Ryan v Lobb
[2020] NZHC 3085
•20 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1591
[2020] NZHC 3085
BETWEEN VERENA COLLEEN RYAN
Plaintiff
AND
STUART JAMES LOBB
Defendant
LOCKHART TRUSTEE SERVICES NO.56 LIMITED
Second Defendant
Hearing: On the papers (telephone conference 8 September 2020) Appearances:
WM Patterson for the Plaintiff Mr Lobb in person
Judgment:
20 November 2020
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 20 November 2020 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Patterson Hopkins, Auckland Alexandra Low & Associates, Auckland
McMahon Butterworth Thompson, Auckland
Copy to:
SJ Lobb
Ryan v Lobb [2020] NZHC 3085 [20 November 2020]
[1] Mr Lobb applies for an order dismissing Ms Ryan’s proceeding, in which she seeks a declaration as to the meaning of certain provisions of a deed of trust of which Mr Lobb and Ms Ryan are beneficiaries. He also applies for an order for the return to him of certain documents and records that he says are in Ms Ryan’s control.
[2] Mr Lobb and Ms Ryan were married on 8 January 2000. They have two children, aged 18 and 19. Mr Lobb and Ms Ryan separated in or about October 2016, and their marriage has since been dissolved.
[3] On 17 June 2005, Mr Lobb and Ms Ryan settled a trust called the Lothbury Trust (“the Trust”). Mr Lobb and Ms Ryan were the first two trustees, together with the Public Trust. The Public Trust retired in 2015, and Lockhart Trustee Services No.56 Limited (Lockhart) was appointed as the independent trustee in its place.
[4] The assets of the Trust include the former family home in Remuera (known as “Lothbury”) and certain antique furniture, jewellery and watches.
[5] The Trust Deed for the Trust (the Trust Deed) required that the Trust have at least two trustees or a trustee corporation at all times, and the trustees were required to act unanimously.
[6] Mr Lobb and Ms Ryan were the appointed protectors of the Trust. In that capacity, they had the power to appoint and remove trustees. That power was required to be exercised by them jointly and unanimously.
[7] The discretionary beneficiaries of the Trust are Mr Lobb and Ms Ryan, and their children. The children are also the final beneficiaries of the Trust.
[8] Mr Lobb and Ms Ryan have been parties to a variety of legal proceedings since their separation, both in the Family Court and in this Court. One of the proceedings is the present proceeding, which was commenced by Ms Ryan in August 2019. In her statement of claim in this proceeding, Ms Ryan seeks a declaration as to the true construction of a clause in the Trust Deed relating to the re-settlement of trust assets in the event of separation.
[9] Mr Lobb filed two lengthy documents in response to Ms Ryan’s statement of claim. One of them was a statement of defence, and the other was an appearance under protest to jurisdiction.
[10] On 21 November 2019, Katz J directed that, if Mr Lobb wished to rely on his protest to jurisdiction, he was to file an application under r 5.49(3) of the High Court Rules 2016 to dismiss the proceeding on the basis of lack of jurisdiction.
[11] Mr Lobb duly filed an application to dismiss the proceeding (“the Application”) by the prescribed date. On 12 December 2019 I gave certain directions for the filing of written submissions and the allocation of a hearing date for the Application.
[12] A notice of opposition was filed by Ms Ryan and written submissions and affidavits were filed for both parties. The other defendant, Lockhart, elected not to participate in this proceeding, primarily because it had applied in a separate proceeding (the trustee proceeding1) for an order discharging it as a trustee of the Trust and appointing an interim trustee, or a receiver of the Trust assets.
[13] A fixture was made for the hearing of the Application on 5 May 2020. However the coronavirus pandemic intervened, and Mr Lobb applied for an adjournment of that fixture. He asked that the Application be adjourned to a date when it would be safe to conduct the hearing.
[14] The adjournment application came before Lang J on 21 April 2020. His Honour considered that the Application could easily be dealt with on the papers, without the need for an oral hearing. The fixture for 5 May 2020 was vacated, and directions were given for the filing of further submissions and/or authorities. The Application was then referred to me, to be determined on the papers.
1 Proceeding CIV-2019-404-002455.
[15] Lockhart’s application to be discharged as a trustee of the Trust came on for hearing before Edwards J on 4 June 2020. In a judgment given on 27 July 2020, Her Honour made orders removing all of the trustees, including Lockhart.2 She appointed Mr Digby Noyce as a receiver of the Trust, subject to certain conditions.
[16] Following the judgment of Edwards J removing the trustees and appointing Mr Noyce as receiver, I raised with counsel and Mr Lobb the question of whether the Application should continue to a judgment, or whether it should be deferred to allow a new trustee or trustees to the Trust to be heard following their appointment. I heard briefly from Mr Lobb and counsel on that matter at a telephone conference convened on 8 September 2020. Counsel for Mr Noyce also participated, and his counsel made it plain that Mr Noyce regards his powers as being strictly limited to those stated in the judgment appointing him as receiver. Specifically, he does not regard himself as authorised to effectively step into the shoes of the trustees for the purposes of giving effect to the relevant provisions of the Trust Deed relating to the resettlement of Trust assets following separation. Mr Noyce did not wish to be heard on the Application.
[17] Ms Ryan filed an application in the trustee proceeding for an order directing Mr Noyce to sell Lothbury. The application was opposed by Mr Lobb. The parties agreed that the sale application should be adjourned pending my decision on the Application, and Edwards J made an order accordingly on 14 October 2020.
[18] For the reasons which appear below, I do not consider it necessary to defer a decision on Mr Lobb’s application pending the appointment of a new trustee or trustees to the Trust. I now give judgment on the Application.
Relevant provisions of the Trust Deed
[19]The Trust Deed includes the following provisions:
2.5 Resettlement of Trust
…
(3)If the Settlors separate (or their marriage is legally dissolved), either Settlor may give the Trustees written notice requiring them to resettle (on new Trusts acceptable to the Settlor who has given notice) such
2 Lockhart Trustee Services No.56 Ltd v Ryan [2020] NZHC 1823.
part of the Trust assets as the Trustees consider fair and equitable having regard to the respective contributions of the Settlors (whether by gifting, inheritance or otherwise) to the total assets of the Trust.
(4)Once resettlement is effected under clause 2.5(3), the Settlor who gave notice shall cease for the purposes of this Deed to be a Discretionary Beneficiary and one of those acting as Protector. From that time, the other Settlor alone shall exercise all powers and discretions given to the Settlors by this Deed (including any powers the Settlors may have at that time as Protector).
(5)Any dispute or failure to agree relating to the provisions of this clause
2.5 is to be treated as a dispute to which clause 3.7 applies.
3.7Dispute Resolution
(1)The parties to this Deed wish to avoid family disagreements and any consequential family ill will. Any dispute arising out of this Deed must therefore be referred to arbitration (in the manner specified in this clause 3.7) unless resolved by mediation or similar agreement.
(2)This clause 3.7 applies to all disputes arising out of this Deed or relating to the Trust Fund or any part of it. This includes disagreements of any kind and also includes any dispute as to the validity, breach or termination of this Deed or as to any claim in tort, in equity or under any Act. However, each of the parties to the dispute must be one of the following:
(a)The Trustee or one of the Trustees, or
(b)One of the Discretionary Beneficiaries, or
(c)One of the Final Beneficiaries, or
(d)One of those who have become entitled to benefit under clause 2.8 following the Distribution Date.
