Tata v Abrams

[2022] NZHC 479

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1850

[2022] NZHC 479

UNDER

Part 18 of the High Court Rules 2016 and Trusts Act 2019

IN THE MATTER

of the Estate of VIOLET AOTEAROA TE WAIPONAMU TATA

BETWEEN

REGINALD RAURETI TATA

Plaintiff

AND

DONNA DOREEN MATEKINO ABRAMS,

as administrator of the Estate of Violet Aotearoa Te Waiponamu Tata Defendant

Hearing:	10 March 2022
Appearances:	A R Gilchrist for Interpleader C G Smith for the Defendant
Judgment:	16 March 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

TATA v ABRAMS [2022] NZHC 479 [16 March 2022]

Introduction

[1]    This Judgment concerns an application by a solicitor to interplead in this proceeding  (the Firm).   Held in the Firm’s  trust account are the sale proceeds of    a property sold by the defendant as executor of the Estate of the late Mrs Violet Aotearoa Te Waiponamu Tata (Mrs Tata). The solicitor filed this application out of concern he may face competing claims for those funds.

Context

[2]    The plaintiff in this proceeding seeks an order removing his sister, Donna Doreen Matekino Abrams (Ms Abrams) (the defendant), as an executor of his mother’s estate. The order is sought by way of an interlocutory application which accompanied  the   statement   of   claim.   That   application   is   for   hearing   on 16 March 2022. The substantive proceeding alleges Ms Abrams sold the Estate property at an undervalue. The deceased, Mrs Tata, died in 2008 and Probate was granted to the defendant and her sister, Judy. Judy died in 2016, leaving the defendant as sole trustee. Mrs Tata left one of her brothers (Tony) a life interest in her home (the property). Tony died in 2019.

[3]    Under Mrs Tata’s Will, upon Tony’s death, the house was to be sold and the proceeds distributed in accordance with her Will.

[4]    There was a meeting in September 2019 attended by some of the family members and two real estate agents who provided a market appraisal of the property at a value of between $1,000,000 - $1,050,000.

[5]    On 3 March 2021, Ms Abrams transferred the property to her son for $760,000; hence the claim by the plaintiff that the property was sold at an undervalue.   Here,    I note the plaintiff seeks an order under ss 126 and 127 of the Trusts Act 2019 (the Act) setting aside the sale. If that is to occur, Ms Abrams’ son should be a party to this proceeding. An order setting aside the Ms Abrams’ son’s purchase could not be made where he is now the registered proprietor of the property unless he was a party to the proceeding and was given a chance to be heard. In the alternative, the plaintiff seeks equitable damages against Ms Abrams.

[6]    The plaintiff, while supporting the interpleader application did not participate in the hearing on 10 March 2022.

How the applicant came to hold the funds

[7]    In May 2021, a staff solicitor of the Firm met with Ms Abrams at the Papakura Citizens Advice Bureau. As a result of that introduction, the Firm was instructed to hold the Estate funds. The Firm had no prior relationship with Ms Abrams.

[8]    It seems Ms Abrams was unhappy with her existing solicitors and an Authority to Uplift was forwarded by the Firm to her existing solicitors. As a result, the Firm received into its trust account $756,914.52 on 9 June 2021 being the fund in relation to which the applicant seeks to interplead. It is common ground that the funds belong to the Estate.

[9]    The Firm then received an enquiry from solicitors acting for the plaintiff, requesting information about the sale of the property.

[10]   The following month, a senior solicitor in the Firm met with Ms Abrams and that solicitor’s file note shows he had serious concerns about Ms Abrams’ capacity to act as executor of Mrs Tata’s Estate. The solicitor went so far as to write to Ms Abrams referring to Anti-Money Laundering (AML) requirements and expressing concerns about her capacity and the need to obtain evidence about her capacity. That letter was sent on 28 July 2021. The Firm did not receive a reply and wrote again in August and November 2021 to follow up a response.

