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High Court of New Zealand Decisions |
Last Updated: 17 May 2023
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2021-404-0030
[2023] NZHC 1052 |
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BETWEEN
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DOUGLAS MURRAY KINNON and AVRYL MARGARET KINNON as
trustees of the CEDAR LODGE TRUST Plaintiffs/counterclaim defendants
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AND
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BOON GUNN HONG
First defendant/counterclaim plaintiff
NOMINEES AND TRUSTEES LIMITED
Second defendant
DOUGLAS MURRAY KINNON
First counterclaim defendant
JAALA FERNANDE DYER
Second counterclaim defendant
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Hearing:
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24 April 2023 and 26-27 April 2023
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Appearances:
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M C Nicholls for plaintiffs/counterclaim defendants First
defendant/counterclaim plaintiff in person
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Date of judgment:
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5 May 2023
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JUDGMENT OF JAGOSE J
This judgment was delivered by me on 5 May 2023 at 11.00am.
Pursuant to Rule 11.5 of the High Court Rules.
.............................. Registrar/Deputy Registrar
Solicitors:
Martin Nicholls Limited, Kerikeri
Copy to:
B G Hong, Auckland
KINNON v HONG [2023] NZHC 1052 [5 May 2023]
[1] This judgment concerns Mr Hong’s 25 March 2021 counterclaim against the present trustees of Cedar Lodge Trust (the trust) and Ms Dyer and Mr Kinnon, the trust’s beneficiaries, to recover their alleged indebtedness and other contended liabilities to him.
Preamble
[2] In this proceeding, the trustees claimed to recover from Mr Hong as a former trustee and legal advisor — and Nominees and Trustees Ltd, a company of which he is sole director and shareholder — a Kerikeri property of which he is alleged to have defrauded the trust. The claim awaits this Court’s determination of its formal proof, heard in September 2022.
[3] Mr Hong’s unorthodox combined pleading of his defence to that claim and counterclaim includes for relief a declaration the trustees and Ms Dyer and Mr Kinnon “no longer had any interest in the Kerikeri property” and an order their caveat over it therefore lapse. That is relief referrable only to the trustees’ claim. Pursuit of such now as relief on Mr Hong’s counterclaim would be an abuse of process: “improper use of [the court’s] machinery”;1 use of that process “for a purpose or in a way significantly different from its ordinary and proper use”.2 Duplicative proceedings in themselves are abusive, even if the former proceeding remains undetermined.3
[4] This judgment therefore addresses only the separate relief sought by Mr Hong, on grounds the trustees, Ms Dyer and Mr Kinnon fraudulently obtained advances from him to acquire the Kerikeri property, and unconscionably have not repaid those advances or paid rent due on the property. Given the trustees’ claim remains
2 Attorney-General v Barker [2000] 1 FLR 759 (QB) at 764.
undetermined, to the extent this judgment refers to that property’s ownership, it only is descriptive and not determinative.
Background
[5] The trust originally was settled by Mr Kinnon’s father on himself and Ms Dyer and Mr Hong as trustees for the benefit of Ms Dyer and Mr Kinnon. The father later resigned as trustee and subsequently conferred his power of appointment onto Ms Dyer and Mr Kinnon. On 13 June 2007, under that power of appointment, Mr Hong was replaced as trustee by BGH Trusteeship Limited, of which he was its sole director (its shares owned by his spouse).
[6] By agreement dated 28 September 2005, the trustees agreed to purchase a property in Northland’s Kerikeri — ultimately for an increased price of $645,000 to match a competing offer, after paying a $40,000 deposit to the vendors — for settlement in November 2005. The $40,000 deposit was set at the time of agreeing an initial $630,000 purchase price. After the increased price was established, Ms Dyer and Mr Kinnon transferred $5,000 to Mr Hong, nominally for further payment toward the purchase price.
