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Poka and ors v TKC Holdings and ors [2006] NZCA 107 (31 May 2006)

Last Updated: 22 June 2006

IN THE COURT OF APPEAL OF NEW ZEALAND

CA289/05

BETWEEN DONNA POKA, TE MAKI LADBROOK, PRISCILLA DOUGLAS, JACKSON WHITE AND MARILYN PALMER
Applicants

AND TKC HOLDINGS LIMITED
First Respondent

AND MATAKANA ISLAND TRUST
Second Respondent

AND JOHN ROBERT NEILL
Third Respondent

AND QUENTIN DUFF
Fourth Respondent

Hearing: 15 May 2006

Court: William Young P, Glazebrook and Robertson JJ

Counsel: F J Thorp for Applicant
A R Galbraith QC for Respondents

Judgment: 31 May 2006

JUDGMENT OF THE COURT

The application for special leave is dismissed.

____________________________________________________________________

REASONS

(Given by Glazebrook J)

Introduction

[1] The applicants are applying for special leave to appeal to this Court out of time against a judgment of Frater J on 3 November 2004 which declared that the transfers of shares by the Matakana Island Trust (the Trust) to certain individuals were valid. The case was put to the Judge on the basis of an agreed statement of facts and all parties consented to the order made.
[2] The applicants for special leave are five members of the Trust Board who voted against the resolution to transfer the shares. They were not parties to the High Court proceedings but had been served with the proceedings through Mr Duff, the fourth respondent, another Board member who had voted against the resolution.

Facts

[3] The Agreed Statement of Facts recorded that in 1991 land, forest and various forestry-related assets on Matakana Island became available for purchase from the receiver of London Pacific Ltd. Te Kotukutuku Corporation Limited (TKC) was formed (from an existing shelf company) to bid for the assets. The Trust, which is incorporated under the Charitable Trusts Act 1957, held 51% of TKC’s shares and various individuals held the remaining 49%.
[4] In February 1993 it was announced that the assets had been sold to a consortium which included foreign interests (the FAR consortium). TKC and the Trust applied for an injunction to stop the sale. In order to fund the litigation, on 14 February 1993 the Trust offered residents of Matakana Island the option of a 1% shareholding in the company that would ultimately hold the assets or a hectare of trees for every $1,000 advanced (the tree/share arrangement). The applicants contend that no such offer was made by the Trust and that no such agreements were ever entered into.
[5] Litigation ensued and TKC and the Trust eventually (on 29 April 1994) acquired the assets from the FAR consortium through the joint acquisition of the shares in TKC Holdings Ltd (then known as Caldora Holdings Ltd). On 11 May 1994, the Trust resolved to repay advances made by the persons who had contributed to the fighting fund (together with 15% interest). These payments were made. In July 1994, a special meeting of the community was held for the Trust Board to clarify that repayment of advances did not affect the entitlements under the arrangement for shares or trees.
[6] Further litigation brought by other parties claiming an entitlement to the assets followed. On the successful resolution of that litigation in December 1999, TKC and the Trust restructured their shareholding in TKC Holdings Ltd from joint ownership of the shares in TKC Holdings to the Trust owning 51% with TKC holding the balance of 49%.
[7] On 14 June 2002 the Trust Board resolved to transfer the shares in TKC Holdings that were subject to the tree/share arrangement to those who had entitlements under that arrangement. Six board members voted against the resolution and it was only carried by the Chairman’s casting vote. On 22 July 2002 TKC Holdings resolved to approve the share transfers and the transfers were completed between June 2002 and February 2004.

High Court proceedings

[8] In May 2004, TKC Holdings issued proceedings in the High Court seeking a declaration on the validity of the share transfers by the Trust. The Trust was the named defendant but in reality supported TKC Holdings. Pursuant to an order of Master Lang (as he then was), the proceedings were served (inter alia) on the six dissenting members of the Board (by service on Mr Duff) and on the share transferees (by service on Mr Neil, the third respondent). While Mr Duff attended the pre-trial conferences neither he nor any of the applicants applied to be joined as parties. Nor did they provide any submissions or other material to the Court. They did not take any part in the hearing of the proceedings on 21 October 2004 at Rotorua.
[9] Frater J issued a minute on the matter on 3 November 2004. This minute records that, having read the documents filed, she was satisfied that it was appropriate to make the declaration sought and that the Court had power to do so. Accordingly, she made a declaration that the transfers of shares by the Trust to give effect to its resolutions of 14 June 2002 were valid. The judgment recording the consent order was sealed on 8 November 2004.

