Trustees Executors Ltd v Perpetual Trust Ltd

[2012] NZHC 1817

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-3569 [2012] NZHC 1817

BETWEEN  TRUSTEES EXECUTORS LTD Plaintiff

ANDPERPETUAL TRUST LTD Defendant

Hearing:         24 July 2012 (by telephone)

Counsel:         C M Stevens and A L Holloway for Plaintiff

S E Fitzgerald and J Edwards for Defendant

Judgment:      24 July 2012

JUDGMENT (NO. 2) OF HEATH J

This judgment was delivered by me on 24 July 2012 at 4.30pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Russell McVeagh, PO Box 8, Auckland Phillips Fox, PO Box 2791, Wellington Counsel:

J R Billington QC, PO Box4338, Shortland Street, Auckland

Copy to:

Financial Markets Authority, PO Box 1179, Wellington

H Rennie QC, PO Box 10242, Wellington

TRUSTEES EXECUTORS LTD V PERPETUAL TRUST LTD HC AK CIV 2012-404-3569 [24 July 2012]

Introduction

[1]      An  urgent  telephone  conference  was  convened  today,  pursuant  to  leave reserved to apply after I gave my judgment of 12 July 2012 on Trustees Executors Ltd’s application for orders under s 49 of the Securities Act 1978.[1]

[1] Trustees Executors Ltd v Perpetual Trust Ltd [2012] NZHC 1678.

[2]      Perpetual Trust initiated the conference by raising concerns about steps taken by the Court appointed “Observers”; in particular, whether they may have exceeded, inadvertently, powers conferred upon them in my earlier judgment.[2]     Memoranda were provided by counsel for both parties.  I was also supplied with a draft report prepared by Ms Fatupaito, one of the appointed “Observers”.

[2] Ibid, at paras [12], [19](b)(ii) and [21].

[3]      It is inappropriate to go into the detail of the points raised by Perpetual Trust and the responses of Trustees Executors.  It is sufficient to say that genuine issues have arisen about which neither party should be criticised.  Having said that, there are some aspects of my judgment of 12 July 2012 that may benefit from further clarification; particularly, in relation to the way in which evidence is to be put before

the Court on the substantive s 49 application, due to be heard on 3 August 2012.[3]

Methods of oversight: The role of the “Observers”

[3] See para [8] below.

[4]      Observers  were  appointed  as  one  means  of  providing  confidence  to  the market that there was a degree of independent oversight, in relation to Perpetual’s trusteeship of the Perpetual Cash Fund and the Perpetual Mortgage Fund.   Their appointment was not intended to intrude on decision-making powers of the directors of Perpetual Trust but was designed to enable oversight of the activities of the Perpetual Trust Board, insofar as it related only to management of the Cash Fund and

the Mortgage Fund.[4]

[4] Trustees Executors Ltd v Perpetual Trust Ltd [2012] NZHC 1678, at para [12].

[5]      The appointment of Observers was to provide a complementary method of monitoring  the  trusteeship.    The  powers  conferred  on  Trustees  Executors,  as statutory supervisor of the two Funds, remained unaffected.[5]    Also, there was the ability to monitor through undertakings provided by Perpetual Trust to the Financial Markets Authority and the statutory supervisor.[6]   Those undertakings were also given to the Court on 12 July 2012 and were to enure pending further order of the Court.[7]

[5] Clause 10.2 of the Deed of Participation, read in conjunction with cl 1 of Schedule 17 to the

Securities Regulations 2009.

[6] Trustees Executors Ltd v Perpetual Trust Ltd [2012] NZHC 1678, at para [17].

[7] Ibid, para [18].

[6]      In  contrast  to  the  powers  conferred  on  the  statutory  supervisor  by  the Securities Regulations 2009 and the Deed of Participation, the Observers were authorised, pending further order of the Court, to attend Perpetual Trust’s board meetings, “in relation to the Funds”, “to ask questions of members of the Perpetual Trust  board,  regarding  the  Torchlight  advances”  and  to  have  full  access  to information provided by Perpetual Trust to investors and/or investors’ advisors, with respect to the Torchlight advances.  Finally, they were entitled to obtain information to identify the flow of cash in relation to the Torchlight advances, to the ultimate

beneficiaries of those moneys.[8]   I intended that the power to ask questions of board

members would operate both within the confines of a formal board meeting and outside.[9]

[8] Ibid, at para [21].

[9] Ibid, at para [21](b).

[7]      The need to keep separate the functions undertaken by Ms Fatupaito and Mr Duffy (or their alternates), as Observers, was underscored by the order for costs and reasonable expenses incurred by the Observers being met out of Perpetual Trust’s own resources, not from the two Funds.  While I was aware that Ms Fatupaito and Mr Duffy were carrying out tasks in respect of powers conferred on the statutory supervisor by regulation and the Deed of Participation, as well as the undertakings, I deliberately limited costs and disbursements that could be recovered out of Perpetual Trust’s non-Fund assets to those incurred as Observers only.

[8]      The other area in which the question of demarcation becomes important is in relation to the affidavits to be filed on the s 49 application.   I directed that a joint

affidavit from the Observers be filed and served on or before 25 July 2012, outlining what  has  occurred  “over  the  period  during  which  they  have  performed  those functions and identifying any concerns arising during the period of their appointment”.[10]    That affidavit was designed to capture what had been sought and obtained by the Observers in relation to their specific functions as such, as well as the outcome of inquiries into the flow of cash, in relation to the Torchlight advance.

On the other hand, any investigations that had been undertaken pursuant to the statutory supervisor’s own powers (including those derived from the undertakings) were to be provided separately in support of the application, on or before 27 July

2012.[11]

[10] Ibid, para [19](b)(ii).

[11] Ibid, para [19](b)(iii).

[9]      Neither Mr Stevens, for Trustees Executors, nor Ms Fitzgerald, for Perpetual Trust, sought any direction in relation to any factual matter raised in the pre-hearing memoranda.  That was an appropriate stance to take.   I offer no comments on the points advanced.

Conclusion

[10]     I now leave it to counsel to proceed in accordance with the clarification I

have offered.   Should any further directions be required, leave to apply on short notice remains.

P R Heath J

Delivered at 4.30pm on 24 July 2012