Wellington Audio Visual Limited v Euro Boston Group Limited HC Auckland CIV 2007-404-1089

[2010] NZHC 363

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV 2007-404-1089

BETWEEN  WELLINGTON AUDIO VISUAL LTD

First Plaintfiff

ANDPETER JOHN WATT Second Plaintiff

ANDPETER JOHN WATT AND NORTHERN TRUSTEE SERVICES (NO. 84) LTD

Third Plaintiff

ANDEURO BOSTON GROUP LTD First Defendant

ANDPETER BRUCE MARRIOTT Second Defendant

Hearing:         9 February 2010

Counsel:         D W Grove for Plaintiffs

No appearance by or on behalf of First Defendant
P B Marriott, Second Defendant, in person

Judgment:      31 March 2010

JUDGMENT (NO. 2) OF HEATH J

This judgment was delivered by me on 31 March 2010 at 10.00am pursuant to Rule 11.5 of the High

Court Rules

Registrar/Deputy Registrar

Solicitors:
Ellis Law, PO Box 4516, Auckland
Counsel:
D Grove, PO Box 130, Shortland Street, Auckland
Copy to:

Defendant in person

WELLINGTON AUDIO VISUAL LTD AND ORS V EURO BOSTON GROUP LTD AND ANOR HC AK

CIV 2007-404-1089  31 March 2010

Introduction

[1]      Wellington Audio Visual Ltd (WAVL) was incorporated in 1990, under the Companies Act 1955 (the 1955 Act).  99 of the 100 shares were owned by trustees (Mr Marriott and Mr Splite) of the St Helens Trust (the Trust). The remaining one share was held by Mr Marriott. Mr Marriott accepts that the one share in his name was held on behalf of the trustees of the Trust. At the time of incorporation, every

private limited liability company was required to have at least two shareholders.[1]

[1] Companies Act 1955, ss 353 and 354(2)(a).

[2]      From the time of its incorporation, until Mr Splite’s resignation in November

2000, Mr Marriott and Mr Splite were directors of WAVL.  Mr Splite was one of Mr

Watt’s business associates.   Mr Marriott had been Mr Watt’s solicitor, having acted

on both the settlement of the Trust and incorporation of WAVL.

[3]      The Trust was settled on 14 March 1999, for the benefit of Mr Watt and his family.  Mr  Watt  held  the  power  of  appointment  of  trustees  and  was  also  a discretionary beneficiary.   Although Mr Watt was not disclosed as either a director or a shareholder of WAVL, the company was his alter ego.  No significant decision was made without Mr Watt’s agreement.

[4]      After  a  hearing  over  five  days  in  October  2009,  I  gave  judgment  on  three major issues argued before me.[2]  They were:

[2] Wellington Audio Visual Ltd v Euro Boston Group Ltd (HC Auckland CIV 2007-404-1089, 9 December 2009).

a)        The extent (if any) of Mr Marriott’s personal shareholding in WAVL (the shareholding issue).

b)Whether Mr Marriott breached his duties as a director of WAVL, by entering into the Lombard transaction and causing loss to WAVL (the

Lombard issue).

c)        The liability (if any) of  Mr Marriott to repay a sum of $40,000 that was advanced to him by WAVL on 18 August 2004 (the debt issue).

[5]      In  my  judgment  of  9  December  2009,  I  ruled  against  Mr  Marriott  on  the shareholding and debt issues.   I held in Mr Marriott’s favour on the Lombard issue. As a result, I concluded:[3]

[3] Ibid, at [56].

a)        WAVL was entitled to a declaration that Mr Marriott holds no shares

in WAVL, in his own name.

b)        WAVL had not satisfied me that it has any claim against Mr Marriott

in respect of the Lombard transaction.

c)        Mr Marriott owed WAVL the sum of $40,000.

[6]      Mr  Marriott,  in  closing  submissions  at  the  first  hearing,  raised  a  claim  for quantum meruit, if he were unsuccessful in his shareholding claim.  While indicating some  scepticism  as  to  the  legal  basis  for  such  a  claim,  I  indicated  I  would  hear further argument on it.[4]

[4] Ibid, at [57].

[7]      On  9  February  2010,  I  heard  argument  (subsequently  supplemented  by further written submissions) on outstanding issues.  Those issues, with which I deal in this judgment, are:

a)        Mr Marriott’s claim for remuneration.

b)        The orders required to give effect  to  my  judgment  of  9  December

2009.

c)        Interest. d)        Costs.