(3)None of the parties to any such dispute (the “Disputing Parties”) is to commence any court proceedings relating to that dispute unless that Disputing Party has complied with this clause 3.7.
(4)Subject to any agreement between any of the Disputing Parties for the resolution of the dispute by mediation or in any similar manner, the dispute is to be referred to arbitration by one arbitrator appointed by agreement between all the Disputing Parties. If they cannot all agree, the Protector is to appoint the arbitrator. If the office of Protector is vacant at that time, or if there is more than one person acting as Protector and they cannot all agree, then Public Trust will make this appointment. This is to be treated as an arbitration agreement under the Arbitration Act 1996.
(5)Any of the Disputing Parties who seeks urgent interim relief may, by written notice to all other Disputing Parties, elect not to comply with the provisions of this clause 3.7, but only to the extent of the relief sought and for the period required to dispose of the application for that interim relief. Except to that
extent, on the disposal of the application the provisions of this clause 3.7 are once again to take effect.
The nature of the dispute over the interpretation of cl 2.5(3) of the Trust Deed
[20] Ms Ryan’s position is essentially that the cl 2.5(3) “contributions” inquiry is concerned only with the legal ownership of items at the date of their transfer to the Trust. A settlor transferring property legally owned by him or her to the Trust, for no consideration, is to be regarded as having made a contribution to the total assets of the Trust equivalent to the value of the property transferred, regardless of how the transferring party may have acquired the property.
[21] Mr Lobb’s contention is that the trustees are required by the clause to have regard to who (as between Ms Ryan and Mr Lobb) contributed what to each item of property that has been transferred into the Trust. On Mr Lobb’s interpretation, an asset such as Lothbury, which was (legally) owned jointly by Mr Lobb and Ms Ryan before it was transferred into the Trust, should not be treated as a contribution to the Trust made equally as between Mr Lobb and Ms Ryan; rather, the trustees should have regard to how much was contributed by each of Mr Lobb and Ms Ryan to the acquisition or maintenance of Lothbury. That is important in Mr Lobb’s view, as he contends that virtually all of the assets contributed to the Trust were purchased with his separate, pre-relationship property.
Ms Ryan’s statement of claim
[22]The declaration sought by Ms Ryan is:
… That the inquiry that the trustees of the Trust (or the arbitrator if the trustees cannot agree) must make under cl 2.5(3) of the Trust Deed is what assets were owned by and contributed to the Trust by [Ms Ryan] and [Mr Lobb] respectively.
[23]The statement of claim sets out the background to the dispute as follows.
[24] Lothbury was purchased by Mr Lobb and Ms Ryan in April 2003 for $760,000. That sum comprised cash from joint funds totalling $210,000, and a mortgage of
$550,000 from Westpac Banking Corporation (Westpac).
[25]Lothbury was transferred to the Trust for $1.1 million on 17 June 2005.
[26] Antique furniture owned by Ms Ryan and Mr Lobb was sold to the Trust by deed of sale dated 23 December 2005, for $55,000. In addition, jewellery and watches were sold to the Trust on 14 March 2006 for $33,325. In the case of each transfer, the usual acknowledgment of debt by the Trust to Mr Lobb and Ms Ryan was signed, in the expectation that the Trust’s debts would later be forgiven.
[27] When Lothbury was sold to the Trust, the trustees provided guarantees of the Westpac mortgage. There were further borrowings from Westpac, and by 13 June 2012 the Westpac debt had risen to $1,029,008.43. By early February 2019, the debt to Westpac stood at $1,113,603, including arrears of $56,809.76. Westpac issued a notice of default for that sum on 8 February 2019.
[28] On 14 September 2017, Ms Ryan’s solicitors gave notice to the trustees under cl 2.5(3) of the Trust Deed requiring resettlement of the Trust. They advised that Ms Ryan had established a new trust called the Verena Ryan Family Trust, on which one half of the Trust assets should be settled. The solicitors went on to say:
Our client contends that a re-settlement of one-half of the Trust assets is fair and equitable having regard to the respective contributions of she and Mr Lobb as the other settlor to the total assets of the Trust.
[29] Ms Ryan’s solicitors requested an urgent meeting of trustees to consider both the sale of Lothbury and the re-settlement of the Trust. Her solicitors advised that if those matters were not both agreed Ms Ryan would invoke cl 3.7 of the Trust Deed relating to dispute resolution.
[30] Mr Lobb responded on 28 September 2017. He said that he saw no benefit in holding a meeting of the trustees given that Ms Ryan and he did not appear to agree on anything. And he did not think it would be in anyone’s interests to sell Lothbury until the parties had determined the relevant contributions each had made to the Trust. Without that determination, the proceeds of any sale of Lothbury would have to be held in a trust account, preventing both Ms Ryan and Mr Lobb from obtaining any immediate benefit from the sale.
[31]Mr Lobb went on to say:
Your client’s claim that we have contributed equally to the assets of [the Trust] is rejected … [Ms Ryan] has contributed very little to the Trust assets and our significant relationship property liabilities to the bank and my parents …
[32] Mr Lobb asked for a comprehensive proposal to resolve the relationship property and Trust matters in issue between himself and Ms Ryan.
[33] By letter from her solicitors dated 9 October 2017, Ms Ryan invoked the arbitration provisions of cl 3.7 of the Trust Deed. She nominated Mr Rodney Hansen QC as arbitrator.
[34] Mr Lobb did not agree that the dispute was then amenable to arbitration under cl 3.7 of the Trust Deed. In a letter to Ms Ryan’s solicitors dated 16 October 2017 he said:
You seem to be keen to invoke unnecessary legal proceedings when [Ms Ryan] and I have yet to determine whether or not we even have a dispute.
[35] No resolution was reached between the parties. A suggestion by Lockhart and Mr Lobb that the dispute should be mediated was rejected by Ms Ryan.
[36] On 21 June 2019, Ms Ryan’s solicitors wrote to Mr Lobb repeating their nomination of Mr Hansen QC as arbitrator, and inviting Mr Lobb’s response. Ms Ryan’s solicitors said that if no agreement was reached as to the arbitrator, and no proposal made by Mr Lobb for an alternative arbitrator, Ms Ryan would request Public Trust to make the appointment under cl 3.7(4) of the Trust Deed.
[37] Mr Lobb responded by letter dated 23 June 2019. He said that a prerequisite to any arbitration was determining whether or not there was a dispute in terms of the Trust Deed. He went on to say:
… At issue is the relative contributions that [Ms Ryan] and I have each made to the assets of the Trust for the purposes of cl 2.5(3) of the Trust Deed. Neither you nor [Ms Ryan] have provided any basis as to why you believe [Ms Ryan] has contributed any assets to [the Trust].
[38] Ms Ryan’s solicitors responded on 26 June 2019, repeating their request that the dispute be referred to arbitration. They advised that Ms Ryan’s contention was that jointly owned assets were contributed to the Trust, and that she was entitled to at least 50 per cent of the values of those jointly owned assets. Ms Ryan’s solicitors referred in support to various documents that were said to “conclusively demonstrate” Ms Ryan’s entitlement.
