Whata v Hughes
[2021] NZHC 1443
•22 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2017-463-139
[2021] NZHC 1443
BETWEEN GEORGINA WHATA & ORS as the current trustees of the Whakapoungakau 24
(Tikitere) Trust Plaintiffs
AND
SUNISA HUGHES
First Defendant
BRYAN GEORGE HUGHES
Second DefendantTĀTOU HOLDINGS LIMITED
Third DefendantTĀTOU INTERNATIONAL LIMITED
Fourth Defendant
Hearing: 19 and 20 October 2020 Appearances:
M T Kyriak and T G Kyriak for the Plaintiffs
G J Judd QC and K J Patterson for the Defendants
Judgment:
22 June 2021
JUDGMENT OF DUFFY J
This judgment was delivered by me on 22 June 2021 at 4.00 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors/Counsel:
Kryiak Law, Auckland
Ken Patterson, Solicitor, Tauranga G J Judd QC, Auckland
WHATA & ORS v HUGHES [2021] NZHC 1443 [22 June 2021]
[1] This judgment should be read together with the judgment I delivered in this proceeding on 10 February 2020.1 In that judgment I denied the defendants’ application to strike out the plaintiffs’ second amended statement of claim and I adjourned the defendants’ application to stay the proceeding. I gave the plaintiffs time to file an amended statement of claim and I ordered that if no amended statement of claim was filed and served by the specified date the stay of proceedings would take effect as sought.
[2] On 27 March 2020 the plaintiffs filed a third amended statement of claim. Various issues of procedure arose. These are recorded in minutes I issued, none of which need to be substantially traversed here. By 15 July 2020 the parties had reached an agreed position, which they recorded in a joint memorandum of that date. They sought a hearing to determine whether the proceeding is presently stayed and to determine a joinder application brought by the plaintiffs. When these matters came before me for hearing I was advised by the defendants that they no longer oppose the joinder application. They accepted that if I found the proceeding should not be stayed then joinder was appropriate. Alternately, if I found the proceeding was stayed that would render the joinder application redundant. Because the joinder application hinges on whether the proceeding is stayed or not, I shall deal with the arguments about stay first and joinder second.
Is the proceeding stayed?
[3] The arguments the defendants make in support of their contention the proceeding should be stayed are in substance the type of arguments associated with a strike out application. Essentially the defendants argue that the opportunity I gave the plaintiffs in the judgment of 10 February 2020 to replead their claims against the defendants has not been taken because the plaintiffs’ proposed new statement of claim does not disclose a reasonably arguable cause of action. The relevant document to which this criticism attaches is the draft fourth amended statement of claim. The document is in draft because it includes claims against Tikitere Holdings Limited (Tikitere Holdings), for whom the plaintiffs seek joinder. The defendants no longer
1 Eru v Hughes [2020] NZHC 122.
take any issue with the pleading being in draft form. All their criticisms are now directed at its substance.
Background
[4] It is helpful to understand the factual background to this dispute, which is fully set out in the judgment of 10 February 2020.
[5] The plaintiffs are the current trustees of the Whakapoungakau 24 (Tikitere) Trust (the Tikitere Trust), which is an Ahu Whenua trust under the Te Ture Whenua Act 1993. As trustees they are the legal owners of a 32-hectare block of Māori Freehold land (Whakapoungakau Block 24) situated in the Tikitere geothermal field in Rotorua. The land contains a significant geothermal resource that is both a tribal taonga and a commercially exploited geothermal park known as Hell’s Gate.
[6] The first to fourth defendants are natural and legal persons. In July 1996 were involved in establishing a joint venture with the then sole trustee of the Tikitere Trust, now the late Wahiao Raymond James Gray (known as Jim Gray), and an advisory trustee of that Trust, now the late Kotahitanga Tait. The purpose of the joint venture was to develop and operate Hell’s Gate as a commercial tourist venture. To this end Whakapoungakau Block 24 was leased to Tikitere Holdings, which was a registered company that was established to operate the Hell’s Gate tourist venture. This lease runs until 2035. A written joint venture agreement was also executed; it provided that the third defendant Tātou Holdings Limited (Tātou) was to contribute $120,000 to Tikitere Holdings and the Tikitere trustee was to allocate the “intangible benefits of the thermal attraction and buildings and improvements to the value of $120,000 to Tikitere Holdings. Tātou and the trustee/s of the Tikitere Trust were each to receive in return a 50 per cent shareholding in Tikitere Holdings. The profits Tikitere Holdings earned for the tourist venture would then have been available for equal distribution between the two shareholders.
[7] The implementation of the written joint venture agreement was frustrated by a solicitor’s failure to register correctly the 50 per cent shareholding in Tikitere Holdings that was intended for the trustee of the Tikitere Trust. Rather than registering this
shareholding in the name of the trustee, it was registered under the name of the Tikitere Trust, which is contrary to s 92 of the Companies Act 1993, which prohibits registration of shares in the name of a trust. Regrettably the error was not detected by Companies Office staff, who implemented the illegal registration rather than rejecting it. Those involved in the establishment of the joint venture seemingly did not realise it rested on the flawed premise that the trustees of the Tikitere Trust were 50 per cent shareholders in Tikitere Holdings, with all the rights held by persons with that number of shares in the company. Once established Tikitere Holdings began running the Hell’s Gate venture. Over the following years the Tikitere trustees (the Trustees) allegedly received some financial return that was over and above the lease payments for Whakapoungakau Block 24.
[8] Over time and following a change of trustees in 2015, the new trustees began to question the level of return they were receiving from Tikitere Holdings. Their disquiet culminated in them commencing this proceeding in 2017. At that time, they sought to enforce rights that would have been available to them if they were shareholders of Tikitere Holdings. On the strike out application I found they could not enforce such rights, but they were given the opportunity to replead their claims based on causes of action that are not dependent on them holding shares in Tikitere Holdings. They have taken this opportunity and their new proposed causes of action are set out in the draft fourth amended statement of claim (4th ASOC). This claim pleads 12 such causes of action.
[9] The defendants contend the 4th ASOC is flawed and should not be accepted. In particular, it does not fulfil the directions I gave in the strike out judgment where the plaintiffs were given the opportunity to file an amended statement of claim and if they did not the proceeding would be stayed. Put shortly, the defendants contend the 4th ASOC fails to disclose a reasonably arguable cause of action and therefore the proceeding is stayed.
Legal basis of claims against the defendants and Tikitere Holdings
[10] To begin with it is helpful to identify the legal basis for the plaintiffs’ claim/s. These spring from a failed written joint venture agreement that could not proceed in
its intended form through the failure to register Mr Gray as a 50 per cent shareholder of Tikitere Holdings.2 At the material time he was the sole trustee of the Tikitere Trust, and therefore the person in whose name those shares should have been registered.
