Yarrow v Noel & Melva Yarrow Charitable Trust
[2017] NZHC 1772
•28 July 2017
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV-2016-443-000022 [2017] NZHC 1772
BETWEEN PAUL STEVEN YARROW
Plaintiff
AND
NOEL & MELVA YARROW CHARITABLE TRUST
First Defendant
PETER TENNENT, LINDA MARGARET ROSE WILKINSON, GRANT HASSALL as executors of the estate of NOEL
HENRY YARROW Second Defendants
Hearing: 22 November 2016 Counsel:
P S Yarrow in person
J Long and S J W Devoy for DefendantsJudgment:
28 July 2017
JUDGMENT OF WILLIAMS J
[1] The defendants apply to strike out the plaintiff’s claim or, in the alternative, for an order for security for costs.
[2] The claim is part of a cluster of proceedings brought by the plaintiff in respect of the collapse of the Yarrow group of companies and its aftermath. It relates specifically to the failure of a proposed purchase by Sumitomo Corporation of a
50 per cent share in one of the Yarrow Group’s Australian companies. The plaintiff argues, as far as I can tell, that the failure of that transaction triggered the receivership of the group and the first and second defendants were implicated in that
failure through their common denominator, Mr Michael Finnigan.
YARROW v YARROW CHARITABLE TRUST & ANOR [2017] NZHC 1772 [28 July 2017]
[3] The essential argument by the defendants is that the claim prepared (in its latest iteration at least), without assistance of legal counsel, is incoherent and there is no prospect of that changing through re-pleading. No duty is properly pleaded, no breach is pleaded of any relevant duty, and no causation alleged. Very responsibly, Mr Long accepted that it may be possible to construct a claim in respect of these two defendants arising from the role of Mr Finnigan (the defendant in associated
litigation)1. There is, he accepts, a kernel of a possible pleadable claim, albeit a
novel one with significant difficulties. The problem is that it has not been pleaded.
[4] I have already struck out the related proceeding against Mr Finnigan. In essence, this proceeding is derivative of that in the sense that here the plaintiff imputes Mr Finnigan’s knowledge and alleged wrongful acts (as also pleaded in the related proceeding) to the charitable trust and the executors of Noel Yarrow’s estate. This is because, at relevant times, Mr Finnigan was himself a trustee of the charitable trust and executor of the estate.
[5] The defendants complain about the delay in bringing proceedings – they were not brought until an unless order was made by Muir J on 8 March 2016, triggering the initiation of an arbitration and subsequently these proceedings with respect to the so-called Sumitomo transaction. The defendants complain that the plaintiff advised he would engage counsel to re-shape his claim on 21 June 2016, but never did. The plaintiff, it was said, gave similar advice to the Court on 19 July 2016 and a direction was given by Associate Judge Smith for an amended claim to be filed by 9 August
2016, but this was not done. By minute of 14 September 2016, France J then directed filing by 30 September 2016, and if there was non-compliance the defendants could file a strike out application, but this has not been complied with either. The defendants complain that the proceeding has become abusive and hence filed the strike out application accordingly.
Procedural background
[6] In a 2003 Deed of Family Arrangement – the first of two – it was agreed that the plaintiff’s father Noel would decide which of his two sons – John or the plaintiff
1 Yarrow v Finnigan [2017] NZHC 1755.
Paul, would take over control of the Yarrow Group. Noel decided to cede control to John, subject to an equalising payment to the plaintiff. The brothers then fell into dispute. But in 2005 they reached an agreement. John agreed to sell his interests in the group to the plaintiff so that the plaintiff would eventually come to control substantially all of the group on payment of $45 million to John.
[7] In February 2008, the plaintiff commenced proceedings against John. He claimed that he had been induced to pay too much to buy out John. He claimed this was due to misrepresentations by John. Damages of $10 million were sought.
[8] Noel died in April 2008 leaving various bequests. These included $2 million to each of John and the plaintiff. He left the substantial residue one-third to Noel Yarrow Promotions and Developments (NYPD), and two-thirds to the charitable trust.
