Yarrow v Pettigrew
[2013] NZHC 1901
•30 July 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-443-315 [2013] NZHC 1901
BETWEEN PAUL STEVEN YARROW Plaintiff
ANDCOLIN RITCHIE PETTIGREW First Defendant
ANDDUNCAN DOVICO (NZ) LIMITED Second Defendant
ANDDUNCAN DOVICO TRUSTEES LIMITED AND PAUL STEVEN YARROW
Third Defendants
Hearing: 9 April 2013
Appearances: J Campion for Plaintiff
A Gilchrist and P Knapp for First and First Named Third
Defendant
S Lucas for Second Defendant
Judgment: 30 July 2013
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Security for costs application)
This judgment was delivered by me on 30 July 2013 at 3 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
YARROW v PETTIGREW [2013] NZHC 1901 [30 July 2013]
[1] The plaintiff Paul Yarrow is a trustee and a beneficiary of the PS Yarrow Family Trust No 5 (the No 5 Trust) which was established in August 2009. The second defendant, Duncan Dovico (NZ) Limited, is an accounting practice in New Plymouth that acted for various interests of Mr Yarrow’s extended family. Mr Yarrow claims judgment against Duncan Dovico for $297,615.73 plus interest and costs. His claim relies essentially on the allegation that Duncan Dovico breached an obligation to hold a fund of that amount in trust for the No 5 Trust and that the fund has been lost.
[2] Mr Yarrow makes the same claim against a related company, the first named third defendant, Duncan Dovico Trustees Limited, which acts as corporate trustee for various trust funds in which the Yarrow family has interests. Duncan Dovico Trustees is Mr Yarrow’s co-trustee of the No 5 Trust.1 Additionally Mr Yarrow alleges an entitlement to similar relief against the first defendant, Mr Pettigrew, for knowingly assisting in the other defendants’ alleged breach of trust while an
employee of the accounting practice and a director and the controlling mind of
Duncan Dovico Trustees.
[3] Mr Pettigrew and Duncan Dovico Trustees seek orders for summary judgment dismissing the claims against them.2 In the alternative they seek an order against Mr Yarrow requiring that he give security for their costs to cover the event that his claim against them fails. The accounting practice, Duncan Dovico, also seeks an order requiring such security. Mr Yarrow opposes all of these applications.
[4] For reasons that I will turn to presently I am not satisfied the case for summary judgment has been made out. I am however satisfied that there should be an order for security for costs to provide some modest protection for the defendants
in the event that Mr Yarrow’s claim against them fails at trial.
1 Though this corporate trustee and Mr Yarrow are the named third defendants the claim for breach of trust is essentially against the former.
2 The applicant defendants also seek strike out orders. However counsel for these defendants accepts it is unnecessary to consider the strike out application independently of the summary judgment application, as it is common ground that if summary judgment fails strike out will fail.
Summary Judgment Application
Discussion
[5] The application for summary judgment is made in reliance on High Court
Rule 12.2 which relevantly states:
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.
[6] There is no dispute that the onus is on Mr Pettigrew and Doncan Dovico Trustees to prove they have a complete defence to Mr Yarrow’s claim and that Mr Yarrow has no tenable answer to the defence.
[7] Both of these defendants accept for present purposes that:
(a) Another family trust paid $297,615.73 to Duncan Dovico shortly after the No 5 Trust was established in August 2009 on trust for the No 5
Trust; and
(b)Duncan Dovico paid out the fund in two payments in October 2009 as a result of which it has been lost.
[8] However, they contend that the payments were made with the authority of Duncan Dovico Trustees and Mr Yarrow the co-trustees of the No 5 Trust. For the purpose of showing that Mr Yarrow gave the necessary authority they say Duncan Dovico Trustees acted in unison with Mr Finnigan, an adviser to various Yarrow interests, who was entitled to stand in Mr Yarrow’s shoes under delegated authority; and that such authority was derived from Mr Yarrow under a deed made in 2000 conferring a general power of attorney on Mr Finnigan in respect of Mr Yarrow’s present and future powers as a trustee.
[9] Counsel for Mr Pettigrew and Duncan Dovico Trustees submits that Mr Pettigrew’s claim for summary judgment is clear cut. He acknowledges responsibly that Duncan Dovico Trustee’s claim for summary judgment may be less clear on the
evidence. He is right in so far as he makes that concession but such a concession would be equally apposite in respect of both of the applicants for summary judgment. I turn to my reasons.
[10] Mr Pettigrew gives the only evidence in support of the application for summary judgment application and the defences that Duncan Dovico Trustees and he rely upon. Both rely on the defence that the two trustees gave authorisation for the payments made in 2009 that depleted the fund. Mr Pettigrew’s evidence does not however establish that Duncan Dovico Trustees’ authority was properly given. Indeed he says nothing about authorisation for the two payments being given by the Duncan Dovico Trustees and no evidence of any relevant resolution or other record by Duncan Dovico Trustee is produced by him.
