Skelton v Howcroft
[2015] NZHC 1313
•11 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-001897 [2015] NZHC 1313
BETWEEN BEVIN HALL SKELTON
Plaintiff
AND
CHARLES MICHAEL HOWCROFT Defendant
Hearing: 11 May 2015 Appearances:
Plaintiff in Person
B Cunningham for the DefendantJudgment:
11 June 2015
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 11 June 2015 at 5.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
BSA Law, Auckland
B Cunningham, Auckland
BEVIN HALL SKELTON v CHARLES MICHAEL HOWCROFT [2015] NZHC 1313 [11 June 2015]
Summary
[1] Mr Howcroft applies to strike out a claim by Mr Skelton against him. Alternatively, Mr Howcroft seeks an order for costs to be paid or for security for costs and a stay of proceedings until such costs are paid or such security given.
[2] Mr Skelton is suing Mr Howcroft for breach of duties as a trustee of the Bevin Hall Skelton Children’s Trust (the Trust) in relation to a loan for $70,000 which he says was taken out without authority, whose benefit he says the Trust never received, and as a result of which he says the Trust suffered loss. He also sues Mr Howcroft in a second cause of action for breach of fiduciary duties as a partner.
Background facts
[3] This litigation represents another round of litigation which has been generated by the breakdown of the Urban and Country Partnership, a formal partnership of the family trusts of Bevin Hall Skelton (the Royal Oak Trust) and Marie Joan Skelton (the One Tree Trust). That partnership was dissolved by order of the Court on 28 August 2006, and a receiver appointed. By this point, the events of the first cause of action were already in the past.
[4] The partnership held as an asset a half share of an apartment on the Gold Coast. The receiver, Mr Nair, sued Mr Skelton as trustee of the Bevin Hall Skelton Children’s Trust, one of the trusts in the partnership, in order to recover a debt owed to the partnership. That action led to a Judicial Settlement Conference in 2008, at which a written settlement agreement (the Settlement Agreement) was concluded. The agreement involved Mr Skelton, his wife, their respective trusts, Mr Howcroft as trustee of the Bevin Hall Skelton Children’s Trust, and the receiver. One of the terms of the agreement related to the sale of the Skeltons’ half of the apartment to the Howcrofts, who owned the other half share, and that term is now in issue under the second cause of action in this litigation.
First cause of action: breach of duties as trustee
[5] The cause of action for breach of duties as a trustee arises out of a loan contract which was executed by Mr Howcroft on or about 5 September 2005. Under the contract, the Trust would borrow $70,000 from one Charles Henry Bird. The loan attracted interest at 10.5% per annum and penalty interest at 14.5% per annum. Mr Skelton says the Trust never received the loan, or the benefit of the loan, from Bird. Additionally, he says that Mr Howcroft failed to keep any or adequate accounts of the Trust, and mismanaged its funds.
[6] Mr Howcroft says that it is a complete answer to this cause of action that there was authority for the contract, and indeed that he signed the contract on Mr Skelton’s direction; that the practice of himself and Bird was to deal with loan monies directly between themselves without paying the money into a trust account; and that he was not responsible for keeping accounts or records of the affairs of the trusts.
[7] Additionally, he says that this cause of action is barred by issue estoppel arising from the Agreement, signed on 4 August 2008, in which he and Mr Skelton settled all claims against any Family Trust to which Mr Skelton was a beneficiary. Further, Mr Howcroft says this cause of action is statute barred under the Limitation Act 1950 as it was filed 9 years and 3 months after the cause accrued on 15
September 2005 (that being the date of execution of the contract).
Second cause of action: breach of duties as a partner
[8] The second cause of action is for breach of fiduciary duties as a partner. Mr Skelton appears to argue that, in addition to the Urban and Country Partnership (which held a half share of the apartment), there was a separate partnership between himself and Mr Howcroft to hold the apartment as a whole. Though his submissions are not entirely clear on the matter, I can only assume that this is his position because
it is clear that the Urban and Country Partnership had ceased to exist by the point the sale became an issue, that being the whole reason for the appointment of the receiver.
[9] The receiver, Mr Nair, agreed to sell the Skeltons’ half of the apartment to the Howcrofts pursuant to the Settlement Agreement of 4 August 2008. Mr Skelton says that he did not know about the agreement to sell to the Howcrofts, and if he had known of the plan to sell to them he would not have signed the Settlement Agreement, as this sale was at an undervalue and there was another willing buyer. He says he only found out about the sale when the Queensland Land Register forced Mr Nair and Mr Howcroft to seek his signature on a consent form. He does not say when that occurred. He says he signed the consent form under duress. He seeks to have the Settlement Agreement set aside, plus the difference between the actual sale price and what he says is the potential sale price, and various other assorted claims.