Submissions

Submissions for the applicants

[10] Mr Thorp, for the applicants, submitted that this Court should grant leave to appeal because the actions of the trustees constituted a breach of two fundamental principles of trust law, namely that trustees should not be a judge in their own cause and that trustees should not profit from their dealings with the Trust (some of the trustees were share transferees in terms of the tree/share arrangement). In his submission, neither of these principles was appropriately addressed in the High Court.
[11] Mr Thorp advanced two additional reasons for granting leave. First, the Judge proceeded on an incomplete and incorrect factual premise. In particular, he submitted that there is substantial evidence supporting the contention that no offer as relied upon was made to the share transferees at the relevant time, let alone by the Trust. Secondly, in any event, even if any such offer was made, it was ultra vires the constitution of the Trust.
[12] Mr Thorp stated that the failure by the applicants to contest this proceeding in the High Court was due to their solicitor, Mr Duff, who was suffering from a conflict of interest and who failed in any event to follow instructions. Mr Duff participated in the initial telephone conference and noted his instructions to oppose the application. However, he subsequently, and, in Mr Thorp’s submission, wrongfully, informed the Court that he had not been able to obtain any further instructions from the persons whom he represented.
[13] Mr Thorp submitted that the delays in filing the application for special leave to appeal are excusable, particularly given attempts to seek assistance from the Solicitor-General in the meantime. In his submission, any prejudice to the respondents if leave to appeal is granted did not outweigh the severe prejudice to the Trust if the application is not granted.
[14] Finally, Mr Thorp submitted that any transfers to other entities could be unwound and there were no third party interests that would be adversely affected by the application being granted and no prejudice suffered by the transferees.

Submissions for the first and second respondents

[15] Mr Galbraith QC, for the first and second respondents, TKC Holdings and the Trust, submitted that granting leave would not meet the overall interests of justice. In his submission, if leave is granted, the extensive delay would cause significant prejudice not only to TKC Holdings and the third respondents (the share transferees), but also to others who have relied on the existing commercial situation for more than a year following the judgment. He pointed out that the very reason for obtaining the declaratory judgment was to confirm the validity of the share transfers in order to enable TKC Holdings to deal with developers. Further, he submitted that the shares have, in some cases, been transferred to another entity. That entity has entered into an agreement with a third party conditional on the validity of the share transfer. Both parties have taken steps in reliance on that condition being satisfied.
[16] Mr Galbraith submitted that, notwithstanding the actions of Mr Duff, the applicants had sufficient opportunity to participate in the High Court proceeding but elected not to. He pointed out that two of the applicants are legally trained and that one of them was aware that Mr Duff had decided not to file a statement of defence at least one day prior to the filing deadline. Further, there was some six weeks between that date and the hearing. No steps were taken to be included in the proceedings.
[17] In Mr Galbraith’s submission, the respondents and other parties who have relied on the High Court judgment should not be prejudiced by the applicants’ late change of heart. He further submitted that the delay of more than one year in bringing this application is inordinate and was not due to mistake or oversight. In his submission, the applicants have not provided a reasonable (or any) justification for this delay. Electing to pursue an investigation by the Solicitor-General would not have precluded an appeal being filed and, in any event, the Solicitor-General had already declined the Trust’s application to intervene in the High Court proceedings on the basis that it was a commercial dispute.
[18] Mr Galbraith submitted further that the appeal lacked merit, as there is no basis for interfering with the High Court’s discretion to grant the declaratory relief. The High Court was properly appraised of the issues and was referred to all evidence relevant to those issues. The matters raised by the applicants reflect the key issues identified for consideration by the High Court. Mr Galbraith submitted that the applicants have not identified any inaccuracy in the agreed statement of facts. Nor have they established that any relevant evidence was not before the Court.
[19] In relation to the alleged breach of trust, Mr Galbraith pointed out that issues relating to conflict of interest and bias were put to and considered by the High Court. The Court accepted that no issue arose in the circumstances because the Board, when voting on the resolution to transfer the shares, was not making a decision about whether or not to distribute Trust property. Rather, the shares were transferred pursuant to a number of existing constructive trusts. The trustees did not, therefore, act as judges in their own cause or profit from trust property.
[20] Mr Galbraith conceded that the Trust Board members who were to receive shares under the tree/share arrangement should probably not have voted on it but said that this makes no difference as the Trust was obliged to transfer the shares in any event.