The remuneration claims

(a)   Introductory comments

[8]      Mr Marriott first met Mr Watt in 1989.  After acting on the incorporation of WAVL and settlement of the Trust, he decided, in 1992, to forego legal practice in favour  of  a  career  in  the  commercial  sector  as  a  trustee,  investment  banker  and business  consultant.          As  part  of  that  career  development,  Mr  Marriott  became involved in administration of Mr Watt’s companies, in particular WAVL.

[9]      In  evidence  at  the  October  hearing,  Mr  Watt  agreed  that  his  corporate interests were, in effect, treated as a global group.   I was satisfied that Mr Marriott undertook tasks for companies other than WAVL.[5]

[5] Ibid, at [19].

[10]     Mr Marriott did not suggest that he took an active role in the management of Mr  Watt’s  trading  entities.  Rather,  he  deposed  that  he  assisted  in  designing “structures”  for  them  and  provided  “advice”  to  “managers”. For  example,  Mr Marriott  says  that  he  “drew  up  business  plans  and  operational  manuals”  and  was involved in establishing franchises for a trading label owned by Mr Watt, known as “Tommy  Gun”. During  this  time,  Mr  Marriott  lived  in  Wellington  but  travelled regularly to Auckland, for business purposes.   The amount of time that Mr Marriott spent on work in relation to the business affairs of WAVL (or the wider Watt group of companies) was (and remains) in dispute.[6]

[6] Ibid, at [20].

[11]     Mr Marriott alleged that he reached an agreement in 1999, whereby 20% of the shares in WAVL would be transferred to him personally. He alleged the agreement was struck during a meeting with Mr Watt at a coffee house in Auckland at some (unspecified) time during that year. Mr Marriott’s case was that 10% of the shares were to be transferred to him in consideration of past services to WAVL, with the balance being transferred in  consideration  of  anticipated  future  services. In

effect, the agreement was alleged to have provided some basis for remuneration for the services provided by Mr Marriott to Mr Watts’ companies.[7]

[7] Ibid, at [22] and [23].

[12]     I rejected Mr Marriott’s claims.  I held that no agreement of the type alleged had been entered into.[8]

[8] Ibid, at [30]-[35].

[13]     Rejection  of  the  shareholding  claim  resulted  in  another  attempt  to  obtain “remuneration”   based   (primarily)   on   quantum   meruit   principles. For   present purposes,  the  term  quantum  meruit  reflects  a  restitutionary  claim  for  reasonable remuneration,  premised  on  the  existence  of  a  claimed  contractual  or  promissory right.[9]

[9] Grantham & Rickett Enrichment and Restitution in New Zealand (Hart Publishing, Oxford, 2000) at 166.

[14]     At  the  hearing  on  9  February  2010,  I  identified  three  issues  raised  by  the remuneration claim:

a)        Is a person in Mr Marriott’s position as director, trustee or manager entitled  to  receive  an  award  of  remuneration,  in  the  absence  of  a resolution  complying  with  the  company’s  constitution  or  the  trust instrument?

b)Given  that  Mr  Marriott’s  services  were  performed  for  a  “global enterprise”  involving  Mr  Watt’s  companies,  is  there  is  an  entity against which judgment could be entered, in any event?

c)        If, as a matter of law, Mr Marriott can receive an award and there is

an entity against which judgment could be entered, for what amount should judgment be entered?

[15]     Mr  Marriott  submitted  that  he  is  entitled  to  remuneration  for  services rendered   by   him   as   a   director   of   WAVL,   a   trustee   of   the   Trust   and   a manager/consultant in relation to Mr Watts’ global group of companies.  I deal with his claim under each of those headings.

(b)   Entitlement to remuneration as a director of WAVL

[16]     At the time WAVL  was  incorporated,  the  1955  Act  was  in  force. The question of remuneration of directors was governed by the Articles of Association of

a company.  Table A of the Third Schedule to the 1955 Act set out default rules, out

of which those incorporating a company could contract.

[17]     WAVL’s articles varied the default rules, providing:[10]

[10] Article 30 of WAVL’s Articles of Association.

THE remuneration of the directors shall from time to time be determined by the  Company  in  general  meeting.   That  remuneration  shall  be  deemed  to accrue from day to day.  The directors may also be paid all travelling, hotel and  other  expenses  properly  incurred  by  them  in  attending  and  returning from  meetings  of  the  directors,  or  any  committee  of  directors,  or  general meetings  of  the  Company,  or  in  connection  with  the  business  of  the Company.

