Thurston v Robertson
[2023] NZHC 2538
•11 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-415
[2023] NZHC 2538
BETWEEN COLLEEN ELIZA THURSTON
Plaintiff
AND
KAREN ANN ROBERTSON
First Defendant
KAZZER TRUST LIMITED
Second Defendant
Hearing: On the papers Counsel and Parties:
A H H Choi for the Plaintiff
K A Robertson, First Defendant in Person and for the Second Defendant
C T Jones for the Official AssigneeJudgment:
11 September 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 11 September 2023 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Stafford Klaassen, Auckland
A H H Choi, Bank Side Chambers, Auckland
THURSTON v ROBERTSON [2023] NZHC 2538 [11 September 2023]
Introduction
[1] The plaintiff has filed an amended interlocutory application for leave to continue this proceeding against the first defendant for the limited purpose of completing discovery even though she has been adjudicated bankrupt. In addition, the applicant seeks the necessary discovery orders against the first defendant and against the Official Assignee, as a non-party.
[2] I made directions on 14 June 2023 that any notice of opposition or memorandum consenting to the plaintiff’s application were to be filed and served by 30 June 2023 and allocating a hearing on 7 September 2023.
[3] No notice of opposition has been filed by the first defendant although email correspondence has been received by the Registry. In addition, a memorandum consenting to the plaintiff’s application has been filed on behalf of the Official Assignee.
[4] I issued a minute on 6 September 2023 vacating the hearing and now issue this judgment making orders on the papers.
Background
[5] An order for standard discovery was made in June 2022 following which both the plaintiff and the defendants filed affidavits of documents. The plaintiff submits that the defendants’ discovery and production of documents for inspection were inadequate and alleges that critical documents provided may not have been authentic.
[6] The plaintiff therefore filed an interlocutory application for orders relating to discovery in November 2022. The defendants did not file any opposition to that application. Instead in December 2022 the defendants’ lawyers applied for leave to withdraw and in February 2023, before Ms Thurston’s application could be heard, the first defendant, Ms Robertson, applied to be adjudicated bankrupt.
[7] Counsel for the plaintiff sought an adjournment when the matter was again before the Court on 3 April 2023 to allow time for the plaintiff to consider the impact
of the first defendant’s bankruptcy on the proceedings including as against the second defendant, the corporate trustee of the Kazzer Family Trust. The first defendant was the sole shareholder and director of Kazzer Trust Ltd until her bankruptcy and counsel for the plaintiff wished to discuss these issues with the Official Assignee.
[8] On 25 May 2023, Kazzer Trust Ltd was removed from the Company’s Register. The plaintiff records that this appears to be due to a failure to file an annual return in 2023.
[9]The plaintiff has now filed an amended interlocutory application:
(a)seeking leave to continue the proceedings against the first defendant for the limited purpose of obtaining further discovery;
(b)seeking a variation to the existing standard discovery order to include a requirement that the first defendant discover (and have a continuing obligation to discover) any document recording an exercise of her power of appointment (or removal) of trustees in respect of the Kazzer Family Trust; and
(c)seeking a non-party discovery order against the Official Assignee.
[10] Copies of the application and counsel’s memorandum have been served on the defendants and the Official Assignee.
Variation of discovery order sought
[11] In her amended interlocutory application, the plaintiff seeks discovery against the first defendant of “any document recording any exercise(s) or purported exercise(s) of the power of appointment (and removal) of trustees under the deed of the Kazzer Family Trust”.
[12] A copy of the trust deed dated 18 June 2001 and deed of variation of trust dated 28 April 2021 are annexed to the affidavit of the plaintiff filed in support of the amended discovery application. The trust deed includes at clause 17 that the power of
appointment and removal of trustees is held by the settlor (the first defendant) unless otherwise transferred. Clause 17 was varied by the deed of variation at clause 7, though the power to appoint and remove trustees remained with the first defendant (unless transferred).