[7] The unsuccessful purchaser lodged a caveat. Settlement then was deferred but the vendors nonetheless granted the trustees exclusive possession of the property, apparently to avoid penalty on late settlement, and Ms Dyer and Mr Kinnon and their family initially lived at the property. The trustees also earned income from and made expenditure on the property from that time. However, given the uncertainty caused by the caveat, in June 2006, the trustees purchased another property in Northland’s Mangōnui, financed by Ms Dyer and Mr Kinnon’s bank facility originally intended for acquisition of the Kerikeri property. Ms Dyer and Mr Kinnon and their family relocated to the Mangōnui property.
[8] Clear title to the Kerikeri property became available in July 2006, after the unsuccessful purchaser’s caveat was withdrawn in wake of this Court’s order for its removal.4 Settlement followed Mr Hong’s payment of the balance of the purchase
4 Keogh v Lund HC Auckland CIV-2005-404-7151, 28 June 2006 at [31].
price in August 2006, for which he drew on the $5,000 transferred to him by Ms Dyer and Mr Kinnon and otherwise on the reserves of Orano Developments Limited, another company under his control.
[9] Taking advantage of an error by the vendors’ solicitors in rendering settlement statements at the lower initial offer of $630,000, the trustees disputed the purchase price, meaning the balance paid on settlement was $15,000 short. The vendors’ further caveat over the property protected the disputed sum, until it was discharged on Mr Hong’s payment of the outstanding amount into the vendors’ solicitors’ trust account in November 2007. The trustees ultimately were held liable also to pay the disputed sum.5
[10] The parties discussed with each other the prospect Mr Hong might personally jointly acquire the Kerikeri property with Ms Dyer and Mr Kinnon (or the trustees). The precise timing of that discussion is unclear on the evidence. The starting point appears to have been a discussion between Mr Kinnon and Mr Hong, seemingly in anticipation of the Mangōnui’s property’s acquisition. At issue presumably was the trustees’ commitments to the Kerikeri property’s acquisition: deposit and settlement.
[11] Mr Kinnon’s evidence was Mr Hong had said to him:
to which Mr Kinnon had responded “well that seems reasonable” and proceeded on the basis “that was our deal”. At various times after the trustees obtained exclusive possession of the property, Ms Dyer and Mr Kinnon made payments to Mr Hong — in payment or return of contended ‘rent’ for the property, but also $50,000 at Mr Hong’s request — totalling some $220,000.
5 Dyer v Grove Darlow & Partners HC Auckland CIV-2008-404-8136, 17 July 2009.
[12] On 16 March 2007, Ms Dyer and Mr Kinnon wrote to Mr Hong to observe their failure that week to sell the Mangōnui property meant they “very likely would be over-extended in raising [a] half-mortgage for [the Kerikeri property]”, and proposed he “consider the possibility of taking on the [Kerikeri] property 100% yourself”. Mr Hong responded he preferred:
... the half share each but if you wish to quit that then I am considering just putting the property on the market as I do not wish to tie up too much capital there either.
[13] In April 2007, the Mangōnui property successfully was sold, and Ms Dyer and Mr Kinnon and their family resumed their occupation of the Kerikeri property. Mr Kinnon has remained in residence there ever since, later separating from Ms Dyer.
[14] On 27 November 2007, Mr Hong advised Ms Dyer and Mr Kinnon clear title to the Kerikeri property then was available and:
... We can now transfer the property to ourselves in equal half shares. If you guys want the house as your homestead, you could take me out with a good offer I hope.
Otherwise arrange for a Westpac mortgage ....
‘Arranging for a mortgage’ was rendered impossible by intercession of the contemporaneous global financial crisis, in which Mr Hong’s and Mr Kinnon’s respective experience was New Zealand banks ceased to lend.
[15] Despite settlement occurring in August 2006, and Mr Hong’s replacement as trustee in June 2007, the Kerikeri property only was registered transferred to Ms Dyer and Mr Hong on 31 July 2008. On 6 August 2008, the property was transferred to BGH Trusteeship Limited. On 4 August 2011, the property was transferred to Nominees and Trustees Limited. On 12 December 2012, the property was again transferred to Mr Hong. Those transfers are the subject of the trustees’ claim against Mr Hong awaiting determination on formal proof.
