Ponniah v Palmer [2012] NZCA 490 (26 October 2012)

Last Updated: 31 October 2012

IN THE COURT OF APPEAL OF NEW ZEALAND

CA405/2012 [2012] NZCA 490

BETWEEN LAWRENCE PONNIAH AND JOHN PERA KAHUKIWA Appellants

AND NORMAN PALMER AND NICOLAS VAN DIJK Respondents

Hearing: 18 October 2012

Court: Stevens, French and Venning JJ

Counsel: P G Revell for Appellants E J Werry for Respondents

Judgment: 26 October 2012 at 3.30 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. The appellants must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT
(Given by Stevens J)

Introduction

[1] The appellants, Messrs Ponniah and Kahukiwa, are partners in a West Auckland law firm. The firm provided legal services to owners of units in an apartment complex that was subject to weather-tightness issues. Three of the units were owned by the Livi Trust. The appellants became concerned about unpaid accounts and requested the Trust to mortgage trust property in order to secure the firm’s position. The settlor of the Trust, Mr Ivil, signed the security documents whilst purporting to act as “manager” of the Trust. The appellants lodged caveats against the titles of the trust property. In the High Court Associate Judge Doogue refused an application under s 145A of the Land Transfer Act 1952 that the caveats not lapse.[1] The appellants now appeal against that decision.
[2] The respondents, Messrs Palmer and Van Dijk, were at all material times the trustees of the Livi Trust. They contended that they did not in fact delegate the power to mortgage trust property to Mr Ivil and that the trust deed did not empower the trustees to delegate to Mr Ivil the decision whether to offer the assets of the Trust as security for payment of the appellants’ legal fees. These form the main issues on appeal.

Factual background

[3] The appellants’ legal skills were employed in a dispute concerning weather-tightness issues in an apartment complex at Clearwater Cove, West Park Marina, in Hobsonville. Units 5E, 7I and 8J in the complex were all owned by the Trust, of which Mr Ivil was the settlor and Messrs Van Dijk and Palmer the trustees. The Trust and other claimants, including Clearwater Cove Body Corporate 170989, made allegations that Fletcher Construction Company and Waitakere City Council (among others) caused or contributed to the leaking in the complex. In about 2007 litigation had commenced in the Weathertight Homes Tribunal.
[4] On 7 May 2007 the trustees executed a document entitled “Authority for representative and assessment”. The purpose of that document was to authorise the Weathertight Services assessor under the Weathertight Homes Resolution Services Act 2006 to enter the properties and carry out invasive testing. In the document, the trustees nominated Mr Ivil as their representative “to bring and resolve a claim for the ... complex [at Clearwater Cove in Hobsonville]”.
[5] The litigation continued into 2008. On 26 June 2008 the trustees of the Trust, as well as Mr Ivil, signed a document appointing Mr Ponniah of the law firm Corban Revell as their legal representative. The document related specifically to the Weathertight Homes proceeding and contained a section headed “Appointment of agent, lawyer or representative”. The form referred to the purpose of the appointment as being “to conduct this claim on your behalf”. The form also contained the following note:

... an agent, lawyer or representative may sign documents and make binding decisions on your behalf. Appointing an agent, lawyer or representative is a significant legal step. You may wish to take independent legal advice before deciding whether to appoint an agent, lawyer or representative.

[6] There was a declaration on the form to be signed by the clients. It contained the statement: “We appoint ... as [our] representative to perform the administrative functions associated with this claim on [our] behalf”.
[7] From this period onwards Corban Revell represented the claimants in the weather-tightness litigation. Mr Ivil also played a significant role in assisting with litigation and other matters on behalf of owners of the apartment complex. In the High Court the Associate Judge found:

[5] In general terms the evidence included statements by the trustees that Mr Ivil was the person who had negotiated terms of agreements with service providers for the remediation of the apartments and he was the person who interacted with the council and other involved parties on behalf of the trust. Mr Van Dijk who was asked about having signed certain documents described himself as being a “figure head” for the “principal Mr Ivil”. ...