[9] In light of the ongoing dispute, a second Deed of Family Arrangement was entered into in 2009. This involved (among a number of other parties) various companies within the group, Noel’s estate and the plaintiff together with various of his interests. The deed was designed to resolve the plaintiff’s $10 million proceeding against John, and to restructure the group’s debts owed to the charitable trust. The deed is a long and complex document and it is unnecessary to traverse it in further detail except to note that in cl 3.25 the parties agreed that they must enter into good faith negotiations to reword the deed or to reconstruct its constituent transactions if any of its provisions proved impossible, inexpedient or impractical to carry out, or where any situation arose that was not provided for in the deed.
[10] Following receivership of the Yarrow Group, the plaintiff sought to trigger that clause. He made the allegations against the charitable trust and the estates that I have summarised above.
[11] The trust and the estates felt they could not responsibly carry out their duties in light of the dispute. They decided the way ahead was to seek directions of the Court. In May 2015, they made originating applications to enable them to carry out their respective duties. Following directions from the Judge, the plaintiff filed an
“articulation of claim” in September 2015. This was not a statement of claim. Rather it was a response to the defendants’ applications. It was a wide ranging document accusing Mr Finnigan of breach of judiciary obligations, conflict of interest, misuse of confidential information, negligence and fraud all in his various roles as company director, trustee, accountant or “trusted advisor” to the plaintiff and various Yarrow Group entities.
[12] Muir J then directed that proceedings other than the plaintiff’s Family Protection Act proceedings2 should be referred to arbitration pursuant to the arbitration clause in the Second Deed of Family Arrangement. It was following that reference that the parties agreed the so-called Sumitomo claim did not arise out of the Deed of Family Arrangement and could only be dealt with in ordinary proceedings in this Court. The plaintiff then filed his statement of claim in this Court in March 2016. That is the formal starting point for the current applications
although, as I have set out, there has been contention between the parties for a much longer time.
[13] The March 2016 claim reached beyond the Sumitomo matter. It still focused more broadly on the actions of Mr Finnigan. It remained in many ways, a mirror of Yarrow v Finnigan.3 It alleged Mr Finnigan breached fiduciary style obligations as the plaintiff’s paid “trusted advisor”:
(a) in the various ways alleged in Appendix 2 of the statement of claim, he preferred the interests of other companies, trusts, the estates or individuals within the Yarrow Group or family, advising the plaintiff to act in a manner contrary to his own interests;
(b) procured the entry of the plaintiff into the 2009 Deed of Family
Arrangement when this was contrary to the plaintiff’s interests; and
(c) refused as director of the Yarrow Group companies and trustee of the charitable trust, to agree to the sale of 50 per cent of the Australian
2 Yarrow v Tennent HC New Plymouth CIV-2015-443-067.
3 Yarrow v Finnigan above n 1.
arm of the group to Sumitomo Corporation preventing retirement of the group’s debt and triggering the loss of the entire value of the group, and its eventual receivership. The plaintiff alleged that Mr Finnigan did this in order to use the receivership to wrest control of the group from the plaintiff.
[14] The plaintiff alleged that Mr Finnigan’s actions in these regards caused the group to lose AUSD$22 million and NZD$20 million. He sought an inquiry into the losses suffered personally by the plaintiff.
[15] The defendants are right that while this narrative can be discerned from the statement of claim (though perhaps not easily), no relevant duty is pleaded on the part of the defendants to the plaintiff, no relevant breaches identified and causation is left to be inferred by the imputation of Mr Finnigan’s knowledge and actions whatever they might have been to the defendants. As the defendants submit, it is possible to construct from this narrative a claim in which a fiduciary obligation is:
(a) owed by Mr Finnigan;
(b) imputed to the defendants; (c) breached; and
(d) causative of loss to the plaintiff.
[16] But that is not the claim articulated here. If this matter is to proceed, it will once again need to be completely and professionally re-pleaded.
Application to strike-out
[17] By the terms of r 15.1 of the High Court Rules, the Court may strike out a pleading or any part of a pleading if it:
(a) discloses no reasonably arguable cause of action;
(b) is likely to cause prejudice or delay; (c) is frivolous or vexatious; and
(d) is otherwise an abuse of the process of the Court.