No remuneration resolution was passed at any general meeting of the company.

[18]     Directors’ remuneration, under the  1955  Act,  was  considered  in  Putaruru

Pine and Pulp Company (NZ), Limited v MacCulloch[11].  Delivering the judgment of

[11] [1934] NZLR 639 (CA).

the Court of Appeal, Reed J said:[12]

[12] Ibid, at 648.

Returning then to the main question: unless a contract to pay can be proved a director has no enforceable right to be paid anything for his services; there can be no such thing as  the  right  to  sue on a  quantum  meruit. Where  by articles of association remuneration to directors is fixed and no more is said, the presumption is that the remuneration so fixed is only for the future and not for past services: In re London Gigantic Wheel Co Ltd [(1908) 24 TLR

618]. There is nothing to prevent shareholders voting out of profits a gratuity

to the directors for past services, and, acting on such a resolution, directors would be justified in paying themselves the amount of the gratuity so voted;

but it does not follow that the mere  vote  of  a  gratuity  for  past  services

(assuming no contract) gives any right of action. That has to be determined by the general law relating to contracts.  (my emphasis)

[19]     After WAVL’s re-registration under the Companies Act 1993 (the 1993 Act), the question of remuneration fell to be determined  by  reference  to  the  detailed

provisions of s 161 of the Companies Act 1993.  That section states:

161  Remuneration and other benefits

(1)  The board of a company may, subject to any restrictions contained in the constitution of the company, authorise—

(a)   The payment of remuneration or the provision of other benefits by the company to a director for services as a director or in any other capacity:

(b)  The payment by the company to a director or former director of compensation for loss of office:

(c)  The making of loans by the company to a director:

(d)  The giving of guarantees by the company for debts incurred by a director:

(e)  The entering into of a contract to do any of the things set out in paragraphs (a), (b), (c), and (d) of this subsection,—

if the board is satisfied that to do so is fair to the company.

(2)  The board must ensure that forthwith after authorising the making of the payment  or  the  provision  of  the  benefit  or  the  making  of  the  loan  or  the giving of the guarantee or the entering into of the contract, as the case may be, particulars of the payment or benefit or loan or guarantee or contract are entered in the interests register.

(3)   The  payment  of  remuneration  or  the  giving  of  any  other  benefit  to  a director in accordance with a contract authorised under subsection (1) of this section need not be separately authorised under that subsection.

(4)   Directors  who  vote  in  favour  of  authorising  a  payment,  benefit,  loan, guarantee,  or  contract  under  subsection  (1)  of  this  section  must  sign  a certificate  stating  that,  in  their  opinion,  the  making  of  the  payment  or  the provision  of  the  benefit,  or  the  making  of  the  loan,  or  the  giving  of  the guarantee, or the entering into of the contract is fair to the company, and the grounds for that opinion.

(5)   Where a  payment  is made  or  other  benefit  provided  or a  guarantee is given to which subsection (1) of this section applies and either—

(a)  The provisions of subsections (1) and (4) of this section have not been complied with; or

(b)   Reasonable grounds did not exist for the opinion set out in the certificate given under subsection (4) of this section,—

the director or former director to whom the payment is made or the benefit is provided, or in respect of whom the guarantee is given, as the case may be,

is  personally liable  to  the  company for  the  amount  of  the  payment,  or  the monetary value of the benefit, or any amount paid by the company under the guarantee, except to the extent to which he or she proves that the payment or

benefit  or  guarantee  was  fair  to  the  company  at  the  time  it  was  made, provided, or given.

(6)  Where a loan is made to which subsection (1) of this section applies and either—

(a)  The provisions of subsections (1) and (4) of this section have not been complied with; or

(b)   Reasonable grounds did not exist for the opinion set out in the certificate given under subsection (4) of this section,—

the  loan  becomes  immediately  repayable  to  the  company  by  the  director, notwithstanding  the  terms  of  any  agreement  relating  to  the  giving  of  the loan, except to the extent to which he or she proves that the loan was fair to the company at the time it was given.

