Stokes v Insight Legal Trustee Company Limited

[2013] NZHC 2745

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-001317 [2013] NZHC 2745

BETWEEN  B J STOKES, A M STOKES and O N WILLIAMS as trustees of the STOKES FAMILY TRUST

Plaintiffs

ANDINSIGHT LEGAL TRUSTEE COMPANY LIMITED and G K HEENAN as trustees

of the R M COLEBROOK FAMILY TRUST

First Defendants

E M HEENAN (formerly COLEBROOK) Second Defendant

Hearing:                   18 October 2013

Appearances:           A J Steele and J B Scott

J M McCartney QC for Defendants

Judgment:                21 October 2013

JUDGMENT OF ELLIS J

This judgment was delivered by Justice Ellis on 21 October 2013 at 4.00 pm

pursuant to R 11.5 of the High Court Rules.

Registrar / Deputy Registrar

Date………………………

STOKES v INSIGHT LEGAL TRUSTEE CO LTD & OR [2013] NZHC 2745 [21 October 2013]

[1]      This judgment relates to an application for review by the plaintiffs of an order made by Associate Judge Doogue on  18 September 2013  granting leave to  the defendants to amend their statement of defence.   The amendment involves the inclusion of a new pleading that the plaintiffs failed to take reasonable steps to mitigate their losses arising from the defendants’ (alleged) breach of contract.  The proceedings are for trial in less than a month.

[2]      The background is both a little unusual and somewhat complicated and, in attempting briefly to summarise it, I plagiarise shamelessly and with gratitude from Keane J’s judgment of 20 August 2013, which relates to similar issues arising in the same proceedings.1

[3]      As Keane J there said, 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, now Mrs Heenan, and the trustees of the R M Colebrook Family Trust, obtained that finance but settlement did not take place. The property was sold eventually for $1.1m.

[4]      The SFT obtained judgment by default against Mrs Heenan for $943,033.36. But she proved to be insolvent and so the SFT subsequently (in the present proceeding) pursued the Colebrook Trust, contending that Mrs Heenan (who was one of the two trustees) entered into the transaction on its behalf.

[5]      On 25 July 2012 I gave judgment in favour of the SFT on the basis that in entering the sale and purchase agreement Mrs Heenan had been acting as the undisclosed agent of the Colebrook Trust.2   I held that the trustees of the Colebrook trust were personally liable for the failure to settle and, because Mrs Heenan was a trustee, she was entitled to indemnity from the Colebrook Trust and her equitable lien over that trust’s property could be subrogated to the Stokes Trust.

[6]      The Colebrook Trust and Mrs Heenan appealed that decision and on 9 May

2013 the Court of Appeal remitted two issues back to this Court for determination. Although for present purposes I do not need to delve into the substance of the Court’s judgment, it is necessary to record the reasons for, and the terms of, the remittal back.  In that respect the Court said:3

[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’s4   appeal  would  be  allowed  and  the  High  Court judgment set aside.

[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.

[63]      The appeal is allowed. The judgment given in the High Court is set aside. The cross-appeal is dismissed.

[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.

(emphasis added)

[7]      Since then there have been disputes between the parties about the scope of the remitted back proceeding in this Court and (now) the ambit of the amended pleadings contemplated by the Court.

[8]      The first such dispute is the one to which Keane J’s review judgment of 20

August 2013 relates.  The background is set out at [5] of that judgment where Keane

J said:

In a telephone conference on 11 June 2013 Doogue AJ held that, while the Court of Appeal had remitted the two issues to this Court, it had set aside the judgment under appeal completely.  It had not remitted the case to Ellis J to resolve as to just those issues.   Thus, 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 11 November 2013 for five days.

[9]      Keane J held that Associate Judge Doogue’s approach was wrong.   More particularly, he said:

[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’.5    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.6

[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.

(emphasis added)

[10]     On  18  September  the  parties  had  a  further  a  telephone  conference  with Associate Judge Doogue.  During the conference the defendants (effectively) sought and were granted leave to amend their statement of defence by adding an allegation

that the plaintiffs had failed to mitigate their loss.   The relevant part of Associate

Judge Doogue’s minute reads:

[9]       Ms  McCartney said  that the  defendants  also  wish to  add to  the statement  of  defence  a  pleading  that  the  plaintiffs  had  failed  to  act reasonably to mitigate their loss.  Mr Steele opposed a pleading of that kind being  introduced.    He  said  that  the  Court  of Appeal  directions  did  not anticipate such a matter being added.

[10]      I  do  not  agree  that  the  Court  of Appeal  judgment  implicitly  or expressly imposed limitations on what the defendants might be able to raise in answer to the causes of action that the Court of Appeal directed to be heard in the High Court.  The starting point must be that justice requires that all relevant issues that either party wishes to put before the Court relating to the matter that is to be dealt with at the resumed hearing ought to be before the Court unless there are some good reasons to the contrary.  No substantial reason was advanced by Mr Steele why the Court of Appeal might have concluded that it was not in the interests of justice for the mitigation issue to be litigated at the resumed hearing.

[11]     The plaintiffs have sought review of this decision essentially on the grounds advanced by Mr Steele before Judge Doogue, namely that such an amendment is also outside the scope of the Court of Appeal’s remittal back. Although other matters were also raised I do not need to set them out or consider them here.

[12]     In  terms  of  my approach  on  review,  I merely note that Associate Judge Doogue’s directions were given in the context of a telephone conference.   I am therefore obliged to reconsider the issue completely afresh.7

[13]     In my respectful view the learned Associate Judge has fallen into the same error again.   I therefore consider that the application for review should succeed, essentially for the reasons that were given in Keane J’s judgment.  I shall nonetheless endeavour to re-express those reasons in a slightly different way.

[14]     The  jurisdiction  of  a  first  instance  court  over  a  particular  proceeding following appeal has recently been comprehensively revisited and considered by the

higher Courts at all levels in the context of the so-called Trinity tax litigation.8 The

7      High Court Rules, r 2.3; McGechan on Procedure (online looseleaf ed, Brookers) [HR2.3.02].

8      See in particular Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2011] 1

NZLR 336 (HC); Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2013] 1
NZLR 804 (SC) and, most recently, Ben Nevis Forestry Ventures Ltd v Commissioner of Inland
Revenue [2013] NZHC 2361.

short point is that following such an appeal this Court is functus officio; the lower court can have no jurisdiction in relation to any purported rehearing.  Although not directly at issue in the leading cases the exception to this must be where there has been (as here) a referral back.  But it necessarily follows, in my view, that this Court has jurisdiction only to the extent that the terms of the reference back permits.  A reference back is not an invitation to the parties to start again, by raising new, previously unthought of, claims and defences.  The principle of finality also dictates that this must be so.

[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.

Rebecca Ellis J