[18] Where it is possible to discern a coherent claim from the pleaded facts, the strike out will not lightly be given and the Court must be certain that any relevant cause of action cannot succeed. Factual allegations must be taken as capable of proof.
[19] Delay on the other hand must be serious and deliberate, although deliberateness can be inferred from repeated timetable breaches. Prejudice may be found in pleadings that are unintelligible, prolix, scandalous and irrelevant, and so forth.4
[20] The catch-all phrase “otherwise an abuse of Court process” captures, as the defendants note, all other instances where the Court’s processes are being misused. They cover, for example, the duplication of proceedings, attempts at re-litigation or continuation of a stale proceeding and commencing proceedings without an intention to conclude them. Once again, repeated breach of timetabling orders will tend to strengthen the argument that, on one of the pre-stated grounds, the plaintiff is engaging in an abuse of the Court’s processes.
[21] The plaintiff accepts that there have been the timetabling breaches outlined and that the pleading in its current state is not sufficiently coherent to provide a basis for a proper assessment of the plaintiff’s case. The plaintiff accepted in a memorandum of 27 October that “The number of times I have missed critical deadlines is beyond acceptable ….”5 The plaintiff says he has not set out to disrespect the Court process and advises that he is prepared to make a genuine attempt to re-plead his claim. He submitted that, while not well articulated, a claim
is able to be made on an orthodox fiduciary obligation and imputed knowledge
4 See Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53.
5 Memorandum of plaintiff seeking admission of notice of opposition to strike-out application at
[8].
and/or wrongdoing basis and he should be given the opportunity to have another try at pleading his case.
[22] Despite the fact that I have struck out the plaintiff’s core claim against Mr Finnigan, and that this claim is essentially derivative of that, I do not feel it appropriate to strike out this proceeding at this stage. Provided he can impute knowledge to the trust and the estate, the removal of the Finnigan litigation is not fatal to this case. Further, the plaintiff’s timetabling non-compliances have not been so consistent and the delays created not so significant as to justify taking that drastic step. And as Mr Long accepted, there is the kernel of a pleadable case in the allegations made. Mr Yarrow says he continues to consult with counsel with a view to re-pleading the case (of course he has said that before, more than once, in this and the related Finnigan case). I am minded to give him one final opportunity to re- plead with clear conditions.
[23] The application for strike-out is dismissed.
Application for security for costs
[24] The defendants apply in the alternative for an order for security for costs. Rule 5.45 relevantly provides:
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
…
(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding.
(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
[25] Two interests compete in this rule. They are a plaintiff’s right to access to justice to resolve genuine disputes and the defendant’s right to be protected against “barren costs awards”.
[26] The threshold requirement is that there must be reason to believe the plaintiff is unable to pay costs. I do not need to be satisfied to a civil standard that the plaintiff is impecunious. All that is required is “reason to believe”. The applicant need only advance credible evidence of impecuniosity.6
[27] The plaintiff denies he is impecunious. He says he has made all costs and security payments required by the courts and is confident he can pay any costs order in this case if he is unsuccessful. Although in another part of his affidavit he says he will “cross that bridge when he comes to it”. He underscores the fact that he has been involved in multiple complex litigation and has complied with relevant Court directions in relation to costs thus far, so there is no credible evidence to suggest that he will not do so in the present case.
[28] The applicants say a first point to the multiple security for costs order in other litigation, for example Yarrow v Pettigrew7 and Yarrow v Finnigan in which substantial security for costs has been paid. The applicants also point to the fact that the plaintiff is involved in multiple proceedings all of which have some novelty about them and therefore carry the risk of costs awards. These proceedings include bankruptcy proceedings in which Westpac Bank has been substituted as petitioning creditor in relation to any alleged debt of $14 million.
[29] Finally, the applicants point to the evidence of Peter Tennent, a trustee of the
charitable trust and executor of Noel’s estate. He deposes as follows:
Mr Yarrow has recently sworn affidavits in proceedings against the estates of Noel and Melva Yarrow. These affidavits are identical in all material respects. In these affidavits, Mr Yarrow states that he:
(a) has been left penniless;
(b) has significant personal debts, including to his children’s trusts, and
these well exceed the remaining equity in the home he lives in; (c) faces claims of just under $2 million; and
(d) has suffered financial hardship as a result of the receivership of the
Yarrow’s companies.