[20]     Section 161(1) provides a basis on which a company may award remuneration to a director.  While a more restrictive regime may be imposed by the constitution of a company, there is no power  to authorise remuneration  on  any broader  basis.[13] The  protections  in  s 161  reflect  the  fiduciary  obligations  of  a director  and  the  conflicts  that  can  exist  between  his  or  her  personal  interests  and those of the company.  Examples are the need to enter details of any contract in the “Interests   Register”[14]    and   the   obligation   on   directors   who   vote   in   favour   of authorising remuneration to certify that, in their opinion, the remuneration, granted is fair to the company.[15]   No authorisation in terms of s 161 of the Companies Act 1993 was given for remuneration in favour of Mr Marriott.

[13] Companies Act 1993, s 161(1).

[14] Ibid, s 161(2).

[15] Ibid, s 161(4). 

[21]     Mr  Marriott  submitted  that  s  161  was  permissive  only. On  that  basis,  he contended  that  the  lack  of  Board  authorisation  did  not  prevent  this  Court  from awarding remuneration, either on a quantum meruit basis or on some other (residual) equitable principle.

[22]     Mr Marriott relied on Winkelmann J’s judgment in Villages of New Zealand

(Pakuranga) Ltd v Ministry of Health,[16] in which Her Honour addressed the quantum meruit ground for recovering reasonable costs of services.

[16] (2006) 8 NZBLC 101 (HC) at [70]-[71].

[23]     In Villages of New Zealand, Winkelmann J was dealing with an arm’s length transaction  between  health  funders  and  a  retirement  village. This  case  is  very different   and   does   not   come   within  the   scope   of   the   principle   identified   by Winkelmann J.  A director is a fiduciary.  The risk of conflict, inherent in the benefit for directors who receive remuneration and (potential) detriment to the company that pays,  has  led  to  prescriptive  rules  being  adopted  to  promote  informed  decision- making about whether (and to what extent) a director should be remunerated.

[24]     The  issue  was  addressed  in  Guinness  Plc  v  Saunders.[17] Delivering  the principal opinion in the House of Lords, Lord Templeman said in relation to a claim for remuneration based on quantum meruit:[18]

My Lords, the short answer to a quantum meruit claim based on an implied contract  by  [the  plaintiffs]  to  pay  reasonable  remuneration  for  services rendered  is  that  there  can  be  no  contract  by  [the  plaintiffs]  to  pay  special remuneration for the services of a director unless that contract is entered into by the board pursuant to article 91 [in New Zealand terms, either Article 30 of  WAVL’s  Articles  or  s  161  of  the  1993  Act].   The  short  answer  to  the claim for an equitable allowance is the equitable principle which forbids a trustee  to  make  a  profit  out  of his trust unless the trust  instrument,  in this case the articles of association of [the plaintiff], so provides.  The law cannot and  equity  will  not  amend  the  articles  of  [the  plaintiff].   The  court  is  not entitled to usurp the functions conferred on the board by the articles.

[17] [1990] 2 WLR 324 (HL).

[18] Ibid, at 331.

[25]     Lord Keith  of  Kinkel,  Lord  Brandon  of  Oakbrook  and  Lord  Griffiths  each expressed  agreement  with  Lord  Templeman’s  speech.[19] Lord  Goff  of  Chieveley (with whom Lord Griffiths also agreed) gave a concurring opinion in which, as well as affirming the view expressed by Lord Templeman, he said:[20]

[19] Ibid, at 326 and 337

[20] Ibid, at 341.

The  leading  authorities...demonstrate  that  the  directors  of  a  company,  like other  fiduciaries,  must  not  put  themselves  in  a  position  where  there  is  a conflict between their personal interests and their duties as fiduciaries, and are for that  reason, precluded from contracting with the company for their services except in circumstances authorised by the articles of association...directors  are  not  entitled  to  remuneration  for  their  services  as directors except as provided by the articles of association.

Plainly, it would be inconsistent with this long-established principle to award remuneration  in  such circumstances as of right on the  basis  of  a  quantum meruit claim. But the principle does not altogether exclude the possibility

that an equitable allowance might be made in respect of services rendered. That such an allowance may be made to a trustee for work performed by him for  the  benefit  of  the  trust,  even  though  he  was  not  in  the  circumstances entitled   to   remuneration   under   the   terms   of   the   trust   deed,   is   now established. ... (my emphasis)

[26]     Lord Goff  then  discussed  Phipps  v  Boardman.[21] He  cited  Wilberforce J’s view that it remained open for an equitable allowance to be made to a fiduciary, even where there was no express authority to remunerate.  Lord Goff continued:[22]