[39] One of the documents was the first set of financial statements for the Trust, prepared by Public Trust. The financial statements recorded Lothbury as an asset of the Trust, and showed debts of $550,000 owing to each of Mr Lobb and Ms Ryan. Copies of two deeds of forgiveness of debt dated 17 October 2011 were also provided by Ms Ryan’s solicitors with their letter. By the deeds of forgiveness, Ms Ryan and Mr Lobb forgave the balance of $755,216.11 then owed to them by the Trust.
[40]Ms Ryan’s solicitors then said:
We suggest that there can be no possible contention that [Ms Ryan] made no contributions to the Trust nor in fact can there be any possible contention (although that will be a matter for the arbitrator to determine after hearing all the relevant evidence) that the contributions were otherwise than approximately equal.
[41] Mr Lobb responded on 1 July 2019. He contended that Ms Ryan had contributed very little, if anything, as his accounting, tax and financial records would clearly show. He inferred that that was why Ms Ryan had still not returned those records to him after nearly three years. Mr Lobb made it clear in this letter that he wished to trace who had provided what to the purchase prices of assets later transferred into the Trust, and that he needed his personal records to do that.
[42] The declaration Ms Ryan seeks is sought to confirm her position that no such tracing exercise is necessary.
Ms Ryan’s request to have the interpretation issue determined by Court
[43] At least until 26 June 2019, Ms Ryan’s position was that all of the issues arising out of her “resettlement notice” sent to the trustees should be determined by arbitration. But on 11 July 2019 her solicitors wrote to Lockhart and Mr Lobb,
referring to the parties’ conflicting positions on the meaning of the word “contributions” in cl 2.5(3) of the Trust Deed.3 Ms Ryan’s solicitors went on to say:
It is our view that the most satisfactory way resolving these differences of view is for the trustees to refer the matter to the High Court for interpretation of [the Trust Deed] under Part 18 of the High Court Rules. We therefore ask both of you if you agree, as trustees, to that course of action.
We look forward to your response. In the meantime, we will not proceed with the request to Public Trust for the appointment of an arbitrator pending resolution of this question.
Mr Lobb’s defence and protest, and the Application
[44] Mr Lobb’s statement of defence was filed at the same time as his protest to jurisdiction.
The protest to jurisdiction
[45] Mr Lobb disputed that this Court had any jurisdiction to entertain Ms Ryan’s claim “at this time”, as the procedures required by the Trust Deed had not been followed. He referred to cl 3.7 of the Trust Deed, and contended that the trustees should first have had a series of meetings to document and discuss any dispute they might have, and try to resolve the dispute. There was no meeting of trustees, because Ms Ryan refused to participate. He contended that Ms Ryan’s refusal to participate as a trustee should not be “rewarded” by the acceptance of premature proceedings filed in this Court. Any disputed matters should have been discussed at trustees’ meetings, and then proceeded to mediation if they could not be resolved. Only after all other reasonable avenues have been exhausted should the dispute proceed to an arbitration. The Court has no jurisdiction where the dispute resolution procedures prescribed at cl
3.7 of the Trust Deed have not been followed.
[46] Mr Lobb annexed to his protest copies of correspondence from Lockhart and from Mr Jefferson QC, then retained for Mr Lobb, in early September 2018. The letter from Lockhart advised counsel for Mr Lobb and Ms Ryan that Lockhart remained willing to convene a trustees’ meeting.
3 As generally summarised at [20] and [21] of the judgment.
[47] A letter from Mr Jefferson dated 3 September 2018 referred to correspondence with Ms Ryan’s solicitor relating to the application of cl 3.7 of the Trust Deed. Mr Jefferson contended that Ms Ryan and Mr Lobb both had conflicts between their personal interests and their responsibilities as trustees of the Trust.
[48] In his letter of 3 September 2018 to Ms Ryan’s solicitors, Mr Jefferson acknowledged that there was arguably a “dispute” arising from the interpretation and application of cl 2.5(3) of the Trust Deed. He further acknowledged that the parties had separated, and that Ms Ryan had given the trustees written notice requiring them to re-settle the Trust’s assets. Mr Jefferson then went on to say:
8.To simply assert that your client is able to require resettlement onto a Trust to be formed by her of “one-half of the assets of [the Trust]” and to further “require” sale of [Lothbury] (“… so that the proceeds of sale can be resettled”) rather begs the real question: what do the trustees acting together and in concert, deem to be “fair and equitable” having regard to “the respective contributions of the settlors (whether by gifting, inheritance or otherwise) to the total assets of the Trust”. An assessment of that can only… be undertaken on a unanimous basis (see cl 2.7(1) of [the Trust Deed]). It cannot simply be correct for your client to assert a claim to half of the Trust assets without more. On what basis does she assert that her contributions as defined in cl 2.5(3) of the [Trust Deed] lead to that conclusion?
9.… Mr Lobb is simply not able to formulate his views on the matter without being granted access to the voluminous information which has been held in the family home and from which he has been kept by [Ms Ryan]. [Ms Ryan] has hidden behind a Temporary Protection Order (now, quite properly, discharged), an ultra vires Occupation Order and a quite erroneously issued Trespass Notice. Mr Lobb is entitled to access the information which he has long been seeking and, until he does so, he is simply not in a position to progress this matter by way of arbitration.
…
11.There is no issue that we can, indeed, agree the identity of an arbitrator. Mr Lobb is happy to accept my recommendation in that regard. Either Mr Hansen QC … or Paul Heath QC would be suitable nominees. There is, thus, no disagreement about the appointment of an arbitrator and your suggestion that it should be made by the Public Trust pursuant to cl 3.74(4) of the [Trust Deed] is rejected.
12.However, to appoint an arbitrator is just one step and one that seems premature in the absence of either [Ms Ryan] or Mr Lobb specifying what they believe their relative contributions to the Trust assets are and the basis for those beliefs. It does not seem to me that there is a “dispute” between [Ms Ryan] and Mr Lobb that is sufficiently ripe for arbitration.
13.The arbitrator will then need to timetable matters towards a hearing.
There will be discovery and associated issues…
[49] Mr Lobb also attached to his protest a letter dated 4 September 2018 from Mr Jefferson to Ms Ryan’s solicitors, in which Mr Jefferson clarified that his letter of 3 September 2018 did not amount to an acceptance that arbitration had been properly invoked by Ms Ryan. Mr Jefferson asserted that determining whether or not there was a dispute in terms of the Trust Deed, and the nature and extent of that dispute, were essential pre-requisites to invoking the arbitration clause. He invited Ms Ryan’s solicitors to outline the basis of the asserted dispute, having particular regard to cl 2.5(3) of the Trust Deed. Then, and only then, would Mr Lobb be in a position to ascertain the nature of any “dispute”.
Mr Lobb’s statement of defence
[50] Mr Lobb included in his statement of defence a pleading that this Court has no jurisdiction “at this time”, on the basis that the dispute procedures required by the Trust Deed had not been followed. He denied all of the allegations of fact in Ms Ryan’s statement of claim.