[11] The legal basis of the plaintiffs’ claim/s against the defendants and Tikitere Holdings is that following the failed joint venture Mr Gray and successive trustees of the Tikitere Trust allegedly participated in the Hell’s Gate tourist venture together with Tātou and Tikitere Holdings under the common understanding that, and as if, the Trustees were part of this venture and were therefore entitled to share in its profits, on behalf of the Tikitere Trust. Those circumstances and the consequential way in which the three groups of persons3 dealt with and related to each other from the time the failed original written joint venture agreement was executed are such as to amount in law to either:
(a)a variation of the original written joint venture agreement comprising three groups of persons each of which owed fiduciary duties to the other; with the variations arising from circumstances, and conduct of the Tikitere trustees at the relevant time and Tātou as well as implied terms; or
(b)in the alternative, the type of non-contractual joint venture arrangement that equity typically recognises from circumstances when persons jointly pursue a business purpose without completely settling on and articulating the legal form of that arrangement, and which gives rise to each of them owing fiduciary duties to the others.
[12] The plaintiffs allege that throughout the life of the joint venture the way in which Tātou and Tikitere Holdings conducted themselves on several occasions and continue to do so was in breach of the fiduciary duties Tātou and Tikitere Holdings owe to the Tikitere trustees.4 The other defendants are alleged to have acted as
2 There is no dispute that 50 per cent of the shares in Tikitere Holdings were intended to be held for the benefit of the beneficiaries of the Tikitere Trust.
3 Being: (a) whoever were Tikitere trustees at the relevant time; (b) Tātou; and (c) Tikitere Holdings.
4 These occasions are particularised in the 4th ASOC. There is also implicitly apparent the continued refusal of Tātou and Tikitere Holdings to recognise they are in a joint venture with the plaintiffs and should be sharing profits earned from this joint venture with the plaintiffs.
accessories to the alleged breaches of fiduciary duty and are therefore liable under the law of accessory liability in equity for either knowing receipt or dishonest assistance.
[13] Generally the plaintiffs seek equitable relief from the defendants and Tikitere Holdings in the form of declarations the defendants and Tikitere Holdings hold property derived from their equitable breaches/wrongdoing on a constructive trust for the benefit of the Tikitere trustees, or an inquiry into the financial affairs and conduct of the defendants and Tikitere Holdings, or an account of profits or equitable compensation.
[14] The law and the legal basis for making claims like this is well settled. The focus in the present case is whether the plaintiffs can prove the necessary factual basis to support their claims. There is the ancillary question, which is currently pressing, as to whether they can articulate their claims well enough to meet the requirements of the law of pleadings.
[15] The plaintiffs’ ability to maintain their claims is important in two respects. First, there is the question of their ability to recover relief for past alleged wrongdoing by the defendants; and secondly there is the question of how they will proceed in the future vis-á-vis the Hell’s Gate tourist venture. Unless they can establish their claims for a joint venture with Tātou and Tikitere Holdings, the plaintiffs’ role in the Hell’s Gate tourist venture will be limited to no more than being the lessee of the land from which the venture operates, in which case the income the plaintiffs can expect to receive will be limited to the rental paid under this lease.
The 4th ASOC
[16] I acknowledge there are ostensibly several problems with this pleading. It is overly long, running to 81 pages. At times it appears to plead evidence rather than factual allegations. These features make it difficult to grapple with the pleading. It is helpful to summarise the essence of the pleading as this allows for a better understanding of the claims the plaintiffs make.
[17] The 4th ASOC refers to a written joint venture agreement dated 19 July 1996 (the 1996 JV). In the judgment I delivered on 10 February 2020, I found:
The written joint venture agreement expressly states it is between Mr Gray as trustee and Mr Tait as advisory trustee of the Tikitere Trust and Tātou Holdings.5 I accept that the written joint venture agreement is expressly premised on the joint venture being implemented by Tikitere Holdings; with Tātou Holdings and the sole trustees [sic] of the Tikitere Trust each holding 50% of the shares in Tikitere Holdings.6
[18] Because the “sole trustees of the Tikitere Trust” never held 50 per cent of the shares in Tikitere Holdings I found that the 1996 JV “could not have proceeded in the fashion provided for in the written agreement because in law the Tikitere Trust was not and is not legally capable of holding shares in Tikitere Holdings.” I also found that the correct legal position vis-á-vis the shareholding was that Tātou held 50 per cent of the shares and the remaining 50% were in law unallocated.7
[19] As to the effect on the joint venture of the Trustees not being legal shareholders in Tikitere Holdings I found as follows:
Regarding the plaintiffs, a finding that at the relevant times shares in Tikitere Holdings have only ever been held by Tātou Holdings simply means that the chosen legal form in the written joint venture agreement for how it would be operated never came to pass. Accordingly, that joint venture never operated, which means it cannot be sued upon. But that does not exclude the existence of some other joint venture agreement.
[20] The 4th ASOC is the plaintiffs’ attempt at repleading their claim against the defendants based on the existence of a joint venture agreement that is different from that which was contemplated on 19 July 1996 when the written agreement was executed.
[21] The new pleading approaches the existence of a joint venture in two ways. First, the plaintiffs allege that the written joint venture agreement dated 19 July 1996 was subsequently varied by the circumstances and subsequent conduct of the parties. Here the plaintiffs rely on the July 1996 joint venture written agreement having legal effect by reason of the alleged subsequent variations. Secondly, and in the alternative, the plaintiffs plead the existence of a new separate unwritten joint venture agreement. I deal with each in turn.
5 See clause 1 of the written joint venture agreement.
6 See clauses 2 and 4 of the written joint venture agreement.
7 The shareholding has changed since then. From 31 July 2020 the Companies Office Register shows Tātou as the sole shareholder holding 100 per cent of the shares.
The written joint venture agreement as varied by conduct
[22] At paragraphs [12] and [13] of the 4th ASOC the plaintiffs plead the circumstances that led to the execution of the 1996 JV and the written terms of that agreement, which included provision for the trustees of the Tikitere Trust and Tātou to each receive 50 per cent of the shares in Tikitere Holdings.
[23] At paragraph [14] of the 4th ASOC the plaintiffs plead that at the relevant times the trustee/s of the Tikitere Trust never received shares in Tikitere Holdings as was provided for in the 1996 JV, but that instead 50 per cent of the shares in Tikitere Holdings were incorrectly registered in the name of the Tikitere Trust.
[24] At paragraphs [15] and [16] of the 4th ASOC the plaintiffs plead that after the execution of the 1996 JV by Mr Gray (who was then the sole trustee of the Tikitere Trust) and Tātou there was a course of conduct over the following years between: (a) those who held office as trustees of the Tikitere Trust; (b) Tikitere Holdings and (c) Tātou that was consistent with those persons being in a joint venture together, and such conduct either expressly or impliedly had the effect of varying the written terms of the 1996 JV.
[25] With the above allegations the plaintiffs essentially assert the 1996 JV continues to have legal effect, through the variations made by the conduct of the parties. Various examples of that course of conduct are provided as particulars in the 4th ASOC:
(a)Various meetings that occurred between 1996 and 1999 at which the joint venture was discussed between either the shareholders or directors of Tikitere Holdings and Mr Gray the then trustee of the Tikitere Trust;8
(b)A financial report of Tikitere Holdings dated 31 March 2007 identified Tātou and the Tikitere Trust as shareholders in Tikitere Holdings;9
8 Fourth Amended Statement of Claim (4th ASOC), at [15](a).
9 4th ASOC, at [15](g). This can be taken as an indication that Tikitere Holdings, Tātou and the trustees of the Tikitere Trust viewed themselves as participants in a business venture together as opposed to the trustees being no more than lessee of the land where the venture was located.