The  decision  has  to  be  reconciled  with  the  fundamental  principle  that  a trustee  is  not  entitled  to  remuneration  for  services  rendered  by  him  to  the trust except as expressly provided in the trust deed.   Strictly speaking, it is irreconcilable with the rule as so stated.  It seems to me therefore that it can only  be  reconciled  with  it  to  the  extent  that  the  exercise  of  the  equitable jurisdiction does not conflict with the policy underlying the rule.   And, as I see it, such a conflict will only be avoided if the exercise of the jurisdiction is  restricted  to  those  cases  where  it  cannot  have  the  effect  of  encouraging trustees  in  any  way  to  put  themselves  in  a  position  where  their  interests conflict with their duties as trustees.

[21] [1964] 1 WLR 993 (ChD); later affirmed by the House of Lords in Boardman v Phipps [1967] 2 AC 46 (HL).

[22] Guinness Plc v Saunders [1990] 2 WLR 423 (HL) at 342

[27]     Lord  Goff  regarded  Phipps  v  Boardman  as  “unusual”  and  not  an  authority that should be regarded as providing encouragement to trustees to put themselves in a position where their duties, as such, conflicted with their own interests.  As well as minimising the precedent value of Phipps v Boardman, Lord Goff expressly reserved his position on whether  the  residual  jurisdiction  recognised  in  that  case  could  be exercised in a case involving a director of a company, rather than a trustee.[23]

[23] Ibid, at 342-343.

[28]     In my view, Putaruru Pine and Pulp Co (NZ), Ltd v MacCulloch[24]   and Guinness Plc v Saunders[25]  are a complete answer to Mr Marriott’s claim. For the reasons given by Lord  Templemann in Guinness Plc, I am satisfied that the Court ought not to award remuneration, by way of quantum meruit, in a case in which the

relevant organs of the company have not approved it, either in terms of the Articles

of Association or s 161 of the 1993 Act.   I regard reliance on any wider equitable principle as precluded by Lord Goff’s observations in Guinness Plc v Saunders.[26]

[29]          Mr Marriott maintained a separate claim for remuneration as a “manager”.   I decline to make any award on that basis.   In evidence at the October 2009 hearing, Mr Marriott expressly differentiated his role (assisting in designing “structures” and providing  “advice”)  from  those  of  the  company’s  “managers”.[27]  As  he  took  no active role in the management of WAVL he lacks standing to claim remuneration on that basis.   Further, even if I had jurisdiction to do so (which I doubt) it would be

wrong in principle for the Court to award quantum meruit based   remuneration to a person, qua manager, who held office as a director of a company, in circumstances where that form of remuneration is not available, qua director.

[24] [1934] NZLR 639 (CA).

[25] [1990] 2 WLR 324 (HL).

[26] See [24] above.

[27] Wellington Audio Visual Ltd v  Euro  Boston Group Ltd  (HC Auckland CIV 2007-404-1089, 9 December 2009) at [20]. 

[30]     It follows that the claims for remuneration, either as a director or manager of

WAVL, must fail.

(c)   Entitlement to quantum meruit as trustee

[31]     Mr Marriott’s second argument is that he is entitled to remuneration, qua trustee. As is clear from the principles on which Lord Templemann and Lord Goff based their opinions in Guinness Plc v Saunders, the primary rule is that a trustee is forbidden to make a profit out of the trust, unless the trust instrument so provides.[28]

Notwithstanding those authorities, does Mr   Marriott   have   a   right   to   seek

remuneration in his capacity as a trustee of the Trust?

[28] Guinness Plc v Saunders [1990] 2 WLR 324 (HL) at 331 (Lord Templemann) and 341-342 (Lord Goff).

[32]     It is common ground that no resolution was passed authorising remuneration under the terms of the trust instrument.  Accordingly, Mr Marriott’s claim must rest

on any residual jurisdiction of the court to grant remuneration.   Mr Marriott relied, primarily, on Re Duke of Norfolk’s Settlement Trusts.[29]    No reference was made to

that decision in Guinness Plc v Saunders.

[29] [1982] 1 Ch 61 (CA).

[33]     In  Duke  of  Norfolk’s  Settlement  Trusts,  the  Court  of  Appeal  confirmed  an inherent jurisdiction for the Court to approve remuneration for services as a trustee. Delivering the principal judgment, Fox LJ said:[30]

[30] Ibid, at 79.