[16] The Auckland Standards Committee 5 of the New Zealand Law Society brought professional disciplinary charges against Mr Hong, arising from his dealings with Ms Dyer and Mr Kinnon and the trust. Largely on the basis of Mr Hong’s deemed acceptance of the facts — and his admission he advanced funds to assist Ms Dyer and
Mr Kinnon to settle acquisition of the Kerikeri property, by making a loan to them on contended terms — the New Zealand Lawyers and Conveyancers Disciplinary Tribunal (the Tribunal) found the charges proved,6 and struck his name from the roll.7
[17] Mr Hong’s appeals against those decisions were dismissed.8 Critically, Mr Hong should have ceased acting for Ms Dyer and Mr Kinnon from the time he contemplated entering into any “financing arrangement” for acquisition of the Kerikeri property;9 thereafter had at least a likely conflict of interest;10 and ceased to act independently on the property’s transfer to BGH Trusteeship Ltd,11 risking compromise of his duties to Ms Dyer and Mr Kinnon,12 and failing to protect their interests.13
Mr Hong’s claims
[18] On his counterclaim, Mr Hong alleges:
(a) against Ms Dyer and Mr Kinnon personally, their “commission of perjury” in the Tribunal; and
(b) against the trustees, and Ms Dyer and Mr Kinnon personally, their “commission ... of equitable fraud” against him, and breach of good faith contended owed to him.
Under both heads, Mr Hong seeks revesting of assets allegedly “stripped” from the trust so as to meet his claims to recover their contended indebtedness to him and “equitable losses” he sustained in lost opportunity for alternative benefit from his capital (and exemplary damages of $20,000, interest and costs).
6 Auckland Standards Committee 5 v Hong [2020] NZLCDT 5.
7 Auckland Standards Committee 5 v Hong [2020] NZLCDT 12.
9 At [94]–[99].
10 At [109].
11 At [117].
12 At [126].
13 At [136].
Discussion
[19] So far as ‘perjury’ is concerned, Mr Hong alleges Ms Dyer’s and Mr Kinnon’s evidence in the Tribunal was unconscionable given the extent of his professional relationship with them.
[20] Under the Lawyers and Conveyancers Act 2006, everyone has the same privileges in giving evidence before the Tribunal “as witnesses have in a court of law”.14 Witnesses in a court of law have “immunity from suit in respect of anything they may say in the course of the proceedings”.15 By ‘suit’ is meant civil suit, such as the present proceeding, distinct from professional sanctions or criminal prosecution.16
[21] Mr Hong’s counterclaim in this proceeding Ms Dyer and Mr Kinnon committed perjury or gave ‘unconscionable’ evidence in the Tribunal accordingly cannot be maintained and will be dismissed.17
—“commission of ... equitable fraud”
[22] So far as ‘equitable fraud’ and ‘breach of good faith’ is concerned, Mr Hong alleges the trustees (presumably meaning Ms Dyer then as his co-trustee) and Ms Dyer and Mr Kinnon misled him into advancing some $600,000 to them to settle acquisition of the Kerikeri property. He says the relationship of mutual trust between the three of them was breached by their failure to repay him as a priority to funds becoming available to them in the wake of other trust dealings.
[23] Mr Hong’s payment of some $600,000 is to the vendors of the Kerikeri property, as the balance due on settlement. It is characterised by him as a loan to Ms Dyer and Mr Kinnon. Ms Dyer and Mr Kinnon characterise the payment as
14 Lawyers and Conveyancers Act 2006, Sch 4, cl 9.
15 C v Complaints Assessment Committee [2006] NZSC 48, [2006] 3 NZLR 577 at [22]–[23], citing B v Auckland District Law Society [2003] UKPC 38; [2004] 1 NZLR 326 (PC) at [63]. See also S v W [2022] NZCA 181 at [22]–[25], citing Trapp v Mackie [1979] 1 WLR 377 (HL) at 379 (citing Dawkins v Lord Rokeby [1875] UKLawRpHL 17; (1875) LR 7 HL 744 (HL) at 753).
