Stokes v Insight Legal Trustee Company Limited

[2013] NZHC 2113

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-1317 [2013] NZHC 2113

BETWEEN

B J STOKES, A M STOKES AND O N WILLIAMS, AS TRUSTEES OF THE STOKES FAMILY TRUST

Plaintiffs

AND

INSIGHT LEGAL TRUSTEE COMPANY LIMITED AND G K HEENAN AS TRUSTEES OF THE R M COLEBROOK FAMILY TRUST

First Defendants

AND

E M COLEBOOK

Second Defendant

AND

Hearing:

19 August 2013

Appearances:

J M McCartney QC for Plaintiffs

A J Steele & J B Scott for Defendants

Judgment:

20 August 2013

JUDGMENT OF KEANE J

This judgment was delivered by  on 20 August 2013 at 4pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar Date:

Solicitors:

Insight Legal, Warkworth Martelli McKegg, Auckland

STOKES v INSIGHT LEGAL TRUSTEE COMPANY LIMITED [2013] NZHC 2113 [20 August 2013]

[1]    On 31 August 2007 the trustees of the Stokes Family Trust 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 finance but settlement did not take place. The property was sold eventually for $1.1M.

[2]      The  Stokes  Trust  obtained  judgment  by  default  against  Mrs  Heenan  for

$943,033.36. She was by then insolvent, or soon became so, and the Stokes Trust has in this proceeding has pursued the Colebrook Trust, contending that Mrs Heenan entered into the transaction as its undisclosed agent.

[3] On 25 July 2012 Ellis J gave judgment in favour of the Stokes Trust.1 Mrs Heenan, she found, had been the undisclosed agent of the Colebrook Trust. The trustees of the Colebrook trust, she found, 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.

[4] The Colebrook Trust and Mrs Heenan appealed that decision and on 9 May 2013 the Court of Appeal allowed their appeal, and dismissed the Stokes Trust’s cross-appeal, but remitted two issues to this Court and directed the Stokes Trust to file an amended statement of claim going to those two issues.2

[5] 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.

[6] Amended statements of claim and defence have been filed, as required, as to which there is no issue, but on 14 June 2013 the Stokes Trust applied for a review of

1       Stokes & Anor v Insight Legal Trustee Company & Ors [2012] NZHC 1822.

2       Insight Legal Trustee Company Ltd & Ors v Colebrook & Ors [2013] NZCA 148.

the orders made by the Associate Judge, on the ground that they do not accord with the limited remit to this Court that the Court of Appeal made; an application that the Colebrook Trust and Mrs Heenan oppose.

[7]     The Court of Appeal, they say, could have dismissed the appeal and remitted to Ellis J only the two issues that they did remit. But because they allowed the appeal there has to be a complete rehearing. And, while the witnesses at the first trial may be fixed with their evidence then, and that may confine the findings the presiding Judge presiding is able to make, the rehearing must still be a complete one. They intend to call three further witnesses whose evidence cannot be confined to the two remitted issues. They go also to the first issue on which Ellis J was upheld.

[8] On a review, as this is, where directions were given at a conference I am obliged to reconsider the issues entailed completely afresh but must take into account whether, in the exercise of his discretion, the Judge made any material error.3

Evolution of issues

[9]  In her decision Ellis J held that in the 31 August 2007 the Colebrook Trust was Mrs Heenan’s undisclosed principal. The Stokes Trust, she held, had satisfied her that (i) Mrs Heenan entered that agreement intending to act on behalf of Colebrook Trust; (ii) she entered into the agreement with the authority of the Colebrook Trust; (iii) there was nothing in the context that rendered the Colebrook Trust immune from suit.

[10] On the appeal, the Court of Appeal held that  the  issues  were  rather  (i) whether Mrs Heenan had entered into the agreement in her capacity as a trustee of the Colebrook Trust, (ii) whether Mrs Heenan’s sister, Ms Carr, her co-trustee, consented to the trust entering that agreement (not whether Mrs Heenan acted with Ms Carr’s authority and as her agent); and (iii) whether the Stokes Trust was now entitled to an equitable lien over the assets of the Colebrook Trust.

3       High Court Rules, r 2.3; McGechan on Procedure HR2.3.02.

[11] The Court held that Ellis J had been entitled on the evidence before her to conclude on the first issue that Mrs Heenan did intend to enter into the agreement in her capacity as a trustee. On the pleadings and evidence, it held, it could not be satisfied as to the second issue, that Ms Carr retrospectively consented to the purchase. It held also, as to the third issue, which was unconceded on the appeal but had been conceded at trial, that Ellis J had not had to make any material finding.

[12] The Court then allowed the appeal but remitted to this Court the second and third issues. Whether that therefore meant that the hearing must now necessarily engage the first issue as well turns on the precise way in which the Court expressed its decision and the result of the appeal.

Appeal decision and result

[13]     The Court of Appeal expressed its decision in this way:4

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. [60]

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. [61]

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. [62]

[14]     The Court then expressed the result of the appeal in this way:5

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

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. [64]

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. [65]

Conclusions

[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’.6 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.7

[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.

[20] It may be that the directions the Associate Judge gave can stand as they are except that the fixture will have to be shortened. Or it may be that there are amendments called for that I am unable to anticipate. In either event counsel are requested to file within seven working days of the date of this decision a joint memorandum, addressed to the Associate Judge, who will then be able to give any further directions called for.

P.J. Keane J