Whata v Hughes
[2020] NZHC 122
•10 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2017-463-139
[2020] NZHC 122
IN THE MATTER of various claims for breach of fiduciary duty, for knowing receipt, for institutional constructive trust and for an equitable charge over specified property and for personal
liability for breach of a joint venture agreement
BETWEEN
GEORGINA WHATA, JEWEL DIANE MATTHEWS, DALE HUIARERERANGI ERU, HENARE MASON and KENNETH KENNEDY
Plaintiffs
AND
SUNISA HUGHES
First Defendant
BRYAN GEORGE HUGHES
Second DefendantTATOU HOLDINGS LIMITED
Applicant/Third DefendantTATOU INTERNATIONAL LIMITED
Fourth Defendant
Hearing: 25 November 2019 Appearances:
G J Judd QC and K Patterson for Third and Fourth Defendants N W Ingram QC, T Kyriak for Plaintiffs in opposition
K Patterson (on instructions from J Temm) for First and Second Defendants in support of application
Judgment:
10 February 2020
JUDGMENT OF DUFFY J
This judgment was delivered by me on 10 February 2020 at 4.00 pm pursuant to
Rule 11.5 of the High Court Rules.
ERU & ORS v HUGHES & ORS [2020] NZHC 122 [10 February 2020]
[1] The plaintiffs are the current trustees of the Whakapoungakau 24 (Tikitere) Trust (the Tikitere Trust). This is an Ahu Whenua Trust constituted under the Te Ture Whenua Māori Act 1993 for the purpose of managing the Whakapoungakau 24 block, which is approximately 32 hectares of Māori freehold land located within the Tikitere geothermal field near Rotorua. This land contains a significant geothermal resource which is a tribal taonga and a commercially exploited geothermal park and spa known as Hells Gate.
[2] For some years Hells Gate has been run as a commercial venture allegedly involving a trustee of the Titkitere Trust, third defendant Tātou Holdings Ltd (Tātou Holdings) and Tikitere Holdings Ltd (Tikitere Holdings). The plaintiffs contend this arrangement constitutes a joint venture and that things have occurred which in their view are in breach of the joint venture. Accordingly, the plaintiffs now bring this proceeding against the defendants.
[3] The defendants have applied to strike out the plaintiffs’ second amended statement of claim or in the alternative for the proceeding to be stayed in its entirety. They challenge the standing of the plaintiffs and the causes of action on which they rely, essentially arguing that neither provides the plaintiffs with a proper foundation to bring the proceeding.
[4] The question for me to determine is whether to allow the strike out application or not.
Background
[5] In 1996 the late Wahiao Raymond James Gray was the sole trustee of the Tikitere Trust by appointment of the Māori Land Court and Kotahitanga Tait was an advisory trustee. A series of orders from the Māori Land Court continued Mr Gray’s appointment in this role until 1999 when he was replaced by other trustees. Mr Gray died in 2017.
[6] In July 1996, in their respective trustee roles Mr Gray and Mr Tait purported to enter into a joint venture agreement with the third defendant, Tātou Holdings. These persons executed a written joint venture agreement dated 19 July 1996 that provided
for the formation of a registered company, Tikitere Holdings Ltd, which was to be the vehicle by which the joint venture would operate.
[7] The written joint venture agreement contemplated the commercial development of Hells Gate as a tourist venture. It provided that the trustee of the Tikitere Trust would lease the portion of land on which Hells Gate is situated to Tikitere Holdings. As soon as practicable after the commencement of the joint venture agreement Tātou Holdings was to contribute $120,000 to Tikitere Holdings and the Tikitere trustee was to allocate “the intangible benefits of the thermal attraction and the buildings and improvements to the value of $120,000” to Tikitere Holdings.1 In return Tātou Holdings and the trustee of the Tikitere trust were each to receive a 50% shareholding in Tikitere Holdings. It was expected that profits from the Hells Gate operation would be earned by Tikitere Holdings and then distributed to the shareholders.
[8] Unfortunately, the formation of Tikitere Holdings was poorly done. The share register of Tikitere Holdings originally recorded 50% of the shares being held by Tātou Holdings and the balance held by the Tikitere Trust. This is how the register remained until recently when the directors of Tikitere Holdings substituted Mr Gray’s widow as shareholder.2
[9] The recording of the Tikitere Trust as a shareholder on the register of Tikitere Holdings was legally wrong: (a) it was contrary to s 92 of the Companies Act 1993, which expressly provides that no notice of a trust, whether express, implied or constructive may be entered on the share register; and (b) like common law trusts, an Ahu Whenua Trust does not have separate recognisable legal personality. Accordingly, property that is held for the benefit of the trust’s beneficiaries must be held in the name
1 The written agreement states the commencement date to be 18 December 1995, however, this agreement was not executed until 19 July 1996.