[51] Mr Lobb then referred to various documents that he said he needed, that have been unreasonably withheld by Ms Ryan. He expressed certain criticisms of Ms Ryan’s performance as a trustee, and expressed the view that the Court should consider replacing her as a trustee.
[52] Mr Lobb also pleaded that certain other parties had an interest in the litigation, and should be notified and ultimately represented.
[53] Mr Lobb alleged that the statement of claim had only been filed in retaliation for various other matters before the Court, and it appeared to be an abuse of process. He referred to evidence presented in various other court proceedings between the parties.
[54] Mr Lobb attached to his statement of defence numerous documents which appear to be more in the nature of evidence than pleadings.
The Application
[55] Mr Lobb acknowledges that Ms Ryan has invoked the provisions of cl 2.5(3) of the Trust Deed, but he says that the respective contributions of the settlors to the total assets of the Trust have yet to be determined. Ms Ryan has not substantiated the basis on which she contributed any assets to the Trust.
[56] He acknowledges that, to contribute an asset to the Trust, the contributor must be the owner of that asset, but he says that legal ownership is only the beginning of any inquiry as to who owns any property. When purchasers contribute the purchase money for any property in unequal shares they are presumed to take beneficially, as tenants in common in shares, in proportion to the amounts paid.
[57] Mr Lobb says that Ms Ryan’s failure to substantiate the basis upon which she contributed any assets to the Trust is not a failure to agree for the purposes of cl 2.5(5) of the Trust Deed. It is a failure to act, and does not constitute a dispute for the purposes of the Trust Deed.
[58] Mr Lobb further contends that the procedures required by cl 3.7 of the Trust Deed have not been complied with. He says:
(w) The court does not have jurisdiction to hear this case because the Trust Deed contemplates that all disputes arising out of the Trust Deed are to be referred to arbitration in accordance with cl 3.7 of the Trust Deed.
[59] Mr Lobb says that Ms Ryan has removed most of his personal documents and records from Lothbury, when she had exclusive possession between 29 October 2016 and 2 September 2018. He says that he needs those records and documents to put together an accurate account of what assets were contributed by which settlor to the Trust over a 15 year period.
[60] Mr Lobb contends that the declarations sought by Ms Ryan is not necessary, and that her proceeding is vexatious and frivolous.
[61] Mr Lobb relies on rr 5.49(3), 7.19 and 7.20 of the High Court Rules 2016, and on s 25(3) of the Property (Relationships) Act 1976.
Ms Ryan’s notice of opposition
[62] Ms Ryan opposes all of the orders sought by Mr Lobb. She relies on the following grounds:
(1)By seeking orders of the Court against the respondent, Mr Lobb has submitted to the jurisdiction of the Court;
(2)Alternatively:
(i)Ms Ryan, as trustee and beneficiary of the Trust, has the right to seek at any time a declaration from the Court as to the proper construction, meaning and effect of the Trust Deed;
(ii)Such a declaration may be made in the Court’s inherent jurisdiction to supervise the administration of trusts, and is not predicated on the existence or otherwise of a dispute as contemplated by cl 3.7 of the Trust Deed;
(iii)The Court’s jurisdiction to construe and declare the true meaning and effect of the Trust Deed is not ousted or limited by cl 3.7 of the Trust Deed.
(3)Alternatively:
(i)Ms Ryan has invoked the arbitration procedure mandated by cl
3.7 of the Trust Deed;
(ii)Mr Lobb has refused to accept that arbitration is engaged, and has refused to nominate an arbitrator or to cooperate in the dispute resolution procedure mandated by cl 3.7 of the Trust Deed;
(iii)Because Mr Lobb has failed or refused to consent to the appointment of an arbitrator, he has no standing to protest the jurisdiction of the Court.
(4)The records and documents that Mr Lobb describes as his personal records relate to matters arising during the parties’ marriage, and are relationship property. The records and documents formerly in the lawful possession of Ms Ryan have been returned to Mr Lobb. Ms Ryan has retained copies of such records and documents.
[63] Ms Ryan relies on affidavits provided by herself and Ms Lisa MacQueen dated 20 December 2019, and also on affidavits filed by the parties in the trustee proceeding.
Principles relating to the dismissal of a claim on the basis of an applicable arbitration agreement
[64]Clause 8 of sch 1 to the Arbitration Act 1996 provides:
8 Arbitration agreement and substantive claim before court
(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
(2)Where proceedings referred to in paragraph (1) have been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
[65]Article 16 of sch 1 to the Arbitration Act materially provides:
16 Competence of arbitral tribunal to rule on its jurisdiction
(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement …
…
[66] The procedure for a defendant to challenge a proceeding that he or she says is precluded by an agreement between the parties to arbitrate, is that provided in r 5.49(3) of the High Court Rules 2016. Rule 5.49 materially provides:
5.49 Appearance and objection to jurisdiction
(1)A defendant who objects to the jurisdiction of the court to hear and determine the proceeding may, within the time allowed for filing a statement of defence and instead of so doing, file and serve an appearance stating the defendant’s objection and the grounds for it.
(2)The filing and serving of an appearance does not operate as a submission to the jurisdiction of the court.
(3)A defendant who has filed an appearance may apply to the court to dismiss the proceeding on the ground that the court has no jurisdiction to hear and determine it.
…
(6)The court hearing an application under subclause (3) or (5) must,—
(a)if it is satisfied that it has no jurisdiction to hear and determine the proceeding, dismiss the proceeding; and
(b)if it does not dismiss the proceeding under paragraph (a), set aside the appearance.
…
[67] The Supreme Court has held that a court is required to grant a stay of a court proceeding under the latter part of art 8(1), unless it is immediately demonstrable that the defendant has not been acting bona fide in asserting that there was a dispute, or that there was, in reality, no dispute.4
The Court dealing with an application for stay under art 8(1) may:5
immediately refer the matter to the arbitral tribunal;
(ii)undertake a prima facie assessment, and if there appears to be a valid arbitration agreement that applies, refer the matter to the tribunal; or
(iii)undertake a full analysis and decide the issue.
4 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188; [2015] 1 NZLR 383 at [52].
5 Tamihere v Mediaworks Radio Ltd [2014] NZHC 2082, [2014] NZAR 1113 at [20].
[69] In Tamihere v Mediaworks Radio Ltd, Simon France J was content to follow the approach of Associate Judge Abbott in Ursem v Chung, where the Associate Judge applied the "prima facie review" test. In Ursem v Chung, the Associate Judge said:6
[32] There is a range of views in the various jurisdictions that have adopted the Model Law as to whether a court faced with an application for stay should adopt a "full review" approach and rule on the jurisdiction challenge in detail, or should refer the issue to the arbitral tribunal for determination (having regard to art 16 of sch 1 which gives the arbitral tribunal power to rule on its jurisdiction), or should refer the issue to the arbitral tribunal if it finds a prima facie case for the existence of a valid arbitration agreement (the "prima facie review" approach). Common law countries historically have adopted a "full review" approach, but in recent time there has been a shift towards the "prima facie review" approach.
