Soroka v Meredith
[2023] NZHC 2510
•7 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001316
[2023] NZHC 2510
BETWEEN GLENN MICHAEL SOROKA and FLYING
CROSS TRUST LIMITED as trustees of the FLYING CROSS TRUST
ApplicantsAND
LOUISE CLARE MEREDITH
Respondent
Hearing: 6 September 2023 Appearances:
G Soroka in Person
A A Wooding for Respondent
K W Fulton for Liquidators of Flying Cross Trust Ltd (in liq)Judgment:
7 September 2023
JUDGMENT OF VENNING J
Interlocutory applications to vary orders and for declarations
This judgment was delivered by me on 7 September 2023 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: McVeagh Fleming, Albany, Auckland
Craig Griffin Lord, Auckland (C L Waugh)
Counsel: K W Fulton, Auckland
Copy to: Applicants
SOROKA v MEREDITH [2023] NZHC 2510 [7 September 2023]
Introduction
[1] This proceeding was commenced on 16 July 2021 as an originating application by Glenn Soroka and Flying Cross Trust Limited (FCTL) for removal of a notice of claim registered by the respondent Louise Meredith over land at 58 Old Barn Road, RD4, Papakura (the property).
[2] The proceeding was resolved by a Tomlin order made by Powell J on 2 August 2021. The Tomlin order attached a settlement agreement between Mr Soroka and FCTL as trustees of the Flying Cross Trust (FCT), Peter Raymond Kerr and Glenn Soroka as trustees of the Pakau Trust and the Pakau 1 Trust (Pakau Trusts), Mr Soroka personally and Ms Meredith. It also attached a freezing order which was subsequently amended by consent on 16 August 2021.
[3] The Tomlin order and settlement agreement contemplated that the property would be used as security to facilitate Mr Soroka and FCT borrowing the money for a project Mr Soroka was involved in, in Italy at the time, that FCT would advance and fund the procurement of a code compliance certificate (CCC) for the property, and use best endeavours to achieve that by 1 November 2021, and that the property would be sold with an agreed schedule of payments being made, including repayment of the borrowing (if no moneys remained owing a payment to Mr Soroka) and distributions to Ms Meredith.
[4] Unfortunately the resolution and imminent sale of the property contemplated by the Tomlin order has not come to pass. There have been a number of developments. The most significant are:
(a)FCTL was placed in liquidation on 15 July 2022; and
(b)the current mortgagee is now intending to proceed to a mortgagee sale of the property.1
[5]The Tomlin order included a provision that:
1 A Property Law Act notice expired on 31 January 2023 and the mortgagee has issued a s 122 notice.
2For that purpose of the first order, [carrying the terms of the agreement into effect] the parties have permission to apply without the need to issue fresh proceedings on one working day’s notice.
Background to these applications
[6] In reliance on that clause, on 18 August 2023 Mr Soroka personally filed a document entitled “Application to enforce consent order dated 2 August 2021”.2 In that document Mr Soroka noted he was representing FCT in the capacity of settlor and appointor, that there was an urgent need for a new trustee to be appointed as cl 3.17 of the Tomlin order applied and concluded: “If the court required a separate new application I seek confirmation of this”.
[7] On 18 August 2023 Lang J directed the matter be listed in the duty Judge list on 23 August 2023. When the matter was before the Court on 23 August 2023 Isac J issued a minute recording that:
[8] The central issue Mr Soroka identified today for resolution in his application concerns the effect of cl 25.1 of the deed establishing the Flying Cross Trust. I also raised with Mr Soroka for his consideration:
(a)whether the relief he seeks—which appears to be a declaration on the effect of a provision in a deed—is available on an interlocutory application in the current proceeding;
(b)the liquidation of Flying Cross Trust Ltd, and the effect of Mr Soroka’s application (if any) on the interests of the creditors of the Trust;
(c)whether the terms of the Tomlin order permit the application he has made; and
(d)finally, the Court’s power to vary a Tomlin order without the consent of all interested parties.
[8] After advising Mr Soroka his interests may be far more effectively and clearly advanced by counsel went on to make the following directions:
[10]I make the following directions:
(a)All papers filed in this proceeding are to be served on the liquidators of Flying Cross Trust Ltd;
2 Mr Soroka also filed an affidavit and memorandum in support.
(b)Mr Soroka may file and serve any amended notice of interlocutory application and supporting evidence (should he wish) by 5.00 pm on 24 August 2023;
(c)the respondent and liquidators may file and serve any notice of opposition and evidence in support by 31 August 2023;
(d)a one hour hearing of Mr Soroka’s application is set down at
11.45 am on 6 September 2023;
(e)rule 7.39 of the High Court Rules 2016 otherwise applies in relation to the filing of synopses of argument and relevant bundles.