2 At the hearing counsel for the defendants outlined from the bar the explanation for this step being taken by the present directors of Tikitere Holdings. Namely, their belief that the late Mr Gray was intended to be nominated a 50 percent shareholder of Tikitere Holdings, and so the reference in the share register to Tikitere Trust should be read as meaning Mr Gray. With his death, by operation of s 93 of the Companies Act 1993, his shareholding would pass to his personal representative, whom the third defendant argues is the widow Mrs Gray.
of its trustees.3 As is the case with other trusts, shares cannot be held in the name of the Tikitere Trust.
[10] Regrettably, despite the clear language of s 92 of the Companies Act which should have been known to them, the staff of the New Zealand Companies Office did not recognise the error on the company’s share register when the founding documents of Tikitere Holdings were presented for registration. Instead everything was accepted for registration, and the company commenced its life. The effect has been that although the parties to the joint venture agreement intended the joint venture to be performed through a registered company in which they each held shares their intent was thwarted by the incorrect preparation of the company’s share register.
Discussion
[11] The failure to ensure Tikitere Holdings was properly constituted was no practical impediment to the implementation of the parties’ business. A commercial venture for Hells Gate in which Mr Gray, Tikitere Holdings and Tātou Holdings participated was carried out. The question yet to be determined is the shape and form of this venture, and what legal rights may have arisen from it.
[12] 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.4 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 of the Tikitere Trust each holding 50% of the shares in Tikitere Holdings.5 I also accept that the joint venture could not have proceeded in that fashion because in law the Tikitere Trust was not and is not legally capable of holding shares in Tikitere Holdings. The defendants do not dispute this legal principle.
[13] The defendants argue that I should read the reference in the company’s share register to Tikitere Trust as meaning Mr Gray because he was a director of Tikitere
3 See Selkirk v McIntyre [2013] NZHC 575, [2013] 3 NZLR 265 at [14] Katz J, citing Macalister v AMP General Insurance Ltd [2007] 1 NZLR 485 (SC), stated that “A trust is not a separate legal entity. Trust assets are held in the individual names of the trustees”,
4 See clause 1 of the written joint venture agreement.
5 See clauses 2 and 4 of the written joint venture agreement.
Holdings and a trustee of Tikitere Trust at the relevant time. From this they argue that given the shares were never transferred to anyone else the legal holder of the shares has always been Mr Gray until his death, at which point ownership of the shares passed to Mr Gray’s personal representative by operation of s 93 of the Companies Act 1993. Accordingly, the defendants argue that claims relating to the mismanagement of the Hells Gate business operation should be against Tikitere Holdings, and those can only be brought by a shareholder of that company. It is for this reason the defendants contend that the plaintiffs have no legal interests or claims to pursue against the defendants, and therefore no standing to bring the proceedings; hence the strike out application.
[14] Entry of the name of a person in a share register as a holder of a share is prima facie evidence that legal ownership vests in that person.6 Here, the share company’s register provides that 50 percent of the shares are held by a legally non-existent entity. The error is obvious. The share register should have recorded the shareholding in Mr Gray’s name because a trust can only act through its trustee. However, I see no basis now for reading the reference in the share register to the Tikitere Trust to mean Mr Gray.
[15] Section 91 of the Companies Act gives the Court the power to rectify a company’s share register. A company has a duty to maintain its share register.7 These are two ways in which the legislation provides for an error on a company’s share register to be corrected. I am not prepared to bypass the process provided in s 91 or the ability of a company to maintain its register by simply reading Mr Gray’s name into the company’s share register in substitution for that of the Tikitere Trust. The share register was prepared in 1996 and it is not for a Court in 2020 to depart from the words of that document to cure the problem created by the error.
[16] Moreover, in addition to the general reluctance I have to read a share register differently from how it has been expressed, there is the added difficulty that here the interpretation which the defendants advocate would not see an end to the problem the share register presents. The defendants accept that if, as they contend, Mr Gray was
6 See s 89 of the Companies Act 1993.
7 See s 87 of the Companies Act 1993.
the legal owner of 50 percent of the shares until his death and those shares are now held by his personal representative, nevertheless this ownership would be impressed with a constrictive trust which saw the shares being held for the benefit of the trustees of the Tikitere Trust, who could bring proceedings relying on this constructive trust to have the shares transferred to them. This would be a further complication in what are already complex legal proceedings.
[17] The more straightforward, and therefore better view, is that during the time when the Tikitere Trust was recorded as holder of the shares they were actually held by no-one, because their recorded ownership was a legal nullity. This approach requires the Court to do no more than to apply well established law on the legal status of trusts to the circumstances before it. It has no effect on the legal status of the company, because throughout its life the other fifty percent of its shares have been properly owned by Tātou Holdings. It is not as if the company has never had any legal shareholders.
