Spencer v Spencer

[2012] NZHC 55

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2001-485-000857 [2012] NZHC 55

BETWEEN  BARRY ROBERT GIUSEPPE SPENCER Plaintiff

ANDBARRY ROBERT SPENCER First Defendant

ANDDAVID JAMES UNDERWOOD PHILIP JOSEPH VAVASOUR BARRY ROBERT SPENCER Second Defendants

ANDSPENCER GROUP LIMITED Third Defendant

Counsel:         J C Corry for Plaintiff

Defendants in person

Judgment:      3 February 2012

JUDGMENT OF HON JUSTICE FRENCH

as to Quantum

Introduction

[1]      The plaintiff, Robert Spencer, is a beneficiary of the Spencer Family № 2

Trust.  Under the terms of the trust, he is entitled to be paid $200 per week out of net income.  He is also a beneficiary as to capital.

SPENCER V SPENCER HC WN CIV-2001-485-000857 3 February 2012

[2]      He  claims  that  in  breach  of  trust,  the  trustees  failed  to  make  the  $200 payments and wrongfully diverted trust funds to the benefit of one of the trustees, his father Barry Spencer.

[3]      In my 19 October 2011 decision,1  I upheld those claims and found that the trustees were not exempted from personal liability. The key findings are summarised at [200] of the decision.

[4]      My findings required re-calculation of the losses claimed and consideration of the appropriate form of relief.   I therefore sought further submissions from the parties on remedy.  These were duly provided, followed by a telephone conference call at which the parties were given another opportunity to be heard.

[5]      The defendants have filed an appeal against my 19 October decision, and during the conference call asked me to defer any decision on remedy until the outcome of the appeal is known.  However, as I explained to the defendants, in my view the appropriate course of action is for me to proceed to give judgment on remedy and for them, if they so wish, to seek a stay of execution pending the appeal.

Discussion

[6]      The claim had two aspects.  First, a claim for the weekly payments out of net income which it was contended should have been made to Robert.  Secondly, a claim for restoration of trust property to the trust.

[7]      In his submissions on quantum, Mr Corry provided spreadsheets detailing what was submitted to be the effect of my 19 October judgment in money terms. The defendants did not take issue with the calculations, except for the way in which Mr Corry had treated surplus income.   Mr Corry acknowledged that an error had been made in this regard and accordingly amended the calculations.  The amended calculations are accepted as correct.

[8]      For completeness, I should record that Mr Barry Spencer submitted that the

calculations should be adjusted to the date when the “deficiencies in the original trust

1      Spencer v Spencer HC Wellington CIV-2001-485-000857, 19 October 2011.

deed were pointed out and corrected”.  However, having regard to my findings on

liability, I am not persuaded that any such adjustment is warranted.

Robert’s claim for weekly payments of $200 out of net income

[9]      I found that, had the trustees complied with their obligations, there would have been net income available to pay Robert.  I identified the adjustments required to be made.

[10]     Mr Corry’s amended calculations show that applying those adjustments, the income which should have been paid to Robert up until 31 March 20042 amounts to

$65,000.

[11]     Mr Corry seeks interest on that sum computed from the respective end of year dates at the rate of 5 per cent per annum.  The plaintiff has lost the use of his money and  I accept  it  is  appropriate  that  interest  should  be  paid.  In  so  far  as Judicature Act 1908 interest during the relevant period was at times higher than 5 per cent, the rate claimed favours the defendants.

Restoration of trust property to the trust

[12]     The plaintiff seeks an order requiring the defendants to restore the following to the trust:

(i)The balance income which the trust would have received if the trustees had complied with their obligations and charged Spencer  Group  rent  and  required  Spencer  Group  to  pay interest on the debt it owed the trust ............................ $100,373

(ii)The cash paid to Spencer Group Limited for management fees which were improperly charged to the trust .................. $53,784

(iii)The value of the Spencer Group debt which, in breach of trust, the trustees failed to make any attempt to recover ...... $195,762

(iv)     Barry Spencer’s drawings as at 31 March 2004 ............ $17,403

(v)      Advances  to  Barry  Spencer  charged  to  children’s  current

accounts ......................................................................... $30,878

[13]     The total amount sought is $398,200, together with simple interest at the rate of 10 per cent up to the period of 31 March 2004 when the trust ceased operation, thereafter at the rate of 5 per cent.  The figure of 10 per cent is based on my finding that the trustees should have required payment of interest from Spencer Group at the rate of 10 per cent.  My finding about the interest rate was in turn based on evidence that during the relevant period the trust was itself being required to pay interest on its mortgage at an average rate of 10 per cent.

