Roband v O'Sheas
[2017] NZHC 2468
•9 October 2017
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
KIRIKIRIROA ROHE
CIV-2013-419-000966 [2017] NZHC 2468
BETWEEN JANINE MAREE ROBAND
Plaintiff
AND
OʼSHEAS
First DefendantMICHAEL CANN Second Defendant
Hearing: 1-5 and 8-11 May 2017 Appearances:
S J Rawcliffe and S P Middlemiss for the Plaintiff
L J Taylor QC and R C Woods for the First Defendant
M Cann (Self-represented Second Defendant) in PersonJudgment:
9 October 2017
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 9 October 2017 at 4.00 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: L J Taylor QC, Wellington
Solicitors: Harkness Henry, Hamilton
Robertsons, Auckland
Copy To: M Cann, Hamilton
ROBAND v OʼSHEAS [2017] NZHC 2468 [9 October 2017]
Table of Contents
Para No.
Introduction ..............................................................................................................[1] Narrative of events ...................................................................................................[4] Claims and defences ...............................................................................................[16] Provision of the unlimited interlocking guarantee..............................................[21] Was there a conflict or potential conflict of interest? [31] Was there a breach causing loss? [55] Was the provision of the Guarantee outside the Trustees’ powers? [61] Application of the Newstead proceeds..................................................................[69] Did Ms Roband give informed consent to repayment of the Companies’ debts? [74] Did O’Sheas fail to take the necessary steps to protect the Trust’s interests? [86] BNZ refinancing – Alconbury ...............................................................................[91] Did Ms Roband give her informed consent to the Alconbury payment? [98] Failure to enforce leases....................................................................................... [112] RHT lease [113] Paddy Smith lease [122] Loss of equity and income ...................................................................................[125] Removal of Mr Cann as trustee ..........................................................................[128] Summary of findings............................................................................................[138] Result .....................................................................................................................[143]
Introduction
[1] Ms Roband and her former husband, Mr Cann, are trustees of the McGerkinshaw Property Trust. At the relevant time, they were also owners of a trucking business operated through two companies which are now in liquidation. Mr O’Shea (a partner in the law firm O’Sheas) was an independent trustee and the solicitor to the Trust, trucking companies, Ms Roband and Mr Cann (collectively referred to as the Group).
[2] Ms Roband sues her fellow trustees, and O’Sheas, in relation to a number of transactions which she says preferred the interests of the companies to those of the Trust. Her primary claim is in relation to the Trust’s guarantee of the companies’ debts under an unlimited and interlocking guarantee given by each member of the Group in 2006. Other claims concern payments made by the Trust to discharge the debts of the companies, and the enforcement of leases of the Trust property. She pleads breach of fiduciary duty, breach of trust, negligence and breach of retainer in relation to these transactions.
[3] Mr O’Shea and Mr Cann deny each of these claims. In addition, they raise a number of affirmative defences under the indemnity provisions of the Trust deed, and the Limitation Act 1950.
Narrative of events
[4] Ms Roband and Mr Cann were married in 1994 and have two children. They operated a trucking business together and were equal shareholders in Roadhaul (N.I) Ltd (RNI) and RHT Holdings Ltd (RHT) (together, the Companies). RNI owned all the trucks and other assets of the business. It leased those assets to RHT which was the truck operating company.
[5] Mr Cann was the sole director of the Companies at the relevant times. Ms Roband was a director in RNI until 1997.
[6] The McGerkinshaw Property Trust was established in October 2004. The trustees were initially Ms Roband, Mr Cann and Mr John O’Shea. Mr O’Shea resigned as independent trustee in December 2008. The beneficiaries of the Trust are Ms Roband and Mr Cann as preferred beneficiaries, their children, grandchildren and great grandchildren.
[7] In late 2004, Ms Roband and Mr Cann transferred their property at Newstead into the Trust. That property comprised a residential home, two large workshops, and some grazing land. The workshops were leased to RNI, and the grazing land was leased to a farmer.
[8] In March 2006, the Trust purchased another property, together with a bulk fertiliser storage business, at Hautapu. The total purchase price for the property and business was $1,150,000. It was financed through loans from Westpac Bank in the sum of $1.1 million and vendor finance in the sum of $50,000.
[9] The Westpac financing was secured by registered mortgages over the Newstead and Hautapu properties, and a general security agreement provided by RNI. It was also secured by an unlimited interlocking guarantee provided by Ms Roband and Mr Cann (in their personal capacity), the trustees of the Trust, and
the Companies. The Guarantee included an acknowledgement by the trustees that the mortgages over the Newstead and Hautapu properties secured the Trust’s liability under the Guarantee.
[10] By 2007, Ms Roband and Mr Cann were under immense pressure. The Companies had mounting debts to the IRD, and the vendor of the Hautapu property was seeking repayment of the vendor finance of $50,000 plus interest and costs. Westpac was also placing pressure on the Group to repay and reduce all debts. In September 2007, Mr Cann and Ms Roband separated.
[11] Mr Cann and Ms Roband resolved to sell the Newstead property to reduce debt, and it was sold at auction for $1.6 million on 1 November 2007. Settlement was scheduled for 9 January 2008. Westpac demanded that the entire settlement proceeds be applied to reduce the Group debts. The proceeds of sale were paid into O’Sheas’ bank account, and were then applied in reduction of the Westpac debt. Payments totalling $367,000 made on behalf of the Companies are at issue in this proceeding.
[12] However, Westpac was not content with the reduction of the debt, and by early 2008 it was requiring its facilities to be repaid in full. A refinancing proposal was obtained from the Bank of New Zealand (BNZ). The Trust was the borrower, with guarantees to be provided by Mr Cann and both Companies. The conditions of the refinancing package include a first ranking mortgage over the Hautapu property, and a first ranking mortgage over another property, Alconbury.
[13] Ms Roband and Mr Cann had originally purchased the Alconbury property in their joint names in November 2007, but it was subsequently transferred into Mr Cann’s name alone. The BNZ refinancing included the refinancing of mortgage finance which Mr Cann had obtained from New Zealand Home Loans to complete the Alconbury purchase on 11 January 2008.
[14] On 18 April 2008, the BNZ refinancing was used to discharge all debts with
Westpac Bank, including RHT and RNI’s overdraft facilities, and RNI’s equipment
loan. The funds were also used to repay New Zealand Home Loans in respect of the
Alconbury property. That repayment is also in issue in this proceeding.
[15] Both of the Companies were placed into liquidation in November 2009. Mr Cann was adjudicated bankrupt on 19 August 2011 and was discharged on conditions in September 2016. He remains a trustee of the Trust.
Claims and defences
[16] The plaintiff filed two versions of the third amended statement of claim during closing submissions.1 The difference between them concerns the naming of the partners of O’Sheas in the intituling. O’Sheas does not oppose leave being granted to the version which simply names O’Sheas as a first defendant. I grant leave for that version accordingly.
[17] Ms Roband’s claims are arranged around the alleged heads of loss arising out of key events. These heads of loss comprise the provision of the unlimited guarantee, payments made from the Newstead proceeds of sale, and the BNZ refinancing. Lost rental from an alleged failure to enforce leases of the Hautapu property, and a loss of equity and income are also claimed.