[18] 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. Such can be seen to arise in more than one way: (a) by agreement be it in writing, oral or by conduct or any combination of the foregoing;8 or (b) by equity finding that the relations between the parties are such that they give rise to them owing each other fiduciary duties.9 The further away from a written joint venture agreement a claim based on joint venture is, the more difficult it may become to prove the nature, scope and terms of the joint venture, but that is a separate evidential issue.
[19] If the actions of Mr Gray at the relevant times can be seen to constitute him acting in his capacity as trustee of the Tikitere Trust together with Tātou Holdings this may be sufficient to give rise in law or equity to a joint venture as between those
8 Like any other agreement relating to personal property a joint venture agreement need not be reduced to writing.
9 The relevant legal principles are as outlined in Chirnside v Fay [2006] NZSC 68; [2007] 1 NZLR 433.
persons. Insofar as their conduct reflected some of the terms of the written joint venture agreement of 19 July 1996, it may be alleged that by such conduct they have incorporated those terms into the joint venture under which they all operated. Other terms may be established from oral exchanges between the parties or by the way the parties conducted themselves. In any event their conduct may give rise to fiduciary duties. Equity has long intervened to shape the legal obligations of parties to arrangements that for whatever reason are either never given their intended legal form or where there have been departures from the intended legal form.10
[20] If the alleged unlawful conduct on the part of Tatou Holdings can be shown to be in breach of the terms of a joint venture, or of the fiduciary duties Tatou Holdings may have owed to others under this joint venture, then the plaintiffs are entitled to pursue their claims against the Tatou Holdings. Their claims against the fourth defendant are based on that defendant having an accessory liability in equity, and therefore those claims are dependent upon the plaintiffs first establishing they have claims in equity (breach of fiduciary duties owed under the joint venture) against Tātou Holdings. The role of the first and the second defendants in the alleged joint venture will also need to be identified and pleaded if claims against them are to be maintained.
[21] The present complaints the plaintiffs make about the conduct of Tikitere Holdings and its directors cannot be advanced under the second amended statement of claim because the plaintiffs were never shareholders of that company. However, the circumstances of how the parties operated the Hells Gate business venture may enable the plaintiffs to allege that Tikitere Holdings was also a party to the joint venture, in which case any misconduct on its part or that of its officers may give rise to the same types of claims as can be made against Tātou Holdings. Seen in this way the joint venture would be comprised of (a) the trustees of the Tikitere Trust; (b) Tikitere Holdings, and/or the officers of Tikitere Holdings; and (c) Tātou Holdings. It is for the plaintiff to identify the scope of its claims and to plead with full particulars the basis of those claims.
10 See Chirnside v Fay and discussion therein.
[22] It is well settled that a claim should not be struck out if it is capable of being repleaded.11 The defendants acknowledged as much at the hearing. The allegations made in the present statement of claim taken at their broadest suggest conduct that has enabled Tikitere Holdings and Tātou Holdings as well as officers of those companies to enrich themselves unjustly at the expense of the trustees and beneficaries of the Tikitere Trust. If the circumstances in which all parties interacted with one another are enough to give rise to a joint venture either by agreed terms or by fiduciary duties, which equity would attach to the joint venture, this will support claims for breach thereof. This will be enough to enable the plaintiffs to proceed against those whom it nominates as defendants. The existence of such claims in equity may also found separate claims in equity based on accessory liability against the fourth defendant.
[23] As mentioned earlier, given the involvement of Tikitere Holdings and its legal separation from the trustees of the Tikitere Trust, Tikitere Holdings may be joined to the proceedings on the basis it was also a party to the joint venture.
[24] Accordingly, I am satisfied that it would be premature at this time to strike out the second amended statement of claim. The plaintiffs should have the opportunity to replead their statement of claim. I acknowledge that the defendants also raised limitation issues and delay as one of their defences. However, until an amended version of the statement of claim can be viewed it is not possible to determine to what extent the claims may be precluded by the Limitation Act 2010 or the equitable doctrine of laches.
[25] If the plaintiffs do not take the opportunity to replead their claims then I am satisfied the proceeding as presently pleaded should be stayed. This is because in its present form the pleading does not give proper notice to the defendants of the claim they should be facing, nor do the plaintiffs have standing to bring claims that are reliant on the written joint venture agreement of 19 July 1996.
11 See Attorney-General v Prince [1998] 1 NZLR 262 (CA); Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725.
Result
(a)The application to strike out the second amended statement of claim is denied.
(b)The plaintiffs have until 9 March 2020 to file an amended statement of claim.
(c)The application to stay the proceeding is adjourned until 9 March 2020. If no amended statement of claim is filed and served by that date, or an extension of time is sought beforehand, the stay of proceedings will take effect as sought from 10 March 2020.
[26]Leave is reserved to the parties to file memoranda on costs.
Duffy J
Solicitors/counsel:
Kyriak Law, Auckland
NW Ingram QC, Auckland Ken J Patterson, Tauranga Gary Judd QC, Auckland