Temple 88 Limited (in liquidation) v Hassine
[2021] NZHC 2351
•10 September 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-2315
[2021] NZHC 2351
UNDER Part 18 of the High Court Rules BETWEEN
TEMPLE 88 LIMITED (in liquidation) Plaintiff
AND
LINDA PATRICIA BEN HASSINE and BLAIR SHELDON PRUETT
Defendants
Hearing: 8 September 2021 Appearances:
P C Murray for the Plaintiff
Judgment:
10 September 2021
JUDGMENT OF GAULT J
This judgment was delivered by me on 10 September 2021 at 3:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr P Murray, Barrister, Auckland
Ms C Fisher (plaintiff’s instructing solicitor), Fortune Manning, Auckland
TEMPLE 88 LTD (in liquidation) v HASSINE and PRUETT [2021] NZHC 2351 [10 September 2021]
[1] The plaintiff, Temple 88 Ltd (in liquidation) (Temple 88), is the former trustee of the Clifton Realty Trust (the Trust). The defendants, Ms Hassine and Mr Pruett, are the current trustees of the Trust.
[2] Temple 88 claims a right of indemnity out of Trust assets for liabilities incurred in its capacity as trustee, and seeks an order for the sale of an apartment property at 30/8 York Street, Parnell, Auckland1 (the property) to satisfy those liabilities. Temple 88 also seeks an order for possession of the property, which is occupied by the defendants. The defendants have refused access to the property despite the body corporate for the apartment complex obtaining a pre-liquidation judgment requiring Temple 88 to provide access for necessary repair works to be carried out.
[3] The defendants were served but have not filed statements of defence. The claim proceeded by way of formal proof hearing.
Factual background
[4] The Trust was settled by Ms Hassine in 2001. She was one of three original trustees.
[5]On 22 February 2007 the Trust purchased the property.
[6] Temple 88 was incorporated on 1 December 2014. Ms Hassine was its sole director. The three original trustees of the Trust resigned as trustees and Temple 88 was appointed as the sole trustee. Temple 88’s sole activity was to act as trustee of the Trust.
[7] On 7 May 2015 the property was transferred to Temple 88 and it granted an all obligations mortgage over the property to ASB Bank Ltd (ASB).
[8] On 24 February 2017 and 8 July 2017 Temple 88 entered into loan facility agreements with ASB. The lending was secured by the mortgage.
1 NA100D/482.
[9] Under a deed of retirement and appointment of trustee dated 17 February 2020 executed by Temple 88 and the defendants, Temple 88 retired as trustee of the Trust and the defendants were appointed as the new trustees. Despite that, the property was not transferred to the defendants – Temple 88 remains the registered proprietor.
[10] Temple 88 was the defendant in a High Court proceeding commenced in 2018 by Body Corporate 166208. On 14 July 2020 the High Court entered judgment against Temple 88,2 declaring that it was in breach of its obligations under the Unit Titles Act 2010 and an implied term of a contract with the body corporate, and ordering it to perform its obligations under the contract to allow the body corporate and its agents access to the property to complete the necessary repair and maintenance works, together with costs.
[11] Temple 88 did not allow the body corporate or its agents access to the property and did not pay the costs award. On 28 August 2020 the High Court placed Temple 88 into liquidation on the application of the body corporate. Ms Fatupaito and Ms Keene of KPMG were appointed liquidators.
[12]Ms Hassine has not cooperated with the liquidators.
[13]The liquidators have received creditor claims in the liquidation totalling
$477,527.72 including from the body corporate. The body corporate has also given notice of likely future claims.
[14] As at 2 September 2021, the total amount owing by Temple 88 to ASB secured by the mortgage was $774,641.06. ASB has agreed not to take steps to enforce its mortgage on the basis that Temple 88 has sought a sale order in this proceeding.
[15]A current market appraisal values the property at $2.5 to $2.8 million.
2 Body Corporate 166208 v Temple 88 Ltd [2020] NZHC 1678.
Temple 88’s recourse to Trust assets to meet Trust liabilities
[16] Mr Murray, for Temple 88, acknowledges that while Temple 88 is the legal owner of the property, it can only have recourse to the Trust assets to meet Trust liabilities with the Court’s assistance.
[17] This proceeding was commenced before the Trusts Act 2019 (the Act) came into force on 30 January 2021. Mr Murray submitted that, under the transitional provisions in cl 2 of Schedule 1, the Act applies in this case. In any event, he also referred to provisions of the Trustee Act 1956.
[18] A trustee has a right of indemnity against trust assets for liabilities incurred in the performance of the trustee’s duties, whether expressly provided for in the trust deed, implied in equity, or pursuant to the Act.3 Here, Temple 88 has an express right of indemnity under the Trust deed.
