Stokes v Insight Legal Trustee Company Limited

[2014] NZHC 2691

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2011-404-1317 [2014] NZHC 2691

BETWEEN

B J STOKES, A M STOKES and O N

WILLIAMS as trustees of the STOKES FAMILY TRUST

Plaintiff

AND

INSIGHT LEGAL TRUSTEE COMPANY LIMITED and G K HEENAN as trustees

of the R M COLEBROOK FAMILY TRUST

First Defendants

E M HEENAN (formely COLEBROOK) Second Defendant

Hearing:	28 October 2014
Counsel:	A J Steele for the Plaintiff J McCartney for the Defendants
Judgment:	31 October 2014

JUDGMENT OF ELLIS J

This judgment was delivered by me on Friday 31 October 2014 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:

A J Steele, Martelli McKegg, Auckland

J McCartney QC, Barrister, Auckland

J Gray, Insight Legal, Warkworth

STOKES v INSIGHT LEGAL TRUSTEE COMPANY LIMITED [2014] NZHC 2691 [31 October 2014]

[1]      The plaintiffs and defendants continue to be embroiled in litigation involving an agreement entered into by the second defendant, Mrs Colebrook (now Mrs Heenan),1  to purchase a property owned by the plaintiffs.  Mrs Colebrook failed to settle and summary judgment for almost one million dollars was obtained against her in 2011.  Unfortunately, however, that was only the beginning of this litigation saga which has already had three substantive hearings in the High Court and one in the Court of Appeal.

[2]      This judgment relates to an application by the defendants for leave to appeal a  decision  of  mine  dated  21  October  2013  in  which  I  granted  the  plaintiffs’ application for review of an order made by Associate Judge Doogue.2    The issues canvassed in my judgment were essentially jurisdictional and related to the ambit of the matters that had been referred back to this Court by the Court of Appeal in 2013.3

[3]      Regrettably, it is necessary to set out the history of the litigation in some detail.

Background

[4]      In August 2007 the trustees of the Stokes Family Trust (the SFT) agreed to sell to “E M Colebrook or Nominee” their Bucklands Beach property for $1.8m conditional only on the purchaser obtaining finance for the deposit.  Mrs Colebrook and the trustees of the R M Colebrook Family Trust (the RMCFT), obtained that finance but settlement did not take place.   The property was sold eventually for

$1.1m.

[5]      The   SFT   obtained   judgment   by   default   against   Mrs   Colebrook   for

$943,033.36. She proved to be insolvent and so the SFT subsequently (in the present,

2011, proceeding) pursued the RMCFT, contending that Mrs Colebrook (who was one of the two trustees) entered into the transaction on its behalf.

1      Referred to as “Mrs Colebrook” throughout this judgment.

2      Stokes v Insight Legal Trustee Company Ltd [2013] NZHC 2745.

3      Insight Legal Trustee Company Ltd v Stokes [2013] NZCA 148; (2013) 14 NZCPR 118.

[6]      On 25 July 2012 I gave judgment in favour of the SFT on the basis that in entering the sale and purchase agreement Mrs Colebrook had been acting as the undisclosed agent of the RMCFT.

[7]      I held that because Mrs Colebrook had acted as a trustee of the RMCFT, she was entitled to indemnity from the Trust and her equitable lien over that Trust's assets could be subrogated to the SFT.  Or, as the Court of Appeal put it:4

The Stokes already have judgment against Mrs Colebrook for the sum of

$943,033.36.   In the circumstances, we construe Ellis J's judgment as a declaration that the Stokes are entitled to execute the judgment against the

assets of RMCFT.

[8]      The RMCFT and Mrs Colebrook appealed my decision.   In allowing the appeal the Court held that, correctly understood, the issues requiring determination were:

(a)      whether  Mrs  Colebrook  had  entered  into  the  agreement  in  her capacity as a trustee of the RMCFT;

(b)whether Mrs Colebrook 's sister, Ms Carr, her co-trustee, consented to the trust entering that agreement (not whether Mrs Colebrook acted with Ms Carr's authority and as her agent5); and

(c)      whether the SFT was now entitled to an equitable lien over the assets of the RMCFT.