16 New Zealand Defence Force v Berryman [2008] NZCA 392 at [68].
17 See at [69], citing Darker v Chief Constable of the West Midlands Police [2000] UKHL 44; [2001] 1 AC 435 (HL) at 457.
Mr Hong’s contribution to their intended “joint venture”, as they referred to the “half shares” proposal. That proposal never developed into reality, even if it could have in the financial constraints of the time. They apprehend the payment was made on the trustees’ behalf from Mr Hong’s “Benevolence on the Conscience Loan Fund”, of which they became aware on learning of Mr Hong’s tax proceedings, but resist any suggestion they agreed to Mr Hong’s contended terms for such lending.18
[24] There is no judicial determination the payment is Mr Hong’s loan to the trustees or to Ms Dyer and Mr Kinnon; rather, to the extent characterisation of the payment has been in issue, such determiners of fact have hedged their bets.19
[25] So far as any advance from Mr Hong to the trustees or Ms Dyer and Mr Kinnon is concerned:
(a) the only potentially subject payments are from Mr Hong to the vendors of the Kerikeri property, consistently with the trustees’ obligation to settle its acquisition for the benefit of the beneficiaries.20 The trustees personally are liable for those obligations.21 In reasonably meeting them from their own resources, as Mr Hong did in drawing at least in part on Orano Development Ltd’s resources to pay the vendors the outstanding balance of the purchase price, he was entitled to reimbursement from the trust property;22 and
18 Hong v Commissioner of Inland Revenue
[2018] NZHC 2539, (2018) 28 NZTC 23-073 at [18(c)];
Hong v
Commissioner of Inland Revenue [2019] NZCA 336, (2019) 29 NZTC 24-015 at
[7]–[8].
19 Hong v Auckland Standards Committee No 5 [2020] NZHC 1599 at [74] and [97]; Hong v Auckland Standards Committee No 5 [2021] NZCA 85 at [4(a)] and [27]. The Tribunal accepted Mr Hong’s ‘admission’ he advanced funds to Ms Dyer and Mr Kinnon: Auckland Standards Committee 5 v Hong, above n 6, at [20]; Auckland Standards Committee 5 v Hong, above n 7, at [2]. See also Hong v Commissioner of Inland Revenue [2018] NZHC 2539, (2018) 28 NZTC 23- 073 at [18(c)], citing Commissioner of Inland Revenue v Stockwell [1993] 2 NZLR 40 (CA), and Hong v Commissioner of Inland Revenue [2019] NZCA 336, (2019) 29 NZTC 24-015 at [40]. With respect to Kinnon v Hong [2022] NZHC 1828 at [37(g)], n 16, which may be this Court’s repetition of counsel’s submissions, the contention this Court “found as a matter of fact” Mr Hong made a loan errs.
20 Trusts Act 2019, s 26.
21 Trusts Act, s 81(1), and see Re O'Donoghue [1998] 1 NZLR 116 (HC) at 121–122.
22 Section 81(2); Trustee Act 1956, s 38(2). Under the trust deed also, the trustees were:
... indemnified in full by the Trust in respect of all acts or omission on their part or in any way as a result thereof in the carrying out of their capacity as trustee, apart from acts of recklessness, fraud or dishonesty.
(b) payments from Ms Dyer and Mr Kinnon to Mr Hong commenced prior to his making any payment to the vendors of the Kerikeri property. I view those payments as accounting to the trust for their use of the trust property rather than in repayment of any ‘loan’. Those payments exclude the $50,000 paid by Ms Dyer and Mr Kinnon to Mr Hong at his request.
The position between the parties thus only is as contemplated by the agreement for sale and purchase of the Kerikeri property, for the trust’s acquisition of it. I find Mr Hong made no advance to the trustees, or to Ms Dyer and Mr Kinnon.
