Senior Trust Capital Limited v Hannon

[2024] NZHC 859

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-000952

[2024] NZHC 859

UNDER

the High Court Rules 2016

BETWEEN

SENIOR TRUST CAPITAL LIMITED

Plaintiff

AND

ANTHONY CHARLES RUSSELL HANNON

First Defendant

CHRISTOPHER ALAN HOLMES

Second Defendant

CIV-2023-425-000107

UNDER

the Insolvency Act 2007

IN THE MATTER OF

the bankruptcy of A C R Hannon

BETWEEN

SENIOR TRUST CAPITAL LIMITED

Judgment Creditor

AND

ANTHONY CHARLES RUSSELL HANNON

Judgment Debtor

Hearing:

8 April 2024

Appearances:

M Tingey for the Applicant

M Pascariu for the Respondent

Judgment:

19 April 2024

JUDGMENT OF ASSOCIATE JUDGE GARDINER

Couch Harlowe Kovacevich, Auckland Hamilton Locke, Auckland

M J Tingey, Auckland

SENIOR TRUST CAPITAL LTD v HANNON [2024] NZHC 859 [19 April 2024]

CIV-2023-425-002745

UNDER  The Insolvency Act 2007

IN THE MATTER OF     the bankruptcy of C A Holmes

BETWEEN  SENIOR TRUST CAPITAL LIMITED

Judgment Creditor

AND  CHRISTOPHER ALAN HOLMES

Judgment Debtor

This judgment was delivered by me on 19 April 2024 at 11.00 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Introduction

[1]    Senior Trust Capital Limited (Senior Trust) provided finance to Roy’s Bay Estate Limited (RBEL) for a substantial multi-unit property development in Wānaka. Anthony Hannon was an indirect shareholder in RBEL and provided a guarantee in respect of RBEL’s debt. The development failed and RBEL defaulted on the loan. RBEL was placed into liquidation. Senior Trust called on Mr Hannon’s guarantee.

[2]    On 3 November 2023, Associate Judge Lester entered summary judgment against Mr Hannon for $3,429,259.52, being the outstanding debt under the loan agreement.1 On 18 December 2023, the Associate Judge ordered Mr Hannon to pay costs of $112,763.13 (including GST) plus disbursements of $3,449.76.2

[3]    On 1 February 2024, the Associate Judge granted Senior Trust’s application to orally examine Mr Hannon under oath pursuant to r 17.12 of the High Court Rules

1      Senior Trust Capital Limited v Holmes [2023] NZHC 3108, (2023) 24 NZCPR 592.

2      Senior Trust Capital Limited v Holmes [2023] NZHC 2356.

2016 (HCR) about his receipts and payments for the preceding 52 weeks, his assets and liabilities, his income and expenditure, his means of satisfying the judgment made against him, and the status of his relationship property claim.

[4]    The examination took place on 29 February 2024. During the examination, Senior Trust applied orally for orders under r 17.12(4) of the HCR for production of certain documents relating to trusts and companies associated with Mr Hannon.        I heard limited submissions on this application from Mr Tingey and Mr Pascariu during the examination. I invited further submissions and reserved my decision. Senior Trust filed a written synopsis of its submissions. Mr Hannon did not make any written submissions.

[5]    This judgment determines Senior Trust’s application for production of documents.

Documents

[6]    Senior Trust applies for documents in Mr Hannon’s possession or power relating to the following entities:

(a)Hannon Trust;

(b)Hannon Investment Trust;

(c)Catherine Hannon Investment Trust;

(d)ACL Nominee (No. 10) Limited;

(e)Relational Capital Limited; and

(f)General Capital Partners Limited.

Legal principles

[7]    The power to order the examination of a judgement debtor and production of related documents is set out in r 17.12 of the HCR:

17.12 Order for examination

(1)   Whether or not a notice has been served under rule 17.10, an examining party may apply for an order—

(a)  at any time after the proceeding has commenced, if that party seeks a charging order under subpart 5 of this Part; and

(b)  in all other cases, at any time after judgment is sealed.

(2)   An examining party may apply to the court for an order requiring the examinee to attend the court or a person whom the court appoints, and to be orally examined on oath about—

(a)  the standard issues in subclause (3); and

(b)   any additional issues suggested by the examining party that the Court considers are necessary.

(3)  The standard issues are—

(a)  if judgment has been given, about the examinee’s—

(i)  receipts and payments for the preceding 52 weeks; and

(ii)  assets and liabilities; and

(iii)  income and expenditure; and

(iv)  means of satisfying the judgment:

(b)  if judgment has not been given, about any matters that are relevant to the issue of a charging order.

(4)   When granting the application, the court may order the production of documents at the examination and may impose terms and conditions it thinks just in respect of the conduct of the examination or otherwise.