[10] Mr Howcroft says he has a complete answer to this course of action also. He says, as with the first cause of action, this cause of action is time-barred and barred by issue estoppel. Additionally, he says that there was never a partnership, and as such no fiduciary duty was owed. Finally, he says that the issue should have been litigated in previous proceedings and is therefore an abuse of process.1
Discussion - first cause of action
The substantive defence: authority to act
[11] Mr Howcroft says that he acted with authority in taking out the loan, and has provided a contemporaneous chain of emails which he says prove that. They certainly appear to. However, strike-out applications are conducted on the plaintiff’s pleaded facts. Evidence may be admitted only in rare situations. The standard was
outlined in Attorney-General v McVeagh:2
1 In Skelton v Nair [2015] NZHC 832, in which Daran Nair, who was the receiver of the Urban and Country Partnership, successfully applied to have a related claim against him struck out. Mr Nair was successful in that application on the ground of issue estoppel; a final settlement had already been filed which precluded the claim. The settlement agreement there was the same one at issue here and much of the statement of claim was identical.
2 [1995] 1 NZLR 558 at 566.
The Court is entitled to receive affidavit evidence on a striking-out application, and will do so in a proper case. It will not attempt to resolve genuinely disputed issues of fact and therefore will generally limit evidence to that which is undisputed. Normally it will not consider evidence inconsistent with the pleading, for a striking- out application is dealt with on the footing that the pleaded facts can be proved; see Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641, 645-
646, Southern Ocean Trawlers Ltd v Director-General of Agriculture and
Fisheries [1993] 2 NZLR 53 at pp 62-63, per Cooke P. But there may be a case where an essential factual allegation is so demonstrably contrary to indisputable fact that the matter ought not to be allowed to proceed further.
[12] In this case I think the email chain probably could be admitted to show actual knowledge of the loan agreement. However, it is unnecessary to decide the point, as the claim can be decided on other documents which Mr Skelton was indisputably party to or authored. One such document is the Settlement Agreement from the Judicial Settlement Conference of 4 August 2008. For reasons I turn to next, Mr Skelton cannot sensibly contest this document.
The issue estoppel
[13] The Settlement Agreement gives rise to an unanswerable defence of issue estoppel to Mr Skelton’s first claim. The parties to the Settlement Agreement were Daran Nair as the receiver of the Urban and Country Partnership; Mr Skelton as trustee of the Royal Oak Trust; Mr Skelton and Mr Howcroft as trustees of the Trust; and Marie Skelton as trustee of the One Tree Trust. Notably, the Agreement says at paragraph 14:
This Agreement and completion of settlement in its terms are accepted by all parties in full satisfaction of all claims and obligations now or in the future inter partes, as between the trusts referred to herein and as between the Receiver, the trusts and parties herein or by Bevin or Marie against any family trust of which the other has been a beneficiary.
[14] This accord clearly covers claims relating to the Bevin Hall Skelton Children’s Trust. The Trust is referred to repeatedly in the Settlement Agreement and indeed Mr Skelton and Mr Howcroft both signed it as trustees of that Trust. There can be no sensible argument that the agreement does not apply to Mr Skelton. Nor, I think, considering that the agreement was signed at a Judicial Settlement Conference, can there be a sensible argument that Mr Skelton’s will was overborne in the circumstances.
The limitation defence
[15] The issue of limitation also precludes Mr Skelton’s claim. Under the Limitation Act 1950 claims based on breach of trust are precluded after six years except in case of fraud or mistake, in which case the six-year limitation period runs from the point where the plaintiff could, with reasonable diligence, have discovered
the fraud or mistake.3 The loan agreement was signed on 13 September 2005. Mr
Skelton has not pleaded that fraud or mistake prevented him from discovering this claim.4
[16] The original statement of claim in this matter, which included a claim for breach of trust, was not filed until 30 July 2014. Therefore, Mr Skelton’s claim for breach of trust is precluded by the Limitation Act.
Discussion - second cause of action: breach of duties as a partner
The substantive defence
[17] The defence that there was never a partnership (other than the Urban and Country Partnership) does not appear to me to be adequate for strike-out. Joint asset ownership is usual for a partnership, but it does not exclude a partnership, especially if there is some kind of formal arrangement such as a partnership agreement. Since strike-out applications are decided on the plaintiff’s pleaded facts, it would have to be legally impossible for the partnership to exist in order to exclude it on this
ground.5 It is not impossible.