[9] The Judge also observed that the relationship property proceedings in the Family Court between Mr Soroka and Ms Meredith had been recently transferred to this Court and directed that they be the subject of a separate case management conference.
The applications before the Court
[10] Mr Soroka then filed two “interlocutory applications”. By an application dated 28 August 2023 he seeks a variation to the Tomlin order and freezing order dated 2 August 2021:
a) A variation to the Tomlin order pursuant to clause 3.17 that a new corporate be appointed – [FCTL] due to [FCTL] being in liquidation, and it not having a trustee due to clause 25.1 of the FCT deed;
b) That a variation to the Tomlin Order is sought to enable the refinancing of the refinancing of [sic] the property to avert an imminent mortgagee sale and;
c) That the order is varied to enable the additional borrowing of $120,000 to best prepare the property for sale, as is consented to by memorandum, save for the priority amount guaranteed by the minimum price guarantee.
[11]On the same day Mr Soroka also filed a second application, seeking orders:
A declaratory judgment pursuant to s 9 of the Declaratory [Judgments] Act 1908;
a) A declaration that the appointment of a liquidator is a change of management of the corporate trustee as contemplated by clause 25.1 of the [FCT] Deed;
b) A declaration that there is no law or rule that nullifies or invalidates the effect or power of clause 25.1 of the [FCT] Deed, and;
c) A declaration that the removal of a trustee prevents that trustee from relying on any powers or discretions of the trustee, and;
d) A declaration that the effect of the cessation of trusteeship prevents the liquidator standing in the trustees shoes and therefore relying on the trustee indemnity to claim any costs “qua trustee”, and;
e) That the liquidator of the of liquidated trustee [sic] must sign the transfer of property to the new trustee or that the settlor can rely on the power of attorney as found in clause 24.11 to give effect to the transfer.
The position of FCTL (in liquidation)
[12] The liquidators represented by Mr Fulton have filed a notice of opposition. The liquidators’ position is that the declarations sought are procedurally fatally flawed. They say:
(a)relief under the Declaratory Judgments Act 1908 should be pursued by way of statement of claim.
(b)the orders sought are final in nature and cannot be made on an interlocutory basis;
(c)FCTL has rights in relation to trust property that the orders sought fail to consider or address;
(d)FCTL has creditors;
(e)it is irrelevant if FCTL ceased to be a trustee because it is the legal owner of trust property, which it has rights to sell to satisfy creditor claims;
(f)the application in relation to the Tomlin order fails to recognise or address the rights of FCTL, the creditors of FCTL and the costs and expenses of the liquidation.
[13]The creditors in the liquidation are:
Shieff Angland Preferential Claim (Applicant creditor Costs) $5,529.54
Shieff Angland Unsecured Claim $5,066.90 Auckland Council Unsecured Claim
$3,882.89
Pakau 1 Trust Unsecured Claim
$1,957,000.00
Ms Meredith’s position
[14] Ms Meredith is represented by Ms Wooding. An appearance has been filed reserving her rights in relation to the declarations (she abides the decision of the Court), but she has filed an opposition to the application to vary the Tomlin order. She opposes the variation of the Tomlin order on the basis that:
(a)Mr Soroka is not a party in his personal capacity to the original proceedings;
(b)the Tomlin order does not provide for any parties to apply to the Court to vary it;
(c)even if there was jurisdiction for Mr Soroka to seek to vary the order there are no reasonable grounds to do so.
Procedural issues
[15] Both Mr Fulton for the liquidators and Ms Wooding for Ms Meredith took the point that the one and a quarter hour hearing allocated at 11.45 am following the duty Judge list was insufficient to deal with the substantial issues raised by Mr Soroka’s applications, quite apart from the inappropriate form of the application themselves.
[16] Nevertheless, at Mr Soroka’s urging, the Court engaged with the issues raised by Mr Soroka. During the course of the hearing Mr Soroka outlined the practical situation facing the parties. He emphasised the need for a practical resolution to advance the matter to avoid a mortgagee sale.
Preliminary matter
[17] Unfortunately these proceedings contained an error at the outset that has been repeated in the intituling throughout. Mr Soroka is referred to as a trustee of the FCT.
Mr Soroka confirmed that, although he was a settlor and an appointor under the FCT Trust Deed, he was not a trustee. The sole trustee of FCT at relevant times is and was FCTL. As the initial proceedings were to remove a notice of claim registered by Ms Meredith over the property held in the name of FCTL, the correct parties at law were FCTL and Ms Meredith. Mr Soroka was incorrectly named as a party.
Mr Soroka’s position
[18] Mr Soroka noted that the liquidators apparently now accept that cl 25.1 of FCT’s Trust Deed has the effect that on the liquidation of FCTL it was no longer trustee. He submitted it would be in all parties’ interests for a replacement trustee to be appointed, and urged the Court to make the orders sought.