[18] Ms Roband pleads breach of fiduciary duty against O’Sheas in relation to each of these heads of loss. In addition, she pleads breach of retainer and negligence against O’Sheas in relation to all heads of loss with the exception of those flowing from the 2006 guarantee. She also pleads breach of trust by Mr Cann and Mr O’Shea. The relief sought for the breach of trust claims includes an order removing Mr Cann as trustee under s 51 of the Trustee Act 1956, and an order under s 74 impounding his interest as a beneficiary of the Trust.
[19] Both O’Sheas and Mr Cann deny breach of their respective duties in relation
to each of the heads of loss. In addition, both plead affirmative defences arising out
1 The amendments were in response to concerns I raised at the outset of the trial about the different capacities in which Mr John O’Shea was sued. Neither O’Sheas nor Mr O’Shea took any objection to the claim on this basis.
of the indemnity and exclusion of liability clause under the Trust deed, and the statutory limitation periods under the Limitation Act 1950.
[20] I address each of the claims and defences under the following headings: (a) Provision of the unlimited interlocking guarantee
(b) Application of the Newstead proceeds
(c) BNZ refinancing – Alconbury
(d) Failure to enforce leases
(e) Loss of equity and income
(f) Removal of Mr Cann as trustee
Provision of the unlimited interlocking guarantee
[21] The core of Ms Roband’s claim revolves around the trustees’ provision of the unlimited interlocking guarantee in 2006 (the Guarantee), under which each guarantor provided a guarantee of each other’s debts. The Guarantee was a condition of the financing which Westpac Bank agreed to provide to allow the Trust to purchase the property at Hautapu.
[22] Westpac’s finance offer was made in a letter dated 24 February 2006 addressed to the McGerkinshaw Property Trust. The Bank confirmed that two loans for the total sum of $1.1 million had been approved subject to the security and specific conditions set out in schedule A to the letter. The conditions relating to security were as follows:
•the existing securities held by Westpac details of which are available on request.
• variation to Section 80A priority amount to $2,000,000 on Westpac’s
mortgage over 773 Morrinsville Road, Hamilton.
•an unlimited interlocking guarantee to be provided by Michael Robert & Janine Maree Cann, Trustees of McGerkinshaw Property Trust, RHT Holdings Limited and Roadhaul (N.I.) Limited, supported by the existing securities granted to Westpac by the guarantors.
•a new first and exclusive mortgage over the freehold property situated at 169 Victoria Road, Hautapu, Cambridge, certificate of title SA72D/2D8 to be granted by McGerkinshaw Property Trust. The Section 80A Priority amount on Westpac’s mortgage will be set at $1,200,000.
• a first and exclusive general security agreement to be granted by
RHT Holdings Ltd.
These securities will secure all your financial obligations to Westpac.
[23] Ms Roband and Mr Cann met with Mr O’Shea to discuss the Hautapu purchase. There is a dispute about whether the provision of the Guarantee was discussed at these meetings. I find that it was for the reasons set out below.
[24] On 23 March 2006, Westpac Bank instructed Mr John O’Shea to act for the Bank in relation to the execution and registration of the loan and security agreements. Mr O’Shea signed the documentation, including the Guarantee, on
31 March 2006. His signature was witnessed by Mr Peter Jeffries, another partner of O’Sheas. Mr Jeffries completed the solicitor’s certificate in relation to Mr O’Shea’s signature.
[25] Ms Roband and Mr Cann signed the Guarantee in their capacity as trustees of the Trust and in their personal capacities on 3 April 2006. Mr Cann signed as director of both Companies. Their signatures were witnessed by Mr Dermot O’Shea, a partner in the firm of O’Sheas. He also completed the solicitor’s certificate for each guarantor. In doing so, he certified that he had explained the nature and effect of the Guarantee and that the guarantor had confirmed he or she understood its general nature and effect, as well as the obligations and risks involved.
[26] Ms Roband pleads two causes of action in relation to the provision of the
Guarantee:
(a) First, she pleads breach of fiduciary duty against O’Sheas for failing to advise the trustees that there was a conflict of interest and ensuring that they obtained independent legal advice.
(b) Second, she pleads breach of trust against Mr John O’Shea and
Mr Cann.
[27] Ms Roband says that as a result of the breach of fiduciary duty and breach of trust, the Trust was encumbered with repaying the debts of the Companies to Westpac under the Guarantee. Consequently she seeks damages in the sum of
$1,058,095.87, which comprises the payments made to Westpac to clear the Companies’ debts on 9 January 2008 and 18 April 2008 from the Newstead sale proceeds and the BNZ refinancing respectively.
[28] The key factual issues in respect of the breach of fiduciary duty cause of action are:
(a) Was there a conflict, or potential conflict, of interest? (b) If so, was there a breach causing loss?
[29] The key issue in respect of the breach of trust cause of action is whether the
provision of the Guarantee was outside the trustees’ powers under the Trust deed.
[30] Each of these factual issues is considered below.
Was there a conflict or potential conflict of interest?
[31] Ms Roband claims that O’Sheas breached its fiduciary duty by continuing to act for two parties where there was a conflict of interest and where she had not given her informed consent to O’Sheas acting for both parties.
[32] In Taylor v Schofield Peterson, Hammond J said:2
2 Taylor v Schofield Peterson [1999] 3 NZLR 434 (HC) at 440.
The term “conflict of interest” raises no real difficulties. Such a phenomenon exists when the interests of two or more clients are inconsistent, or diverse. Whether something is a different flavour and, whether the flavour has become a poison, can only be determined in a particular case by the familiar techniques of close analysis of the facts, and the commonsense application of judgment.
[33] Where a conflict of interest or the real possibility of a conflict exists, a solicitor will have to show that both parties agreed on the terms of the transaction and gave informed consent to the dual representation. The obligations of a solicitor in those circumstances were summarised in Taylor v Schofield Peterson as follows:3
It follows, in our view, from Clark Boyce v Mouat that a solicitor must always: (1) recognise a conflict of interest, or a real possibility of one; (2) explain to the client what that conflict is; (3) further explain to the client the ramifications of that conflict (for instance, it may be that she could not give the advice which ordinarily she would have given); (4) ensure that the client has a proper appreciation of the conflict, and its implication; and (5) obtain the informed consent of that client. Then, and only then, can the solicitor act.
[34] The rules of professional conduct also govern a solicitor’s obligations where there is a conflict of interest or a potential conflict of interest. The rules which were in force at the time O’Sheas was advising on the Guarantee provided that a practitioner should exercise careful professional judgment to ensure that a conflict does not exist, and is not likely to arise.4 A potential conflict of interest was defined as a “situation, which without care, could well lead a practitioner into a breach of fiduciary duty”.5 The rules stated that a conflict of interest does not exist simply
because the practitioner is acting for more than one party.6
[35] Expert evidence was given by Mr Eades for the plaintiff, and Mr Darlow for O’Sheas. They agreed that it was not unusual for a legal firm to act for a number of parties in transactions which affect some or all of them, particularly in a family or relationship situation. The factors that they considered a legal firm must take into account in deciding whether to continue to act included the following:
(a) the understanding of each party of the matters being dealt with;
3 At 440.
4 New Zealand Law Society Rules of Professional Conduct for Barristers and Solicitors (7th ed, Wellington, 2004), r 1.04 (commentary).