[13] Arguably any document relating to the exercise of the power to remove or replace the second defendant, Kazzer Trust Ltd, as trustee of the Kazzer Family Trust was discoverable under the standard discovery order made on 21 June 2022. The plaintiff submits that no such document was included in the defendants’ discovery and that such a document could affect the plaintiff’s case against Kazzer Trust Ltd as trustee. The plaintiff does not know whether or not this power has been exercised.
[14] The plaintiff submits that there is a real possibility that the first defendant has not discovered such documents although they exist. The plaintiff’s grounds for this submission are that the first defendant has made other attempts to “stymie” the plaintiff’s claims, including, the plaintiff says, altering bank statements and more recently applying to be adjudicated bankrupt (which the first defendant’s husband has also done to halt the related proceedings against him). Furthermore, the plaintiff points to the fact that the first defendant was the sole shareholder and director of the second defendant, Kazzer Trust Ltd, prior to her bankruptcy and may have replaced the second defendant as trustee before being made bankrupt to avoid a loss of control over the trust.
[15] The plaintiff says it is vital that she has notice of any such exercise of the first defendant’s powers when continuing her claim against Kazzer Trust Ltd. At the very least, the plaintiff submits, the Court would be assisted by a firm basis from which to infer the second defendant remains the trustee if the first defendant does not discover a document showing otherwise following the proposed orders being made. The plaintiff submits that such a discovery order can be justified under either r 8.17 or r 8.19 of the High Court Rules 2016.
[16] I consider first whether it would be appropriate for the discovery order sought to be made and then whether it ought to be made despite the fact that the first defendant is now bankrupt.
Discovery orders
[17] Rule 8.17 provides that a party may apply for an order varying the terms of a discovery order and that one of the grounds for which it may be granted is that there has been a change of circumstance that justifies reconsideration.1
[18] Rule 8.19 allows a Judge to make an order for particular discovery against a party where it appears from the evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for believing that a party has not discovered documents that should have been discovered.
[19] The plaintiff submits that the Court can infer from the fact that documents have (allegedly) been altered and that the first defendant has applied to be adjudicated bankrupt that there are grounds for believing that the first defendant has not discovered documents that ought to have been discovered. In addition, the plaintiff submits that the first defendant’s bankruptcy is a change of circumstances that justifies reconsideration of the terms of the discovery order.
[20] McGechan on Procedure suggests a principled approach to applications under both rr 8.17 and 8.19 is to apply the four-stage test in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd:2
(a)Are the documents sought relevant?
(b)Are there grounds for belief that the documents exist?
(c)Is discovery proportionate?
(d)Weighing and balancing these matters, is an order appropriate?
1 High Court Rules 2016, r 8.17(2)(b).
2 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR8.19.03]; referring to Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14]. See, in relation to r 8.17, Lyttelton Port Company Ltd v Aon New Zealand [2016] NZHC 2996 at [7].
Are the documents sought relevant?
[21] Whether the second defendant remains the trustee of the Kazzer Family Trust is clearly relevant as it determines the appropriate parties against whom orders are to be sought.
Are there grounds for belief that the documents exist?
[22] The fact that the first defendant is the sole shareholder and director of the second defendant and has recently been adjudicated bankrupt on her own application provides sufficient grounds for a belief that the documents may exist, particularly given the confined nature of the documents sought.
Is discovery proportionate?
[23] The discovery order sought is very limited, being confined to any documents recording an exercise of the first defendant’s power of appointment in respect of the Kazzer Family Trust. The first defendant’s bankruptcy and the fact the apparent corporate trustee of that Trust has now been struck off the Companies Register means the discovery is proportionate.
Weighing and balancing these matters, is an order appropriate?
[24] I consider that the first defendant’s bankruptcy and the removal of the second defendant from the Companies Register are sufficient changes of circumstance to justify the discovery order being made without relying on the allegation that documents have been altered (as that has not yet been proven).
[25] I consider therefore that it would be appropriate for the discovery order to be made against the first defendant. I now consider whether an order ought to be made despite the first defendant’s bankruptcy.
Should leave be granted to continue against bankrupt first defendant?