[11] Mr Pettigrew in his evidence focuses on two written authorisations dated 14 and 20 October 2009 signed by Mr Finnigan apparently on behalf of Mr Yarrow. Mr Pettigrew’s evidence fails to establish the basis on which Mr Finnigan was entitled to give them. He does not produce the necessary documentation to prove the power of attorney pursuant to which Mr Finnigan’s authorisations are alleged to have been given or to establish that Mr Finnigan has acted in accordance with its terms. Nor has he produced a certificate of non-revocation that may have been signed by Mr Finnigan at the time to show that the power of attorney remained valid at the time the authorisations were given.
[12] The uncertainty as to the basis of Mr Finnigan’s authority is not resolved by the conflicting evidence filed in opposition by Mr Yarrow and in reply by Mr Finnigan. Mr Yarrow says that he conferred a power of attorney on Mr Finnigan in August 2009. Mr Finnigan states that he relies on a power of attorney conferred on him in 2000. Mr Finnigan says that Mr Yarrow is confused. That may well be so but it rather begs the question as to what authority Mr Finnigan was acting on and indicates the need to bring a cautious approach to summary judgment.
[13] Mr Yarrow also challenges the second of the payments on the basis that he was in New Zealand when the payment was made. He deposes that the power of attorney he conferred on Mr Finnigan permitted Mr Finnigan to exercise powers of
trustee if he (Mr Yarrow) was out of New Zealand but not while he was present in
New Zealand. That is consistent with the limited power of delegation set out in s 31
Trustee Act 1956.3 Mr Finnigan on the other hand says that the 2000 power of attorney from which he says he derived his authority did not contain any such a limitation. Though it is a well established rule that trustees cannot delegate their duties unless provided for by statute or by the trust deed,4 Mr Finnigan does not attempt to give a legal foundation for the general delegation he seems to claim. This raises further questions about his authority to act as delegate when Mr Yarrow was in New Zealand rather than clarifying the basis for it.
[14] The evidence also filed in reply by Mr Hassell, a director of the accounting practice, reinforces the need for a cautious approach to the evidence as to the necessary authority for the payments. He says that the day to day operations of the accounting practice and Duncan Dovico Trustees are linked and that the accounting practice relied on unanimous instructions from Duncan Dovico Trustees and Mr Finnigan. In respect of the former he says there was no written instruction but he does not seek to explain how the corporate trustee gave its instruction or by whom its instruction was given. Nor does he seek to explain why the accounting practice considered it was right to treat such instruction as properly given. In respect of Mr Finnigan’s instruction he says simply that he understood Mr Finnigan was authorised to give the authority under a power of attorney given in September 2000 but does not
elaborate. Though he says he understood that the power of attorney was not
3 Section 31 permits delegation by power of attorney during any period for which the trustee may be out of New Zealand. It relevantly states:
Power to delegate trusts
(1) A trustee who—
(a) Is for the time being out of New Zealand or is about to depart therefrom; or
(b) Expects that he may be absent from New Zealand from time to time during the administration of the trust; or
(c) Is or may be about to become temporarily incapable, by reason of physical infirmity, of performing all his duties as a trustee; or
(d) Expects that he may be from time to time temporarily incapable, by reason of physical infirmity, or [sic: of] performing all his duties as a trustee,—
may, notwithstanding any rule of law or equity to the contrary, by power of attorney executed as a deed, delegate to any person the execution or exercise, during any period for which the trustee may be absent from New Zealand or incapable of performing all his duties as a trustee, of all or any trusts, powers, authorities, and discretions vested in him as such trustee, whether alone or jointly with any other person or persons.
4 Rodney Aero Club Inc v Moore [1998] 2 NZLR 192 (HC) at 195; Niak v MacDonald [2001] 3 NZLR
334 (CA) at [16].
restricted to providing authority when Mr Yarrow was out of New Zealand he does not expand on his reasons.
[15] Apparently mindful of these difficulties, counsel for the defendants submits that Mr Pettigrew has an alternative complete answer in any event. He submits that Mr Pettigrew’s uncontroverted evidence shows that he had “no involvement at all” in the two payments. This, he submits, is a complete defence to the claim that Mr Pettigrew directed the Duncan Dovico entities to make the payments and knowingly assisted in a breach of trust. Mr Pettigrew’s evidence is not however that he had no involvement at all in the two payments, it is that he did not authorise the transactions. He relies on Duncan Dovico Trustees and Mr Finnigan’s having authorised the payments but that does not answer the essence of the allegation in Mr Yarrow’s statement of claim that Mr Pettigrew assisted in a breach of trust knowing there were not the necessary valid authorisations or without being satisfied there were. Whether or not Mr Pettigrew did knowingly assist remains unclear and is not something I can safely determine summarily on the present evidence. It is a matter that will have to await trial.
Conclusion
[16] Against this background, I am not satisfied that this is a case where it would be appropriate to enter summary judgment and to dismiss Mr Yarrow’s claim. I am not satisfied that the applicant defendants have a complete answer to the claim.