I appreciate that the ambit of the court’s inherent jurisdiction in any sphere may, for historical reasons, be irrational and that logical extensions are not necessarily permissible.  But I think that it is the basis of the jurisdiction that one  has  to  consider.  The  basis,  in  my  view,  in  relation  to  a  trustee’s remuneration  is  the  good  administration  of  trusts.   The  fact  that  in  earlier times, with more stable currencies and with a plenitude of persons with the leisure  and  resources  to  take  on  unremunerated  trusteeships,  the  particular problem  of  increasing  remuneration  may  not  have  arisen,  does  not,  in  my view,  prevent  us  from concluding that  a logical  extension of admitted  law and which is wholly consistent with the apparent purpose of the jurisdiction

is  permissible.    If  the  increase  of  remuneration  be  beneficial  to  the  trust administration, I do not see any objection to that in principle.

...

I  conclude  that  the  court  has  an  inherent  jurisdiction  to  authorise  the payment  of  remuneration  of  trustees  and  that  that  jurisdiction  extends  to increasing the remuneration authorised by the trust instrument.  In exercising that jurisdiction the court has to balance two influences which are to some extent in conflict. The first is that the office of trustee is, as such, gratuitous; the court will accordingly be careful to protect the interests of the beneficiaries against claims by the trustees. The second is that it is of great importance to the beneficiaries that the trust should be well administered. If therefore the court concludes, having regard to the nature  of  the  trust,  the experience and skill of a particular trustee and to the amounts which he seeks to charge when compared with what other trustees might require to be paid for their services and to all the other circumstances of the case, that it would be in the interests of the beneficiaries to increase the remuneration, then the court may properly do so.

Both   Cumming-Bruce   and   Brightman LJJ   agreed   with   those   statements   of principle.[31]

[31] Ibid, at 80 and 81.

[34]     A similar conclusion was   reached   in   Re   Application   of   Sutherland.[32]

Campbell J,  sitting  in  the  Equity  Division  of  the  Supreme  Court  of  New  South Wales,  took  the  view  that  the  Court’s  inherent  jurisdiction  to  permit  remuneration was wide, extending to approval (or retention) of remuneration for future work, as well as for past work done.[33]

[32] (2004) 50 ACSR 297 (SC, NSW).

[33] Ibid at [12].

[35]     The evidence adduced at the October 2009 hearing was directed specifically

to  the  role  played  by  Mr  Marriott,  in  relation  to  WAVL. The  suggestion  that remuneration  may  be  claimed  in  Mr  Marriott’s  capacity  as  a  trustee  of  the  Trust seems  to  be  an  afterthought.   While  the  principle  set  out  in  Re  Duke  of  Norfolk’s Settlement  Trusts  has  been  followed  in  New  Zealand,[34]   the  jurisdiction  must  be exercised  in  accordance  with  general  equitable  principles,  as  well  as  any  relevant provisions of the Trustee Act 1956.

[34] For example, see Re Kirby’s Carriers Ltd (HC Christchurch M522/83, 14 April 1987) and Pearson

v Parklane Holdings Ltd (CA101/97, 26 November 1997).

[36]     Gallen J, delivering the judgment of  the  Court  of  Appeal  in  Pearson  v

Parklane Holdings Ltd, said:

[Counsel  for  the  appellant]  drew  attention  to  those  cases  of  which  the principal  authority  is  Re  Duke  of  Norfolk's  Settlement  Trusts  ...,  which establish  that  the  Court  may  in  appropriate  cases  on  the  application  of  a trustee, allow a trustee remuneration although no provision is made for that in the trust deed itself. Such an approach would be justified by the proviso to s.38 (2) of the Trustee Act.

The power  reposed  in the Court by the  Act  is  discretionary and it  is clear from the cases that an exceptional situation is necessary before the award of remuneration  will  be  appropriate.  That  is  reinforced  by  the  prohibition contained  in  s.38  (2)  itself  against  allowing  the  costs  of   professional services. That the jurisdiction is to be exercised sparingly is emphasised by the  comments  in  Underhill  and  Hayton  -  The  Law  of  Trusts  and  Trustees

15th ed. p.643 and the cases there cited of which Re Worthington [1954] 1

All  ER  677  is  an  example.  The  same  conclusion  can  be  drawn  from  the comments in the Re Duke of Norfolk's Settlement Trusts case itself.