[19]Mr Murray relied on Edwards J’s summary of the applicable principles in
Camray Farms Ltd (in liq) v BL (Nature Sunshine) Trustee Ltd:4
[59] The right of indemnity against trust assets exists where a trustee has paid trust expenses from their personal funds and they seek recoupment of those funds (the right of recoupment). It also exists where liabilities have been incurred, but have not yet been paid. In that case, the trustee seeks to pay the liabilities out of trust assets, that is, it seeks to be exonerated for those liabilities (the right of exoneration).5 It is the right of exoneration that is in issue in this case.
[60] The trustee’s right of indemnity takes priority over the beneficiaries’ interest in the trust property.6 The rationale is that it is inequitable for a beneficiary to benefit from the property without also bearing the burden associated with that property.7 However, a trustee can only call on the indemnity if a liability has been properly incurred. If a trustee is in breach of the trust, then the right of indemnity might be lost.8
3 Trusts Act 2019, s 81; and see Trustee Act 1956, s 38(2).
4 Camray Farms Ltd (in liq) v BL (Nature Sunshine) Trustee Ltd [2019] NZHC 2536.
5 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [16.6.1(2)].
6 Lynton Tucher, Nicholas Le Podevin and James Brightwell Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at [22.037]; and HAJ Ford and WA Lee Principles of the Law of Trusts (looseleaf ed, Thomson Reuters, 2018) at [14.250].
7 Hardoon v Belilios [1901] AC 118 (PC) at 123.
8 Levin v Ikiua [2010] 1 NZLR 400 (HC) at [126].
[61] Similarly, the trustee retains the right of indemnity, and its equitable lien, even after it has resigned as trustee or been replaced. The new trustee takes the trust property subject to the former trustee’s equitable proprietary interest arising out of the right of indemnity.9 …
[62] Protection and enforcement of the trustee’s right of indemnity is by way of an equitable lien over the assets of the trust. There is no dispute that this creates a proprietary interest in the trust property in favour of the trustee where the right is one of recoupment.10 There has, however, been debate about whether the right of exoneration creates a proprietary interest in the trust property. The current position in New Zealand appears to be that it does.11 The parties proceeded on this basis – as do I. The equitable lien therefore supports the registration of a caveat, and may be enforced just like any other charge over land, that is, by order of sale or court order.
[63] The lien comes into existence when the right of indemnity arises, that is at the time the liability was incurred.12 It is not always necessary for the amount of the liability to be determined in order for the trustee’s charge or lien to arise. …
[20] Here, just as Temple 88 would be entitled to recoupment if it had paid the liabilities personally, it is entitled to pay the liabilities out of trust assets; that is, it is to be exonerated for those liabilities (the right of exoneration).
[21] Temple 88 retained its right of indemnity from the Trust’s assets when it was replaced as a trustee in February 2020. As Mr Murray submitted, the “no indemnity” clause in the deed of retirement is irrelevant. Temple 88 is not seeking to enforce any personal indemnity against the defendants. It relies on the right of indemnity from the assets of the Trust. This is not a personal claim against the defendants. It is an equitable lien against the Trust asset (the property).
9 HAJ Ford and WA Lee Principles of the Law of Trusts (looseleaf ed, Thomson Reuters, 2018) at [14.250] and [14.370].
10 Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873 (SASC), cited with approval in Official Assignee v Menzies HC Auckland CIV 2010-404-5457, 14 February 2011.
11 LSF Trustee Ltd v Footsteps Trustee Co Ltd (in liq) [2017] NZHC 2619, [2017] NZAR 1676 at [19]; see also Official Assignee v Menzies at [28]. Whether a right of indemnity by way of exoneration from the trust assets gives rise to a caveatable interest has been questioned by some commentators: see HAJ Ford “Trading Trusts and Creditors’ Rights” (1981) MULR 1; Bill Patterson “Trustees Indemnities, equitable liens, subrogation and caveats: has the law taken a wrong turn?” (paper presented to New Zealand Law Society Trusts Conference, June 2011); and Andrew Steele “Trustees Indemnities, Equitable liens, Subrogation and Caveats” (2013) 15 BCB 155.
12 Ford and Lee Principles of the Law of Trusts at [14.250] and the cases cited at footnote 6 of Camray Farms Ltd (in liq) v BL (Nature Sunshine) Trustee Ltd [2019] NZHC 2536: Chief Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639 at 653; Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 52–53; and Scaffidi v Scaffidi Holdings Pty Ltd [2010] WASC 29.
[22] Temple 88’s right of indemnity takes priority over the defendants’ beneficial interest in the Trust property (as trustees). The new trustees took a beneficial interest in the Trust property subject to Temple 88’s equitable interest arising out of the right of indemnity.
[23] While a trustee may retain trust property until it has been indemnified for trust liabilities and may realise trust assets to meet expenses and liabilities, a former trustee may only have recourse to trust assets with the Court’s assistance.13
[24] Protection and enforcement of Temple 88’s right of indemnity is by way of an equitable lien over the assets of the Trust. Whether or not the right of exoneration creates a proprietary interest, Temple 88’s equitable lien may be enforced by judicial process, including an order for sale.