(f)At a public occasion (the presentation of the New Zealand Tourism Awards 2007) Tātou described Tikitere Holdings as a 50/50 partnership between the landowners Tikitere Trust, and an investment management company Tātou;
(g)On 4 October 2006 the five successive trustees of the Tikitere Trust and Tikitere Holdings entered into a new deed of lease dated 4 October 2006 for the exclusive occupation of the land on which the Hell’s Gate business was operating; (which can be regarded as conduct consistent with those persons being in a joint venture together);
(h)On 24 September 2012 at a meeting of directors of Tikitere Holdings there was discussion regarding the appointment of a then trustee of the Tikitere Trust as an additional director of Tikitere Holdings to maintain a 50 per cent representation of directors on board from Tātou and the Tikitere Trust;10
(i)At a meeting on 16 November 2012 the then trustees of the Tikitere Trust, recorded the approval of a general security agreement on the assets of Tikitere Holdings in favour of its lender and noted that the Tikitere Trust was a 50/50 joint venture party to Tikitere Holdings;11
(j)From time to time Tikitere Holdings has made payments of company profits to a bank account referenced to the Tikitere Trust, including on 17 June 2016 ($250,000), on 15 October 2017 ($44,126) on 8 August 2017 ($97,134) and on 11 October 2018 ($451,784) with the same sums being paid by way of company dividends to Tātou on the same dates;12
(k)On 13 September 2018 Tātou gave notice to the then trustees of the Tikitere Trust that the trust was in breach of the joint venture and that
10 4th ASOC, at [15](j).
11 4th ASOC, at [15](k).
12 4th ASOC, at [15](1).
it had 30 days from the date of receiving the notice to remedy the alleged breach.13
[26] At [16] of the ASOC the plaintiffs plead that the circumstances pleaded at [12] to [15] of the 4th ASOC have either expressly or by implication varied the terms of the 1996 JV in the following way:
(a)The parties to the 1996 JV are now Tātou, the trustees of the Tikitere Trust and/or their successors and Tikitere Holdings.
(b)Under this JV the trustees of the Tikitere Trust are entitled to receive 50 per cent of the profits of Tikitere Holdings.
(c)The business of the joint venture was still to be the operation and development of Hell’s Gate
[27] At [16] the 4th ASOC also pleads that it was an implied term of the 1996 JV (as varied) that any person who is a party to the JV and who is also a trustee of the Tikitere Trust holds all of their interest in or entitlements arising from the JV in their capacity as trustee of that trust and that each such person consents to and shall be deemed to have assigned all of their interest or entitlements arising from the JV in any new trustees appointed from time to time as trustees of the Tikitere Trust as and from the date on which the appointments are made.14 I shall return to this aspect of the ASOC later.15
[28] At [16] the plaintiffs contend that the conduct of the trustees of the Tikitere Trust, Tātou and Tikitere Holdings demonstrates they have acted in a way that is consistent with and shows they had consented to variations of the terms of the 1996 JV agreement.
13 4th ASOC, at 15(n).
14 The allegation is a particular that appears on p 20 of the marked up version of the 4th ASOC. It appears at (v), (1) and (2) on that page.
15 See [41] and [100] herein.
[29] At [16] the plaintiffs rely on the implied and express variations to the 1996 JV. They allege the conduct of Tikitere Holdings, the trustees from time to time of the Tikitere Trust and Tātou is consistent with all parties accepting that Tikitere Holdings was a party to the 1996 JV. Particulars of this conduct are as follows:
(a)Trustees of the Tikitere Trust and Tikitere Holdings executed a deed of lease for the land at Hell’s Gate as required by clause 2.2 of the written 1996 JV.
(b)Tikitere Holdings operated and developed Hell’s Gate as a JV in accordance with the 1996 JV as required by clause 2.1 of that agreement.
(c)Tikitere Holdings made payments of company profits to the bank account the Trustees held for the benefit of the Tikitere Trust.
[30] The plaintiffs plead that it was an express term of the written 1996 JV agreement that the trustees of the Tikitere Trust shall receive a 50 per cent shareholding in Tikitere Holdings. Further, that clause 11 of that agreement provides that the division of profit of Tikitere Holdings shall be according to the percentage of shares held by shareholders and payment of the share of profits due to the shareholders of Tikitere Holdings will be made no later than three months after the end of the financial year. It is then pleaded that despite this express requirement in the written 1996 JV agreement the trustees of the Tikitere Trust have not received a 50 per cent shareholding, or any shareholding, in Tikitere Holdings. Nonetheless, Tikitere Holdings by its conduct has over time made payments of profits to the bank account the trustees hold for the Tikitere Trust. Based on those allegations the plaintiffs plead that it is therefore necessary to imply a term in the written 1996 JV agreement to the effect that Tikitere Holdings is obliged to pay, and the Trustees are entitled to receive 50 per cent of the profits of Tikitere Holdings.
[31] The essential effect of paragraphs [15] and [16] is to plead that the written 1996 JV agreement was varied either expressly or impliedly by the particularised conduct set out in those paragraphs. This left redundant the written provision for the trustees
of the Tikitere Trust to be shareholders of 50 per cent of the shares in Tikitere Holdings. This also replaced this written provision with unwritten provisions which saw this joint venture agreement now operate with three parties: (a) trustees of Tikitere Trust; (b) Tātou; and (c) Tikitere Holdings. Under the 1996 JV as varied Tikitere Holdings was to be the party running the business and the profit the company made from this business was to be shared on a 50/50 basis between the trustees of the Tikitere Trust and Tātou.
[32] Conceptually the effect of paragraphs [15] and [16] is not difficult to understand. However, the problem with paragraphs [15] and [16] is that together they span seven pages of the 4th ASOC. Paragraph [15] contains subparagraphs that run from (a) to (m). Paragraph [16] contains subparagraphs that run from (a) to (c) each of which contains its own set of subparagraphs, some of which go from (i) to (vii).
[33] I am satisfied that paragraphs [12] to [16] of the 4th ASOC if properly pleaded are capable of disclosing the alleged existence of a written joint venture agreement that includes variations by implied terms and by the parties’ conduct. However, in their present state these paragraphs contain a mass of details, some of which are presented as particulars, but which seem to me to be evidence. I accept that it would be a nightmare to plead a statement of defence to paragraphs [15] and [16] of the 4th ASOC in its present form.
[34] In accordance with strike out principles I have assumed the factual allegations are capable of proof. I am satisfied that the various allegations in paragraphs [15] and
[16] if properly pleaded disclose a reasonably arguable case for the 1996 JV agreement having been varied by conduct and by implied terms that would see its legal framework altered to take account of the fact the intended 50 per cent shares in Tikitere Holdings never legally passed to the trustees of the Tikitere Trust. However, some careful and skilful drafting needs to be done to present these allegations in a considered and coherent way.