[11]   In the meantime, and unknown to the Firm, these proceedings were issued on 1 October 2021. On 20 October 2021, there was a direction that the Firm be served.

[12]   At this point, the Firm was concerned on the face of the information it had that Ms Abrams had gifted $300,000 of Estate property to her son (the sale at an undervalue) and that she did not have the necessary mental capacity to act as executor. It was aware there was an application to remove Ms Abrams as executor of the Estate. Further, there had been no contact from Ms Abrams for approximately three months with AML requirements still outstanding.

[13]   In November 2021, the Firm instructed counsel to prepare this interpleader application. On 2 November 2021, the Firm advised Ms Abrams that it intended to hold the funds in trust pending the outcome of the proceeding. On 15 November 2021, there was a discussion between the senior solicitor at the Firm and Ms Abrams’ counsel.  Because of the concerns the senior solicitor had he had  already advised  Ms Abrams the Firm would not be paying out any of the Estate funds that it held until the matters raised by the solicitor were addressed. The solicitor’s file note of that discussion records his doubt as to whether Ms Abrams understood the import of this.

[14]   On 17 November 2021, Ms Abrams instructed Ms McNamara to act for her. Ms McNamara’s evidence is that she became aware that the Firm was holding Estate funds.

[15]   On 18 November 2021, Ms McNamara emailed the Firm advising she had been instructed to act on behalf of the Estate, enclosing a signed Authority to uplift any documents and enclosing a trust account deposit slip to allow the transfer of funds to her trust account. Later on 18 November, Ms McNamara was alerted to an email exchange between counsel for the Firm and counsel instructed for Ms Abrams, as to the possibility of the interpleader application. The interpleader application had already been prepared and was filed the day before the Authority to uplift was sent.

Rule 4.58 of the High Court Rules 2016 (the Rules)

[16]Rule 4.58(1) of the Rules provides:

(1)When a person (A) who is under a liability in respect of a debt or in respect of any money or chattels  is, or expects to be, sued for or     in respect of the debt, money, or chattels by 2 or more persons making adverse claims, A may apply to the court, on notice to the persons making the adverse claims, for relief under rule 4.63.

[17]   The Firm describes itself as the “meat in the sandwich” in what is a family dispute. What is unfortunate is that, upon Ms Abrams’ counsel and solicitor becoming aware of the application to interplead, the matter was not resolved by agreement. By the time of the hearing on 10 March 2022, it became clear Ms Abrams had no issue with the Firm holding the funds on trust pending the outcome of the proceeding. The

primary issue at the hearing was whether the Firm should be entitled to its costs on the application.

[18]   Accordingly, by consent there is an order that David Rice & Associates, solicitors, is to hold on interest bearing deposit, funds held for the Estate of Violet Aotearoa Te Waiponamu Tata until further order of the Court. For the avoidance of doubt, this is not the making of the interpleader order sought, but a practical order made by consent to preserve the Estate fund pending determination of the substantive issue. Given the plaintiff supported the interpleader application, I treat that as support of this order. There is no material difference in the effect of the interpleader and the Order I have made, save for costs.

Was the application to interplead justified?

[19]   There is no doubt the Firm had grounds for concern about the sale of the property and Ms Abrams’ mental capacity. The detailed file note of the senior solicitor concerned recorded Ms Abrams had suffered a serious stroke and the solicitor’s impression that Ms Abrams did not have a full understanding of her role as executor of the Estate. In my view, it was prudent and appropriate for the solicitor to raise those concerns, particularly when it appeared that the major asset in the Estate had been sold at a significant undervalue to Ms Abram’s son. There is apparently no deed of family arrangement in that regard, nor had AML requirements been satisfied by Ms Abrams, despite requests for such to be attended to. Notwithstanding the solicitor’s primarily obligation to pay funds at the direction of their client,1 in my view, the Firm was justified in saying it would not pay out Estate funds until its various concerns were addressed.