Submissions of the other respondents

[21] Mr Brittain, for the third respondent, filed a memorandum stating that the named shareholders did not wish to take any steps in this Court and would abide by the Court’s decision in respect of the application.
[22] Mr Cooke, for the fourth respondent, Mr Duff, filed a memorandum opposing the application for special leave to appeal. He stated that the decision reached by Frater J was correct. He also said that Mr Duff does not accept that he had instructions to act for the applicants in the matter before Frater J. Mr Duff advised the applicants that their appropriate action was against the second and third respondents and that he could not act for them as he would be required to appear as a witness.

Discussion

[23] The application is made more than a year out of time with regard to proceedings in which the applicants took no part, despite having been served. The applicants had the opportunity to make the points they now wish to make (particularly relating to the challenge to the existence of the tree/share agreement) before the High Court and failed to do so. The failure to take part in the High Court proceedings and the delay in making this application for special leave has not been adequately explained. We accept Mr Galbraith’s submissions in this regard. There is even an issue as to whether the applicants ever had a right of appeal given that they were not parties in the High Court but Mr Galbraith was prepared to assume that this issue could likely be resolved.
[24] Turning to the merits of the proposed appeal, the challenge to the existence of the agreement would require the adducing of fresh evidence. It is unlikely that the applicants could satisfy the test for adducing such evidence on appeal. Mr Thorp submitted that, even if this were the case, the original tree/share agreement cannot have been valid. This is because it involved the possible transfer of trust property, being shares in TKC.
[25] The difficulty with this argument is that it is by no means clear that the agreement concerned shares in TKC (which, in any event, at that stage had no assets). As it happens, the shares offered were in TKC Holdings which was not owned by the Trust at the time of the agreement. Further, the alternative under the agreement was one hectare of trees. At the date of the agreement, there were no relevant trees owned by TKC or the Trust. In fact the land and trees had been sold to FAR consortium. In addition, it seems to us unlikely that the agreement, even if it did relate to Trust property, could be impugned with regard to those who were not Trust Board members at the time of entry into the agreement.
[26] We also accept Mr Galbraith’s submission that, if the tree/share agreement was valid, there was no transfer of trust property by means of the resolution. As he submitted, all that had happened was a transfer of property in accordance with an earlier agreement that the Trust would have been obliged to honour. We also accept Mr Galbraith’s submission that questions of whether or not interested members of the Board should have voted are thus arguably moot.
[27] As to Mr Thorp’s submission that there is no prejudice to the respondents or to third parties in relation to the delay, we have affidavit evidence before us to the contrary. Given that it is a year since the High Court decision it is not implausible that there has been expenditure incurred and arrangements made on the basis that the share transfers were valid. We are thus unable to accept Mr Thorp’s submission in this regard.

Result

[28] For the reasons set out above, the application for special leave is dismissed.

Solicitors:
Fleming Foster Palmer, Auckland, for Appellants
Cooney Lees Morgan, Tauranga, for First and Second Respondents
Bush & Forbes, Tauranga, for Third Respondent

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[1]	The applicants are applying for special leave to appeal to this Court out of time against a judgment of Frater J on 3 November 2004 which declared that the transfers of shares by the Matakana Island Trust (the Trust) to certain individuals were valid. The case was put to the Judge on the basis of an agreed statement of facts and all parties consented to the order made.
[2]	The applicants for special leave are five members of the Trust Board who voted against the resolution to transfer the shares. They were not parties to the High Court proceedings but had been served with the proceedings through Mr Duff, the fourth respondent, another Board member who had voted against the resolution.