Alternative written joint venture agreement
[35] In paragraph [17] the plaintiffs plead in the alternative that if the express/implied variations by conduct to the 1996 JV agreement that include Tikitere
Holdings as a joint venture party to that agreement are not established, then nevertheless the circumstances and conduct of the Tikitere trustees, Tātou and Tikitere Holdings at all material times is consistent with those persons being in a joint venture arrangement (the JV arrangement) that includes: (a) the trustees of the Tikitere Trust and their trustee successors; (b) Tātou and (c) Tikitere Holdings. Under this JV arrangement Tikitere Holdings is to operate and develop Hell’s Gate as a joint venture with the trustees of the Tikitere Trust and Tātou in circumstances where all persons are parties to the JV arrangement.
[36] Here the plaintiffs are essentially claiming that the failure to properly assign 50 per cent of the shares in Tikitere Holdings to the trustee/s of the Tikitere Trust has resulted in the joint venture envisaged by the 1996 JV being abandoned and a new unwritten joint venture arrangement having taken the place of the 1996 JV. This new arrangement is alleged to have arisen from the circumstances and the conduct of Tikitere trustee/s, Tātou and Tikitere Holdings. In support of this allegation the plaintiffs plead the following particulars:
(a)The trustees of the Tikitere Trust allocated the intangible benefits of the thermal attraction and buildings and improvements of Hell’s Gate to the joint venture.
(b)Tātou contributed the sum of $120,000 to the joint venture.
(c)The annual profits of Tikitere Holdings derived from the operation and development of Hell’s Gate were to be distributed equally to the Trustees and Tātou.
(d)A deed of lease dated 19 July 1996 was entered into between the then trustees of the Tikitere Trust as trustees for the owners of the land and Tikitere Holdings as tenants for the exclusive occupation of the land within the term of the lease expiring on 17 December 2025.
(e)A new deed of lease dated 4 October 2006 was entered into between the then trustees of Tikitere Trust as trustees for owners of the land and
Tikitere Holdings for a further term of 30 years with a commencement date of 18 December 2005 and expiry date of 17 December 2035.
(f)By written agreement dated 17 July 1996 between Tikitere Holdings and Tātou, Tātou agreed to take overall responsibility for the management and marketing of Hell’s Gate (the management contract).
(g)On 26 September 1999 the directors of Tikitere Holdings (which then included the first defendant, Sunisa Hughes, and Mr Gray) resolved to extend the term of the management contract to the life of the lease to Tikitere Holdings over the land.
[37] The pleading in paragraph [17] relating to the JV arrangement is confusing insofar as it refers back to earlier paragraphs which now plead the 1996 JV agreement continuing to have effect, but as varied by the conduct of the parties. The references in paragraph [17] back to the earlier paragraphs in the pleading which rely on the 1996 JV agreement continuing to have effect are unhelpful and confusing insofar as they create an impression that the JV arrangement still relies on the 1996 JV, rather than on the manner in which the Tikitere trustees, Tikitere Holdings and Tātou have conducted themselves over the years since 1996. However, the same references are not unhelpful when they are understood simply to be relying on the same factual allegations that are made earlier to support the claim based on the 1996 JV agreement being varied by subsequent conduct. Seen in this way, as between paragraphs [15] and [16] on the one hand and paragraph [17] on the other, the plaintiffs are relying on the same conduct to support the existence of either the 1996 JV agreement as varied by subsequent conduct, or a new JV arrangement which equity recognises from the circumstances. I consider the latter interpretation to be the intended interpretation. It is the only way of sensibly reading paragraphs [15] and [16] with paragraph [17]. However, that is not to say better pleading is not required. The apparent confusion between those paragraphs needs to be clarified.
[38] Paragraph [17] is relatively succinct. It covers no more than one page and it has no more than three subparagraphs. It is the reference back to paragraphs [15] and
[16] which make paragraph [17] confusing.
[39] I am satisfied that approached generously and by someone who has an understanding of the legal basis of the plaintiffs’ claims, paragraph [17] discloses a foundation for an alternative cause of action based on an unwritten joint venture. I also consider that assuming the allegations are capable of proof this alternative cause of action is reasonably arguable.
[40] Further, I am also satisfied that it is reasonably arguable that both forms of alleged joint venture could give rise to fiduciary duties which the respective joint venture participants could owe to each other. Whether such duties can exist in the pleaded circumstances is a legal question that does not need to be pleaded. However, the framing of the allegations to establish either a variation of the original written 1996 JV agreement or an alternate JV arrangement needs to be redone in a way that simply and succinctly states the material facts relied upon to establish either form of joint venture.
[41] One matter that is omitted from paragraph [17] is the inclusion of an allegation that reflects that it was an understanding of the JV arrangement that trustees who at one time were members of the JV arrangement would be deemed to have assigned all their interest or entitlements arising from the JV arrangement to their successor trustees. This allegation referred to at [27] herein relates to the pleaded 1996 JV as varied. It represents an attempt by the plaintiffs to maintain a chain of transfer of interest and entitlements, including the choses in action they sue upon in this proceeding. Its absence from the pleaded JV arrangement leaves that arrangement without a basis for such transfer having occurred.
Claims for breach of fiduciary duty and accessory liability in equity
[42] The 4th ASOC does not plead the existence of specific fiduciary duties. It does plead breaches of fiduciary duties, from which some insight can be gained as to the plaintiffs’ reliance on the existence of such duties. However, the 4th ASOC should have specified the various fiduciary duties the plaintiffs allege they were owed under the two joint ventures they plead.
[43] At paragraph [22] the plaintiffs plead that following execution of the management contract the control of the joint venture business effectively passed to the
control of Ms Hughes, the second defendant Brian George Hughes, Tātou and Tikitere Holdings.16 This allegation is part of the factual background on which the plaintiffs rely when they plead their claims for breach of fiduciary duty and accessory liability in equity.
[44] Particulars to support this allegation are pleaded at paragraphs [22](a) to (e). These particulars essentially describe steps whereby Ms Hughes and Mr Gray as directors of Tikitere Holdings decided that Ms Hughes would be responsible for managing the accounts of Tikitere Holdings and Tātou would assume total control over the financial resources of Tikitere Holdings. In support of these allegations various examples of the shift of control from Tikitere Holdings to Tātou or to Ms Hughes are outlined in the various subparagraphs of [22]. At [23] the plaintiffs plead that the directors of Tikitere Holdings resolved that in the event of Mr Gray ceasing to be a trustee of the Tikitere Trust he would become a new independent director of Tikitere Holdings.
[45] The plaintiffs essentially plead that since the shift which gave Tātou total control of the financial resources of Tikitere Holdings, Ms Hughes, who is a director of Tātou maintained financial control of Tikitere Holdings to the exclusion of the trustees of the Tikitere Trust up to 29 November 2017. Further, that all resolutions of Tikitere Holdings between December 1995 and 1 September 2014 were made by Ms Hughes and Mr Gray as directors of that company, with Bryan Hughes acting in attendance at board meetings in his capacity as general manager or chief executive of Tikitere Holdings. What the plaintiffs omit to allege here is their complaint that this movement of control to Tātou was contrary to the terms of either the 1996 JV as varied or the joint venture arrangement and that insofar as Mr Gray agreed to this shift of control he was acting in breach of his duties as a trustee of the Tikitere Trust. This gap in the pleading needs to be corrected if the plaintiffs intend to pursue this line of argument.