[8] By late 2010 over $112,000 was owing to Corban Revell in fees for services relating to the litigation. The claimants (including the respondents) were hopeful that a third party with whom they had an arrangement would meet a large portion of the outstanding fees. In February 2011 the claimants and Corban Revell learned that the third party source of funds had decided not to pay and had purported to cancel the arrangement between it and the claimants. Mr Ponniah therefore requested that the claimants sign an agreement for legal services containing security arrangements by way of unregistered mortgage terms to be secured by caveat against three units owned by the Trust. This resulted in Mr Ivil signing on 25 February 2011 an agreement as a “manager” on behalf of the Trust relating to the provision of legal services. Neither trustee signed the documentation. The respondents contended that at the time Mr Ivil signed the agreement the Trust was no longer a client of the firm.
[9] The agreement contained a section dealing with “Security for Costs”. This section relevantly stated:

1. In consideration of the professional legal services provided under the Agreement the Client and/or the Guarantor irrevocably grants to each of the principals or directors of the Firm a:

(1) mortgage over the land described below;

(2) power of attorney to execute on behalf of the Client and/or the Guarantor a registrable all obligations mortgage (Memorandum number 2007/4238) to secure the Firm’s unpaid fees and disbursements over all of the Client’s or Guarantor’s (as the case may be) estate and interest in the land described below.

2. The Firm has the right to lodge a caveat against the title to the land.

[10] Having obtained this security and assumed it provided sufficient protection for the Trust’s share of the legal fees, the appellants proceeded to conduct the hearing in the Weathertight Homes Tribunal.
[11] There was some dispute in the High Court over what in fact occurred at Mr Ponniah’s office on 25 February 2011 and the level of involvement of the Livi trustees in executing the security. The Associate Judge accepted, for the purposes of the application before him, Mr Ponniah’s account.[2] The Associate Judge found:

[12] Mr Ponniah said that throughout the firm’s retainer concerning the weathertight homes dispute Mr Ivil was the person that he and other members of the firm had dealt with and “I understood him to be duly authorised to act as agent and to represent the trustee”. He agreed that Mr Ivil had signed the agreement for services and also the agreement to provide a mortgage. He said he gave a copy of the agreement for legal services etc to Mr Palmer. Mr Palmer, he says, was made aware of the agreement and the security that Mr Ivil was considering on behalf of the trust and in my presence he, presumably Mr Palmer, reconfirmed the authority that “we already understood Mr Ivil had to make decisions binding the Livi Trust”. He said that Mr Palmer had no time to read the documents, he was running late for another meeting and he would leave it to Mr Ivil to decide and sign if he considered it appropriate. As to Mr Van Dijk, Mr Ponniah he says he did not have any discussions with Mr Van Dijk at all in relation to the guarantee document. He says that Mr Van Dijk did not attend the office on 25 February when the exchange that he said occurred.

[12] On 21 October 2011 caveats were lodged by the appellants against the three unit titles owned by the Trust. The appellants applied in the High Court for an order that the caveats not lapse. The application was opposed by the respondents on two bases. First they said that the guarantee/security upon which the appellants relied was signed by Mr Ivil, who had no authority to execute the guarantee on behalf of the trustees. Second, the respondents said that they had not ratified the guarantee document which Mr Ivil signed.

High Court judgment

[13] The Associate Judge first noted that, even on Mr Ponniah’s version of the facts, the trustees had not expressly delegated to Mr Ivil the power to make the decision about entering into the security agreement and then executing it.[3] Counsel for the appellants nevertheless argued that, because of the role played by Mr Ivil in initiating and controlling the litigation process, he must have been implicitly given authority by the trustees to grant a mortgage securing the fees. Even assuming that unanimous authority could be delegated in such a manner, the Associate Judge did not accept such delegation had occurred:

[20] ... I do not accept that it is established to even an arguable level that assuming that the trustees authorised Mr Ivil to initiate legal procedures with respect to the units that they owned, that they thereby further authorised him to give a security over their properties to secure the obligations that they thereby incurred under the legal services agreement. That is to say, if nothing else is established other than that a party authorises an agent to instruct a lawyer to provide legal services on his/her behalf, that cannot on its own give rise to an implied further authority to give a security over the client’s property. Those considerations apply quite independently of whether it is a trustee or non-trustee who is said to have been given the implied authority.

[14] The Associate Judge then considered whether the trustees had the authority under the trust deed to authorise Mr Ivil to execute a mortgage over the trust property. The Associate Judge referred to cl 7 of the trust deed, which provided:

... IT IS DECLARED that the Trustees shall have absolute and uncontrolled power and discretion in the management of the Trust Fund ... AND ... IT IS DECLARED that the Trustees shall have power to do all or any of the following things either alone or jointly or in common with any other person persons corporation or corporations namely:

...

(v) TO employ ... such managers servants agents overseers employees valuers stock and station agents and other agents surveyors engineers solicitors accountants and other persons as the Trustees may think fit ... AND generally at their uncontrolled discretion instead of acting personally to employ and pay any person firm company or corporation to do any act of whatsoever nature relating to the trusts hereof including the receipt and payment of money ...