[26] During his closing submissions for the trustees and Ms Dyer and Mr Kinnon, I enquired of Martin Nicholls if his clients might consider resolution based on trustees’ statutory entitlement to reimbursement. I had in mind appointment of a Court expert,23 to calculate Mr Hong’s entitlement to reimbursement from the trust property on the evidence before me after taking into account the time value of money. Mr Nicholls flatteringly considered, although possibly without consideration of the time value calculations, I would not need a Court expert’s assistance to make the calculation. Of course, all turned on Mr Hong’s attitude to such a proposal. I enquired similarly of Mr Hong during his closing submissions. He rejected the proposal, preferring to maintain his counterclaim.
[27] Given my finding Mr Hong did not advance funds to Ms Dyer and Mr Kinnon,24 I also will dismiss the balance of Mr Hong’s counterclaim.
[28] As no factual foundation has been established for Mr Hong’s counterclaim, meaning no disrespect for Mr Hong’s and Mr Nicholls’ diligence in addressing other characterisations of the parties’ dealings, I am not prepared to consider the parties’ respective arguments in the abstract.
Result
[29] Mr Hong’s counterclaims are dismissed.
23 High Court Rules 2016, rr 9.36–9.41.
24 At [25] above.
Costs
[30] In my preliminary view, from what I presently know — as the unsuccessful party in this averagely complex proceeding requiring counsel of average skill and experience, and in which a normal amount of time is considered reasonable for each step on the application — Mr Hong should pay 2B costs and disbursements jointly to Ms Dyer and Mr Kinnon.
[31] If my view is not accepted by the parties, or they cannot otherwise agree, I reserve costs for determination on short memoranda each of no more than five pages
— annexing a single-page table setting out any contended allowable steps, time allocation and daily recovery rate — to be filed and served by Ms Dyer and Mr Kinnon within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.
Comment
[32] I endorse prior judicial comment “[t]his case has become unnecessarily complex from a procedural point of view”.25 This Court considered the claim and counterclaim “overlap considerably”,26 as counsel’s submissions maintain.
[33] Had I found a loan from Mr Hong to the trustees or to Ms Dyer and Mr Kinnon, I do not see how I could have determined Mr Hong’s claim for its repayment without knowing also of the result of Ms Dyer’s and Mr Kinnon’s claim to recover the Kerikeri property from him. After all, if Mr Hong acquired a property for value in the amount and by application of the contended loan, any loan arguably is discharged.
[34] Formal proof of Ms Dyer’s and Mr Kinnon’s claim was directed after Mr Hong’s failure to respond to their amended pleading,27 adding a cause of action for fraud pursuant to the Land Transfer Act 1952. But Mr Hong could not be said by that failure to have “not file[d] a statement of defence within the number of working days required by the notice of proceeding”, as is the qualification for formal proof.28 Indeed,
25 Kinnon v Hong CIV-2021-404-0030, 9 March 2023 at [1].
26 Kinnon v Hong, above n 19, [2022] NZHC 1828 at [10].
27 Kinnon v Hong CIV-2021-404-0030, 17 August 2022.
28 High Court Rules 2016, r 15.6(1).
he had filed his defence to the original claim and a counterclaim. Instead, he only was required to file and serve his defence to the amended pleading “within 10 working days after the day on which the amended pleading is actually served”.29 Except for the amended pleading, Mr Hong essayed a defence.
[35] Particularly in absence of any comparator for the former High Court Rules’ r 277, which empowered strike out of a defence for default in complying with an interlocutory order, effectively debarring Mr Hong’s defence at all may be thought “an extreme order ... proper in an extreme case only”.30 If this was that is not for my decision. But whatever may have been necessary to discipline Mr Hong for his failure to file a defence to the plaintiffs’ amended claim, in my view, the counterclaim should have remained for concurrent hearing.
—Jagose J
29 Rule 7.77(6).
30 Stephens v Cribb CA339/90, 25 July 1991, (1991) 4 PRNZ 337 at 344.
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