16 See [28](f) and (g) herein.
[46] Paragraphs [24] to [28] appear to me to be references to evidence by which the plaintiffs would seek to prove there was self-dealing by Tātou and Tikitere Holdings. On this basis there is no good reason for their inclusion in the 4th ASOC.
[47] Then at [29] the plaintiffs plead that from July 1996 onwards there was concealment and inadequate record keeping by Ms Hughes and Mr Gray as directors of Tikitere Holdings. This is part of the original pleading where the Trustees purported to exercise their rights as shareholders of Tikitere Holdings. Five particulars of such conduct are provided. The plaintiffs do not plead what the consequences of this conduct was in relation to the duties Mr Gray owed as a trustee of the Tikitere Trust. Neither do they plead whether Ms Hughes’ conduct as a director of Tātou has placed that company in breach of the fiduciary duties it owed to the Trustees under the joint venture. This needs to be clarified. Until paragraph [29] is made relevant to the new legal basis for the plaintiffs’ case against the defendants the allegations made therein have no purpose.
[48] At [30] the plaintiffs allege that Tikitere Holdings failed to properly prepare annual accounts and to provide receipts to shareholders. Three particulars of such conduct are provided. This allegation was inserted in the original pleading and it has not been updated to take account of the different legal duties now alleged to have been breached. This needs to be done otherwise this paragraph has no legal purpose.
[49] At [31] the plaintiffs plead that Tikitere Holdings failed to maintain adequate books and records to enable directors and shareholders to review financial transactions of the company before 2015. Three particulars of such conduct are provided. This paragraph has the same problem as paragraphs [29] and [30].
[50] Paragraph [32] alleges a failure on the part of Tikitere Holdings to maintain a register of shareholders in breach of s 87(1) and s 87(2) of the Companies Act 1983. This paragraph has not been updated to take account of the new legal basis of the plaintiffs’ case.
[51] Paragraph [33] alleges a failure until September 2018 for Tikitere Holdings to maintain an interest register in accordance with s 189(1)(c) of the Companies Act. At
[34] the plaintiffs plead that in 2015 Tirun Kanji, chartered accountant of Auckland, was appointed a director of Tikitere Holdings nominated by the “Tikitere Trust.” It is said Mr Kanji sought information about the operation of Tikitere Holdings from Ms Hughes, but she withheld that information. This paragraph has not been updated to take account of the new legal basis of the plaintiffs’ case.
[52] Paragraphs [29] to [33] of the 4th ASOC, save for the addition of paragraph
[32] were part of the original pleading. They provide a background which alleges Tikitere Holdings failed to keep good financial accounts. These allegations are indirectly relevant to the new allegations because without proper financial records the plaintiffs could not ensure they received the profit share they were entitled to under either the 1996 JV agreement as varied by subsequent amendment or the alternative JV agreement. However, as mentioned earlier these paragraphs need to be re-drafted to take account of the new legal basis on which the claims are now being brought.
[53] The pleading then alleges a number of what it describes as related party transactions. These run from [35] to [65]. The transactions outlined therein allege that such transactions have been to the benefit of certain persons, including Mr Gray, Ms Hughes and Tātou, to the exclusion of Tikitere Holdings. Put shortly, these allegations are that others, including the aforementioned persons, acted in a self- dealing manner which led to them being unjustly enriched at the expense of Tikitere Holdings.
[54] The unspoken premise is that such irregular conduct deprived Tikitere Holdings of profit it would otherwise have made. Part of this profit would then have been available for distribution to the trustees of the Tikitere Trust under either the 1996 JV agreement as varied by subsequent conduct or the JV arrangement. The omission to plead this premise needs to be rectified. Because the plaintiffs are not shareholders of Tikitere Holdings, they cannot claim that self-dealing actions on the part of Mr Gray, Ms Hughes and Mr Hughes were in breach of the fiduciary duties those persons owed in their roles as directors/manager to Tikitere Holdings.
[55] However, the plaintiffs can plead the factual basis of the alleged self-dealing conduct and the harm it caused to Tikitere Holdings as a foundation, to support claims
that Tātou and Tikitere Holdings, through the aberrant and disloyal conduct of their directors/manager (being Mr Gray for Tikitere Holdings and Ms Hughes and Mr Hughes for Tātou), were in breach of fiduciary duties that Tātou and Tikitere Holdings owed to the Tikitere trustees under either the 1996 JV agreement as varied or alternatively the JV arrangement. Those duties of good faith and loyalty extended to Tātou and Tikitere Holdings being required to ensure that their respective directors/manager did not use those positions to advance their self-interest at the expense of the joint venture parties.
[56] Then at [66] and [67] the plaintiffs plead that Ms Hughes and Mr Hughes have withdrawn money from Tikitere Holdings without proper authority or disclosure and improperly used that money in a self-dealing manner for their own purposes, or for the purpose of Tātou International Ltd (Tātou International). This alleged dealing was harmful to Tikitere Holdings, because it reduced the profits otherwise available to Tikitere Holdings, which in turn would have been paid in part to the trustees of the Tikitere Trust. The allegations relating to the unauthorised use of money end with the pleading that such unauthorised use has reduced the amount of profits of Tikitere Holdings in respect of which the successor trustees and the plaintiffs are entitled to a 50 per cent share.
[57] At [68] to [70] there are allegations of unauthorised use of money for mortgage payments and/or property improvement. The persons responsible for this unauthorised use are not identified. However, the relevant funds are from the account of Tikitere Holdings and were paid to a third party to whom the fourth defendant (Tātou International) is said to be indebted. This action is said to have enriched Tātou International at the expense of Tikitere Holdings, which in turn would have reduced the profit available for distribution under the 1996 JV agreement. This allegation is in its original form and needs to be updated to take account of the present legal basis on which the plaintiffs base their case.
[58] At [71] there is an allegation of a failure to distribute a share of profits to the Tikitere trustees. Here it is alleged that notwithstanding Tikitere Holdings operating the joint venture business since 1996 and returning profits on earnings before tax for the financial years ending 31 March 2004 to 31 March 2012, 31 March 2014 and 31
March 2015, Tikitere Holdings did not distribute profits to the Trustees between 1996 and 31 March 2015.
[59] At [72] the plaintiffs contrast such conduct with that following the appointment of Mr Kanji as a director of Tikitere Holdings on 21 April 2015. Following his appointment profits were distributed by Tikitere Holdings to the Trustees on 17 June 2016 $250,000; on 5 October 2017 $44,126; on 8 August 2017 $97,134 and on 11 October 2018 $451,784. This allegation may be evidence rather than a material allegation of fact to establish the causes of action that are pleaded later in the 4th ASOC.
[60] The plaintiffs then plead at [73] that despite Tikitere Holdings earning profits of approximately $2m in the 2018/2019 financial year, no profits from that period have been distributed by Tikitere Holdings to the Trustees, which is in breach of the obligations of the joint venture. This is followed by a reference to subparagraphs [16](b) and [16](c) of the 4th ASOC. Again, no attempt has been made to update this paragraph to take account of the present legal basis on which the plaintiffs base their case. This needs to be done because in its original form the joint venture depended on Tikitere trustees holding 50 per cent of the shares in Tikitere Holdings, which they do not.