It  follows then that what  a trustee in the appellant's position seeks to rely upon is not a right, but an order dependent upon the discretion of the Court. Until  such  an  order  has  been  made  therefore,  a  trustee  cannot  defend  a claim by putting forward a right which has not yet accrued and which may never come into existence.  (my emphasis)

[37]     Sections 38(2), 71 and 72 of the Trustee Act 1956 inform the exercise of the discretion:

38  Implied indemnity of trustees

...

(2)   A trustee may reimburse himself or pay or discharge  out  of  the  trust property all expenses reasonably incurred in or  about  the  execution  of  the trusts or powers; but, except as provided in this Act or any other Act or as

agreed by the persons beneficially interested under the trust, no trustee shall

be allowed the costs of any professional services performed by him in the execution of the trusts or powers unless the contrary is expressly declared by

the instrument creating the trust:

Provided  that  the  Court  may  on  the  application  of  the  trustee  allow  such costs as in the circumstances seem just.

...

71  Power of Court to charge costs on trust estate

The  Court  may  order  the  costs  and  expenses  of  and  incidental  to  any application  for  any  order  under  this  Act,  or  of  and  incidental  to  any  such order,  or  any conveyance  or  assignment  in  pursuance  thereof,  to  be  raised and paid out of the property in respect whereof the same is made, or out of the  income  thereof,  or  to  be  borne  and  paid  in  such  manner  and  by  such persons as to the Court may seem just.

72  Commission

(1)The  Court  may,  out  of  the  property  subject  to  any  trust,  allow  to  any person  who  is  or  has  been  a  trustee  thereof  or  to  that  person's  personal representative such commission or percentage for that person's services as is just and reasonable.

(1A)  In considering under subsection (1) of this section what commission or percentage is just and reasonable the Court shall have regard to the following circumstances, namely:

(a)  The total amount that has already been paid to any trustee of the trust, whether pursuant to the trust instrument or to any earlier order

of the Court or to any agreement or otherwise;

(b)   The  amount  and  difficulty  of  the  services  rendered  by  the trustee;

(c)   The liabilities to which the trustee is or has been exposed, and the responsibilities imposed on him;

(d)  The skill and success of the trustee in administering the trust; (e)  The value of the trust property;

(f)  The time and services reasonably required of the trustee;

(g)    Whether  any  commission  or  percentage  that  might  otherwise have been allowed should be refused or reduced by reason of delays

in the administration of the trust that were occasioned, or that could reasonably have been prevented, by the trustee; and

(h)  All other circumstances that the Court considers relevant.

(2)  The Court may make any such allowance at any time, and from time to time, before or during the administration of the trust, or on the termination of

the trust, and may, subject to such terms and conditions as the Court thinks fit,  make  any  such  allowance  in  respect  of  services  to  be  rendered  by  the trustee during any specified period subsequent to the date of the order.

(3)   Where the Court allows a commission or percentage under this section

in  any  case  in  which  2  or  more  persons  are  or  have  been  the  trustees, whether  acting  at  the  same  time  or  at  different  times,  [[the  amount  so allowed shall be apportioned among the trustees as they mutually agree; and if there is no such agreement]] the Court may, in its discretion, apportion the total amount allowed among the trustees in such manner as it thinks fit, and, in  particular,  may  divide  the  amount  in  unequal  shares  or  may  make  the allowance  to  one  or  more  of  the  trustees  to  the  exclusion  of  the  other  or others.

(4)   Rules may from time to time be made in the manner prescribed by the Judicature  Act  1908  for  carrying  the  provisions  of  this  section  into effect. The Executors Commission  Rules  1935  and  the  Executors  Commission Rules 1935, Amendment No 1, so far as they were in force on the 31st day of December 1956, shall continue and have effect as if they had been made under this subsection and as if this section had been in force when they were made, and may be amended or revoked accordingly.

[38]     I  am  not  satisfied  that  this  is  an  appropriate  case  to  exercise  a  discretion decision to award remuneration in favour of Mr Marriott.

a)        First, there is scant evidence of the work undertaken for the Trust, as opposed to WAVL or any other members of (what might loosely be called) the Watt Group of companies.

b)Second, my findings on Mr Marriott’s credibility and his attempts to obtain some personal advantage from his role as director of WAVL in the Lombard transaction   does   not   provide   the   Court   with   any assurance that Mr Marriott strove to ensure that  his private interests did not take precedence over his duties to beneficiaries.   That factor takes  out  of  play  the  need  to  remunerate  in  order  to  promote  good administration of a trust.[35]  In the Lombard transaction, Mr Marriott was  plainly  attempting  to  structure  the  dubious  arrangements  in  a manner that would provide him with personal benefits, through Euro Boston Group Ltd.[36]

c)        Third,  I  have  insufficient  evidence  on  which  I  could  make  any appropriate assessment of the work undertaken by Mr Marriott for the Trust.  The absence of appropriate Trust records for that exercise to be undertaken  suggests  that  Mr  Marriott  also  fell  short  of  his  duties  in record-keeping for the Trust.

