be assisted by pleadings and limited discovery. The Part 18 procedure is still more efficient and confined than a general proceeding. Rule 18.15 confirms the evidence can be given by affidavits or agreed statement of facts. The concerns raised by Public Trust can be met by appropriate management of the proceedings, recognising that it is an application under Part 18 for directions, not a general proceeding. Further, given the acknowledgement that the Kain interests do not intend to pursue a counterclaim, Public Trust can define the issues by its statement of claim.
[46] In Fisk v X one of the reasons MacKenzie J declined the application for leave to commence the proceeding by way of originating application under Part 19 was that he considered the proceedings would be contentious.13 He considered a Part 18 procedure was the appropriate course, noting that Part 18 was routinely used for applications which involved a contest on factual issues and was the directed procedure for one of the applications before the Court. The Judge also noted that the Court has wide powers to control interlocutory proceedings in a manner which will ensure justice is done between the parties.
[47] For similar reasons, the applicant fails to satisfy the Court that the interests of justice require the directions to be brought before the Court under the Part 19 originating application procedure. I consider Part 18 to be the appropriate form as provided by the rules of Court.
13 Fisk v X, above n 5.
Costs
[48] The Public Trust has acted properly and on advice in bringing this application. It is entitled to its costs. It also sought a Beddoes costs order in relation to the costs to be incurred on the application for directions. That application is not opposed.
[49] The Kain interests have sought costs on the application and for leave to apply for their costs on the substantive application for directions to be met from the assets of the Trusts. In written submissions, Mrs Hutton opposed that application, if it was to amount to a pre-emptive costs order.
[50] It is in the interests of all parties to have preliminary directions resolved which may assist Public Trust in the exercise of its duties as Trustee. Provided the parties take a co-operative and responsible approach to the determination of the issues, their costs should be borne by the Trust funds.
Result/orders
[51](a) Public Trust’s application for leave to bring the application for directions by way of originating application under Part 19 is dismissed.
(b)If Public Trust wishes to pursue the application for directions it is to be under Part 18. A statement of claim is to be filed and served by 20 July 2018.14
(c)If Public Trust pursues an application for directions, its costs of bringing the application and all appearances in support are to be met from the assets of the Trusts.
(d)If Public Trust pursues an application for directions, the costs of all respondents incurred in responding to the application and presenting argument in relation to the directions sought are to be paid from the assets of the Trusts subject to:
14 I apply r 5(3). The statement of claim may be filed in this proceeding.
(i)the costs must be necessarily and properly incurred for the benefit of the Trust in resolving the issues for determination; and
(ii)the costs are to be confirmed and payable at the conclusion of the proceeding.
(e)The costs on the current application ought to be fixed and paid at this stage. Public Trust has acted properly in bringing the application, even though unsuccessful. Its reasonable costs should be paid from the assets of the Trusts. Any other applications for costs on this application are to be made by memorandum to be filed and served by 13 July 2018. Any response is to be filed and served by 20 July 2018.
(f)If Public Trust pursues an application for directions, the application is to be served on the persons listed in the appendix hereto. Where that person is under 18, the application is to be served on their parents or legal guardian.
Venning J
7
1