[17] In reaching these findings I am mindful that Mr Yarrow’s evidence is not without its possible inconsistencies. An example is that on the one hand he asserts the power of attorney that he gave is dated 2009. On the other hand he produces documents that suggest the No 5 Trust, on which he relies, was established on his behalf in August 2009 by Mr Finnigan acting under delegated authority confirmed by a deed made in 2000 giving him power of attorney. It is unclear whether Mr Yarrow is saying that he revoked the earlier power of attorney after August 2009 when the No 5 Trust was established and executed a new one. Mr Finnigan suggests that Mr Yarrow is confused and that there is no 2009 power of attorney. Clearly further explanation if called for. However, even if Mr Finnigan’s contention is right
that his delegated power to authorise the payment out of the $297,615.73 trust fund comes from the power of attorney given in 2000 and not 2009 it does not deal with all of the shortcomings in the defendants’ evidence that I have outlined.
Security for costs application
[18] I turn then to the applications for orders for security for costs.
[19] Broadly stated the issue for determination is whether, balancing the interests of the parties, the discretion to order security for the costs of the first, second, and first name third defendants should be exercised in their favour.
[20] The applications are made under High Court Rule 5.4 which relevantly states:
5.45 Order for security of costs
(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.
[21] There is no dispute that the jurisdictional threshold for an order under r
5.45(1)(b) is met as Mr Yarrow is impecunious and in all probability will be unable to pay the defendants’ costs if his claim is unsuccessful. However Mr Yarrow contends that his ability to proceed to trial will be lost if he is required to provide security. Such an outcome would, he contends, be unjust and not in the overall interests of justice.
[22] The cases that discuss security for costs applications emphasise that the court’s discretion is not to be fettered by constructing “principles” from the facts of the previous cases as they are not a substitute for a careful consideration of the facts
of the particular case.5 Importantly, there is no presumption in the exercise of the Court’s discretion under r 5.45. The circumstances of the case as a whole are relevant.6
[23] The discretion whether to grant security therefore involves a balancing of the plaintiff’s and the defendant’s interests.7 The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. This must also be taken as contemplating that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. In those circumstances, an order having this effect should only be made after careful consideration, and where the claim has little chance of success. Access to the court for a genuine plaintiff should not lightly be denied.8
[24] The difficulties of assessing the strength or weakness of a case at an interlocutory stage are well recognised. However, it is also trite law that where possible, the court should try to assess the merits of the case.9 Dubious prospects of success increase the chances of the plaintiff facing an order for security.
[25] Mr Yarrow contends that he has a good case based on breach of trust and knowing assistance of breach of trust. He also says that as his impecunious position has been caused by the defendants’ conduct it would be most unfair to require him to give security because that would prevent him pursuing his case and the defendants would avoid having to account.
[26] At the heart of the issue is whether Mr Yarrow’s case has the hallmarks of a good arguable case, as he contends, or whether it is a case that just crosses the threshold of being arguable. If the latter then the issue whether it is likely that the defendants have caused or contributed to his impecuniosity will carry less weight.
[27] There are difficulties that Mr Yarrow appears to face. I give two examples. First, there is the apparent inconsistency in his evidence as to a 2009 power of
5 A S McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA)
6 Attorney-General v Transport Control Systems (NZ) Ltd [1982] 2 NZLR 19 (CA) at 20.
7 A S McLachlan, above at [15] and [16].
8 At [15].9 Meates v Taylor (1992) PRNZ 524 (CA) at 527.
attorney I have mentioned. Secondly, if as Mr Yarrow contends, the delegation he gave to Mr Finnigan allows the latter to act when he is overseas there is at least some evidence to suggest that Mr Yarrow was out of New Zealand at the time that the authorisation was given for the first and largest payment was made out of the fund.
[28] As a result Mr Yarrow’s case, while arguable, is not a case that seems particularly strong.
Conclusion
[29] Overall, Mr Yarrow has failed to make out a case for the exercise of the discretion to decline the applications for the giving of security. I am satisfied that it is just in all the circumstances that he be required to give a meaningful amount of security in respect of the claims against the defendants.
[30] That brings me to the question of the appropriate amount of security that should be provided. Counsel referred to the probable scale costs in the event that Mr Yarrow is unsuccessful. I accept that is a relevant factor. However, I also bear in mind Mr Yarrow’s impecuniosity which is a key factor weighing against the imposition of a higher figure.
[31] With those two competing influences in mind, I would fix the amount of security at $20,000. I think that sum is appropriate on the basis that it will provide the defendants collectively with some measure of protection in the event that they are the successful parties.
Orders
[32] I make orders as follows:
(a) Mr Yarrow is ordered to give security for the defendants’ costs in the sum of $20,000 cash or other form of security to the satisfaction of the Registrar;
(b) The proceeding is stayed pending the giving of security;
(c) Leave is reserved to seek further orders by way of memorandum if security is not provided within a period of 3 months from the date of this judgment. A memorandum may be filed on two days notice for that purpose.
[33] I reserve costs. If any party is seeking an order for costs a memorandum any be filed and served within 5 working days of the date of this judgment. Any
memorandum in opposition is to be filed and served with a further 5 working days.
Associate Judge Sargisson
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