[35] See Duke of Norfolk’s Settlement Trusts [1982] 1 Ch 61 (CA) at 79, per Fox LJ.

[36] Wellington Audio Visual  Ltd v  Euro Boston Group  Ltd  (HC  Auckland  CIV  2007-404-1089,

9 December 2009) at [13]-[16] and [36]-[48].

[39]     The claim for remuneration as trustee fails.

(d)  Entitlement to remuneration: global Watt group of companies

[40]     Having failed on claims for remuneration against both WAVL and the Trust,

I reject Mr Marriott’s claim for remuneration in respect of the wider group.  Not only can specific work for the enterprise not be identified but also it is impracticable to determine the entity against which any remuneration could be awarded.

[41]     There is no legal basis on which remuneration can be ordered in a situation of that type.  I reject Mr Marriott’s claims.

Interest and costs

[42]     Mr  Marriott  was  successful  in  defending  the  claim  made  against  him  in respect  of  the  Lombard  transaction.[37]   He  was  unsuccessful  in  resisting  the  claim based  on  the  $40,000  debt.[38] Mr  Marriott  also  failed  in  his  claim  to  a  20% shareholding  in  WAVL.[39] In  addition,  he  has  failed  on  his  current  claims  for remuneration.

[37] Ibid, at [36]-[48].

[38] Ibid, at [49]-[55].

[39] Ibid, at [17]-[35].

[43]     There is no reason why interest ought  not  to  be  awarded  on  the  debt  of

$40,000 that I have found that  Mr  Marriott  must  pay to  WAVL.   The  underlying principle is that a judgment creditor should be compensated for the time it has been

out of pocket in respect of the debt.[40]    Interest will be awarded at the relevant rate/s

prescribed pursuant to s 87 of the Judicature Act 1908, from the date of issue of the proceeding to today’s date, as the date on which a formal order has been made.

[40] Blackley v National Mutual Life Association of Australasia Ltd (No 2) [1973] 1 NZLR 668 (SC) at 671

[44]     Each party has had a degree of success in the proceeding. Although Mr Marriott failed in his remuneration claim, it is clear that he did provide services to Mr Watt’s entities, which have (largely) gone unremunerated. I also have regard to my findings on credibility, in which I was critical of Mr Watt as well as Mr Marriott.

As  I said  in  my first  judgment,  both  Mr  Watt  and  Mr  Marriott  were  “prepared  to engage in colourable business practices for [personal] commercial gain”.[41]

[41] Wellington Audio Visual Ltd v  Euro Boston  Group  Ltd  (HC  Auckland  CIV  2007-404-1089,  9

December 2009) at [16].

[45]     Those circumstances lead me to the view that costs should lie where they fall.

Formal orders required

[46]     Having considered submissions from both Mr Grove and Mr Marriott on 9

February 2010, I make the following orders:

a)        I  declare  that  Mr  Marriott  holds  no  shares  in  WAVL,  in  his  own name.[42]

[42] Ibid, at [17]-[35].

b)Judgment is entered in favour of WAVL against Mr Marriott, in the sum of $40,000, in respect of the debt claim.[43]

[43] Ibid, at [49]-[55].

c)        Interest  is  awarded  on  the  sum  of  $40,000  at  appropriate  rates, pursuant s 87 of the Judicature Act 1908, from the date of issue of the proceedings to today’s date, as the date on which the formal order has been pronounced.

d)I  declare  that  Mr  Marriott  has  no  financial  liability  to  WAVL  in respect of the Lombard transaction.[44]

[44] Ibid, at [36]-[48].

e)        I declare that Mr Marriott is not entitled to remuneration as a director

of  WAVL,  a  manager  of  WAVL,  a  trustee  of  the  Trust  or  for  work performed for the wider Watt group of companies.

f)        No order as to costs.

P R Heath J

Delivered at 10.00am on 31 March 2010