[26] Section 76(1) of the Insolvency Act 2006 provides that on adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.
[27] Section 76(2) however allows the Court to grant leave for proceedings to continue as follows:
(2)However, on the application by any creditor or other person interested in the bankruptcy, the court may allow proceedings that had already begun before the date of adjudication to continue on the terms and conditions that the court thinks appropriate.
[28] In Vintage Aviator Ltd v Demarco (including as trustee of Airflight Trust), Grice J summarised the general principles applying to the exercise of the discretion under s 76(2), although in circumstances where leave was sought to continue substantive claims.3
[29] Grice J referred to Saimei v McKay in which it was held that relevant factors include the impact on the orderly administration of the bankrupt’s assets on the basis that a particular creditor should not be able to obtain an advantage by bringing proceedings against the bankrupt and that the substantive claims should not clearly be unsustainable (although recording that the Court will not investigate the merits of a claim).4 The Court ultimately has a discretion to do what is right and fair according to the circumstances of the case.
[30] Grice J further referred to the fact that the claim should normally be of a type which is more suitably determined by action rather than lodging a proof of debt in the bankruptcy, commenting that if the claim could just as easily be dealt with in the bankruptcy, leave is not likely to be granted.5
[31] In addition, Grice J held that the views of the Official Assignee should be sought.6
[32] The discovery orders sought here are confined. Confirmation of whether the first defendant has exercised her power of appointment of trustees of the Kazzer Family Trust will assist the Court by providing a basis for inferring whether
3 Vintage Aviator Ltd v Demarco (including as trustee of Airflight Trust) [2021] NZHC 1911 at [5] onwards.
4 At [6]; referring to Saimei v McKay (1998) 6 NZBLC 102,611 (HC) at 3.
5 At [6(d)].
6 At [8].
the second defendant remains a trustee of the Kazzer Family Trust. It will also assist in determining whether the second defendant ought to be restored to the Companies Register.
[33] Because only discovery orders are being sought, it is not a matter that could be dealt with in the bankruptcy but instead needs to be dealt with separately. Nor do I consider that the orders will cause significant prejudice to the defendants.
[34] Another relevant factor is that the first defendant was required to complete standard discovery prior to being adjudicated bankrupt and it appears that the documents sought ought to have been included in that discovery if they exist. There would ordinarily be a continuing obligation to discover them pursuant to r 8.18.
[35] The defendant has not filed a notice of opposition, but she has corresponded with the Registry by email. That correspondence deals with confidential matters that I do not expressly refer to in this judgment. Those matters do not however provide any proper basis for opposing the orders sought.
[36] The plaintiff in this case is seeking far more limited leave than in Vintage Aviator Ltd, the leave only being sought for the limited purpose of obtaining further discovery from the first defendant and from the Official Assignee. Such limited leave would not disrupt the orderly administration of the first defendant’s assets. As recorded above, the views of the Official Assignee have been sought with consent confirmed by memorandum.
[37] I accept that the discovery orders are necessary to allow an efficient determination of the claim against the trustee of the Kazzer Family Trust and to avoid judgment being obtained against the wrong entity.
[38] Having considered all of the above factors, I consider leave to continue the proceeding for the limited purpose sought can be justified in the circumstances.
Orders
[39]I order:
(a)leave is granted to the plaintiff to continue these proceedings against the first defendant for the purposes of completing discovery as directed below;
(b)leave is reserved to the plaintiff to seek broader leave if necessary;
(c)that the order for standard discovery of June 2022 is varied pursuant to r 8.17 of the High Court Rules to add an order that the first defendant discover (and has a continuing obligation to discover) any document recording any exercise(s) or purported exercise(s) of the power of appointment (and removal) of trustees under the deed of the Kazzer Family Trust;
(d)that the Official Assignee discovers the documents in Schedule A to this judgment;
(e)the first defendant and the Official Assignee are to file and serve further affidavits of documents by 29 September 2023; and
(f)costs are to lie where they fall.
Associate Judge Sussock
Schedule A – categories of documents for non-party discovery
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