[19] Mr Soroka submitted that there was an urgent need for FCT to have a new trustee appointed and have the property transferred to it to enable FCT to enter a new lending agreement to prevent the imminent mortgagee sale. There was a loan offer ready to be actioned as soon as the property was transferred to a new corporate trustee. He argued that there would be a significant difference in outcome for the parties between the property being sold in an unfinished state by a mortgagee against being sold with the works completed and the property properly marketed. He submitted that the Court should exercise its inherent jurisdiction in equity under part 18 of the High Court Rules and, in particular, asked the Court to enforce cl 3.17 of the Tomlin order to enable a new corporate trustee to be appointed and to vary the freezing order to allow registration of the transfer, discharge of existing mortgage and registration of the new mortgage.
[20] Mr Soroka submitted that he had standing to bring the application as page 3 of the Tomlin order confirmed that he was named in his personal capacity and that, in any event he had standing to make the application as settlor of FCT given the Trust was without a trustee presently. He suggested the new trustee could make an irrevocable undertaking to the liquidator for the costs incurred up to liquidation and funds could be set aside to deal with outstanding issues.
[21] Mr Soroka argued that if, as the liquidators submit, FCTL remains as a bare trustee it may still have active duties to perform. Mr Soroka argued that a prudent
trustee would act to prevent a mortgagee sale as was threatened in the present case. He noted that former lawyers’ fees which were the basis of the application for liquidation of FCTL were subject to a Law Society dispute and suggested the liquidators were conflicted. Mr Soroka urged the Court to take a practical position to advance the interests of all parties.
The liquidators’ submissions
[22] Mr Fulton confirmed the liquidators of FCTL’s accepted cl 25.1 may have the effect of operating to remove FCTL as a trustee. However he made the point that there were a number of other issues raised by the applications and as a consequence of FCTL’s liquidation that could not be dealt with on the basis of the current applications before the Court. If Mr Soroka was not willing to bring the proceedings in a proper form then the liquidators may have to do so.
Ms Meredith’s submissions
[23] Ms Wooding confirmed that Ms Meredith’s position was that she abided the decision of the Court on the declaration issue, and particularly the replacement of FCTL as trustee, but opposed any suggestion that there be an amendment to the Tomlin order and its attachments.
[24] Ms Meredith also challenges the validity of the debt said to be owed by FCTL to the Pakau Trust. In response Mr Soroka submitted it was clearly documented and the debt was a valid one.
The Tomlin order
[25] It is convenient to deal with the application to amend the Tomlin order in the first instance.
[26] There are two principal difficulties for Mr Soroka in relation to his application to vary the terms of the Tomlin order (and freezing order). The first is Mr Soroka’s status. The parties to the Tomlin order are the parties to the proceeding before this Court. They are different to the parties to the settlement agreement attached to the Tomlin order.
[27] As noted, while Mr Soroka was referred to as a party to the proceeding that was said to be in his capacity as trustee of the FCT. However, there is no evidence Mr Soroka was ever a trustee of FCT and Mr Soroka accepted before this Court that he was not and had not been a trustee of FCT. As such, he was incorrectly cited as a party. As Mr Soroka was never a trustee of the FCT he was not, at law, correctly cited as a party to the Tomlin order. There is no basis for him to apply in his personal capacity to vary it.
[28] However even if that position could be addressed by Mr Soroka seeking to intervene or to be added as a party to the proceeding in his personal capacity there is a more fundamental barrier to the orders he seeks.
[29] The reservation of leave at para 2 of the Tomlin order noted above at [5] is expressly stated to be for the purposes of the first order. The purpose of the first order is stated to be “the purpose of carrying the terms of the agreement into effect”. The agreement referred to is the settlement agreement.
[30] Thus, the leave reserved was to give effect to and to implement the settlement agreement made in 2021. The terms of that settlement agreement are fundamentally different to the agreement that would be the outcome if the amendments Mr Soroka now seeks were to be made. The settlement agreement attached to the Tomlin order contemplated, for example, the CCC for the property being obtained by 1 November 2021, and that the approximate cost of the work to obtain the code compliance certificate would be $70,000, which would be applied from the borrowing from the then proposed lender CSL, that interim payments would be made, and that the property would be sold with distribution of the proceeds to follow. It must have been in the parties’ contemplation that matters would have been resolved in late 2021 or early 2022.
[31] The variations now sought by Mr Soroka are of a completely different nature. The variation to the settlement agreement Mr Soroka seeks include orders from this Court enabling the new trustee of FCT to borrow a substantial sum, during submissions Mr Soroka said of up to $1.3 million, to repay existing debt and to ready the property for sale.