…
[34] … case authority in other common law jurisdictions where the prima facie review approach has been applied to disputes about whether there is a binding agreement to arbitrate between the parties to the court proceeding, or a dispute as to the scope of that agreement (whether a dispute falls within it), still appears to leave open the court's power to determine the point in clear cases:
…
[35] I adopt the "prima facie review" approach, as better reflecting the policy that the courts will endeavour to give effect to the intention of parties to refer their disputes to arbitration but still recognising the Court’s ability to assume jurisdiction in clear cases.
(footnotes omitted)
[70] The approach in Ursem v Chung was also followed by Williams J in Donaldson v Donaldson, where the learned Judge said:7
[18] …Although common law jurisdictions have historically taken a "full review" approach to the question of whether there is an agreement to arbitrate, in more recent times the less intrusive European "prima facie review" approach has found greater favour in Commonwealth Courts. Reference is made in Ursem to the British Columbia Court of Appeal decision in Gulf Canada Resources Ltd v Arochem International Ltd. In that case the Court said:
[43] Considering s 8(1) in relation to the versions of s 16 and the jurisdiction conferred on the arbitral tribunal, in my opinion, it is not for the court on an application for a stay of proceedings to reach any final determination as to the scope of the arbitration agreement or
6 Ursem v Chung [2014] NZHC 436, [2014] NZAR 1123, at [32]-[35].
7 Donaldson v Donaldson [2015] NZHC 3093, [2016] NZAR 199, at [18]-[20], citing Gulf Canada Resources Ltd v Arochem International Limited (1992) 66 BCLR (2d) 113 (BCCA).
whether a particular party to the legal proceedings is a party to the arbitration agreement because those are matters within the jurisdiction of the arbitral tribunal. Only where it is clear that the dispute is outside the terms of the arbitration agreement or that a party is not a party to the arbitration agreement or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings.
[44] Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal.
[19] Judge Abbott adopted that prima facie approach in Ursem. I also consider that approach to be consistent with the purpose and intent of the Arbitration Act.
[20] Where it is arguable that the parties have agreed to refer a matter to arbitration, then it will be for the arbitral tribunal in the first instance to resolve that question if there is now a contest about it. It is only where it is clearly not arguable that the parties intended to refer the dispute to arbitration, that this Court should pre-empt such reference.
(footnotes omitted)
Procedural matters raised by Mr Lobb
[71] Mr Lobb has raised three procedural matters. First, he expressed a wish to require witnesses for Ms Ryan to attend for cross-examination.
[72] When Lang J directed on 21 April 2020 that no oral hearing on the Application was necessary, His Honour was clearly of the view that this was not a case where cross-examination would be necessary. I have seen nothing since in the evidence or submissions that would cause me to take any contrary view.
[73] Under r 7.28 of the High Court Rules 2016, special circumstances must be shown before the Court will allow cross-examination on affidavits filed on an interlocutory application. “Special circumstances” requires something abnormal, uncommon or out of the ordinary, but less than extraordinary or unique.8 There is nothing of that sort here. Insofar as the Application seeks dismissal of the proceeding on the basis that the requirements of cl 3.7 of the Trust Deed have not been complied with, the issues involve matters of legal interpretation and largely non-contentious
8 Kidd v Van Heeren (1997) 11 PRNZ 422 (CA) at 424.
matters of fact, and are in any event concerned only with a procedural issue (whether the legal issue raised by the proceeding should be determined by this Court or by an arbitrator). The merits or otherwise of Ms Ryan’s arguments on the meaning of “contributions” in cl 2.5(3) of the Trust Deed are not in issue on the Application.
[74] As for the application for the return of documents and records, Mr Lobb himself acknowledged in his submissions that the jurisdiction he was relying on (s 25(3) of the Property (Relationships) Act 1976)) could not be exercised by this Court. And later in my judgment I have concluded that the Court should not exercise its inherent jurisdiction to make the order Mr Lobb has sought. No cross-examination of witnesses by Mr Lobb could overcome those difficulties. I accordingly decline to make any order permitting cross-examination of witnesses.
[75] The second procedural matter raised by Mr Lobb was a request, made informally on several occasions, that his father, Mr Warwick Lobb, be joined as a party in the proceeding.
[76] At the conference I convened on 12 December 2019, I directed that, if Mr Lobb wished to have his father joined as a party, he should file a formal joinder application by 31 January 2020. No such application has been filed, and I am not prepared to make a joinder order on Mr Lobb’s various informal applications.
[77] I add that it is not apparent to me what interest Mr Lobb senior could have in this proceeding. The proceeding is concerned only with the interpretation of a trust instrument under which he is neither a trustee nor a discretionary or final beneficiary. Mr Lobb says that his father is a substantial creditor of the Trust, but that could not give Mr Lobb senior standing, any more than any other creditor or external claimant against trust assets would have standing. No doubt the new trustee or trustees, when appointed, will consider what claims against the Trust may exist, but that is not something with which Ms Ryan’s present claim is concerned. It is concerned only with how a particular clause in the Trust Deed relating to the respective contributions made by Mr Lobb and Ms Ryan to the total Trust assets is to be interpreted. Mr Lobb senior has no legitimate interest in that (limited) legal issue, and I see no basis for making the joinder order Mr Lobb has informally sought.
[78] The third matter arose in Mr. Lobb’s written submissions. He questioned whether the matters raised by Ms Ryan in her proceeding are suitable for determination under the Declaratory Judgments Act 1908. He submitted that any interpretation of the Trust Deed would of necessity involve determinations of fact, or mixed fact and law, and that the application for a declaration should be refused on that account.
[79] Those are issues to be dealt with at the substantive hearing of Ms Ryan’s claim. They do not provide any basis on which the claim could be dismissed at this interlocutory stage.
The issues for determination
[80]The following are the issues for determination:
(1)Is there a binding arbitration agreement which covers the subject matter of this proceeding?
(2)If the answer to Issue (1) is “yes”, has Mr Lobb nevertheless waived or otherwise lost his right to have the dispute arbitrated, because (a) he has asked for an order (for the return of records and documents) in this proceeding; (b) he has refused to accept that the arbitration provisions of cl 3.7 have been engaged; (c) he has refused to nominate an arbitrator?
(3)Is Ms Ryan precluded from seeking the declaration order she seeks in this proceeding because of any failure to take the procedural steps required by cl 3.7 of the Trust Deed?
(4)Does the Court have jurisdiction to make the order sought by Mr Lobb for the return of his records and documents? If so, should such an order be made?
[81]I will address each Issue in turn.
Issue (1) – Is there a binding arbitration agreement which covers the subject matter of this proceeding?
Submissions for Ms Ryan
[82] Mr Patterson submitted that, except where permitted by appropriate legislation, a dispute resolution clause such as that in the Trust Deed is not capable of constituting an arbitration agreement. Notwithstanding the fact that Ms Ryan herself invoked the arbitration provisions in the Trust Deed, he submitted that the Court has no jurisdiction to require arbitration – any issues can and should be determined by the Court in the exercise of its inherent jurisdiction. He referred to the following passage in Lewin on Trusts:9
On occasion trust instruments include a provision designed to compel arbitration of questions arising between those interested in the trust. The wording of such clauses will warrant careful scrutiny and they are likely to be narrowly construed. Such a provision might also be introduced into an appointment made by the trustees. They should be distinguished from provisions which merely enable particular contentious facts, or matters on which the trustees cannot agree, to be referred to a third party.