[14]     The  order  sought  includes  restoration  of  Barry  Spencer’s  drawings  of

$17,403.   It may well be that this is recoverable.   However, in my 19 October decision,  I did not  make any finding about Barry Spencer’s  overdrawn account (above [12](iv)) other than to find that the trustees should have charged him interest.3

The reason I did not make any other findings about the advances or their “writing off” was because of the way the plaintiff’s case was argued at the hearing.  It would be unfair to the defendants to make those other findings now, and I am not prepared to do so.

[15]     I am also not prepared to order restoration of the full amount of the Spencer Group debt. The plaintiff has not satisfied me that Spencer Group would in fact have been able to repay the full amount, and accordingly I consider it would be unjust to seek recovery of the full amount from the trustees.   There is, however, a firm evidential basis for holding that Spencer Group was sufficiently solvent to have repaid at least $80,000 to the trust, and I therefore order restoration of that sum.

[16]     I accept that all the other sums identified are properly recoverable and that the basis of the interest calculation is appropriate.

[17]     That makes the total amount to be restored to the trust as follows:

Balance income  $100,373

Cash paid to Spencer Group  $53,784

Spencer Group debt  $80,000

Interest on Barry Spencer’s drawings  $18,645

Amount charged to children’s current accounts                 $30,878

Total  $283,680

[18]     Interest up to 31 March 2004 has been calculated:

Interest on balance income  $26,079.20

Interest on amounts charged

to children’s current accounts  $19,332.26

LESS interest on the Oakley loans4  ($9,673.31)

Total  $35,738.15

Form of judgment requiring restoration

[19]     The plaintiff, who suffers from a mental disability, is only one of several beneficiaries,  and  the  orders  being  sought  are  for  restoration  or  restitution  of property to the trust.  In written submissions, Mr Corry advised he had not found a clear guide to the appropriate order or judgment in such circumstances.   He anticipated the defendants would resign as trustees, or if they did not resign then an order could be made removing them.  If new trustees were appointed, then judgment

could be given in their favour for enforcement purposes.

4      Barry Spencer submitted that the trust never repaid the Oakley loans, but that is not supported by the evidence.

[20]     However, in reply, the defendants say they refuse to resign until their appeal has been heard, the implication being they would resign if the Court of Appeal were to uphold my judgment.   The defendants also  point out that no application for removal has ever been made.

[21]     Faced with this difficulty, Mr Corry then submitted that I could either reserve leave for the plaintiff to apply for removal (relying on the implied prayer for relief under r   5.31(2) High Court Rules), or if I was not willing to do that, then an application would be made in due course.  Meantime, the judgment could take the form of an order vesting the right to recover the restored funds in the plaintiff, Robert Spencer, to be held on the terms of the trust pending the appointment of new trustees.

[22]     In my view, the better option is to order the funds to be paid to the plaintiff’s solicitors, to be held by them in a separate interest-bearing trust account in the name of  the  Spencer  Family  №  2 Trust,  and  on  the  terms  of  the  trust,  pending  the appointment of new trustees.

Position of third defendant

[23]     The third defendant has been struck off the Companies Register, with no identifiable assets.  I therefore make no orders in respect of it.

Costs

[24]     Mr Corry sought costs on a 2B basis.

[25]     The defendants did not advance any reason why the normal rules should not apply.  The plaintiff was successful and is entitled to costs.  I am satisfied this should be on a 2B basis.

Outcome

[26]     The first and second defendants are ordered to pay the plaintiff the sum of

$65,000, together with simple interest on the $65,000 at the rate of 5 per cent per annum from 21 December 1995 until date of judgment.

[27]     The first and second defendants are ordered to pay the plaintiff ’s solicitors, David Booth, the  sum of $283,680 and interest up to 31 March 2004 of $35,738.15, together with interest on $283,680 computed from 1 April 2004 to date of judgment at the rate of 5 per cent per annum.  The money is to be held by the solicitors David Booth in a separate interest-bearing trust account in the name of the Spencer Family

№ 2 Trust and on the terms of the trust pending the appointment of new trustees.

[28]     The first and second defendants are to pay the plaintiff costs calculated on a

2B basis.

Solicitors:

J C Corry, Wellington

Copies to Defendants