Santeater Limited v Wakelin

[2019] NZHC 2264

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-000282

[2019] NZHC 2264

BETWEEN

SANTEATER LIMITED

Plaintiff

AND

GEOFFREY JAMES WAKELIN

First Defendant

AND

BLACK DOG TRUSTEES LIMITED

Second Defendant

Hearing:	On the papers
Appearances:	J V Ormsby for Plaintiff
Judgment:	10 September 2019

JUDGMENT OF DUNNINGHAM J

This judgment was delivered by me on 10 September 2019 at

4.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date: 10 September 2019

[1]                The plaintiff is a corporate trustee of the Black Dog Trust (“the Trust”). It was appointed in March 2018 by Ms Arnott, who is a settlor and beneficiary of the Trust, pursuant to her power of appointment under the Trust deed.

[2]                The first defendant, Mr Wakelin, is also a settlor and beneficiary of the Trust and is a director of the second defendant. The second defendant was, until appointment of the plaintiff, the sole corporate trustee of the Trust.

SANTEATER LIMITED v WAKELIN [2019] NZHC 2264 [10 September 2019]

[3]                Ms Arnott and the first defendant were in a relationship from January 2006 to December 2015. The Trust was settled by them in October 2008. The initial trustee was the second defendant, and Ms Arnott and the first defendant were its directors. Ms Arnott resigned as a director in November 2019 for various reasons, including her concerns about the first defendant’s unwillingness to share Trust information with her as a co-director and to properly administer the affairs of the Trust through the second defendant.

The proceedings

[4]                The plaintiff filed a statement of claim on 20 May 2019 alleging various breaches of their duties as trustees by the first and second defendants, including:

(a)failure to complete financial statements and tax returns for the Trust;

(b)failure to account for Trust income and using or diverting Trust income for personal use;

(c)failure to consent to the provision of Trust information to the plaintiff; and

(d)failure to act in the best interests of the Trust.

[5]                The plaintiff sought the removal of the second defendant as a trustee of the Trust (and at the same time consented to its own removal as trustee), and the appointment of a professional trustee independent of the plaintiff and first defendants to regularise the operation of the Trust and remedy any deficiencies and breaches.

[6]                On 31 May 2019, I made directions as to service of the statement of claim and orders regarding the use and administration of trust property as sought by the plaintiff.

[7]                The proceedings have since been served on the first and second defendants as confirmed  in  the  affidavit  of  Verdi Johannus  Cornelius  Van  Beek   sworn  on   30 August 2019.

[8]                The defendants have not filed a statement of defence in this matter and the time for doing so has now expired.

This application

[9]                The plaintiff now makes a further without notice application to deal with the Trust property in the circumstances that have arisen since first filing this statement of claim. These are:

(a)The first defendant was adjudicated bankrupt on 27 June 2019.

(b)The Registrar of the Companies Office had notified its intention to remove the second defendant from the Companies Office register due to the failure to file  the  annual  return  for  the  company.  The  annual return was then filed on 20 August 2019 by Taurus Group Ltd but the plaintiff says there was no-one who could have authorised the filing of it. The second defendant currently shows the first defendant and Mr Errol Wayne Bailey as directors. The first defendant is disqualified from acting as a director because he is an undischarged bankrupt and Mr Bailey was invalidly appointed by the first defendant as a director when the shares were in the control of the Official Assignee.

(c)Although the Official Assignee has disclaimed liability from the shares in the second defendant and is transferring them back to the first defendant, the plaintiff says it is not appropriate for the first defendant, as an adjudicated bankrupt, to have his nominee dealing with trust property pending the outcome of this proceeding.

(d)The financiers of a number of the trust properties intend to effect mortgagee sales under s 119 of the Property Law Act 2007, but are willing to allow the plaintiff to attempt to sell the properties first.

(e)Any sales by the plaintiff, as trustee, are preferable to mortgagee sales and are more likely to maximum the sale price.

(f)The plaintiff requires the permission of the Court because the terms of the trust deed for the Trust require the trustees to make decisions unanimously unless a corporation is jointly appointed as a sole trustee.

[10]            The plaintiff wishes to move to a formal proof hearing on its substantive claim, but in the meantime to have an order that allows it to deal with and sell or refinance any Trust property in the interests of the beneficiaries as a whole. Some of the orders are necessary in the event that sales are able to be effected by the plaintiff. For example, certain information will be required from the defendants to comply with anti-money laundering requirements.