[15] The Associate Judge noted that, in order to exercise the power under cl 7(v), the trustees had to do so unanimously.[4] There was no evidence of such a unanimous express delegation in the current case. Even on Mr Ponniah’s version of events, while Mr Palmer appeared to be willing to delegate authority to Mr Ivil to execute the guarantee, Mr Van Dijk was not consulted.
[16] Further, the Associate Judge was not persuaded that cl 7(v) could allow the trustees to authorise an agent to execute guarantees:

[30] In my view the power to employ agents etc contained in cl 7(v) does not empower the trustees to delegate to an agent the right or authority to make submissions about such primary matters as whether a charge should be given over the Trust’s property. Such a power is similar to a power to dispose of or alienate the Trust’s property. I do not agree that cl [7](v) can be construed to mean that it entitles an agent of the trustees to make such decisions in place of the trustees themselves.

[17] The Associate Judge therefore concluded that the appellants had no entitlement to lodge caveats against the titles of the trust property. The application was therefore dismissed.

Appellants’ submissions

[18] Counsel for the appellants first submitted that, as the trustees themselves instructed the lawyers from Corban Revell in June 2008, it was implicit in such instructions that the lawyers’ fees for legal services were to be paid or secured to the lawyers’ satisfaction. Consequently, when Mr Ivil later signed the security agreement, he was merely putting into effect a decision already made by the trustees. Counsel submitted that the trustees had consistently held out Mr Ivil as their agent and that Mr Ivil had the authority to instruct Corban Revell in relation to all aspects of the proceeding. The issue of unanimity does not arise as both trustees signed the 2008 instructions.
[19] Alternatively, counsel submitted that the terms of the trust deed were sufficiently wide to give the trustees the power to delegate to an agent the ability to execute security documents. Counsel noted that in the opening words of cl 7, the trustees had the following discretion:

... the Trustees shall have and may at their absolute discretion exercise the fullest possible powers to do in relation to the Trust Fund and the persons who are or may be interested therein all such things as they may from time to time deem necessary desirable or expedient whether or not such thing be one which Trustees normally would have no power to do in the absence of an express power or order of the Court ...

(Emphasis added.)

[20] Counsel therefore submitted that the power to delegate was widely drawn and the Associate Judge was wrong to conclude that the trustees could not delegate the authority to execute security agreements to Mr Ivil.
[21] The appellants also advanced an estoppel argument. First, the trustees authorised Mr Ivil to bring and resolve the Weathertight Homes Tribunal proceeding. Further, the trustees consistently held out to Corban Revell during the course of the litigation that Mr Ivil had the power to act as their agent in all aspects of the conduct and completion of the litigation. The actions of the trustees in giving evidence in the Weathertight Homes Tribunal in support of the claim supported the ostensible authority given to Mr Ivil. Thus all the elements for estoppel – creation or encouragement of a brief or expectation, reliance by Corban Revell and detriment to Corban Revell as a result of that reliance (by proceeding to conduct litigation on behalf of the Trust) – were established.