The status of such provisions is uncertain. There is no statutory provision for arbitration clauses in trusts in England. The Trust Law Committee has recommended statutory intervention. In its absence the view has been expressed that it is “plainly impossible” for the settlor to require beneficiaries to arbitrate. We consider that the legal position is less clear and there are arguments to the contrary, principally that settlors may legitimately require beneficiaries to submit to a particular jurisdiction, and that beneficiaries seeking to claim the benefit of the trust must submit to any corresponding burden… As an alternative, it might be possible to make beneficiaries’ interests conditional upon their submission to arbitration, but we are not aware of such clause being used in practice.
[83] Mr Patterson also referred to the report of the Executive Committee of the Trust Law Committee in the United Kingdom,10 in which the conclusion was reached that it is not possible for a settlor to validly impose an arbitration clause in a trust deed, and
9 Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2020) at 49-006 – 49-007.
10 Trust Law Committee “Arbitration of trust disputes” (2012) 18(4) Trusts and Trustees 296 at [25] and [26].
that legislation is required to permit arbitration. He also referred to a number of academic articles on the efficacy of arbitration clauses in trust instruments.11
[84] In his article “The Problems with Compulsory Arbitration of Trust Disputes”, the English lawyer Toby Graham identified the following basic problems which have been seen as making it doubtful that arbitration clauses in trust instruments can be legally binding:12
·The Court’s facilitative powers depend on the existence of a contractual agreement between the parties to the dispute that it shall be referred to arbitration. Trusts are not contracts for these purposes and in any event beneficiaries are not parties to the trust instrument containing the arbitration clause;
·An arbitration clause is repugnant to the terms of the trust (a beneficiary is automatically entitled to go to Court to vindicate his interests under the trust) or contrary to public policy (as ousting the Court’s jurisdiction); and
·The arbitrator’s powers are confined in two important ways. First, he does not have power to bind incapables, unborns and unascertaineds. Secondly, he does not enjoy the same wide powers that enable the courts to vary the terms of a trust, appoint, change trustees, enhance their powers and so forth. This means that a trip to court is going to be necessary before the arbitral award becomes final and conclusive.
[85] Mr Patterson noted that Mr Graham did express some doubts about the second of those bullet points. He referred to the judgment of Lord Denning in Re Tuck’s Settlement Trusts, where His Lordship said:13
I see no reason why a testator or settlor should not provide that any dispute or doubt should be resolved by his executors or trustees, or even by a third person…
If two contracting parties can by agreement leave a doubt or difficulty to be decided by a third person, I see no reason why a testator or settlor should not leave the decision to his trustees or to a third party. He does not thereby oust the jurisdiction of the Court. If the appointed person should find difficulty in the actual wording of the will or settlement, the executors or trustees can always apply to the Court for directions so as to assist in the interpretation of it. But if the appointed person is ready and willing to resolve the doubt or
11 Toby Graham “The Problems with Compulsory Arbitration of Trust Disputes” (2014) 20 Trusts and Trustees 20; David Brownbill QC “Arbitration of Trust Disputes” (2014) 20 Trusts and Trustees 30 at 30-31; Matthew Conaglen “The Enforceability of Arbitration Clauses in Trusts” (2015) 74(3) CLJ 450; Tony Molloy “Trust Arbitration in New Zealand” in SL Strong (ed) Arbitration of Trust Disputes: Issues in National and International Law (1st ed, Oxford University Press, London 2016), generally support the view that, absence specific legislation, arbitration clauses in trust instruments are generally not enforceable.
12 Toby Graham “The Problems with Compulsory Arbitration of Trust Disputes”, above n 11, at 21.
13 Re Tuck’s Settlement Trusts (Public Trustee v Tuck) [1978] 2 WLR 411 (CA) at 418..
difficulty, I see no reason why he should not do so. So long as he does not misconduct himself or come to a decision which is wholly unreasonable, I think his decision should stand. After all, that was plainly the intention of the testator or settlor.
[86] Mr Patterson noted that, from 30 January 2021 when the Trusts Act 2019 comes into force in New Zealand, there will be provision for arbitration of disputes arising under trust instruments. However, for a discretionary family trust such as that created by the Trust Deed in this case, s 144 of the new Act would require that infants or unascertained beneficiaries must have representatives appointed for them. While those representatives may agree to be bound by an arbitration agreement, the Court may approve any resulting settlement.14 Section 8(1) of the Trusts Act 2019 provides that the Court’s inherent jurisdiction is not affected by the Act unless the Act states otherwise. Mr Patterson submitted in those circumstances that it is most unlikely that, if a matter of interpretation of words in a trust deed arose, the Court would delegate that function to an ADR process. Even if it did, if the arbitrator reached an interpretation that the Court did not agree with, the Court would have to decline to approve the settlement under s 144(3) of the Act.
[87] More generally, Mr Patterson submitted that the fact that arbitration has had to be specifically catered for by legislation also makes it clear that the clause in the Trust Deed cannot oust the jurisdiction of the Court in the present proceeding.
Submissions by Mr Lobb
[88] Mr Lobb submitted that the dispute resolution procedures at cl 3.7 of the Trust Deed were and remain binding, although those procedures called for some level of discussion and negotiation before any party was entitled to refer a dispute to arbitration. He submitted that Ms Ryan acted prematurely in referring the dispute to arbitration, and in later commencing this proceeding, as the parties had not taken the various preliminary steps he says were required under cl 3.7.
14 Trusts Act 2019, s 144.
Discussion and conclusions on Issue (1)
[89] The first step is to determine the Court’s approach to the stay/dismissal issue. Is it to be a “full review”, or a “prima facie review”?15 If a stay is granted following a “prima facie review” conducted by the Court, the arbitral tribunal will retain its power under art 16 of sch 1 of the Arbitration Act to decide whether or not it has jurisdiction, including on a preliminary question raised in the arbitration under art 16(3) (subject to a right of appeal to this Court).
[90] In the particular circumstances of this case, I consider that a “full review” by the Court is appropriate as, in the words of Associate Judge Abbott in Ursem v Chung, there is a “clear case” for the Court to assume jurisdiction. I reach that view for the following reasons.
[91] Section 10(1) of the Arbitration Act 1996 requires that there must be an “arbitration agreement” before a dispute can be referred to arbitration.
[92]The definition of “arbitration agreement” in s 2 of the Arbitration Act is:
…an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
[93] That definition, including in particular the words “whether contractual or not”, confirms that an arbitration agreement may arise out of a legal relationship which is not a contract. But there must still be an “agreement” between all of the parties who will have to be bound by the arbitration award.
[94] Clause 2.5(5) of the Trust Deed, read with cl 3.7, provides for particular disputes or failures to agree to be referred to the dispute resolution process under cl
3.7 of the Trust Deed. The principal requirement of cl 3.7, as set out in 3.7(1), is that the dispute is to be referred to arbitration. On the face of it then, there is an arbitration provision in the Trust Deed to which Mr Lobb and Ms Ryan are both parties.
15 Referring to the approaches described by Associate Judge Abbott in Ursem v Chung, above n 6, in the passage quoted at [69] of this judgment.