[25] In Camray Farms, Edwards J also considered the consequences of liquidation. A trustee’s right of indemnity and equitable lien passes to a liquidator.14 Edwards J addressed whether the assets recovered are generally divisible among creditors, referring to several cases.15 In summary, relevant to this case, I agree that a liquidator is entitled to have recourse to trust property for the purposes of meeting the costs and expenses of liquidation insofar as they relate to the trust.16 A liquidator’s right to remuneration is regarded as a debt incurred in performing the duties of the trustee.
[26] Here, I am satisfied that Temple 88, when it was trustee of the Trust, properly incurred liabilities to the body corporate for $443,215.72 (and any further liability to the body corporate) and to Vicki Ammundsen Trust Law Ltd for $34,312. In addition, all the costs and expenses of the liquidation relate to the activities of the Trust. As indicated, Temple 88’s sole activity was to act as trustee of the Trust. Therefore,
13 LSF Trustees Ltd v Footsteps Trustee Company Ltd (in liquidation) [2017] NZHC 1676 at [16] and [19]; and Camray Farms (in liq) v BL (Nature Sunshine) Trustee Ltd [2019] NZHC 2536 at [62].
14 Camray Farms at [65].
15 At [65]–[71], referring to Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873 (SASC); Levin v Ikiua [2010] 1 NZLR 400 (HC); Re Secureland Mortgage Investments Ltd (No 2) (1988) 4 NZCLC 64,266 (HC); Re Francis James Nominees Ltd (in liq) (1988) 4 NZCLC 64,279 (HC); and Neeeat Holdings (in liq) [2013] FCA 61.
16 Camray Farms at [66], citing Re Suco Gold Pty Ltd.
the liquidators may have recourse to Trust property for the purposes of meeting the costs and expenses of liquidation as a debt incurred in performing Temple 88’s duties.
Sale order
[27] Temple 88 seeks an order that the property be sold to satisfy its lien on such terms and conditions as the Court considers fit.
[28] As a former trustee and the holder of an equitable lien over the property securing the right of indemnity, Temple 88 has a right of realisation by judicial process; that is, by the Court ordering a sale.17
[29] I consider it is just and equitable that the property be sold. Temple 88 has incurred liabilities in relation to the property that ought to be paid. Its right of indemnity takes priority over the defendants’ interest as beneficiaries of the Trust property (as trustees). As Mr Murray submitted, it would be inequitable for the defendants to benefit from the property without also bearing the burden associated with it and for the property to pass to them without the liabilities being paid. Based on the market appraisal, the anticipated sale price will significantly exceed the amounts to be paid under the right of indemnity and the mortgage, leaving a surplus for the defendants as the current trustees of the Trust.
Possession
[30] The defendants currently occupy the property. Despite request, the defendants have not provided a tenancy agreement.
[31] Mr Murray submitted that irrespective of the equitable interests that the defendants as trustees have in the property, it is just and equitable that the Court also make an order for recovery of possession of the property. The defendants, in their personal capacities, do not have any right to occupy the property and are not paying any rent.
17 I need not decide whether such an order may also be made under s 133 of the Act given that Temple 88 is no longer a trustee.
[32] In addition, Temple 88 is required under the Court’s pre-liquidation judgment to provide the body corporate with access to the property to allow repair work to be undertaken. The liquidators are also concerned at the disruptive impact that the defendants could have on a sale process and ultimately a sale price.
[33] Mr Murray advised that the liquidators have yet to decide whether the repair work should be undertaken before sale. They have not yet been able to inspect the property.
[34] I accept that the defendants, in their personal capacities, have no right to occupy the property. As Mr Murray submitted, if there were a tenancy the liquidators would exercise their right to terminate it on appropriate notice. I also accept the liquidators need access to the property to arrange repair work or sale, in whichever sequence they decide.
[35] In these circumstances, I consider it is just and equitable that an order also be made for recovery of possession of the property from the defendants but giving the defendants a reasonable period to vacate. I accept Mr Murray’s proposal of 90 days, with a right of access to inspect in the meantime.
Result
[36]I make the following orders:
(a)The plaintiff is entitled to possession of the property within 90 days; that is by 9 December 2021.
(b)Within that 90 day period, the defendants are to provide access to the property for inspection purposes on two working days’ notice.
(c)That the property be sold to satisfy the plaintiff’s equitable lien on the following terms and conditions:
(i)settlement of any sale is not to occur within 90 days;
(ii)the proceeds of sale be distributed in the following order:
(1) paying the costs and expenses of sale;
(2) discharging the total amount owing to ASB under the mortgage;
(3) paying the liquidators a sufficient sum to satisfy the amount of all current and future admitted claims in the liquidation and the liquidators’ costs and expenses, including costs and expenses to complete the liquidation; and
(4) paying any surplus to the defendants as the current trustees of the Trust.
(d)The plaintiff is entitled to 2B costs and disbursements as fixed by the Registrar.
Gault J
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