Discussion

[22] The first issue is whether or not the trust deed enabled the trustees to delegate to Mr Ivil the decision whether to grant a security agreement to Corban Revell on behalf of the Trust. In Niak v Macdonald, this Court reiterated that a trustee must act personally and cannot delegate their duties or powers, not even to co-trustees.[5] Delegation may however be allowed where it is specifically permitted by the trust instrument; is specifically permitted by statute; or is practically unavoidable and is usual in the ordinary course of business and the particular agent is employed in the ordinary scope of his or her business.[6] One of the statutory exceptions to the rule that trustees cannot delegate their duties or powers, arising from s 29 of the Trustee Act 1956, is that trustees may appoint agents to implement decisions made by them and to carry out administrative tasks.[7] This particular statutory exception does not, however, empower trustees to make a general delegation of their powers. A trust deed may contain a provision enabling trustees to appoint agents to implement decisions properly made by the trustees themselves, but that does not permit the trustees to delegate to an agent a decision-making authority which is reserved to the trustees.[8]
[23] The appellants contended that cl 7(v) of the Trust deed empowered the trustees to employ people to act as managers and agents. The first part of cl 7(v) enabled the trustees to employ “managers servants agents” as they thought fit. However, we are satisfied that such an empowering provision only permits delegation of the implementation of decisions already properly made by the trustees.[9] Clause 7 requires both trustees to be involved in such decision making.
[24] Particular reliance was also placed by counsel on the second part of cl 7(v), which states that the trustees may employ any person “to do any act of whatsoever nature” relating to the trust instead of acting personally. The appellants submitted this clause allowed the trustees to delegate in a wide range of circumstances including the “receipt and payment of money”. The question is whether it permits delegation of decision making by the trustees in the giving of security over Trust property.
[25] The Associate Judge concluded, in reasoning set out at [16] above, that the power did not permit decision making in place of the trustees. Executing a security over trust property is akin to the ability to alienate or dispose of that property. The trustees alone have the ability to make decisions on such matters, as well as giving security, and may only delegate to others the ability to put a unanimous decision into action once made. Such prohibition extends to a purported delegation to a[10]o-trustee.10 However, even if cl 7(v) did allow such delegation, the appellants acknowledged that no express delegation took place. We therefore agree with the Associate Judge’s conclusions.
[26] The appellants also contended that an implied delegation, as evidenced by the trustees’ conduct, is sufficient. The difficulty for the appellants with this submission is that on the facts all the trustees ever expressly granted to Mr Ivil was the ability to deal with the trust property by bringing and resolving the claim before the Weathertight Homes Tribunal. The document appointing Mr Ponniah as lawyer to conduct the claim (see [5] above) does not assist the appellants. The terms of the appointment are directed to Mr Ponniah himself and do not support the implication of a broad delegation to Mr Ivil to sign the security agreement. The appellants also submitted that an instruction by the trustees to Mr Ponniah to act in the conduct of the claim must implicitly have involved both an acknowledgement to meet reasonable fees and to give security to protect the firm for such fees. We disagree that any implied obligation to give security arises from the appointment to act. The evidence does not support such a wide-ranging proposition.
[27] The only available unanimous delegation by the trustees was the authorisation for Mr Ivil to represent the trustees in the litigation process. A broader implied power to give a security to the lawyer acting would conflict with the general obligations on trustees to come to decisions concerning the trust property themselves. Later events do not support the implication of a unanimous delegation of power by the trustees for Mr Ivil to decide to give security to the law firm. The evidence shows that Mr Ponniah only consulted Mr Palmer, who wrongly assumed that he could leave it to Mr Ivil to make the decision regarding security. Mr Ponniah did not consult with Mr Van Dijk, the second trustee. There was no evidence that both trustees joined in the decision to grant a mortgage security over the property of the Trust.
[28] Finally, we are satisfied that the appellants’ argument based on estoppel cannot succeed. The factual basis advanced in favour of an estoppel relies on the signing of the authority to Mr Ponniah to act in June 2008. But that authority was for the limited purpose already discussed. The second basis advanced was in appointing Mr Ivil to act to bring and resolve the claim, thereby clothing him with ostensible authority to act for the trustees in all matters pertaining to the claim, including giving security for fees. We have already rejected such a broad scope of authority. Moreover, no assumption of powers by Mr Ivil which are ultra vires can be validated by raising an estoppel.[11] It was not lawfully possible for the trustees to delegate their decision-making power as discussed above.
[29] At the hearing we raised with Mr Revell why the appellants were seeking to sustain a caveat in the circumstances of this case. Quite apart from the legal and factual difficulties identified above, the more usual course would be to seek recovery of costs against the trustees on a contractual basis. Mr Revell confirmed that the appellants have applied for summary judgment against the respondents and have, in the meantime, obtained an interim freezing order in relation to the Trust property.

Result and costs

[30] For the reasons given the appeal is dismissed.
[31] The appellants must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Corban Revell, Waitakere City for Appellants
Atmore & Co, Ponsonby for Respondents

---

[1] Ponniah v Palmer [2012] NZHC 1574.

[2] At [16].

[3] At [17].

[4] At [25]–[26], quoting Rodney Aero Club Inc v Moore [1998] 2 NZLR 192 (HC) at 195.

[5] Niak v Macdonald [2001] 3 NZLR 334 (CA) at [16]. See also Noel C Kelly, Chris Kelly and Greg Kelly Garrow and Kelly: Law of Trusts and Trustees (6th ed, LexisNexis, Wellington, 2005) at [19.5.10].

[6] Niak v Macdonald at [16].

[7] Commissioner of Inland Revenue v Newmarket Trustees Ltd [2012] NZCA 351, [2012] 3 NZLR 207 at [50].

[8] See Niak v Macdonald at [17].
[9] See the broadly similar empowering clause of a trust deed set out at [17] of Niak v Macdonald.
[10] Hansen v Young [2004] 1 NZLR 37 (CA) at [31].

[11] See Niak v Macdonald at [21].