…

[8]In accordance with the principles set out in Hunt v Muollo:3

(a)Senior Trust accepts that it must show that the information relates to property belonging to the judgment debtor which may be used in whole or in part to satisfy the judgment whether immediately or in the future.

3      Hunt v Muollo [2003] NZLR 322 (CA).

(b)There is no basis for ordering a judgment debtor who is merely a discretionary beneficiary of a trust to produce any trust documents or documents relating to a company owned by the trust.

(c)The documents must be in the judgment debtor’s possession, power or control at the time the order was made, consistent with the usual discovery rules in the HCR.

Discussion

[9]    I am satisfied that an order to produce documents relating to ACL Nominee (No. 10) Limited (ACL) and General Capital Partners Limited (GCPL) is appropriate. Mr Hannon stated under examination that he is the beneficial owner of 24 per cent of a company called General Capital Technologies Limited’s (GCTL). GCPL, a holding company, owns 80 per cent of the shares in GCTL, and ACL owns 30 per cent of the shares in GCPL on trust for him. He said that he was in a process of attempting to sell the shares in GCTL to pay the judgment debt. As such, documents relating to his beneficial ownership of GCPL and therefore GCTL and his attempts to sell the GCTL shares are relevant to his means of satisfying the judgment debt.

[10]   The identities of the prospective purchasers are commercially sensitive and therefore Mr Hannon may redact that information from the documents for production.

[11]   Documents relating to the trusts and Relational Capital Limited (RCL), which is owned by Hannon Investment Trust (HIT), are in a different category.

[12]   According to information provided by Mr Hannon under examination, and correspondence between his solicitor and counsel for Senior Trust, there are three trusts associated with him and/or his wife, Catherine Hannon. Mr and Mrs Hannon are separated and an order dissolving the marriage was expected to have been made by 15 March 2024.

[13]   Hannon Trust was settled on 25 June 1997 by Mr and Mrs Hannon. The current trustees are Catherine Hannon and a corporate trustee (Tompkins Wake). This trust owns what Mr Hannon described as the family home situated in Torbay, Auckland.

Mr Hannon says that he is not a trustee or beneficiary of this trust, and he has no power of appointment, having severed all connections with the trust, including his power of appointment, in 2020.

[14]   HIT was settled on 1 April 1997 by Mr and Mrs Hannon. Mr Hannon is a trustee, along with Mrs Hannon. They and their children are discretionary beneficiaries of the trust.

[15]   The third trust is the Catherine Hannon Investment Trust. Mr Hannon says that he has no power of appointment in relation to this trust and is not a trustee nor a beneficiary.

[16]   RCL is what Mr Hannon described during the examination as his main trading company. Companies Office records shows that the shares in the company are held by Mr and Mrs Hannon. Mr Hannon said under examination that they hold these shares as trustees of HIT.

[17]   RCL owns several properties and investments. Mr Hannon was questioned about these investments and properties during the examination. In relation to some of the investments it was unclear from Mr Hannon’s answers whether they are owned by RCL (in turn owned by HIT), or by Mr and Mrs Hannon as trustees of HIT.

[18]   On the face of it then, there is no basis for an order under r 17.12(4) that Mr Hannon produce any documents relating to the three trusts or to RCL. He has no interest at all in the Hannon Trust or the Catherine Hannon Investment Trust. The assets of these trusts are not his property, and it cannot be said that information relating to the trusts is relevant to his means of satisfying the judgment debt.

[19]   Nor does his interest as a discretionary beneficiary of the HIT provide a basis for an order that he produce documents relating to that trust or RCL. A discretionary beneficiary has no interest, legal or equitable, in the assets of the trust and only acquires an interest in the property on the making of a distribution and then only to the extent of the distribution.4

4      Hunt v Muollo, above n 3, at [11]–[14].

[20]   Against that, Senior Trust argues that Mr Hannon has proprietary rights to the assets of the three trusts through two routes.

[21]   First, Senior Trust submits that the home at Torbay, and Mrs Hannon’s rights and powers in relation to the trusts, are relationship property as defined in s 8 of the Property (Relationships) Act 1976 (PRA). For this latter proposition Senior Trust relies on Clayton v Clayton [Vaughan Road Property Trust].5 Senior Trust submits that Mr Hannon has a right to this relationship property and, therefore, information about the property of the trusts, including the home, are relevant to Mr Hannon’s ability to satisfy the judgment debt.

[22]   Second, Senior Trust submits, relying on Clayton v Clayton [Claymark Trust],6 that the three trusts are “nuptial trusts” in terms of s 182 of the Family Proceedings Act 1980, and that Mr Hannon’s right to claim under s 182 of that Act in respect of the trusts constitutes a proprietary interest in those trusts’ assets.

