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S and S Ltd v XYZ Ltd

S and S Ltd v XYZ Ltd

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Case Copied 29 January 2016 53 min read

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THIS JUDGMENT IS SUBJECT TO THE SUPPRESSION/NON- PUBLICATION ORDERS SET OUT IN PARAGRAPH [136(E)]

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-433 [2016] NZHC 26

BETWEEN
S AND S LIMITED

Plaintiffs

AND

XYZ LIMITED Defendant

Hearing: 6 and 14 May 2015

Appearances:

R J Katz QC for Plaintiffs
K Davenport QC for Defendant

Judgment:

29 January 2016

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 29 January 2016 at 3:00pm
Pursuant to Rule 11.5 of the High Court Rules

…………………………………………………….
Registrar/Deputy Registrar

Solicitors:
Lowndes Law (M W McCarthy), Auckland, for Plaintiffs
Davenports Harbour Lawyers (T McLeod), North Harbour, Auckland, for Defendant
Counsel:
R J Katz QC, Auckland, for Plaintiffs
Kate Davenport QC, Auckland, for Defendant

S AND S LIMITED v XYZ LIMITED [2016] NZHC 26 [29 January 2016]

Table of Contents

Paragraph

Introduction [1]

Background [10] The Intco Trust [14] The XYZ Family Trust [22]

Other proceedings [29] CIV 2013-404-2404 H v S (the 2404 proceeding) [29] Illegality [30] Unclean hands [33] Indemnity [34] CIV 2014-404-3 XYZ LTD v S [37]

A trustee’s indemnity and lien  [38]
Officer’s indemnity  [40] The alleged liabilities  [41] Liability to W Trustees Ltd for defective title to assets  [45]
New Zealand taxes  [64] Intco trustees’ liability for income tax  [68] Intco trustees’ liability for gift duty  [79] XYZ Ltd’s liability for tax  [84] Summary on New Zealand taxes  [86]

Country B’s taxes [88] Mr H’s tax liability [92] The caveators’ downstream liability [94] Criminal offending [96] Offending by Mr H [98] Offending by Mr S and S Ltd [107] Consequences of offending [108] Voidable disposition of assets [111] Summary on country B’s taxes [121] What if the caveators do owe taxes to the taxation
authority of country B? [123]

A constructive trust argument [132] Issues not addressed [133] Outcome [134]

Introduction

[1] This is a contested application under s 145A of the Land Transfer Act 1952 to sustain two caveats. Mr S, an Auckland lawyer, and one of his trustee companies, S Ltd, have each lodged a caveat against the title to a property in Auckland owned by XYZ Ltd, the corporate trustee of the XYZ Family Trust. The family behind the trust are Mr and Mrs H, former clients of Mr S. They have fallen out with him and litigation has followed. This is one of the proceedings. While he acted for the Hs, Mr S assisted in establishing two trusts, the Intco Trust and the XYZ Family Trust. For a period, S Ltd, of which Mr S was a director, was a trustee of the Intco Trust. Mr S was one of the directors of XYZ Ltd for a time.

[2] Each caveat claims an equitable lien arising from a trustee’s right of recourse to trust assets to discharge liabilities incurred and recoup expenses paid as a trustee. S Ltd also claims a constructive trust in the alternative. It says that as a former trustee of the Intco Trust it faces potential…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] NZHC 26
Decision Date: 29 January 2016

CaseChat Overview and Summary

This is an application to sustain two caveats lodged against the title to a property in Auckland owned by XYZ Ltd, the corporate trustee of the XYZ Family Trust. The caveats were lodged by Mr S, an Auckland lawyer, and S Ltd, one of his trustee companies. The family behind the trust are Mr and Mrs H, former clients of Mr S, who have fallen out with him and litigation has followed. The caveats claim an equitable lien arising from a trustee's right of recourse to trust assets to discharge liabilities incurred and recoup expenses paid as a trustee. S Ltd also claims a constructive trust in the alternative. The caveats also claim a liability to vendors of shares which became assets of the trust, but in the hearing Mr Katz QC disclaimed any reliance on that alleged head of liability. Even though assets of the Intco Trust have been distributed, S Ltd says that its equitable lien allows it to follow the distributions through to the XYZ Family Trust and the investment in the Auckland property of funds derived from the Intco Trust. Mr S was not a trustee himself, but he relies on provisions in the trust deeds giving an indemnity to officers of corporate trustees. His caveat relies on the same liabilities as the caveat for S Ltd. As well, he claims for liabilities he may have incurred as a director of XYZ Ltd, in particular an alleged liability to the Commissioner of Inland Revenue. XYZ Ltd contests the liabilities alleged by the caveators, denies that liabilities incurred by trustees of the Intco Trust may be traced through to assets held by XYZ Ltd and says that the liens claimed are not caveatable interests under the Land Transfer Act. The court found that the caveators have not made out an arguable case that they are under any of the liabilities they have claimed in their caveats. The court made orders that the caveats lapse and that the caveators pay XYZ Ltd the costs of the proceeding.

Orders