[61] However, paragraphs [35] to [65] and [66] to [73] remain relevant to the 4th ASOC if those paragraphs are read in the context of the new allegations of the 1996 JV as varied by subsequent conduct, or the alternative JV arrangement. Read in this way the paragraphs can be understood as allegations that the irregular conduct described therein has deprived Tikitere Holdings of profit that it could otherwise have paid in part under either form of joint venture to the trustees of the Tikitere Trust. This unspoken premise needs to be specifically and fully articulated in the pleading. The drafter of the pleading has failed to make the allegations in paragraphs [35] to [65] and
[66] to [73] relevant to the newly pleaded joint ventures.
[62] If paragraphs [35] to [65] and [66] to [73] are to remain in the pleading they need to be tidied up to be made relevant to the newly pleaded forms of the joint venture. Otherwise as matters stand these paragraphs clearly have no connection to
the alternative JV arrangement. As to the 1996 JV agreement, it is not clear whether these paragraphs relate to the original form of that joint venture (which is now redundant so the paragraphs should be struck out) or whether they can be read as essentially referring to the 1996 JV agreement as varied by subsequent conduct. If the latter this needs to be made clear. Not enough attention has been paid to tying paragraphs [35] to [65] and [66] to [73] (which were part of the earlier pleading) to the new forms of joint venture that are pleaded in the 4th ASOC.
[63] The next part of the 4th ASOC focuses on the various causes of action the plaintiffs bring against the defendants and Tikitere Holdings.
First cause of action
[64] The first cause of action, at paragraph [74], alleges that Ms Hughes, Mr Hughes, Tātou and Tikitere Holdings managed and controlled the joint venture business. Accordingly, they assumed positions of trust and confidence such that they owed fiduciary obligations to the plaintiffs and their predecessor trustees of the Tikitere Trust. Particulars are then provided as to how each of those persons came to owe fiduciary duties to the plaintiffs and their predecessor trustees.
[65] Paragraph [75] alleges that the plaintiffs and their predecessors as trustees reposed their trust and confidence in Ms Hughes, Mr Hughes, Tātou and Tikitere Holdings to use their involvement and control over the joint venture business for the proper management of that business.
[66] Paragraph [76] pleads that Ms Hughes, Mr Hughes, Tātou and Tikitere Holdings breached their fiduciary duties by their self-dealing wrongful conduct which has resulted in them being unjustly enriched by funds that were wrongly diverted to them, and which has also resulted in the plaintiffs and their predecessor trustees suffering loss. The breaches are then particularised in eight subparagraphs. The particulars of loss and unjust enrichment are particularised in seven subparagraphs. Those paragraphs emphasise the Trustees’ (and their predecessors’) vulnerability and reliance on others who were controlling the joint venture business: namely, Ms Hughes as director of Tātou, Mr Hughes as general manager of Tātou, Tātou, and Tikitere Holdings. It is not clear whether Ms Hughes and Mr Hughes are themselves alleged
to owe fiduciary duties to Tikitere trustees, which precludes Ms Hughes and Mr Hughes from self-dealing; or whether Tātou owed a fiduciary duty under the joint venture to Tikitere trustees to ensure that Tātou’s director/manager did not act in a self- dealing way that could harm the parties to the joint venture. Whether Tātou’s director and manager could themselves owe fiduciary duties to other joint venture parties is a legal question which is arguable. Another view is that Tātou’s fiduciary duties to the other joint venture parties include Tātou ensuring that its director/manager do not participate in self-dealing conduct that is harmful to the other joint venture parties. Put this way the alleged self-dealing conduct of Ms Hughes and Mr Hughes coupled with Tātou taking no action to restrain this conduct would be a breach of fiduciary by Tātou vis-á-vis the other parties to the joint venture.
[67] The relief sought includes the usual equitable remedies associated with claims for breach of fiduciary duty and unjust enrichment: orders for inquiry into the profits the defendants have received; orders for accounts of profits, and; declarations that profits are held on a constructive trust for the benefit of the plaintiffs. In the alternative, equitable compensation is also sought.
[68] The second cause of action is brought against Ms Hughes, Mr Hughes and Tikitere Holdings, who are alleged to have provided dishonest assistance to Tātou. This cause of action repeats the earlier allegations and then pleads that Ms Hughes, Mr Hughes and Tikitere Holdings were dishonest assistants in transactions whereby Tātou, in breach of its fiduciary duties under the joint venture, diverted amounts to be determined at trial, from the plaintiffs and successor trustees to Mr Hughes and Ms Hughes. Such diversions are alleged to be a breach of the fiduciary duty owed by Tātou to the plaintiffs and the “successor” trustees in relation to the specified related party transactions.
[69] Paragraph [78] of the 4th ASOC pleads that the dishonest assistance provided by Ms Hughes, Mr Hughes and Tikitere Holdings to Tātou has caused the plaintiffs and the “successor” trustees to suffer loss and the recipients of the diverted funds have, in turn, been unjustly enriched.
[70] Declarations that Ms Hughes, Mr Hughes and Tikitere Holdings are liable as dishonest assistants in relation to property subject to breach of fiduciary duties and are now liable to account to the plaintiffs in respect of such dishonest assistance are sought. In the alternative, equitable compensation is sought.
[71] The second cause of action as pleaded makes sense. However, the references to the plaintiffs and “successor trustees” means the pleading, in its present form, fails to address how predecessor trustees were affected by the alleged dishonest assistance. The second cause of action is different from the first cause of action in that the latter pleads that the plaintiffs and their “predecessor trustees” have suffered the various breaches of fiduciary duties and are entitled to relief. Whereas the second cause of action refers to the plaintiffs and “successor trustees” without attempting to include predecessor trustees.
[72] The alleged acts of dishonest assistance in the second cause of action appear to me to have occurred (at least in part) at a time when predecessor trustees held office as trustees of the Tikitere Trust. For this cause of action to work the allegations of dishonest assistance and the harm they have caused to trustees of the Tikitere Trust need to be related to those trustees who were then in office at the time the various acts of alleged dishonest assistance occurred. It will then be a matter for the plaintiffs to prove that the choses in action that accrued in the trustees who held office at the time of the alleged dishonest assistance have now passed to the present trustees, who now sue as plaintiffs in the proceeding.
[73] The third cause of action is based on allegations that Ms Hughes and Mr Hughes are knowing recipients from Tātou and Tikitere Holdings. This cause of action is brought as a further or alternative cause of action against Ms Hughes and Mr Hughes. The plaintiffs repeat the paragraphs in the 4th ASOC leading up to and including the first cause of action. Then at paragraph [79], they plead that Ms Hughes and Mr Hughes are each knowing recipients of amounts to be determined at trial, being amounts directed to them by Tātou and Tikitere Holdings in breach of the fiduciary duty owed to the plaintiffs and successor trustees by Tātou and Tikitere Holdings in relation to the alleged related party transactions.
[74] At paragraph [80] it is pleaded that Ms Hughes and Mr Hughes knew of the breach of fiduciary duty owed to the plaintiffs and the “successor trustees” by Tātou and Tikitere Holdings. At paragraph [81] it is pleaded that is a consequence of the knowing receipt by Ms Hughes and Mr Hughes the plaintiffs have suffered loss and those defendants have been unjustly enriched. Particulars of the loss and unjust enrichment are identified by a reference to the particulars given at paragraph [76] of the 4th ASOC. Similar relief to the second cause of action is sought.