5 Rule 1.04 (commentary).
6 Rule 1.04 (commentary).
(b) the business and financial experience and ability of a party;
(c) the ability of that party to make his or her own assessment and to decide on all relevant matters;
(d) whether one party is in a stronger position than the other by virtue of personality, experience, dominance (for whatever reason) or otherwise;
(e) the advantages of one legal firm acting; and
(f) the disadvantages or possible adverse consequences of the one firm acting.
[36] These factors provide useful guidance for solicitors confronted with the same situation which faced O’Sheas in 2006. However, the list is not exhaustive, and the factors which will be relevant to the question of whether a conflict or potential conflict of interest exists, will depend on the particular facts of each case. I have approached the analysis in this case by considering the following:
(a) First, the background context in which O’Sheas was being asked to advise on the transaction (being the Hautapu purchase and provision of the Guarantee);
(b)Second, the respective interests of the Trust and the Companies in the transaction;
(c) Third, the relative positions of Ms Roband and Mr Cann at the time.
[37] The starting point is the background context. By the time they came to see Mr O’Shea about the Hautapu purchase, Ms Roband and Mr Cann had operated a trucking business together for over 10 years. They were equal shareholders in the Companies and both were involved in running the business. The Companies provided the income stream for the family. The Trust had been established the year before, and the Newstead property had been transferred to the Trust shortly after its establishment. The Newstead property was both a family home, and premises for the trucking business.
[38] In addition, the Trust and Companies already had banking facilities with
Westpac Bank. In 2005, the Trust had obtained a loan from Westpac in the sum of
$260,000. RHT had obtained an overdraft of $80,000. There is a dispute about whether the Trust provided a guarantee of the Companies’ debts at this time. The Bank’s offer of finance required the provision of a guarantee by the Trust up to a limit of $750,000 in favour of RHT as a condition of the advances. However, a copy of that guarantee has not been found, and, unsurprisingly given the passage of time, none of the witnesses at trial could recollect whether a guarantee was in fact given.
[39] I consider, on the balance of probabilities, that the Trust did provide a guarantee up to a limit of $750,000 in favour of RHT in 2005. The requirement to provide a guarantee was accepted in a letter provided by O’Sheas to the Bank on behalf of the Group. Although a different financing structure was proposed in the letter, the terms and conditions of the Bank’s offer were essentially agreed. They included a condition that the Trust provide a guarantee of RHT’s overdraft. I consider it unlikely that the Bank would have relinquished its requirement for a guarantee in those circumstances. Furthermore, the Bank’s security conditions required the guarantee to be secured by a mortgage over the Newstead property up to a limit of $750,000. That mortgage, with that limit, was provided.
[40] Therefore, at the time Ms Roband and Mr Cann came to see Mr O’Shea about the Hautapu purchase, I consider it likely that the Trust had already entered into a guarantee of RHT’s overdraft with Westpac Bank.
[41] The second step in the analysis is to consider the respective interests of the Trust and the Companies in the Hautapu purchase, and the provision of the Guarantee. I accept Ms Roband’s evidence that the Trust had been set up for the purposes of asset protection. But that purpose did not preclude it from acquiring further assets. The Hautapu purchase was attractive for the Trust because the fertiliser business allowed an income stream from which it could meet its mortgage commitments to the Bank.
[42] The purchase of the Hautapu property was also attractive for the Companies. The property was big enough to move the trucks on site, and Mr Cann and Ms Roband were intending to build a warehouse on the property for that purpose. In addition, the fertiliser business included cartage requirements which were to be
undertaken by RHT. The purchase therefore provided a separate income stream for RHT. That separate income stream provided some comfort for the Trust also, as it provided another source of income which could be used to meet its mortgage commitments if required.
[43] To complete the Hautapu purchase, the Trust required more than 100 per cent financing. To secure that financing from Westpac Bank, it needed to provide the Guarantee. It is unrealistic to suggest that the Trust could have obtained the required financing elsewhere without the Guarantee. As Mr O’Shea said in his evidence, the provision of the Guarantee was simply the price which the Trust had to pay in order to secure the funding necessary to complete the purchase.
[44] The benefits and burdens of the Guarantee were not all one way. As much as the Trust was exposing its assets to the Companies’ fortunes, the Companies were doing the same in respect of the Trust. Ms Roband’s evidence was that she considered the Companies were in reasonable financial shape at the time, and there was equity in the trucks owned by RNI. That provided an additional source of equity which was available to the Bank should the Trust struggle to meet its debt repayment obligations. In that respect, the Companies’ guarantee provided an equity buffer for the Trust in the event of default.
[45] There were clearly risks in providing the Guarantee. But those risks existed for both the Trust and the Companies. That factor distinguishes this case from Clark Boyce v Mouat.7 In that case, a mother mortgaged her property so that her son could secure further financing. There was a clear conflict of interest between the interests of the mother and those of the son. The son had all the benefits of the transaction, with his mother taking on all the risk. In the present situation, there were reciprocal risks and benefits in providing the Guarantee for both the Trust and the Companies.
[46] The risk that the Guarantee may be called on in the future meant there was potential for a conflict of interest to arise at that time. Such a risk warrants a
cautious approach by a solicitor advising more than one party to a Guarantee. But, at
7 Clark Boyce v Mouat [1993] 3 NZLR 641 (PC).
the time that Mr O’Shea was being asked to give advice, there was nothing to
indicate that such a risk was real or substantial.
[47] Overall, I consider that the interests of the Companies and the Trust in the Hautapu purchase were intertwined, and there were reciprocal risks and benefits arising out of the provision of the Guarantee. In broad terms, the parties’ respective interests in the transaction were aligned.
[48] The third stage of the analysis is to consider the relative positions of both Ms Roband and Mr Cann in terms of their business and financial experience and their ability to assess the merits of the transaction.
[49] There was no sign of imbalance in the relationship between Ms Roband and Mr Cann at the time they sought advice. Any problems in their marriage which resulted in their separation 18 months later were not apparent in 2006. Although Mr Cann was convicted for an assault on Ms Roband shortly after their separation at the end of 2007, there is no suggestion (by Ms Roband or anyone else) that physical and/or verbal abuse characterised their marriage. This was not a case of Mr Cann having a domineering and controlling personality which placed Ms Roband at a disadvantage in terms of the transaction.
[50] Furthermore, both played an equal role in the Companies. Mr Cann looked after the trucking side; Ms Roband took care of the administration. Her administration duties included basic bookkeeping, making payments to the Inland Revenue, and tracking available equity in RHT’s trucks. Ms Roband was the point of contact for any questions about the Companies’ finances.
[51] Ms Roband struck me as intelligent and financially literate. She had worked as a bank teller before working for the Companies. She was confident and assured in the witness box. It was evident that she was prepared to assert herself, and was not afraid to ask questions if she did not understand. She would have been well placed to evaluate the risks and benefits of the Hautapu purchase and Westpac’s financing requirements.