[9]      Although  for  present  purposes  I  do  not  need  to  delve  further  into  the substance of the Court's judgment, it is necessary to record the specific terms of the remittal back. The Court said:

[60]      In the result, Ellis J made a finding on only the first, albeit threshold, element of the three elements of the Stokes' claim now in dispute. The Stokes have failed to prove the second element of their claim. In the normal course, the RMCFT's appeal would be allowed and the High Court judgment set aside.

4 At [28].

5      Due to the way in which the plaintiffs had pleaded their original statement of claim, that issue was the focus of my judgment.

[61]      However, we are satisfied that that result would lead to a real risk of an injustice. The Stokes would be deprived of an opportunity to argue and have determined their claim that Ms Carr consented to Mrs Colebrook's purchase of Bucklands Beach Road for the RMCFT because of a failure to plead this essential element of the claim.

[62]      In the circumstances we are satisfied that the proper course is to remit the proceeding to the High Court for determination of that issue with a direction that the Stokes file an amended statement of claim within 30 days. That course is appropriate to enable proper adjudication of the merits of the Stokes' claim. Nor would it prejudice the RMCFT, providing the trust's right is preserved, to deny the allegation of consent and plead an affirmative defence of breach of duty - it must also be given the benefit of an order for costs.

…

[64]      The proceeding is remitted to the High Court for determination of the issues of whether (a) Ms Carr consented to Mrs Colebrook's purchase of the Bucklands Beach Road property for and on behalf of the RMCFT; and (b) if so, whether Mrs Colebrook is entitled to an indemnity from the assets of the RMCFT for her liability to the Stokes. The High Court finding that Mrs Colebrook signed the Bucklands Beach Road agreement in her capacity as a trustee of the RMCFT is upheld.

[65]      The Stokes are directed to file an amended statement of claim in the High Court within 30 days, with leave reserved to the RMCFT to file a statement  of  defence  pleading  affirmatively  that  Mrs  Colebrook  is  not entitled to be indemnified for her liability, if any, from the assets of the RMCFT.

[10]     Back in this Court, there was a telephone conference on 11 June 2013 in which Doogue AJ expressed the view that, while the Court of Appeal had remitted two issues to this Court, it had set aside the judgment under appeal completely.  He considered, “any trial must start from scratch in addressing the extant issues and any new ones afresh” and, as well as timetabling the case, he set it down for five days.

[11]     On 14 June 2013 the SFT applied for a review of the orders made by the Associate Judge, saying that they do not accord with the limited remit to this Court that the Court of Appeal made.  In granting the review application Keane J said:

[15]     In his directions under review Doogue AJ considered that he was obliged to timetable this case, and set it down, for a complete rehearing because the Court of Appeal had allowed the appeal.

[16]      The Court of Appeal, as it said however, did not intend to allow the appeal in the most complete sense. To do that, it said, could carry the risk of injustice. To remit to this Court the two issues that it identified as still requiring to be resolved, it allowed the appeal only as a formal prerequisite.

[17]      That this was the Court's intention, in determining the appeal under s 66 of the Judicature Act 1908, is apparent first from the fact that the Court expressly upheld the finding Ellis J made at the first trial, “that Mrs Colebrook signed the Bucklands Beach Road agreement in her capacity as a trustee”.  That intent is equally manifest in the Court's express exercise of its power under s 62 of the Judicature Act 1908, remitting to this Court the second and third issues; and in the directions it gave that there be specific pleadings.

[18]      The result is that the resumed hearing has to be confined to the second and third issues and while it may be that the witnesses the Colebrook Trust and Mrs Heenan intend to call could have given material evidence on the first issue, had they been called at the first trial, they are now precluded from doing so. That issue has already been resolved definitively.

[19]      I am obliged, therefore, to set aside the directions the Associate Judge gave insofar as they assume a complete rehearing, encompassing the capacity issue, and while I agree that it is not essential that Ellis J determine the two issues still to be resolved, there is obvious sense in them being set down before her.