[20]   It is possible that Ms McNamara was not made aware by Ms Abrams of the Firm’s correspondence where these  issues  were  raised.  Had  she  been,  I  doubt the Authority to uplift would have been sent, or at least not sent without an undertaking to hold the funds pending the outcome of the proceeding. At the end of the day, the identity of the stakeholder was not critical. However, that did not occur and it is unfortunate that matters were not resolved through discussion.

1      Section 3 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, s 3.

[21]   Accordingly, I accept the Firm considered it was in a position where it had to protect the Estate funds. However, the key issue remains whether the filing of an interpleader was appropriate.

Did the Firm face two or more claims?

[22]McGechan at HR4.58.06 states:2

Where proceedings have not been issued, the discretionary relief of interpleader will not be granted unless there appears to be some real foundation for the expectation of a rival claim: Watson v Park Royal (Caterers) Ltd [1961] 2 All ER 346 at 352 …

[23]   Here, no proceeding has been issued against the Firm on the basis a claimant was entitled to the fund. The Court directed that the Firm be served with these proceedings given it held the funds, but that was the extent of its involvement in that or any other proceeding concerning the Estate.

[24]In Park Royal (Caterers) Ltd, the Court said:3

There is ample authority for the proposition that the discretionary relief of interpleader will not be granted unless there appears to be some real foundation for the expectation of a rival claim …

[25]   Here, no claim for the funds held by the Firm is advanced by the plaintiff in his proceeding. The Firm rightly anticipated that if and when the plaintiff’s application to remove Ms Abrams as executor was granted, he would call for the funds to be paid to his solicitors. However,  upon that occurring by way of an order of  this Court,  Ms Abrams would have no standing to maintain a competing call for the funds.

[26]   I accept the submission of Ms Smith, counsel for Ms Abrams, that as a call for the funds could only be made by the executor, there was no realistic expectation of   a rival claim. Unless and until the plaintiff’s application to have Ms Abrams replaced as executor was granted, there was no other person other than Ms Abrams who could have standing to call for the release of the funds.  The absence of there being two

2      Andrew Beck and Others McGechan on Procedure (online ed, Thomson Reuters) at [HR4.58.06].

3      Watson v Park Royal (Caterers) Ltd [1961] 2 All ER 346 at 352.

parties making competing claims to the same fund takes the present circumstances outside the scope of r 4.58 of the High Court Rules 2016.

[27]   Mr Gilchrist, counsel for the Firm, submitted that, from the Firm’s discussions with Ms Abrams, it appeared she had a differing view of who were beneficiaries of the Estate from that of the plaintiff. Mr Gilchrist submitted this meant if the Firm had released the money while it had the concerns already noted above, and the money was distributed by Ms Abrams to people who were not beneficiaries under Mrs Tata’s Will, the  Firm  may  have  faced  a  claim  from  the  correct  beneficiaries.  Therefore,  Mr Gilchrist submitted the Firm had concerns that it may face multiple claims.

[28]   At the time of filing the interpleader, such risk was no more than hypothetical. In the event such claim was made it would be one for damages against the Firm, not a claim to the fund. I do not consider the hypothetical risk of this claim meant the Firm was justified in seeking to interplead.

[29]   It follows that the application must be declined but, as noted, the real issue is costs.

Costs

[30]   I am satisfied it was appropriate for the Firm to take steps to protect its position. It had received written instructions to release client funds which it had decided not to comply with. I have not lost sight of the fact that the Firm had decided to make the interpleader application prior to receiving the Authority to uplift. But in the face of three months silence from Ms Abrams and in the context of the Firm’s concerns already outlined when the Firm had been served with these proceedings, it was prudent for the Firm to protect its position.

[31]   Ms Smith submitted the Firm should have waited until some pressure for payment came on. She submitted “push hadn’t come to shove” in respect of the fund. In effect, Ms Smith submitted the Firm jumped the gun.

[32]   Counsel did not address the Firm’s obligations in relation to client funds in circumstances where the Firm had not heard from Ms Abrams for an extended period.