[52] I also consider Ms Roband knew and understood the specific risks associated with the Guarantee. Her evidence on this point shifted significantly during the trial. Initially she stated that she did not know about the Guarantee. But when cross- examined about this further, she eventually accepted that she would have read Schedule A to the 24 February 2006 letter in which the requirement for the Guarantee was stipulated. She said that whilst she understood terms like “unlimited” and “guarantee”, she did not understand what was meant by “interlocking”. However, later on in her evidence, she said she did understand the nature of the security being sought by Westpac, and she told her husband that she would not agree to it and that he should sort it out.
[53] That shift reflected an overall lack of integrity in Ms Roband’s evidence on key issues. In general, I found her willing to change her evidence to support her claim, rather than give a truthful and honest account of events. I have no doubt that Ms Roband knew that Westpac Bank required an unlimited interlocking guarantee as a condition of financing, and that she understood the risks and benefits involved in the Trust providing such a guarantee.
[54] Considering these factors as a whole, I do not consider there to be a conflict or potential conflict of interest in O’Sheas advising on the Guarantee such that continuing to act for both parties was a breach of fiduciary duty. On this first element therefore, the breach of fiduciary duty cause of action must fail.
Was there a breach causing loss?
[55] That finding is sufficient to dispose of the breach of fiduciary cause of action in relation to the Guarantee. However, for completeness, I set out below the conclusions I would have reached (albeit very briefly) on the other factual issues in dispute if I had found that there was a conflict of interest.
[56] As to breach, I would have found that Mr O’Shea failed to get informed consent to continue to act for all parties in respect of the transaction. Mr O’Shea gave his evidence honestly, but, understandably, his recollection of events from 2006 was impaired given the passage of time. I consider it unlikely that he would have canvassed the possibility of independent legal advice with either Ms Roband or
Mr Cann in his meetings with them about the Guarantee. He would have no reason to, because, as he candidly admitted, he did not consider there to be a conflict of interest at the time. Accordingly, had I found that there was a conflict of interest, I would have found that Mr O’Shea breached his duty by failing to obtain informed consent.
[57] However, even if there had been a breach, I would not have found any loss flowed from that breach. That is because I consider all parties would have signed the Guarantee even if they had received independent legal advice. Ms Roband said that she would have sent the Companies away to get independent legal advice, and she would have remained with Mr O’Shea. I consider Mr O’Shea’s advice would have been essentially the same as that which he gave to both Ms Roband and Mr Cann when he met with them on 28 February and again on 20 March 2006. I accept his evidence that he would have gone through the security conditions in Schedule A at this meeting. The fact that his file note of the 20 March 2006 meeting cross-refers to matters on that Schedule corroborates his evidence.
[58] Furthermore, the advice received from Mr Dermot O’Shea on the nature and effect of the Guarantee would have been the same. I reject Ms Roband’s suggestion that this advice was not given. Mr Dermot O’Shea impressed me as a careful and particular solicitor who would not have signed a solicitor’s certificate unless he had first explained the nature and effect of the Guarantee.
[59] In addition, the Trust provided guarantees of RNI’s purchase of new trucks in the amount of $1.5 million subsequent to signing the Guarantee in 2006. Ms Roband was clearly prepared to put Trust assets on the line to assist the Companies.
[60] In summary, I do not consider there was a conflict or potential conflict of interest which precluded O’Sheas from acting for both the Trust and the Companies. However, if there was, and Mr O’Shea breached his duty, I do not consider any loss to have been caused by that breach. I consider Ms Roband would still have signed the Guarantee without security being put in place to protect the Trust’s assets.
Was the provision of the Guarantee outside the Trustees’ powers?
[61] Ms Roband claims that provision of the Guarantee was a breach of trust because it was not for the benefit of the beneficiaries, but for the benefit of the Companies. Even if the trustees had the necessary power to give the Guarantee, Ms Roband says that her fellow trustees did not act honestly, in good faith, sensibly or reasonably in agreeing to it.
[62] The trustees’ powers under the Trust deed are as follows:
17 Trustees’ Powers
17.1 The Trustees have the following powers:
17.1.1 All powers given to trustees by law and in equity, and
17.1.2 The powers in this deed; including those in the schedule.
17.2The Trustees may hold, indefinitely, as part of the Trust Fund any property transferred to the Trust Fund by the settlor or any Beneficiary, even it
17.2.1 the property has no investment value, or
17.2.2 it operates at a loss.
[63] The trustees’ liability and indemnity provisions are also relevant. Those
clauses provide:
19 Trustees’ Liability and Indemnity
19.1 None of the Trustees will be liable for:
19.1.1 A loss incurred by the Trust other than as the result of that Trustee’s own dishonesty, or that Trustee’s deliberate breach of trust.
19.1.2 The acts or omissions of anyone employed by the Trustees.
19.1.3 Claims against the Trustees that cannot be satisfied because all or part of the Trust Fund has been distributed to, or resettled on, any Beneficiary, unless that distribution or that resettlement was a deliberate breach of trust by the Trustees.
19.2None of the Trustees are obliged to take proceedings against the other Trustee or Trustees, or any former Trustee.
19.3Each of the Trustees will be indemnified out of the Trust Fund whether or not liability is as the result of any act or omission by a Trustee, unless the liability is incurred by a Trustee as the result of
that Trustee’s own dishonesty or that Trustee’s deliberate breach of
Trust.
19.4 This clause 19 extends to the directors of any company that is a
Trustee as if they were Trustees.
[64] The powers under the Trust deed were not limited or prescribed in any way. Although the purpose of setting up the Trust was asset protection, that did not mean that the trustees were prohibited from growing the asset base by purchasing additional property. The trustees decided to purchase the Hautapu property, and providing the Guarantee was a necessary step in obtaining finance to purchase that property.
[65] As discussed above, this was not a situation where the assets of the Trust were being pledged for the benefit of the Companies without any corresponding benefit for the Trust. The fact that the purchase of the Hautapu property and the provision of the Guarantee were also beneficial for the Companies does not mean that it was contrary to the interests of the beneficiaries of the Trust. Rather, the Trust and the Companies had a mutual and interdependent interest in proceeding with the Hautapu purchase and providing the Guarantee.
[66] Ms Roband and Mr Cann, in their capacity as trustees and preferred beneficiaries of the Trust, clearly considered the purchase to be in the best interests of the beneficiaries at the time. But to the extent that there was any doubt about that, then the Deed allowed the trustees to resolve that doubt by giving preference to the interests of Ms Roband and Mr Cann as preferred beneficiaries.
[67] Finally, even if the Guarantee was subsequently found to be contrary to the interests of the beneficiaries, then clause 19 of the Trust deed would preclude liability for any breach in this case. The evidence falls far short of showing a dishonest or a deliberate breach of trust necessary to establish liability.
[68] In conclusion, I do not consider the provision of the Guarantee was for the benefit of non-beneficiaries, and it was not a breach of trust to agree to it.