[18] As to whether the claim is time-barred, the agreement for the supposed sale at undervalue was entered into on or about 18 May 2007. Mr Skelton does not say when he realised the effect of the agreement, but it is clear that he was notified by the Queensland Land Registry that his consent to the transfer was required. In any case, the Settlement Agreement signed on 4 August 2008 is clear that the sale was to
proceed.
3 Limitation Act 1950, ss 21, 28.
4 Per High Court Rules rr 5.17, 5.26.
5 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267.
[19] The original statement of claim was not filed until 30 July 2014. It did not include a claim for breach of duty as a partner. That was included in the amended statement of claim on 30 January 2015, so 30 January 2015 is the relevant date regarding this claim.6 Unless Mr Skelton can show that he was prevented from claiming through fraud or mistake, he is precluded from claiming.7 Section 28 of the Limitation Act 1950 defines the fraud and mistake exceptions:
28 Postponement of limitation period in case of fraud or mistake
Where, in the case of any action for which a period of limitation is prescribed by this
Act, either—
(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or
(b) the right of action is concealed by the fraud of any such person as
aforesaid; or
(c) the action is for relief from the consequences of a mistake,—
the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it
[20] Materially, Mr Skelton has not pleaded such exceptions. Nor could he. He submits that the price was not notified in the Settlement Agreement, and it is true that the receiver Mr Nair initially signed the agreement for sale and purchase in his stead. But not only was he well and truly on inquiry by the time the Settlement Agreement was concluded (because it makes clear that the sale was to proceed), it is clear that he knew the property was being sold to the Howcrofts well in advance of the Settlement Agreement. In his affidavit of 25 March 2008, Mr Skelton himself said:
It is now clear that on 18 May 2007 [the receiver] had already signed an agreement for sale and purchase of the property to the Howcrofts for $780,000.
[21] I consider that this statement places beyond doubt the fact that Mr Skelton knew on 25 March 2008, if not before, about the facts on which he purports to found his claim, and that after that point there can be no argument that he was prevented through fraud or mistake from bringing a claim. 25 March 2008 was more than
six years before the current claim was filed.
6 High Court Rules, r 5.25.
7 Limitation Act 1950, ss 21, 28.
[22] The limitation defence therefore applies and I consider that the claim fails on this ground.
Remaining defences
[23] I need only refer briefly to the other defences.
[24] I do not consider in detail Mr Howcroft’s claim that Mr Skelton’s application is an abuse of process, but I note that he is correct that it would have been better dealt with in the initial litigation, where it was first raised.
[25] As to the defence of issue estoppel, this is a very similar claim to that against the receiver of the Urban and Country Partnership, Mr Nair. It relates to the same conduct, and is subject to the same settlement agreement. It can therefore be excluded for that reason even if my conclusion on limitation is incorrect. There, as
here:8
The very issue that Mr Skelton now complains about, namely impropriety or negligence in the sale to Howcroft, was at issue in the earlier proceedings and expressly settled on a final basis in the settlement agreements… In his submissions Mr Skelton argued that he did not understand all the issues that had arisen in relation to the Howcroft agreement. However, with one possible exception that I will refer to, the pleading does not set out any material non-disclosures, and in any event the very wide terms of the settlement clauses expressly cover future claims.
[26] There, as here, Mr Skelton makes the same allegation. However unlike in the earlier proceeding, Mr Skelton has now specified the information that he says should have been disclosed: the fact that a previous application to register the Howcrofts as owners had been declined. He says he did not learn this until the Queensland administrative authorities declined to register the transfer. However, he does not say what possible effect knowledge of the application would have had, nor on what basis he thinks the disclosure was required. It is unclear exactly what the relevant breach is here, because if there was such a failure, Mr Skelton has not given any reason to
think it caused any damage.
8 Skelton v Nair, above n 1, at [20]-[21].
Result
[27] The claims are struck out. It is in the circumstances unnecessary to deal with the security for costs application and it is also struck out on that basis.
[28] As costs follow the event, Mr Howcroft is entitled to costs on his strike-out application. Quite properly, at the hearing his application for indemnity costs was not pursued. I make an order for costs on a category 2, band B basis, plus disbursements to be fixed by the Registrar.
[29] Such additional costs as have been incurred by the parties on the security for costs application are to lie where they fall.
Associate Judge Sargisson
3