[75] Again, like the second cause of action, the pleading fails to refer to predecessor trustees and to link the alleged related party transactions on which the allegations of breach of fiduciary duty are based with the then trustee of the Tikitere Trust, at the relevant time. Again that exercise needs to be carried out as well as identifying how any chose of action, which may have arisen, has then been transferred to the present trustees/plaintiffs. The problems here are the same as with the second cause of action.
[76] The fourth cause of action is a claim that Ms Hughes, Tātou and Tikitere Holdings provided dishonest assistance to Mr Hughes. This alleges that Ms Hughes, Tātou and Tikitere Holdings provided dishonest assistance to the second defendant. This cause of action is much the same as the second cause of action, except here the dishonest assistance is rendered to Mr Hughes, whereas with the second cause of action, the dishonest assistance is rendered to Tātou. Otherwise the same allegations are made and the same concerns that are identified relevant to the second cause of action apply here as well.
[77] The fifth cause of action is a claim against Ms Hughes and Tātou for knowing receipt from Mr Hughes and Tikitere Holdings. This cause of action is the same as the third cause of action, except the knowing recipients are different and they are alleged to have received the amounts of money to be determined at trial from Mr Hughes and Tikitere Holdings.
[78] It is interesting that Tikitere Holdings is added as an additional knowing receiver in the fifth cause of action but is not referred to in the fourth cause of action which is much the same as the fifth, except it is based on dishonest assistance rather than knowing receipt. As matters stand, the fourth cause of action does not allege that
Tikitere Holdings (as fifth defendant) also benefited from the dishonest assistance that was provided to Mr Hughes.
[79] The sixth cause of action is a claim that Mr Hughes, Tātou and Tikitere Holdings provided dishonest assistance to Mr Hughes. Other than the alteration in the order of who provided dishonest assistance and who benefited from the dishonest assistance, the allegations are the same as with the second cause of action and therefore carry the same problems as the second cause of action.
[80] The seventh cause of action is against Mr Hughes and Tātou and alleges that they were knowing recipients from the unlawful and inequitable conduct of Ms Hughes and Tikitere Holdings.
[81] The eighth cause of action is brought against Tātou International and claims it is a knowing recipient from the unlawful and inequitable conduct of Ms Hughes, Mr Hughes, Tātou and Tikitere Holdings.
[82] The ninth cause of action is a claim that Ms Hughes, Mr Hughes, Tātou and Tātou International provided dishonest assistance to Tikitere Holdings.
[83] The tenth cause of action is a claim against Tātou International based on constructive trust which repeats the allegations in paragraphs [1] to [76] of the 4th ASOC and then alleges that funds in breach of fiduciary duty were used in buying, building, developing and/or maintaining the Wai Ora Lakeside Spa property. This is said to give rise to an institutional constructive trust with Tātou International holding the Wai Ora Lakeside property as constructive trustee for the plaintiffs. It is also alleged the obtaining of funds in breach of fiduciary duty was used to make mortgage payments over the Wai Ora Lakeside Spa property which, in turn, gives rise to an equitable charge over that property in favour of the plaintiffs as a result of subrogation.
[84] The relief for this cause of action is as follows: a declaration that Tātou International holds the Wai Ora Lakeside Spa property on an institutional constructive trust for the plaintiffs; an inquiry into the money received in breach of fiduciary duty and used for the purposes of buying, building, developing and/or maintaining the Wai
Ora Lakeside property; an inquiry into all money received in breach of fiduciary duty to make mortgage payments over that property, and; a declaration of an equitable charge over the property in favour of the plaintiffs.
[85] The eleventh cause of action is a contract claim against Tātou for breach of a joint venture contract. This repeats paragraphs [1] to [73] and then alleges a joint venture agreement which included obligations as follows: to conduct the joint venture in the best interests of the parties on sound commercial principles to maximise the opportunities available in their commercial return; for the parties to be just and faithful to each other and not do anything which competes with the joint venture or whereby their interests in the joint venture may be prejudiced; payment of pre-agreed proportion of annual profits to be distributed to the parties within a certain timeframe, and; no loans to be made to any director of any other person without the prior approval of all the directors of Tikitere Holdings. It is alleged that Tātou assumed responsibility for the management of Tikitere Holdings at all material times and that Tātou failed to operate Tikitere Holdings in accordance with the requirements of the joint venture and thereby breached the joint venture. Particulars are then given of the breaches of the joint venture. This cause of action does not identify the joint venture contract that has allegedly been breached. It is not clear if it is the 1996 JV as varied or the alternate JV arrangement or some other joint venture altogether. This needs to be tidied up.
[86] The twelfth cause of action is a claim against Tikitere Holdings for breach of the joint venture contract. The pleading refers to a joint venture agreement. Again, it is not clear whether it refers to the 1996 JV as varied by subsequent conduct, or the JV arrangement. It is alleged Tikitere Holdings failed to operate the joint venture business in accordance with requirements of the joint venture agreement and thereby breached it. Various particulars of those breaches are provided. This needs to be tidied up.
[87] The thirteenth cause of action is a claim against Tātou and Tikitere Holdings based on equitable estoppel by convention. Various earlier allegations in the 4th ASOC are pleaded, with further allegations then pleaded. These being that trustee successors of Mr Gray and Mr Tait are not, or were not, parties to the joint venture agreement. Consequently, the plaintiffs, in their capacity as the current trustees of the Tikitere
Trust, are not entitled to sue Tātou or Tikitere Holdings for breach of contract of the joint venture agreement. Further, the entitlement of the plaintiffs, in their capacity as the current trustees of the Tikitere Trust, to bring claims in equity pleaded in the first to tenth causes of action is dependent on the current trustees of the Tikitere Trust being a party to the joint venture agreement.
[88] It is alleged the effect of the conduct of Tātou and Tikitere Holdings towards successor trustees to Mr Gray and Mr Tait created a belief and/or expectation on the part of the successor trustees that during the period of the joint venture agreement they were parties to it and, as a consequence, while successor trustees remain trustees, they were entitled to claim relief against Tātou for any breach of contractual obligation owed by Tātou and Tikitere Holdings under the joint venture agreement. Particulars of the conduct of Tātou and Tikitere Holdings towards the successor trustees are then provided.
[89] Annexed to the statement of claim is a schedule which refers to the various vesting orders made by the Māori Land Court, which vested the subject land in trustees pursuant to the relevant legislation. These orders are pleaded because the plaintiffs rely on the orders in part to establish their ability to be able to sue on choses of action that occurred during the time of predecessor trustees. Similarly, orders of appointment, removal and death of trustees of the Tikitere Trust are pleaded in order to provide a chronology of who held office at the relevant timeframe.