Application of the Newstead proceeds
[69] On 1 November 2007 the Trust entered into a sale and purchase agreement for the Newstead property. Settlement was scheduled for 9 January 2008.
[70] Prior to settlement, the Bank required the full proceeds of sale to be applied in reduction of the Group’s debt. That was a condition of an extension to RHT’s overdraft, and later, a condition of the Bank releasing its mortgage over Newstead. The proceeds were paid into O’Sheas’ trust account and on 9 January 2008 they were applied in reduction of the Bank’s debt as follows:
(a) Trust loan $263,787.34; (b) Trust loan $597,026.96; (c) Trust loan $184,070.70; (d) Trust loan $8,162.94;
(e) RHT overdraft $313.661.86; (f) RNI overdraft $14,572.72;
(g) RNI equipment loan $38,645.12;
(h) Mr Cann and Ms Roband’s own facility $333.48.
[71] By this time, Ms Roband and Mr Cann were independently represented, having separated in September 2007. It was agreed that O’Sheas would continue acting for the Trust.
[72] Ms Roband pleads breach of trust, breach of fiduciary duty, and negligence/breach of retainer in relation to the application of the Newstead proceeds of sale. She claims the sum of $366,879.70 (being the total of the payments made to
reduce the Companies’ debts) and the sum of $22,500 (being O’Sheas’ fee in relation
to the sale of Newstead and negotiations with Westpac).
[73] As with the first group of claims, there is significant overlap between each of the causes of action alleged. The core factual issues in dispute distil into the following:
(a) Did Ms Roband give informed consent to repayment of the
Companies’ debts?
(b) Did O’Sheas fail to take the necessary steps to protect the Trust’s
interests?
Did Ms Roband give informed consent to repayment of the Companies’ debts?
[74] Ms Roband asserts that she did not know that Westpac was requiring full repayment of the Group’s debts from the proceeds of sale of Newstead. She says that there was a failure to obtain her informed consent to the repayment.
[75] I reject Ms Roband’s evidence. I find that she was fully aware of what Westpac required and she agreed to the repayment of the Companies’ debts from the proceeds of sale of Newstead. My reasons for that finding are as follows.
[76] First, Westpac’s requirement was set out in a letter dated 27 November 2007 to the directors of RHT. That letter stipulated that the Bank would be requesting full net settlement proceeds for the reduction of Group debt. The Bank agreed to extend the overdraft facility of RHT Holdings Ltd to $650,000. The acceptance form was signed by Ms Roband (then Mrs Cann) in her capacity as director, trustee and guarantor for and on behalf of RHT, RNI and the Trust.
[77] Ms Roband claims that Mr Cann forged her signature on the acceptance form.
She said she could not have signed this letter due to Mr Cann’s assault on her on
11 November 2007. That assault involved Mr Cann pulling Ms Roband out of a car by her arm. Mr Cann was charged and convicted for that assault.
[78] I accept that the assault did cause injury to Ms Roband, but I am not persuaded that it meant she was unable to sign documents. There are signed ACC forms in evidence from this time period which suggest that she was still able to sign her name. She also signed a sale and purchase agreement for the Alconbury property on 29 November 2007.
[79] Further, although clearly no longer wishing to spend any time with Mr Cann, the realities of the pressing financial situation meant that Ms Roband still had to deal with Mr Cann over their joint affairs. By her own admission, she was attending the Newstead office intermittently at this time. The fact that they agreed to buy Alconbury in their joint names also suggests they were still in contact.
[80] Ms Morrell, a handwriting expert, gave evidence about the signature on the acceptance form. In her expert opinion, Ms Roband probably did sign the form, although she could not exclude the possibility that it was a simulation. I accept Ms Morrell’s evidence and find that on the balance of probabilities, Ms Roband did sign the acceptance form to the 27 November 2007 letter. Therefore, Ms Roband was aware that the Bank required repayment in full of the Newstead proceeds of sale.
[81] Second, I find that the Bank’s requirement to settle all outstanding debts was discussed at the meeting with Mr O’Shea and Mr Cann on 7 January 2008. Mr O’Shea’s handwritten note from that discussion records:
MTG Mike and Janine Cann
The Bank has said it needs $1,450,000. We must settle with them.
[82] Ms Roband attempted to distance herself from this file note by saying she must have left the meeting earlier, prior to this issue being discussed. I reject this evidence and prefer the evidence of Mr O’Shea which is corroborated by his file note. By 7 January 2008, Ms Roband was well aware that the Bank was requiring the Group debt to be repaid in full from the proceeds of the Newstead sale.
[83] Third, on 9 January 2008, Ms Roband visited O’Sheas’ offices. She brought
with her the necessary documentation to allow the sale and purchase transaction to
be processed. Ms Meredith, a legal executive at O’Sheas, gave evidence about this
meeting. She recorded a file note in the following terms:
MG Mike + Janine Cann
Janine called in with her driver’s licence. … I advised her of the amounts required to settle the sale to repay Westpac and gave her a copy. She confirmed the figures and I told her that we had to repay everything from the sale.
[84] The draft settlement statement that was provided at that time contained figures which differed slightly to those in the final settlement statement dated
9 January 2008. The figures in the 8 January 2008 settlement statement were reflected in a letter from Ms Roband’s solicitor dated 1 February 2008. This is strong corroborating evidence that Ms Roband was provided with a draft settlement statement showing that the full proceeds from the purchase would have to be repaid to Westpac. She provided that statement to her solicitor who then relied on it in his correspondence of 1 February 2008.
[85] Against that background, it is simply not credible for Ms Roband to allege that she was not aware that the full proceeds of the Newstead sale had to be applied to Westpac to reduce all Group debt, including the debts of the Companies.
Did O’Sheas fail to take the necessary steps to protect the Trust’s interests?
[86] The focus of the breach of fiduciary duty and negligence/breach of retainer causes of action at trial was on the steps O’Sheas should have taken to secure the Trust’s position vis-à-vis the Companies once the Westpac repayments were made. Specifically, Ms Roband says the Trust could have stepped into the shoes of Westpac and recovered any sums directly. If the Trust had done so, Ms Roband says that the Companies would likely have gone into liquidation earlier, and the Trust would not have been liable to repay Company debts incurred after April 2008.
[87] By this time, Ms Roband and Mr Cann were separately advised, and Mr O’Shea was acting for the Trust. Mr O’Shea needed to be vigilant in ensuring that the interests of the Trust were protected. That duty extended to a consideration of subrogation to Westpac’s securities once payment has been made on behalf of the
Companies. Both Mr Graham and Mr Braithwaite confirmed that subrogation was possible in the circumstances of this case.
[88] But whether O’Sheas’ failure to advise the Trust to take this step constitutes a breach of its retainer and/or negligence needs to be assessed in light of the circumstances which existed at the time. Ms Roband did not adduce any evidence directed at breach. Mr Darlow and Mr Eades did not offer an opinion on whether there was breach in these circumstances. The fact that subrogation was possible does not, without more, establish breach.