[23]   I reject these arguments as they provide no sound basis for an order to produce information about the assets of the three trusts or RCL.

[24]   It would be premature to conclude that any of the property of the trusts, even the Torbay home, is relationship property as defined by s 8 of the PRA before it has been held to be such in proceedings under that legislation. While an order dissolving Mr and Mrs Hannon’s marriage was imminent at the time of the examination, no negotiations or proceedings to determine their relationship property had commenced. Until it is determined that Mr Hannon personally owns half of the home because it is relationship property, this Court has no grounds for ordering the production of documents relating to that property.

[25]   Clayton v Clayton was a proceeding commenced under the PRA to determine the rights of Mr (and Mrs) Clayton in relation to the property of various trusts, including the Vaughan Road Property Trust.7 On appeal, the Supreme Court concluded, after carefully analysing the terms of the trust deed, that the unique

5      Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.

6      Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590.

7      Clayton v Clayton [Vaughan Road Property Trust], above n 5.

combination of powers and entitlements of Mr Clayton amounted in effect to a general power of appointment such that it was appropriate to treat them as property for the purposes of s 2 of the PRA.8 As these powers were acquired by Mr Clayton after his relationship with Mrs Clayton began (when the trust was settled) they were relationship property under s 8 of the PRA.

[26]   Until it is determined that Mrs (and Mr) Hannon’s rights and powers under each of the trust deeds are relationship property as defined in s 8 of the PRA, this Court has no basis to order production of documents relating to these trusts.

[27]   Section 182 of the Family Proceedings Act permits the Family Court, after a marriage is dissolved, to inquire into arrangements made between parties to a marriage or civil union relating to maintenance, property or any settlement made for the benefit of the marriage/civil union or the children of the marriage/civil union (often called nuptial settlements) and to make orders varying the arrangements.

[28]   The mere fact that Mr Hannon is entitled to ask the Court to inquire into the trusts under s 182 of the Family Proceedings Act does not give him a proprietary right in the assets of the trusts. Again, it would be premature to assume that, if such an application is made, the Family Court would determine that any of the trusts are nuptial settlements, or that the Court would exercise its discretion to confer a personal right to any of trust property on Mr Hannon.

[29]   Additionally, Senior Trust submits that it has the right to claim property alienated by Mr Hannon with the intention of defeating creditors under sub-part 6 of the Property Law Act 2007 and irregular transactions before adjudication under sub-part 7 of the Insolvency Act 2006. Senior Trust claims that Mr Hannon’s evidence under examination establishes that he alienated his rights in relation to the Hannon Trust to avoid claims by creditors, including the liquidator of CBL Corporation Limited (in liquidation) and Senior Trust.

[30]   Sub-part 6 of Part 6 of the Property Law Act sets out a process by which a creditor who claims to have been prejudiced by the disposition of property by a debtor

8      At [58] and [68].

can apply to the Court for an order setting aside the disposition. If Senior Trust considers, based on the evidence given by Mr Hannon under examination, that it has been prejudiced by Mr Hannon disposing of his interests in the Hannon Trust, it should make an application under this legislation. The mere fact that this statutory process is available does not provide grounds for the Court to order the production of documents relating to the Hannon Trust.

[31]   Sub-part 7 of Part 3 of the Insolvency Act enables irregular transactions made by a bankrupt to be cancelled on the Official Assignee’s initiative, and, in appropriate cases, for the Official Assignee to recover property or money from the counter-party to the irregular transaction. Again, the existence of this statutory mechanism, which would only come into play if Mr Hannon was to be adjudicated bankrupt, does not provide a basis for an order for production of trust documents.

Result

[32]   I order Mr Hannon to provide the following documents that are in his possession or power to Senior Trust:

(a)in relation to ACL Nominee (No. 10) Limited:

(i)the Declaration of Trust and any other documents that record the basis that shares in General Capital Partners Limited are held by ACL Nominee (No.10) Limited; and

(ii)any other documents relating to the shares held in General Capital Partners Limited.

(b)in relation to General Capital Partners Limited, documents in relation to the offer of, sale or proposed sale of the shares in General Capital Technologies Limited including:

(i)any correspondence from any prospective purchaser;9 and

9      With the names of the prospective purchasers redacted.

(ii)any record of any contact with any prospective purchaser.

[33]The balance of Senior Trust’s application is dismissed.

[34]   Mr Hannon will pay Senior Trust’s costs associated with the examination, on a 2B basis, and reasonable disbursements. No order for costs is made in relation to the application to produce documents. Senior Trust has largely been unsuccessful, but I did not perceive Mr Hannon to incur any specific costs in relation to the application, beyond the examination itself.

Associate Judge Gardiner