[95] However, it has frequently been said that a trust instrument does not normally constitute an “agreement”. The main reason for that is that parties such as discretionary beneficiaries who may be affected by the outcome of an arbitration are usually not parties to the trust instrument, and so are not parties to any arbitration agreement that might be contained in it. The learned authors of Lewin on Trusts say:16
There seems no doubt that a provision for arbitration is valid as between the original parties to the trust instrument (when there is more than one, i.e. when it does not take the form of a unilateral declaration of trust). A trust instrument is not primarily a contract but a suitable provision in it would undoubtedly constitute an arbitration agreement between the parties within [the Arbitration Act 1996 (UK)]. Hence the settlor and the original trustees, if different, could bind themselves to arbitrate.
…
It is less obvious that an obligation to arbitrate or an entitlement to arbitrate can be imposed or conferred on successor trustees or on beneficiaries, as neither will ordinarily be parties to the trust instrument. An arbitration clause, to be useful, must be capable of being invoked by, and against, everyone interested under the trust, even if not parties to the trust instrument.
[96] In this case, Ms Ryan and Mr Lobb, as the settlors, were both original parties to the Trust Deed. It is true that at the time Ms Ryan invoked the arbitration procedures at cl 3.7, the then-trustee, Lockhart, was not an original party. But in the deed dated 25 February 2015 by which Lockhart accepted appointment as the new trustee (in place of Public Trust), Lockhart and Ms Ryan and Mr Lobb each declared that they would henceforth hold the trust assets jointly as trustees of the Trust “on the terms of the Trust Deed”. As “the terms of the Trust Deed” included the arbitration provisions at cl 2.5(5) and 3.7, it seems to me that Lockhart became a party to an arbitration agreement with Ms Ryan and Mr Lobb when it made that declaration in the deed of 25 February 2015.
[97] Thus, all of the participants referred to in the resettlement provisions at cl 2.5(3) and (5) of the Trust Deed were also parties to what was on its face an arbitration agreement, constituted by importing the provisions of cl 3.7 into cl 2.5 (that being the effect of cl 2.5(5)).
16 Lewin on Trusts, above n 9, at 49-012.
[98] The immediate problem is that cl 2.5(3) and (5) were in my view intended to apply only to disputes as between trustees, and there are now no trustees between whom any dispute can exist.
[99] Mr Lobb and Ms Ryan appear to have no standing to access the cl 3.7 dispute resolution procedures in their capacities as settlors. First, the settlor of a trust, having transferred the Trust property to the trustee, would not normally be expected to participate in the ongoing administration of the Trust. Consistent with that, the settlors in this case were not included in the list of those entitled to access the dispute resolution procedures at cl 3.7(2) of the Trust Deed. Secondly, the amount to be resettled on the new trust under cl 2.5(3) is a matter to be decided by the trustees – it is not a matter which requires the agreement of the settlors. Ms Ryan and Mr Lobb no doubt both contemplated, when they signed the Trust Deed, that they would have the right to be heard on how much of the Trust’s assets would be resettled on a new trust if one of them gave a settlor’s notice under cl 2.5(3). But that expectation was dependent on their continuing status as two of the parties who were required by the Trust Deed to make the resettlement decision, namely the trustees.
[100] No doubt there was a dispute between the trustees when this proceeding was filed, notwithstanding Mr Lobb’s submissions to the contrary (Mr Lobb submitted that there was no dispute, or that the nature of any dispute raised by Ms Ryan has been so unclear that the dispute was never “ripe” for referral to arbitration, let alone the commencement of a Court action). Mr Lobb was clearly wrong on that point. There was a clear (legal) dispute over the meaning of the word “contributions” in cl 2.5(3) of the Trust Deed,17 and there was also a “failure to agree” among the then-trustees on that issue, and on the proportion of the total Trust assets that should be resettled on Ms Ryan’s new trust.
17 In Zurich Australian Insurance Ltd v Cognition Education Ltd, above n 4, at [38] and [39], the Supreme Court considered that the fact that one party’s view on a difficult legal question might turn out to be incorrect does not mean that party had not raised a legitimate “dispute” on the legal question. If a genuine legal issue is one covered by a binding arbitration agreement between the parties, it should, in principle, be referred to arbitration. However a bald assertion that a dispute exists will not be sufficient where “it is immediately demonstrable that there is, in reality, no dispute”. And in Teak Construction Ltd v Andrew Brands Ltd [2015] NZHC 2312 at [29], Associate Judge Doogue held that finding that there is no dispute will only result where the alleged dispute is contrived, not bona fide, or is nothing more than a bald allegation of the existence of a dispute.
[101] Mr Patterson’s letter of 14 September 2017 clearly invoked the cl 2.5(3) resettlement provisions, and Ms Ryan had an absolute right to do that. The letter set out her position that resettlement of one half of the Trust assets on her new trust would be fair and equitable having regard to the contributions respectively made by her and Mr Lobb to the Trust assets. In his response dated 28 September 2017, Mr Lobb said that he did not believe there would be any benefit in holding a meeting of trustees “given that [Ms Ryan] and I do not appear to agree on anything at this time”. He rejected Ms Ryan’s contention that she and Mr Lobb had contributed equally to the assets of the Trust, and made it clear that he believed that Ms Ryan, notwithstanding her joint ownership of Lothbury, had contributed very little to the Trust assets.
[102] At that point, there was clearly a dispute and a “failure to agree” between the trustees.
[103] It is also apparent from Mr Lobb’s letter of 1 July 2019 that he fully understood the nature of Ms Ryan’s “contribution” claim, and that he disagreed with it. The strength or otherwise of Mr Lobb’s disagreement could not somehow have eliminated the dispute altogether. Ms Ryan clearly had arguments she could mount in support of her position, not least of which were that (i) she was married to Mr Lobb and arguably had a reasonable expectation that she would be entitled to 50 per cent of the relationship property (and in particular Lothbury as the family home), and (ii) Mr Lobb agreed that Lothbury should be registered in the parties’ joint names.
[104] Nor could there have been any suggestion that Ms Ryan was not acting bona fide in putting forward her relevant claim, or that it was “immediately demonstrable” that there was no dispute. The fact that Mr Lobb might have considered that he did not have enough information to argue his side of the dispute was irrelevant to the existence of the dispute; it would have been a matter to be addressed in the relevant arbitral or Court proceeding by the making of such orders for particulars and/or discovery as the justice of the case may have required.
[105] So there was certainly a dispute between the trustees. But that state of affairs has been overtaken by subsequent events. There are now no trustees. Accordingly, there is no longer any dispute that could be covered by cl 2.5(5) and cl 3.7, and there
may never be any such dispute (for example, if a sole, corporate trustee is appointed as the new trustee).
[106] Mr Lobb’s and Ms Ryan’s only legitimate (remaining) interest in the cl 2.5(3) process then, must be as discretionary beneficiaries of the Trust. As such, cl 3.7 appears to entitle them to at least raise an issue over the correct interpretation of “contributions” in cl 2.5(3) of the Trust Deed. But if Mr Lobb and Ms Ryan are entitled to raise that interpretation issue in their capacities as discretionary beneficiaries, their two children (being both discretionary beneficiaries and the named final beneficiaries) must have at least equal standing to be heard on the issue, and they have never agreed to the cl 3.7 procedures. It is here that the case for reference to arbitration under cl 3.7 rolls off the rails.