[89] Even if it did, I am not persuaded that such a failure resulted in any loss to the Trust. Ms Roband’s claim that the Trust would have taken steps to liquidate the Companies is unsupported by the evidence. The trustees were making every effort to secure refinancing to allow the Companies to continue trading. There is no evidence to suggest that they would have considered liquidating the Companies at this point, and no evidence to suggest that the unanimous consent of the trustees to pursuing this course could be secured.
[90] In summary, I am not persuaded that O’Sheas breached its fiduciary duty by failing to advise the Trust to subrogate to Westpac’s securities, and even if I did, I am not persuaded that such a breach caused loss.
BNZ refinancing – Alconbury
[91] Westpac was not satisfied by the application of the Newstead proceeds to reduce the overall debt, and in early 2008 it was placing pressure on the group to seek alternative financing.
[92] BNZ made an offer of finance on 1 April 2008. The offer included sufficient funds to refinance the Group’s debts to Westpac, and to refinance the mortgage on the Alconbury property. The advances were to be secured by mortgages over the Hautapu and Alconbury properties, with guarantees from Mr Cann and the Companies. By the time of this offer, the Alconbury property was held in Mr Cann’s sole name, and the purchase price had been funded by mortgage finance from New Zealand Home Loans.
[93] On 17 April 2008, Ms Roband signed the refinancing documentation with the BNZ. This included a letter of advice accepting a facility of $1,620,000 secured by a mortgage over Hautapu and a mortgage over Alconbury, and a further letter of advice accepting a facility of $428,000 secured by a mortgage over Hautapu and a mortgage over Alconbury.
[94] There is a significant conflict in the evidence of Ms Roband on the one hand, and Ms Meredith of O’Sheas on the other, about the circumstances in which Ms Roband signed these documents. For the reasons set out below, I prefer Ms Meredith’s evidence to that of Ms Roband.
[95] On 18 April 2008, the BNZ paid the sum of $1,941,395.98 into O’Sheas’ trust
account. The funds were applied as follows:
Extinguishing Trust’s debts to Westpac $808,371.76
Clearing RHT’s overdraft with Westpac $526,754.28
Clearing RNI’s overdraft with Westpac $41,529.69
Repaying RNI’s equipment loan with Westpac $122,932.20
Repaying Mr Cann’s home loan on Alconbury $426,383.05
[96] A further sum of $14,625 was disbursed in payment of O’Sheas’ fees.
[97] Ms Roband claims breach of trust, breach of fiduciary duty, and breach of retainer/negligence in relation to the payments made on 18 April 2008. Although the pleaded claim refers to the payments made to discharge the Companies’ debts, the focus in closing submissions was solely on the repayment of the Alconbury loan which Ms Roband says was made without her consent.
Did Ms Roband give her informed consent to the Alconbury payment?
[98] It is important to note that Ms Roband was separately represented at this time. Her lawyer was advising her in relation to the BNZ refinancing and all communications were through him. Mr Cann was also separately represented. O’Sheas was acting for the Trust and the refinancing was to be in the Trust’s name. The complaints about O’Sheas’ representation of the Trust need to be understood in that context.
[99] It is clear from the evidence that Ms Roband knew that the refinancing was to include Alconbury. The Companies’ accountant emailed her on 2 April 2008 setting out how the financing was to be applied. That email made it clear that the refinancing would include the Alconbury loan.
[100] Furthermore, Ms Roband was present at the meeting on 4 April 2008 when the trustees agreed in principle to the terms of the refinancing. Her solicitor also attended that meeting. There were no issues raised about Alconbury being included in the refinance at that meeting, or in the subsequent email sent by Ms Roband’s lawyer confirming what had been discussed.
[101] Ms Roband confirmed that she knew that Alconbury was included in the refinancing in her evidence at trial. She said that her understanding was that the refinancing of Alconbury was a requirement of the BNZ refinancing package because at that time, it was understood that there may have been some equity in Alconbury to provide additional security. That was the understanding of the other trustees as well. Mr O’Shea’s evidence was that he considered the refinancing of the Alconbury purchase to be in the Trust’s best interests because it provided a source of equity which meant that the assets were further protected in the event of default.
[102] It is true that Ms Roband had expressed some frustration at the inclusion of Alconbury in the refinancing in an email to her lawyer dated 15 April 2008. That email was subsequently forwarded to Mr Cann’s lawyers and O’Sheas. Ms Roband stated that she was not prepared to “use my share of Hautapu to secure a mortgage over Mike’s house when in return the kids and I get nothing”. She proposed two options. The first option involved a refinance of Hautapu with her and Mr Cann
taking equal amounts, estimated to be between $350,000 and $500,000, and the creation of two new and separate trusts with each owning 50 per cent of Hautapu. The second option was that she “walk away from it all and force the sale of RHT Holdings, Roadhaul NI, Hautapu business and Hautapu property”.
[103] It is evident from this email that Ms Roband was frustrated with a perceived inequity between her position and that of Mr Cann. She was attempting to obtain more for herself and her children and she was using the Alconbury refinance as leverage. But at no time did she stipulate that the Alconbury refinancing was not to be included in the BNZ refinancing package. Rather, the reference to it in her email of 15 April 2008 simply confirms that she was well aware that it was to be included.
[104] Ms Roband’s demands were not acceded to by the other trustees or the BNZ. Mr O’Shea responded to her email of 15 April 2008 on the same day. He warned that if the BNZ refinancing did not go ahead, then Westpac would take immediate steps against the Trust, the Companies and then Ms Roband and Mr Cann personally. He suggested that the matters of adjustment between Ms Roband and Mr Cann could be negotiated and decided (or determined by a Court) at a later date. At the conclusion of his email, Mr O’Shea said:
The funding will be used to clear the Westpac (and any other charges) and clear the IRD and pay the costs of the refinancing itself.
Payment out of any other funds will require the express consent of both
Mike and Janine.
[105] Ms Roband relies on the above statements to say that she understood her consent would have to be obtained before the Alconbury funds were paid out. That assertion lacks merit in my view. The BNZ agreement was not a general advance, but a refinancing of the Westpac debt, and the debt over Alconbury. The refinancing of the Alconbury debt was included because the BNZ required a first-ranking mortgage over Alconbury to be provided as further security for its advance. It could not obtain that first-ranking mortgage unless it refinanced the loan which was currently secured by a mortgage over the property. The transfer of funds to repay the debt over Alconbury was simply the mechanism by which this was to be achieved. That is no doubt what Mr O’Shea meant when he referred to repayment of the
Westpac debt and “any other charges” in his email. I consider Ms Roband knew and understood how the refinancing was to work, and that once approved, the BNZ funds would be used to repay the Alconbury loan.
[106] Ms Roband signed the BNZ loan documentation on 17 April 2008. She did so in the knowledge that her demands in her email of 15 April 2008 had not been agreed to, and BNZ had also refused to place a limit on the Hautapu mortgage as she had requested. The loan documentation she signed specifically referred to a mortgage over the Alconbury property.
[107] When Ms Roband signed the loan documentation she was in a hospital waiting room, concerned that she may have suffered a stroke. She made serious allegations of improper and unprofessional conduct against Ms Meredith who attended on her at this time. I reject all of those allegations. Ms Roband’s evidence was self-serving, lacking in credibility, and not corroborated by her mother’s account of that meeting at trial.