[32] The permission to apply that was reserved by cl 2 of the Tomlin order on its ordinary reading was limited to the terms of the then settlement agreement. Mr Soroka’s attempt to expand it to include the new conditions that he refers to goes well beyond implementation of the original settlement agreement. I accept Ms Wooding’s submission that there is no jurisdiction for the Court to go that far or to amend the parties’ agreement to that extent, or at least not on the basis of that reservation of leave.
[33] Mr Soroka’s application to amend the Tomlin order (more correctly to amend the terms of the settlement agreement) is dismissed.
The application for declarations
[34]Clause 25.1 of the Trust Deed provides:
25.1 Disqualification of Trustee: Upon any change in the control or management of a Trustee effected by the act or omission of any party other than the directors or shareholders of that Trustee from the date of such change that Trustee shall cease to be Trustee or one of the Trustees of the Trust and shall not thereafter exercise any of the powers and discretions vested in a Trustee of the Trust by this deed.
[35] Mr Fulton advised that the liquidators have considered the implications of cl 25 and relevant authority and confirmed that, while they do not consider the Court should make a declaration, because they see no material impact, they do not contest the effect of cl 25.3 The liquidators of FCTL are prepared to accept that cl 25.1 of the Trust Deed might apply to remove FCTL as a trustee.
[36]As noted, in relation to that issue Ms Meredith abides the decision of the Court.
[37] However there are a number of remaining practical issues. The first is whether the Court can or should make the declarations sought.
[38] Generally declarations under the Declaratory Judgments Act 1908 are sought by applications under Part 18 of the High Court Rules, r 18.1(b)(v). Sections 3 and 6 of the Declaratory Judgments Act confirm that applications for declarations are to be brought by originating processes, not interlocutory applications. Such proceedings are
3 Re KSK Holdings (Australia) Pty Ltd (in liq) [2019] NSWC 1463.
to be brought by a statement of claim accompanied by affidavits under the rules in Part 18 of the High Court Rules. The declarations sought have substantive effect and should be brought following the appropriate procedure.
[39] Mr Soroka suggested that cl 3.17 of the settlement agreement applied and would enable the appointment of a new trustee. However, that clause provides:
3.17It is agreed there shall be no change to the trustees of the Trusts that are parties to this Agreement. Unless ill-health or other legitimate reason.
[40] I apprehend that the purpose behind that clause is to ensure that there would not be a change in trustee which would subvert the ability of the FCT to implement the settlement. It does not of itself support the appointment of a completely new trustee.
[41] It may well be that in the absence of a trustee, because of the application of cl 25 of the Trust Deed and the liquidation of FCTL, Mr Soroka as the settlor has the power under cl 24.1 of the Trust Deed to appoint a trustee to FCT. However, any such appointment (which has not yet occurred) does not address the downstream consequences of the change in trustee or the existing situation of FCTL as registered owner of the property.
[42] As yet, and despite the liquidation of FCTL last year, no new trustee has been appointed. FCTL remains the registered owner of the property. It is a bare trustee until a new trustee is appointed. The nature of a bare trustee’s rights and obligations will vary with the particular circumstances.4
[43] I accept that even as a former trustee FCTL would have a right of indemnity against its costs and creditors’ claims out of Trust property. Any new trustee would take the property subject to the liquidators of FCTL’s rights, including rights of indemnity and subrogation.5
4 Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation [2011] FCAFC 79.
5 Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20.
[44] For those reasons, even if Mr Soroka has the ability as settlor under the Trust Deed to appoint a new trustee that does not address the issue of FCTL’s position as bare trustee nor its rights of indemnity and subrogation in relation to its costs and creditors. That reinforces why any such applications need to be pursued in a proper form. Mr Soroka would need to issue a separate proceeding under Part 18 of the High Court Rules if he wishes to pursue the declarations sought or, alternatively, the liquidators could issue their own application for directions as liquidators. As noted, there is a further complicating issue involving the dispute about the Pakau debt.
[45] As indicated to Mr Soroka during the course of the hearing the Court is constrained in the orders it can make by the form of the applications before it and its jurisdiction. It is open for the parties to resolve issues on a practical basis and if necessary seek further orders by consent of the Court to implement such agreements but on the material before it the Court is not able to make the declarations that Mr Soroka seeks on the basis of the interlocutory applications and material currently before it.
[46] While the Court is not prepared to make a formal declaration I record that the liquidators accept (and Ms Meredith does not suggest otherwise) that the liquidation of FCTL means it is no longer a trustee of the FCT.
[47]The interlocutory application for declarations is, however, also dismissed.
Costs
[48] The liquidators and Ms Meredith are entitled to costs on a 2B basis with disbarments as fixed by the Registrar.
Venning J
3
1
0