[3]	The Agreed Statement of Facts recorded that in 1991 land, forest and various forestry-related assets on Matakana Island became available for purchase from the receiver of London Pacific Ltd. Te Kotukutuku Corporation Limited (TKC) was formed (from an existing shelf company) to bid for the assets. The Trust, which is incorporated under the Charitable Trusts Act 1957, held 51% of TKC’s shares and various individuals held the remaining 49%.
[4]	In February 1993 it was announced that the assets had been sold to a consortium which included foreign interests (the FAR consortium). TKC and the Trust applied for an injunction to stop the sale. In order to fund the litigation, on 14 February 1993 the Trust offered residents of Matakana Island the option of a 1% shareholding in the company that would ultimately hold the assets or a hectare of trees for every $1,000 advanced (the tree/share arrangement). The applicants contend that no such offer was made by the Trust and that no such agreements were ever entered into.
[5]	Litigation ensued and TKC and the Trust eventually (on 29 April 1994) acquired the assets from the FAR consortium through the joint acquisition of the shares in TKC Holdings Ltd (then known as Caldora Holdings Ltd). On 11 May 1994, the Trust resolved to repay advances made by the persons who had contributed to the fighting fund (together with 15% interest). These payments were made. In July 1994, a special meeting of the community was held for the Trust Board to clarify that repayment of advances did not affect the entitlements under the arrangement for shares or trees.
[6]	Further litigation brought by other parties claiming an entitlement to the assets followed. On the successful resolution of that litigation in December 1999, TKC and the Trust restructured their shareholding in TKC Holdings Ltd from joint ownership of the shares in TKC Holdings to the Trust owning 51% with TKC holding the balance of 49%.
[7]	On 14 June 2002 the Trust Board resolved to transfer the shares in TKC Holdings that were subject to the tree/share arrangement to those who had entitlements under that arrangement. Six board members voted against the resolution and it was only carried by the Chairman’s casting vote. On 22 July 2002 TKC Holdings resolved to approve the share transfers and the transfers were completed between June 2002 and February 2004.

[10]	Mr Thorp, for the applicants, submitted that this Court should grant leave to appeal because the actions of the trustees constituted a breach of two fundamental principles of trust law, namely that trustees should not be a judge in their own cause and that trustees should not profit from their dealings with the Trust (some of the trustees were share transferees in terms of the tree/share arrangement). In his submission, neither of these principles was appropriately addressed in the High Court.
[11]	Mr Thorp advanced two additional reasons for granting leave. First, the Judge proceeded on an incomplete and incorrect factual premise. In particular, he submitted that there is substantial evidence supporting the contention that no offer as relied upon was made to the share transferees at the relevant time, let alone by the Trust. Secondly, in any event, even if any such offer was made, it was ultra vires the constitution of the Trust.
[12]	Mr Thorp stated that the failure by the applicants to contest this proceeding in the High Court was due to their solicitor, Mr Duff, who was suffering from a conflict of interest and who failed in any event to follow instructions. Mr Duff participated in the initial telephone conference and noted his instructions to oppose the application. However, he subsequently, and, in Mr Thorp’s submission, wrongfully, informed the Court that he had not been able to obtain any further instructions from the persons whom he represented.
[13]	Mr Thorp submitted that the delays in filing the application for special leave to appeal are excusable, particularly given attempts to seek assistance from the Solicitor-General in the meantime. In his submission, any prejudice to the respondents if leave to appeal is granted did not outweigh the severe prejudice to the Trust if the application is not granted.
[14]	Finally, Mr Thorp submitted that any transfers to other entities could be unwound and there were no third party interests that would be adversely affected by the application being granted and no prejudice suffered by the transferees.