[12]     Notwithstanding this judgment, the defendants then sought leave to plead an affirmative defence that the plaintiffs failed to take reasonable steps to mitigate their losses arising from the breach of contract.  The application was granted by Associate Judge Doogue on 18 September 2013.  The plaintiffs again sought a review of that decision.  The application for review was granted by me on 21 October 2013 (very shortly before the scheduled rehearing date) essentially for the same reasons given by Keane J.  But more particularly, I said:

[15]     Ms  McCartney  QC  nonetheless  sought  to  defend  the  Associate Judge's decision on the basis that it was a condition of the remission back that the defendants not be prejudiced and that that condition would not be able to be fulfilled if they were unable to advance all available defences. But I think that rather misstates the position. The Court of Appeal made its view about potential prejudice quite clear at [62]; the defendants would not be prejudiced provided they were permitted:

(a)      to deny the allegation of consent; and

(b)      to plead an affirmative defence of breach of duty.

[16]      There is no dispute that this is what the defendants have, indeed, now done.

[17]      Similarly,  I  do  not  accept  Ms  McCartney's  submission  that  the proposed new defence falls within the wording of the leave specifically reserved  in  [65]  of  the  judgment  namely  for  the  defendants  “to  file  a statement  of  defence  pleading  affirmatively  that  Mrs  Colebrook  is  not entitled to be indemnified for her liability, if any, from the assets of the RMCFT.”

[18]     The fact that leave had to be reserved is, itself, telling. But in any event I do not agree with the submission that the words “liability, if any” means that it remains open to the defendants to raise completely new, never- before articulated, matters which (it is said) mean that their liability may be limited or does not exist. If that were the case the whole dispute would, again, be at large in a way that Keane J has (quite correctly in my respectful view) held that it cannot be.

[19]      Rather, when the words “liability, if any” are read in context what is meant is that the defendants have been given leave to plead a specific affirmative defence. By definition, that defence would only be activated (for want of a better word) in the event that Mrs Colebrook is found to have (any) liability.

[20] The proposed mitigation defence is, in my view, plainly outside the scope of the referral back and of the leave reserved. This Court has no jurisdiction to hear it. The application for review is allowed accordingly.

[13]     The defendants immediately signalled their wish to apply for leave to appeal this decision but it was agreed that that should await the outcome of the rehearing, which took place before Peters J in November 2013.6     In her judgment dated 21

March her Honour said that she was unable to conclude that Mrs Carr had consented to the acquisition of the Bucklands Beach property.7

[14]     The plaintiffs have now appealed Peters J’s decision.  I am advised that the appeal will not be heard until well into next year.  While staunchly maintaining that the substantive appeal is hopeless, the defendants nonetheless have now also reactivated their application for leave to appeal my review decision.  In other words, in the event of another referral back, they wish to argue the SFT’s failure to mitigate their losses.  They say that not only was my decision wrong but also that I should have recused myself from hearing the application for review.

Discussion

[15]     The questions that the defendants seek to advance in their proposed appeal are:

(a)      whether my (and Keane J’s) interpretation of the terms of Court of

Appeal’s remittal back is correct;

6      At the defendants’ request I recused myself from presiding over the rehearing.

7      Stokes v Insight Legal Trustee Company Ltd [2014] NZHC 543, (2014) 15 NZCPR 64.

(b)whether I should have recused myself from hearing the plaintiffs’ application for review of Associate Judge Doogue’s decision in October 2013.

[16]     The grounds on which leave to appeal to the Court of Appeal may be granted have been articulated as follows:8

… The appeal must raise some question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal …

[citations omitted]

[17]     Other relevant considerations include the desirability of finality of litigation and the overall interests of justice.

[18]     The first  and fundamental question raised by the proposed  appeal is the proper interpretation of the remittance back.   As is necessarily obvious from my decision, I firmly share Keane J’s view of what was meant and consider that, read in context, the terms of the remittance back are clear.

[19]     It seems to me that there are, as well, further impediments to the defendants’ position.  In particular, the affirmative (failure to mitigate) defence sought now to be advanced seems to me to bear no relationship to the amended statement of claim. The plaintiffs have already obtained judgment against Mrs Colebrook for the full amount of their loss in the 2010 proceedings.  She did not raise a defence of failure to mitigate then and nor did she appeal.