6 See Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No. 2) [1977] 1 NZLR 516;
NZ Kiwifruit Marketing Board v Maheatataka Coolpack Ltd (1993) 7 NZPRNZ 2009 (HC).
7 Yarrow v Pettigrew [2013] NZHC 1901.
[30] In the application before me, the plaintiff does not deny these concessions. Rather, he says:
Mr Tennent’s emphasis on my circumstances as interpreted by my sworn affidavits in relation to proceedings against my parent’s estate is accurate, in that context. However, in these proceedings, it requires interpretation in a different context, more specifically, one that is peculiar to these proceedings.
[31] Taking into account all of these matters, I am satisfied that there is credible evidence of impecuniosity both because the plaintiff himself has said so in a number of places, and because of the cumulative effect of the other pressures on his pocket to which I have made reference.
[32] At the discretionary stage, I must be satisfied that an order for security for
costs is “just in all the circumstances”.
[33] As I have said, the broad discretion available to me is inherently a balancing exercise between the plaintiff’s right to his day in court, and a defendant’s right to protection from impecunious plaintiffs. I agree with Kós J in Highgate on Broadway Ltd v Devine8 that access to justice is a human right and the countervailing right of the defendant to its protection will often be subordinated to it. That will be particularly so where there is some merit in the claim and the plaintiff’s impecuniosity is, arguably, a result of the defendants’ actions that are the very subject of the proceeding.
[34] Here, it is difficult to assess the merits of the plaintiff’s claim. As I said in the related Finnigan litigation, the claims are novel and the allegations serious. All that I am prepared to say is that the plaintiff faces an uphill battle but not an impossible one. If his allegations are proved, there is reason to believe that his impecuniosity is the result of Mr Finnigan’s actions and that the charitable trust may well, through imputed knowledge, be implicated in that. But, because this proceeding is mounted at a step removed from Mr Finnigan himself, there is an added layer of difficulty not present in the litigation against Mr Finnigan himself. I
consider these matters overall to be neutral factors.
8 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017.
[35] On the other hand, I consider the plaintiff’s serial non-compliances have consistently added greater cost for the defendants in this and other litigation. There is, thus far, no evidence that the plaintiff has changed his ways.
[36] In addition, he is engaged in litigation against a number of parties associated with the Yarrow Group. The plaintiff has mounted a wide ranging campaign against multiple entities and individuals. He has struggled to make headway in any of these proceedings, as shown by my decision to strike-out the Finnigan proceeding.
[37] I consider that in these circumstances, security for costs imposed at an appropriate level can assist in disciplining Mr Yarrow as a lay plaintiff to focus on the proceeding and to advance it as best he can. It is likely to have that effect in the present proceeding. And it will provide some comfort to patient and frustrated defendants.
[38] I am satisfied therefore that an appropriately modest and carefully calibrated order for security for costs should be made in this case. I am satisfied that the order should be in two, or perhaps three, tranches depending on how matters develop.
[39] Alongside these tranches, there will need to be a limited number of procedural directions relating to the re-pleading and ongoing management of the claim. I will give the plaintiff six weeks to obtain the funds necessary and, at the same time, to file and serve a proper particularised amended claim. A further case management conference will be convened if the plaintiff successfully completes these steps. Further, security may be considered at that stage. If not, a further strike- out application will be entertained and viewed sympathetically. I make the following directions accordingly:
(a) the plaintiff must comprehensively re-plead and particularise his claim, file it in the Wellington High Court and serve it on the defendants’ solicitors by 1 pm Friday, 8 September 2017;
(b)the plaintiff must pay into Court by way of security for costs in cleared funds the sum of $10,000 by 4 pm Friday, 8 September
2017;
(c) if the plaintiff does not comply with directions (a) and (b) above, the defendants may file a further application for strike-out;
(d)in the event directions (a) and (b) are met, a case management conference will be held on or before; and
(e) costs on the current applications will lie where they fall.
Williams J
Solicitors:
Lee Salmon Long, Auckland for defendants
Copy to: P S Yarrow
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