[15]	Mr Galbraith QC, for the first and second respondents, TKC Holdings and the Trust, submitted that granting leave would not meet the overall interests of justice. In his submission, if leave is granted, the extensive delay would cause significant prejudice not only to TKC Holdings and the third respondents (the share transferees), but also to others who have relied on the existing commercial situation for more than a year following the judgment. He pointed out that the very reason for obtaining the declaratory judgment was to confirm the validity of the share transfers in order to enable TKC Holdings to deal with developers. Further, he submitted that the shares have, in some cases, been transferred to another entity. That entity has entered into an agreement with a third party conditional on the validity of the share transfer. Both parties have taken steps in reliance on that condition being satisfied.
[16]	Mr Galbraith submitted that, notwithstanding the actions of Mr Duff, the applicants had sufficient opportunity to participate in the High Court proceeding but elected not to. He pointed out that two of the applicants are legally trained and that one of them was aware that Mr Duff had decided not to file a statement of defence at least one day prior to the filing deadline. Further, there was some six weeks between that date and the hearing. No steps were taken to be included in the proceedings.
[17]	In Mr Galbraith’s submission, the respondents and other parties who have relied on the High Court judgment should not be prejudiced by the applicants’ late change of heart. He further submitted that the delay of more than one year in bringing this application is inordinate and was not due to mistake or oversight. In his submission, the applicants have not provided a reasonable (or any) justification for this delay. Electing to pursue an investigation by the Solicitor-General would not have precluded an appeal being filed and, in any event, the Solicitor-General had already declined the Trust’s application to intervene in the High Court proceedings on the basis that it was a commercial dispute.
[18]	Mr Galbraith submitted further that the appeal lacked merit, as there is no basis for interfering with the High Court’s discretion to grant the declaratory relief. The High Court was properly appraised of the issues and was referred to all evidence relevant to those issues. The matters raised by the applicants reflect the key issues identified for consideration by the High Court. Mr Galbraith submitted that the applicants have not identified any inaccuracy in the agreed statement of facts. Nor have they established that any relevant evidence was not before the Court.
[19]	In relation to the alleged breach of trust, Mr Galbraith pointed out that issues relating to conflict of interest and bias were put to and considered by the High Court. The Court accepted that no issue arose in the circumstances because the Board, when voting on the resolution to transfer the shares, was not making a decision about whether or not to distribute Trust property. Rather, the shares were transferred pursuant to a number of existing constructive trusts. The trustees did not, therefore, act as judges in their own cause or profit from trust property.
[20]	Mr Galbraith conceded that the Trust Board members who were to receive shares under the tree/share arrangement should probably not have voted on it but said that this makes no difference as the Trust was obliged to transfer the shares in any event.

[23]	The application is made more than a year out of time with regard to proceedings in which the applicants took no part, despite having been served. The applicants had the opportunity to make the points they now wish to make (particularly relating to the challenge to the existence of the tree/share agreement) before the High Court and failed to do so. The failure to take part in the High Court proceedings and the delay in making this application for special leave has not been adequately explained. We accept Mr Galbraith’s submissions in this regard. There is even an issue as to whether the applicants ever had a right of appeal given that they were not parties in the High Court but Mr Galbraith was prepared to assume that this issue could likely be resolved.
[24]	Turning to the merits of the proposed appeal, the challenge to the existence of the agreement would require the adducing of fresh evidence. It is unlikely that the applicants could satisfy the test for adducing such evidence on appeal. Mr Thorp submitted that, even if this were the case, the original tree/share agreement cannot have been valid. This is because it involved the possible transfer of trust property, being shares in TKC.
[25]	The difficulty with this argument is that it is by no means clear that the agreement concerned shares in TKC (which, in any event, at that stage had no assets). As it happens, the shares offered were in TKC Holdings which was not owned by the Trust at the time of the agreement. Further, the alternative under the agreement was one hectare of trees. At the date of the agreement, there were no relevant trees owned by TKC or the Trust. In fact the land and trees had been sold to FAR consortium. In addition, it seems to us unlikely that the agreement, even if it did relate to Trust property, could be impugned with regard to those who were not Trust Board members at the time of entry into the agreement.
[26]	We also accept Mr Galbraith’s submission that, if the tree/share agreement was valid, there was no transfer of trust property by means of the resolution. As he submitted, all that had happened was a transfer of property in accordance with an earlier agreement that the Trust would have been obliged to honour. We also accept Mr Galbraith’s submission that questions of whether or not interested members of the Board should have voted are thus arguably moot.
[27]	As to Mr Thorp’s submission that there is no prejudice to the respondents or to third parties in relation to the delay, we have affidavit evidence before us to the contrary. Given that it is a year since the High Court decision it is not implausible that there has been expenditure incurred and arrangements made on the basis that the share transfers were valid. We are thus unable to accept Mr Thorp’s submission in this regard.