[108] I accept Ms Meredith’s version of events. That is, I accept that Ms Roband asked Ms Meredith to attend on her at hospital so that she could execute the documents. I also accept that Ms Meredith was extremely apprehensive about doing so, and she consulted with both Ms Roband’s lawyer, and Mr O’Shea, before travelling to the hospital. On arrival, she made enquiries with Ms Roband’s parents about Ms Roband’s health, before presenting the documentation to Ms Roband for signature.
[109] I consider Ms Meredith’s apprehension about attending hospital was well founded. Obtaining a party’s signature to loan documentation when a person has suffered a possible medical event is not recommended, and in hindsight, it would have been preferable that she not attend at all. However, I completely reject the allegation that Ms Roband was pressured into signing the loan documentation, and that she was in no fit state to do so.
[110] Finally, Ms Roband did not raise any specific issue about the Alconbury refinance in her stinging letter of complaint dated 21 May 2008 addressed to
O’Sheas. By this time she had received the settlement statement showing the application of funds. If she did not know beforehand, she must have known by then that the refinance included Alconbury. The clear inference from the lack of any complaint about its inclusion is that she both knew of, and consented to, the BNZ refinancing being used to repay the Alconbury loan.
[111] In summary, I consider Ms Roband gave her informed consent to the Alconbury loan being included in the BNZ refinancing, and her claims against O’Sheas and Mr Cann must be dismissed.
Failure to enforce leases
[112] Ms Roband’s third group of claims relates to an alleged failure to enforce a lease by the Trust to RHT, and a lease by the Trust to Paddy Smith. Ms Roband claims damages in the sum of $360,000 for unpaid rent on the RHT lease, or alternatively the sum of $135,000 for lost rent from 1 April 2008 to 19 December
2008. In addition, she claims $32,400 for rent on the Paddy Smith lease.
RHT lease
[113] The lease which Ms Roband relies on was prepared by O’Sheas in March 2008 at Mr Cann’s request. It stated that RHT would lease the Hautapu property from the Trust for a term of three years. The stipulated rent was $180,000 annually, being $15,000 per month plus GST. Mr Cann and Ms Roband signed the lease in their capacity as trustees on 19 March 2008, but it was not signed by Mr O’Shea. RHT did not pay any rent to the Trust.
[114] If O’Sheas received instructions from the Trust to enforce that lease, then the failure to do so would be a breach of their retainer and negligent. It may also have been a breach of fiduciary duty if O’Sheas was acting for the Companies at the same time.
[115] However, I am not persuaded that O’Sheas received firm instructions to enforce that lease. In fact, although the lease stipulated a rental, it is clear that the actual rent to be paid was still a matter of discussion between the trustees.
[116] After a trustees’ meeting on 4 April 2008, Ms Roband’s lawyer sent an email stating “RHTHL has agreed to lease the depot from MPT at $3k pmth?” The sum of
$3,000 was broadly in line with the amount that had previously been paid by RHT
for its occupation of the Newstead property. Ms Roband’s attempts to explain the
$3k figure as being a typographical error, with the correct amount being $13,000, lacked credibility.
[117] The rent was still being discussed at a trustees meeting on 30 October 2008. The minutes of that meeting record the following:
Although the Cambridge Road property is being occupied there is no formal
Lease in place. A Lease in draft form was prepared for RHT Holdings Ltd.
…
Mike said that RHT Holdings Ltd would be prepared to lease at a rental of
$5000.00 to $6000.00 per month.
[118] As recorded in those minutes, the lease now relied on by Ms Roband was a draft lease. Although it was signed by Ms Roband and Mr Cann, it was not signed by Mr O’Shea. In fact, the lease had been prepared for valuation purposes in order to secure the BNZ refinancing.
[119] Ms Roband and her lawyer did raise RHT’s failure to pay rent with Mr O’Shea. A file note of a meeting between Mr O’Shea, Ms Roband and her lawyer on 28 October 2008 records “rental has not been paid, issue a stat demand and sue on guarantee”. Ms Roband’s evident frustration with the situation was also reflected in her letter of 25 November 2008 in which she stated:
RHT Holdings must start paying rent for the workshop and yard immediately as Mike is yet again getting free rent (same as his house) and the kids and I receive nothing. If RHT pay rent then there will be money available for us to pay rent.
[120] But those statements fall short of evidence of a firm instruction by the trustees to enforce a lease which had yet to be agreed. Viewed in context, they formed part of the ongoing discussion between the parties as to the division of assets. In any event, it appears that by 24 December 2008, Ms Roband and Mr Cann had reached an understanding regarding accommodation, and in return Ms Roband
agreed to give Mr Cann until the end of January 2009 to pay the lease at Hautapu or find someone else who would cover the rent.
[121] In the circumstances, I do not consider O’Sheas to be in breach of their duty
of care, fiduciary duty, or retainer for failing to take steps to enforce this lease.
Paddy Smith lease
[122] The second lease which Ms Roband relies on was prepared by O’Sheas and dated 28 November 2008. It provided that Paddy Smith Ltd would lease the Hautapu property from the Trust for a term of one year commencing from
1 December 2008. The annual rent was to be $21,600 plus GST. Ms Roband says that Paddy Smith occupied the Hautapu property from 1 December 2008 to 16 April
2010, with the result that $32,400 in rent should have been paid to the Trust during that period.
[123] Ms Roband says she gave instructions to O’Sheas to enforce the lease to Paddy Smith. Mr O’Shea denies receiving any such instructions. I prefer the evidence of Mr O’Shea. The Paddy Smith lease was dated 28 November 2008. Mr O’Shea resigned as a trustee on 19 December 2008, meaning he was no longer a trustee by the time enforcement of this lease would have been sought. There is no evidence that O’Sheas received instructions after this date to enforce the lease.
[124] Finally, Ms Roband alleges that any payments made by Paddy Smith were diverted by Mr Cann in breach of trust. Mr Cann did direct Paddy Smith to pay rental to other parties in discharge of debts owed to those parties. But the evidence suggests that these were debts of the Trust. On the basis of that evidence, I am not persuaded that Mr Cann did act in breach of trust.
Loss of equity and income
[125] The third amended statement of claim also pleads that as a result of the various breaches already mentioned, the assets of the Trust were encumbered beyond the ability of the Trust to service the debt in the event that: RHT failed to pay rent;
Mr Cann failed to pay the Alconbury mortgage; or Mr Cann failed to account to the
Trust for monies received.
[126] In addition, it is pleaded that O’Sheas did not take steps to prevent Mr Cann or RHT from incurring further debt, and did not ensure that Mr Cann accounted for receipt of Trust monies. This, it is said, led to BNZ selling the Hautapu property in a mortgagee sale with the resulting loss of income and equity for the Trust.
[127] This allegation was not pressed at trial or in closing submissions. It is not clear what steps Ms Roband says O’Sheas should have taken to prevent further debt from being incurred, and how the failure to do so constitutes breach. To the extent that this claim relates to losses which flow from the alleged breaches which are the subject of the other causes of action, then it cannot succeed. Those breaches are not proved, and, accordingly, this claim must also fail.