The Firm in fact had, in its last letter to Ms Abrams, advised it could not act for her given she had not responded to the issue of capacity (which she had agreed to address), nor complied with AML requirements. At that point, the Firm was holding funds for a client for whom it said it could not act. I am satisfied it was appropriate for the Firm to take steps to protect its position. Until AML requirements were satisfied, it may not have been permitted to release the funds. However, as I have said, the interpleader was not the way to do it.

[33]   In my view, the Firm could have sought directions under the Act. The Firm is trustee of its trust account. A trustee under the Act is someone who is appointed to be a trustee.4 In my view, when a client gives money to a solicitor to hold on trust, they thereby appoint the solicitor to hold the money as trustee. Mr Gilchrist submitted whether the Firm should have sought directions was an issue of form over substance and, to some extent, I agree. Had the Firm adopted what I consider was one option open to it to seek guidance in relation to the funds, then it would have incurred costs in that regard in any event.

[34]   Accordingly, I am satisfied that the Firm is entitled to some costs in relation to the process of protecting itself.

[35]   The interpleader application was filed on 17 November 2021. The Authority to uplift was emailed by Ms McNamara to the Firm on 18 November 2021.

[36]   While the Authority to uplift was not formally withdrawn, Ms McNamara in her affidavit of 1 December 2021 filed in opposition to the interpleader application, said that given the circumstances it:

… obviously became inappropriate for me to follow up on my request of [the Firm] for the transfer of the estate moneys, and I have not done so.

[37]   At that point, the Firm was on notice that it was not at risk of Ms Abrams pushing her claim for the Estate funds.

4      Trusts Act 2019, s 9.

[38]   Equally, Ms Abrams was on notice by virtue of Mr Gilchrist’s memorandum dated 1 December 2021 that:

The firm does not wish to become liable to any party in respect to of the funds or any payment made. The firm is content to pay the funds into Court, or into any party jointly instructed to do so, or pursuant to any Court order.

[39]   Ms Smith submitted she was not in a position to consent to the interpleader at that time because of the costs that had been sunk to that point. However, all counsel should have recognised that, at that time, Ms Abrams was not pursuing the release of the funds and the Firm had no objection to the money being held. Some practical arrangement should have been put in place at the start of December 2021 without prejudice to the costs that had accrued to that point. Neither counsel seems to have pursued that actively (save to the extent recorded in Mr Gilchrist’s memorandum of 1 December 2021) and hence the interpleader application carried on to a hearing.

[40]   Responsibility for the matter not being resolved in early December 2021 lies equally with the parties.

Outcome

[41]   As I have said, I am satisfied it was appropriate for the Firm to take steps to protect its position.

[42]   There is an order that the Firm is entitled to scale costs on the application it made   on   17   November   2021   through   to   Mr Gilchrist’s   memorandum   of   1 December 2021. In all other respects, for all parties, costs are to lie where they fall. The Firm’s costs are to be paid from the Estate funds.

[43]   Scale costs are awarded so as to remove possible argument about the reasonableness of the quantum of indemnity costs and to reflect that the Firm did not, in my view, adopt the correct procedure. Nonetheless, had it done so costs would have been incurred but should not have run past 1 December 2021. The Firm is also entitled to disbursements to that date. As to the Firm’s solicitor-client costs for the work it did for Ms Abrams, such should be invoiced in the ordinary way.

[44]   Finally, on an unopposed basis, there is an order pursuant to r 13.5 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 that the Firm is able to continue to act in this matter – such order being required given the senior solicitor whose involvement described above filed an affidavit in this proceeding. With the Firm’s role (other than stakeholder) is essentially at an end, the order sought is not objectionable.

Associate Judge Lester

Solicitors:

David Rice & Associates, Papakura (for Interpleader) Mac & Co, Auckland (for the Defendant)

Copy to counsel:

A R Gilchrist, Barrister, Auckland (for Interpleader) Ms C G Smith, Barrister, Auckland (for the Defendant)