[20]     Rather, what the plaintiffs seek in the 2011 proceedings is “a declaration that they are entitled to be subrogated into Mrs Colebrook’s right of indemnity against the assets of the RM Colebrook Family Trust”.9     The later proceedings are thus predicated on the outcome of the earlier, namely the existence and quantum of Mrs Colebrook’s judgment debt.  Unsurprisingly, those matters are not denied in the latest

iteration of the statement of defence.

8      Waller v Hider [1998] 1 NZLR 412 (CA) at 413.

9      Those words are taken from the amended statement of claim.  As the Court of Appeal put it (at [28]), the plaintiffs seek a declaration that they are entitled to execute the judgment they have already obtained against the assets of the RMCFT.

on the answers to the second and third questions articulated by the Court of Appeal

(and recorded at [8](b) and (c) above).

[22]     On any analysis, therefore, it does not seem to me to be obviously open to the defendants (if it gets to that point) to relitigate the quantum of damages that have been found to be owed by Mrs Colebrook.

[23]     All that said, however, there are two points in the defendants’ favour (in terms of the question of the “seriously arguable” limb of the test governing the grant of leave to appeal).

[24]     First,  I accept  that  the  words  ‘if  any”  in  [65]  of  the  Court  of Appeal’s judgment seem somewhat obscure. Although when read in context it seems to me to be tolerably clear what was meant (ie if it is found that Ms Carr consented), there is certainly some room for argument in that regard.

[25]     Secondly, there is the fact that Associate Judge Doogue has (twice) taken a more expansive view of the matter.  In itself that suggests that the serious arguability threshold is crossed.

[26]     In terms of the interests affected by the proposed appeal they are necessarily private in nature.  But I accept that the money at issue is not insignificant for private individuals.  More importantly, however, this appears to me to be an unusual case where the grant of leave would add little burden to the parties or to the Court, in terms of cost and delay.   More particularly, the plaintiffs have already filed a substantive  appeal  from  Peters  J’s  decision  and  thus  there  appears  to  be  no immediate prospect of achieving finality in the litigation.  Moreover, it should be a relatively straightforward matter for the Court of Appeal to answer the question posed by the proposed appeal, namely what was the intended ambit of their referral back.

[27]     Accordingly, and on balance I consider that leave to appeal on that issue should be granted.

question raised by the proposed appeal, namely my refusal to recuse myself in relation to the application for review.   The reasons for my acquiescing to the defendants’ recusal request in the substantive matter (which were given in a separate minute) were very specific.   Those reasons had no application whatsoever to the issues raised by the application for review.  The wider reasons for recusal advanced by Ms McCartney QC – namely that because I had formed an adverse view of Mrs Colebrook’s credibility at trial and had found against the defendants – had no bearing on  the  issue  of  the  Court’s  jurisdiction,  which  is  the  issue  with  which  I  was concerned in the review judgment.   The suggestion that my assessment of Mrs Colebrook as a witness meant that I could not or did not bring an open mind to that (purely legal) issue is provocative at best.

[29]     Be all that as it may, however, there is a more compelling reason for denying leave on this issue.  That is because the grant of leave on the first issue renders it unnecessary.  If the defendants’ interpretation of the remittance back is found to be correct then they do not need to advance the recusal argument.  If their interpretation is wrong, then my failure to recuse myself could make no difference to that outcome.

[30]     In the result:

(a)       The defendants are granted leave to appeal from my decision dated 21

October 2013 (Stokes v Insight Legal Trustee Company Ltd [2013] NZHC 2745) on the ground that I incorrectly held that the terms of the Court of Appeal’s referral back (contained in the judgment Insight Legal Trustee Company Ltd v Stokes [2013] NZCA 148) precludes them advancing a new affirmative defence that the plaintiffs failed to mitigate their losses;

(b)Leave  to  appeal  my  decision  on  the  grounds  that  I  should  have recused myself from hearing and determining that issue is denied.

Rebecca Ellis J