Removal of Mr Cann as trustee
[128] Ms Roband seeks the removal and substitution of Mr Cann as a trustee pursuant to s 51 of the Trustee Act 1956.
[129] Section 51(1) of the Trustee Act provides:
(1) The court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult, or impracticable so to do without the assistance of the court, make an order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.
[130] Section 52(2) sets out the circumstances in which an order appointing a new trustee may be made. Those circumstances include misconduct in the administration of the trust (s 52(2)(a)), and where the trustee is a bankrupt (s 52(2)(d)). Ms Roband relies on s 52(2)(d).
[131] In Paleae v Paleae, Wylie J made the following observations about the requirements of s 51:8
[21] Before the discretion vested in the Court by s 51 can be exercised, the Court must find that it is “expedient to appoint a new trustee or trustees”. It then must find that it is inexpedient, difficult or impracticable to do so without the assistance of the Court.
[22] The word “expedient” means:
… conducive to, or fit or proper or suitable having regard to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee.
(footnotes omitted)
[132] Mr Cann was adjudicated bankrupt on 19 August 2011. As at 14 September
2006, he is a discharged bankrupt but subject to conditions. In the judgment in which the Official Assignee opposed Mr Cann’s automatic discharge from bankruptcy, Associate Judge Doogue made the following observations:9
[87] However his conduct from the time of the failure of the companies and his personal insolvency has significance for present purposes. Mr Cann showed a determined and dishonest intention to develop wealth away from the creditors who are entitled to it by the schemes that he entered into. He also proved willing to adopt elaborate fraudulent schemes in order to bring about this objective. This included the creation of bogus business transactions. All of this was accompanied by a general willingness to deceive the Official Assignee so as to obstruct him in making recoveries for the creditors. In order to defeat the Official Assignee Mr Cann acted with sustained dishonesty. I regret that it is necessary to express these strictures as part of this judgment but unfortunately they represent the unavoidable truth of the situation.
…
[98] Mr Cann’s conduct after the liquidation of the company in diverting assets away from his creditors is a particularly serious aspect of the case. Such fraudulent behaviour deviates from a fundamental requirement that persons in business are not entitled to help themselves to property which does not belong to them. This conduct was accompanied by dishonesty in concealing the fact that he was attempting to defraud his creditors. The extent to which he was prepared to engage in the adoption of wholly fictional structures in order to give the untruthful appearance of legitimacy to his business arrangements is also a serious matter. I am referring to the invoices from Coal Carriers Limited and the creation of the trust in that regard. I also agree that there can be no doubt that Mr Cann knew that he ought not to take part in the management of business but he did just that when he entered into the arrangement on behalf of PDL. It is significant that a settlement has been reached in that matter that implicitly acknowledges that Mr Cann was more deeply involved in the waterfront ship loading
operation than he was prepared to admit, either to the Official Assignee or to the Court, was significant.
[133] On the basis of these comments, I accept that Mr Cann is not a fit and proper person to be a trustee of the McGerkinshaw Property Trust. It is accordingly “expedient” that he be removed as Trustee. I also accept that the Court’s assistance is required to remove and appoint trustees. Under clause 14.5 of the Deed of Trust, the “first Appointer” may appoint and remove all or any of the Trustees. Ms Roband and Mr Cann are joint “first Appointers” and they are required to act jointly (clause
14.4.1). Clearly there is a deadlock between Ms Roband and Mr Cann about whether or not Mr Cann should be removed as trustee, which requires the Court’s assistance to resolve.
[134] However, Ms Roband has not proposed a substitute trustee to replace Mr Cann. An order removing him would leave the Trust in breach of clause 15.1 of the Deed of Trust which stipulates that there must be a minimum of two trustees. The Trust also appears to be in default of clause 5.1 which requires that at least one of the trustees be an independent trustee.
[135] Furthermore, I have not been provided with any current information on the financial affairs of the Trust, nor how it intends to operate in the future. In the absence of that information, I am not prepared to make an order removing Mr Cann.
[136] However, I consider it prudent to allow a period of time for the trustees to consider this judgment and its impact on the future direction of the Trust. Leave will be reserved to Ms Roband to pursue the application after that period of contemplation. Any renewed application to remove Mr Cann as a trustee must be supported by evidence as to the Trust’s current financial position, and a proposed replacement trustee.
[137] Finally, I note that the claim against Mr Cann relating to the impoundment of his interest was conditional on the other claims succeeding. There is no interest to impound and that claim must therefore be dismissed.
Summary of findings
[138] In relation to the provision of the unlimited interlocking guarantee I have found:
(a) There was no actual or potential conflict of interest between the Trust and the Companies which precluded O’Sheas from acting for both parties. That means there was no breach of fiduciary duty. However, if there was a breach, no loss flowed from it as the trustees would still have executed the Guarantee had they been independently advised.
(b)The provision of the Guarantee was not for the benefit of the Companies at the expense of the Trust. It was part of the price to secure funding for the Hautapu purchase. That purchase was mutually beneficial for the Trust and the Companies. The provision of the Guarantee was not outside the trustees’ powers.
[139] In relation to the application of the proceeds of sale from the Newstead property, I have found:
(a) Ms Roband knew that the Bank required all the Newstead proceeds of sale to be applied in reduction of the Group’s debt, and agreed to O’Sheas applying the proceeds of sale accordingly.
(b)O’Sheas should have turned their mind to protecting the Trust’s interests once the payments had been made. But there is insufficient evidence that their failure to do so in the circumstances was a breach of their duty of care, or a breach of retainer. Even if there was a breach, it did not cause the loss, as there is no basis to suggest that the trustees would have agreed to liquidate the Companies or that the loss which was sustained would have been avoided.
[140] As to the failure to enforce the leases to RHT and Paddy Smith, I have found that Ms Roband did not give instructions to enforce these leases. There was no
intention to enforce the RHT draft lease which was prepared for valuation purposes, and the rental had not been finally agreed.
[141] These findings mean that any loss of equity in the Trust’s assets cannot be attributed to Mr O’Shea or Mr Cann’s actions in their capacity as solicitor or trustee. It also means it is unnecessary to make an order impounding Mr Cann’s interest in the Trust.
[142] There are grounds to remove Mr Cann as trustee of the Trust. However, a replacement trustee has not been proposed, and there is insufficient evidence about the current status of the Trust to make an order removing Mr Cann at this stage. That application is adjourned with leave reserved to Ms Roband to file the necessary evidence if the application is to be pursued.
Result
[143] The plaintiff’s application to remove the second defendant is adjourned until
8 December 2017. Leave is reserved to the plaintiff to file a memorandum and further evidence outlining the current financial status of the Trust, and proposing a substitute trustee, on or before this date.
[144] The plaintiff’s remaining claims are dismissed.
[145] The defendants are entitled to an award of costs. The parties are to endeavour to agree costs between them. If quantum cannot be agreed, the defendants shall file memoranda in support of a claim of costs by 10 November
2017. The plaintiff shall file a memorandum in response by 24 November 2017.
Unless otherwise stated, costs shall be determined on the papers.
Edwards J
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