[11]            The plaintiff proposes that any and all proceeds received will be used only for the purposes of giving effect to the sales or refinancing debt (as applicable), paying down any debt owed by the Trust, bringing the tax affairs of the Trust into order, paying any tax liability that the Trust has, and paying any outgoings on Trust property including rates, insurance premiums and valuation fees. No funds will be distributed to beneficiaries pending the hearing of this proceeding.

Discussion

[12]            I accept, as the plaintiff explains, that the plaintiff cannot act alone in conducting sales (or refinancing the existing debt) without the permission of the Court because, under the trust deed, the two trustees must act unanimously.

[13]            I accept, too, that the Court has inherent jurisdiction to make this order in the exercise of its jurisdiction to supervise and, if appropriate, intervene in the administration of the Trust for the welfare of the beneficiaries.1 In effect, the orders sought will place temporary control of the Trust, for limited purposes, into an existing trustee, to ensure that Trust property can appropriately be dealt with and debt retired, and the Trust’s tax affairs brought into order.

[14]            I am satisfied that the orders sought are an interim measure only, and designed to bridge the gap, when the Trust’s affairs are in a perilous state and it is necessary to

1      Schmidt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 3 All ER 76.

take steps urgently in order to avoid mortgagee sales and to regularise the Trust’s affairs.

[15]            I emphasise, though, that this is only a temporary solution. In the absence of the defendants filing a statement of defence the plaintiff has sought a formal proof hearing in respect of its substantive claim. The proceedings are to be set down for a formal proof hearing as soon as practicable.

[16]            In the interim, however, I make the orders sought in the without notice application dated 29 August 2019 along with an additional order requiring reporting to the Court so that the Court can be satisfied the steps taken are appropriate and fall within the scope of the orders. Those orders are:

(a)Santeater Ltd is permitted alone to deal with any and all Trust property of the Black Dog Trust, including selling or refinancing real property, pending further orders from the Court;

(b)any Trust property unconditionally sold by Santeater Ltd or refinanced by Santeater Ltd vests in Santeater Ltd so that Santeater Ltd can execute documents to transfer the property to its new owner on settlement of the sale or complete the refinance (as applicable);

(c)the first defendant and second defendant are to immediately deliver to Santeater Ltd at  its  registered  office  at  Malley  &  Co,  Level  2,  14 Dundas Street, Christchurch, the following:

(i)original identity and address verification documents for all controlling persons and entities involved in the Black Dog Trust and Black Dog Trustees Ltd to meet the identity and address verification requirements of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act);

(ii)any source of wealth information and documentation required to meet the source of wealth information requirements of the AML/CFT Act;

(iii)the insurer name and policy number for insurance policies for all Trust properties (whether current or lapsed), EQC claim information and private insurance claim information relating to claims for earthquake damage to all Trust properties, including copies of all Deeds of Assignment of EQC claims and private insurer claims and information and documentation related to the repair of any earthquake damage; and

(iv)the original trust deed for the Black Dog Trust and any deeds to vary the provisions of the Trust deed, add or remove beneficiaries or appoint or remove trustees;

(d)any funds from the sale or refinancing of any Trust property and any credit balance in any Trust bank account may be used to retire debt from the Trust and to:

(i)pay costs and disbursements relating to the notices issued by mortgagees of property owned by the Trust under s 119 of the Property Law Act 2007, marketing and sale of Trust property and refinancing of any Trust debt including but not limited to any legal, agent and other professional fees;

(ii)pay any tax liability of the Trust and any accounting costs for preparing accounts and tax returns for the Trust for the 2014, 2015, 2016, 2017, 2018 and 2019 financial years;

(iii)pay any outgoings on Trust property including rates and insurance; and

(iv)pay Touchstone Trustees Ltd the sum of $5,000 required by that company on account of its costs for completing due diligence to determine whether it will (through a corporate trustee) accept appointment as sole trustee of the Black Dog Trust;

(e)that the orders of the Court as to service and the use and administration of Trust property (of the Black Dog Trust) dated 31 May 2019 and sealed on 11 June 2019 are, to the extent required to enable these orders to be complied with, varied accordingly;

(f)Saneater Ltd is to provide the Court with reports on all steps taken pursuant to these orders from the date the orders take effect to the date they are discharged. The first such report is to be provided to the Court no later than three months after the date of these orders, or at the formal proof hearing, whichever is the sooner. Reports are to be provided at no more than three monthly intervals thereafter until the orders are discharged; and

(g)leave is granted to any party to return to the Court if necessary.

Solicitors:
Malley & Co., Christchurch