Discussion
[90] The 4th ASOC has the errors I have identified in this judgment. The errors need correction. The overall impression of the 4th ASOC is that it is untidy, prolix, unwieldly and therefore oppressive. These are factors that support the proceeding being stayed. On the other hand these factors are not enough to cause me to consider the plaintiffs’ claims are not reasonably arguable. If the errors are corrected and the pleading is redone properly the plaintiffs will have reasonably arguable claims against the defendants. What is needed is something more than opening the present electronic version of the claim and inserting new additions on a piecemeal basis, which appears to have been done with the 4th ASOC. The entire pleading needs to be redone from
the outset in a way that succinctly captures the legal basis of the claims, and which conforms to the requirements of the law of pleadings. For this reason I am not prepared to find the proceeding is stayed.17 However, the plaintiffs need to make a considerable effort to improve the pleading. Simply altering parts of it, as they have done with the 4th ASOC, will not be enough. The basis of the claim has to be re-visited and repleaded in a clear fashion. The essence of the plaintiffs’ claims are quite simple.
[91] Their claims can be seen to fall into two parts. First, claims in equity based on a joint venture between three parties (trustees of Tikitere Trust, Tātou and Tikitere Holdings) that gives rise to each party owing fiduciary duties to the other. The various allegations the plaintiffs make support the existence of such a joint venture.
[92] Second, claims for breach of those fiduciary duties insofar as parties to the joint venture have acted in a self-dealing way to their personal advantage and at the expense of the plaintiffs.
[93] Third, claims for accessory liability in equity insofar as defendants who are the agents/directors/employees of one or other of the joint venture parties have acted in a way that assisted other parties to the joint venture who did owe fiduciary duties to the plaintiffs to breach those duties and profit thereby.
[94] Fourth, a claim in constructive trust that relates to property that is legally owned by Tātou International. The claim for constructive trust is reasonably arguable if Tātou International acquired the property by reason of profit earned by Tātou, with the help of Mr Hughes and Ms Hughes, as a consequence of breaches of their fiduciary duties owed under the joint venture, and Tātou International had the requisite knowledge of those breaches and that the profits were derived from them.
[95] Fifth, there is the matter that at present the claims are both past and future focussed. However, the pleading makes no attempt to alert persons to that.
17 Although the arguments proceeded in the same way as a strike out application, the defendants’ case is that the proceeding is stayed by the directions I gave in the judgment I delivered on 10 February 2020 because the plaintiffs have not filed a recognisable amended pleading.
[96] The failure to register correctly the 50 per cent shareholding intended for the trustees of the Tikitere Trust has future as well as past consequences. The trustees have leased their land to Tikitere Holdings until 2035. Had they realised they held no shares in Tikitere Holdings through the flawed registration of the shares they were supposed to receive, they may not have leased their land to that company until 2035 on the terms which they did. The lease was allegedly entered into with the belief the profits from the Hell Gate business would be shared 50/50 with the trustees. Had they known they could not claim 50 per cent of those profits as earned by Tikitere Holdings they may have structured the lease differently or leased the land to a third party. The basis on which the Trustees, Tikitere Holdings and Tātou proceed in the future needs to be clarified. The parties have been unable to agree, which leaves them reliant on the Court. Therefore, the claim needs to proceed partly on a basis that provides for the future dealings between the parties. Here, declarations are required on the existence of a joint venture and its terms as well as further orders to ensure the parties adhere to those terms in the future.
[97] In addition to the above, the 4th ASOC makes allegations that reveal past misconduct on the part of former trustees of Tikitere Trust, Tikitere Holdings, Tātou, Mr Hughes and Ms Hughes. The alleged breaches of fiduciary duty and accessory liability in equity are based on this misconduct. These allegations, if successful at trial, will enable the Trustees to recover in equity the profits the defendants have earned from their unlawful conduct. Here, various forms of equitable relief can provide a remedy for the past unlawful conduct.
[98] The Trustees need to frame their claims in a way that seeks to both rectify the problem caused by the erroneous registration of their proposed shareholding for the future and remedy the harm caused in the past.
[99] The plaintiffs have a further opportunity to replead their claims. If the claims are not properly pleaded it is inevitable that the proceeding will be stayed or the claims struck out. As it is, the defendants have been put to unnecessary expense by the plaintiffs’ present stance. I accept the 4th ASOC was not in a shape that could have allowed the proceeding to go to trial. The wasted time and expense this has caused the defendants will need to be addressed. Were it not for the fact the plaintiffs are
trustees and it is the beneficiaries who will suffer most if the claims are stayed, the indulgence extended to the plaintiffs may not have been made. It follows that any stay of the proceeding is only until the plaintiffs replead their claims. Given the complexity of the case I consider they should have until 17 September 2021 to do so.
[100] At [27] herein I refer to how the pleaded 1996 JV, as varied, includes a term that interested entitlements of trustees who were party to that JV were deemed to have been transferred to their successors. Such interests and entitlements would include the choses in action that the plaintiffs sue upon in this proceeding. I refer at [41] herein to the fact the alternative pleaded JV arrangement makes no such allegation and therefore is silent on how choses in action are transferred to successor trustees. The defendants argue that the plaintiffs have failed to establish how choses in action that have arisen during the time of certain previous trustees can have passed to their successor trustees who now seek to sue upon it. The plaintiffs appear to provide for such transfer by pleading it was a term of the 1996 JV agreement as varied. Whether they can establish that is a question of fact, insofar as they will need to prove this provision forms a part of either the 1996 JV agreement as varied or the JV arrangement, if they extend this allegation to include the alternative JV arrangement. For the purpose of the stay argument I consider the approach should be to assume this pleaded factual allegation is capable of proof. The plaintiffs will need to address in their new pleading whether they plead this mode of transfer to the JV arrangement as well. It follows that I am satisfied the 4th ASOC goes some way to provide a basis for transfer of the interest or entitlement in choses in action that arose during the time when past trustees were in this role. There may be other legal bases as well available to the plaintiffs which as allegations of law are not to be pleaded.
[101] The view I have reached on the 4th ASOC means it is premature to deal with the question of joinder now. If the trustees’ claims are to proceed in a new statement of claim Tikitere Holdings needs to be joined as a fifth defendant to the proceeding. Whether it is joined as a fifth defendant can wait until the plaintiffs exercise the opportunity I have given them to replead their claims.
[102] The Tikitere Trust is an Ahu Whenua Trust under the Te Ture Whenua Maori Act. One of the purposes of trusts formed under that Act is to facilitate the occupation,
development and utilisation of that land for the benefit of its owners, their whanau and hapu. This Trust was intended to enable the trustees and beneficiaries to achieve those purposes. The contemplated Hells Gate business venture was part of that purpose. The trustees ability to achieve that purpose has been frustrated almost from the outset owing to the incorrect share registration and the lengthy period of time when that seemingly went unnoticed. I consider there is a broader interest than that of the parties at issue here. The purpose of legislation that is designed to reaffirm the “spirit and exchange of kawanatanga for the protection of rangatiratanga” embodied in the Treaty of Waitangi is not working as well as it should be for this Trust. That is a matter of general public interest. Accordingly, I consider the Court will be assisted in its role in this proceeding by the appointment of an amicus curiae. I shall be giving appropriate directions to the registry for the appointment of counsel to this role.
Result
[103] The plaintiffs are to replead their claims against the defendants in light of the findings made herein. They have until 17 September 2021 to do so.
[104]The parties have leave to file memoranda as to costs.
Duffy J
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