[107] Broadly speaking, the problems with including arbitration clauses in trust instruments can be summarised as those identified in Mr Graham’s article, as set out at [84] above. For convenience, I repeat them below:18
·The Court’s facilitative powers depend on the existence of a contractual agreement between the parties to the dispute that it shall be referred to arbitration. Trusts are not contracts for these purposes and in any event beneficiaries are not parties to the trust instrument containing the arbitration clause;
·An arbitration clause is repugnant to the terms of the trust (a beneficiary is automatically entitled to go to Court to vindicate his interests under the trust) or contrary to public policy (as ousting the Court’s jurisdiction); and
·The arbitrator’s powers are confined in two important ways. First, he does not have power to bind incapables, unborns and unascertaineds. Secondly, he does not enjoy the same wide powers that enable the courts to vary the terms of a trust, appoint, change trustees, enhance their powers and so forth. This means that a trip to court is going to be necessary before the arbitral award becomes final and conclusive.
[108] In my view, parties such as the two children of Mr Lobb and Ms Ryan cannot be regarded as having “agreed” to arbitrate, and there is thus no arbitration agreement that could bind them. To the extent cl 3.7 purports to bind all discretionary beneficiaries (other than the settlors), and others who might become beneficiaries in the future, cl 3.7 must be invalid. As Mr Graham’s article points out, beneficiaries such as the children of Mr Lobb and Ms Ryan are not parties to the arbitration provisions
18 Toby Graham “The Problems with Compulsory Arbitration of Trust Disputes”, above n 11, at 21.
in the trust instrument, and an arbitral tribunal would have no power to bind “incapables, unborns, and unascertaineds” (first and third bullet points at paragraph
[107] above).
[109] For the reasons set out above, the answer to Issue (1) is “no”. Mr Lobb’s ability to access the arbitration provisions at cl 3.7 could only now be as a discretionary beneficiary, and he could have no better or higher standing to do so than the other discretionary beneficiaries. The problem is that not all of the other discretionary beneficiaries have agreed to go to arbitration, and that is fatal to Mr Lobb’s position on this issue. In the words of art 8(1) of sch 1 of the Arbitration Act, the arbitration provisions at cl 2.5(5) and cl 3.7 of the Trust Deed are either “null and void” or “incapable of being performed”, as Mr Lobb and Ms Ryan no longer have any entitlement to invoke the arbitration provisions as trustees of the Trust, and the arbitration provisions do not bind all of the discretionary beneficiaries who would or might be affected by the relief Ms Ryan seeks.
Issue (2) – If the answer to Issue (1) is “yes”, has Mr Lobb nevertheless waived or otherwise lost his right to have the dispute arbitrated, because (a) he has asked for an order (for the return of records and documents) in this proceeding; (b) he has refused to accept that the arbitration provisions of cl 3.7 have been engaged;
(c) he has refused to nominate an arbitrator?
[110]In view of my answer to Issue (1), there is no need to address this Issue.
Issue (3) – Is Ms Ryan precluded from seeking the declaration order she seeks in this proceeding because of any failure to take the procedural steps required by cl
3.7 of the Trust Deed?
[111] Mr Lobb relies on cl 3.7(3) of the Trust Deed, which precludes any disputing party from commencing a Court proceeding relating to the dispute unless the party has complied with cl 3.7. Nothing in cl 3.7 compelled Ms Ryan to go to mediation, or to reach an agreement with Mr Lobb, and Mr Lobb made it clear in his letter of 28 September 2017 that he did not believe there would be any benefit in holding the meeting of trustees Ms Ryan had proposed in her solicitors’ letter of 14 September 2017, “given that… [Ms Ryan], and I do not appear to agree on anything at this time”.
[112] On 9 October 2017, Ms Ryan’s solicitors wrote again to Mr Lobb. They recorded that in his letter of 28 September 2017 Mr Lobb had said that he did not agree to a meeting of the trustees, and that he had “inferentially, [declined] to enter into discussions concerning a resettlement of the Trust”. On Ms Ryan’s behalf, they invoked the cl 3.7 dispute resolution procedures, and nominated Mr Hansen QC as arbitrator.
[113] In the event, Ms Ryan’s invocation of the cl 3.7 arbitration procedure has been ineffective, as I have held that there is no valid arbitration agreement which binds her, Mr Lobb and other necessary parties to take the interpretation issue, on which Ms Ryan now seeks declaratory relief, to arbitration. But that does not mean that Ms Ryan had some obligation to take any further steps by way of negotiation, mediation, or the like, before she took steps to place the issue before the appropriate tribunal (court or arbitrator) for determination. There are no such obligations in cl 3.7 itself, and even if there had been, Mr Lobb would have waived any “right to discuss or negotiate” by his letter of 28 September 2017. In any event, the subsequent correspondence from Ms Ryan’s solicitors, in particular their letter of 26 June 2019, made it perfectly clear what argument Ms Ryan was running on the contributions issue.
[114]For those reasons, the answer to Issue (3) is “no”.
Issue (4) – Does the Court have jurisdiction to make the order sought by Mr Lobb for the return of his records and documents? If so, should such an order be made?
[115] In his written submissions, Mr Lobb acknowledged that this part of the Application, made in reliance on s 25(3) of the Property (Relationships) Act 1976 (the PRA), is not within the High Court’s jurisdiction. Under s 22 of the PRA, every application under the Act is to be made to a Family Court. He invited the Court to make the same orders in the exercise of its inherent jurisdiction, or alternatively issue a writ of replevin under the Distress and Replevin Act 1908.
[116] First, I note that the statute referred to by Mr Lobb was repealed by s 366(b) of the Property Law Act 2007. Secondly, it would not be appropriate for the Court to exercise its inherent jurisdiction in circumstances where it is acknowledged that doing
so would be inconsistent with a specific statutory provision conferring the jurisdiction on another court.
[117] Nor are the orders for return of documents or records necessary for Mr Lobb to present his case in this proceeding. If Ms Ryan has the documents and they are relevant, an application for their discovery can be made ahead of the trial.
[118] For those reasons, Mr Lobb’s application for an order for the return of documents and records is refused.
Result
[119]I make the following orders:
(1)Mr Lobb’s application for an order dismissing or staying the proceeding is refused.
(2)Mr Lobb’s application for the return of records and documents is refused.
(3)Ms Ryan is entitled to costs. If counsel and Mr Lobb are unable to agree on costs, Ms Ryan may file and serve a memorandum (not to exceed five pages) setting out her costs submissions. Mr Lobb may file any memorandum in response (not to exceed five pages) not later than 10 working days after service on him of Ms Ryan’s memorandum.
(4)The Registrar is to convene a case management conference on the first practicable date after 1 February 2021, for the purpose of timetabling any interlocutory applications, fixing a close of pleadings date, and allocating a trial date for the hearing of the substantive proceeding. Memoranda for that conference are to be filed and served not later than three working days before the conference.
Associate Judge Smith
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