McLaren v McLaren [2018] NZCA 570 (10 December 2018)

Last Updated: 4 February 2019

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA438/2018 [2018] NZCA 570

	BETWEEN	DAVID MUIR MCLAREN, LENORE MARY MCLAREN AND MARK PHILIP BROWN AS TRUSTEES OF THE MCLAREN FAMILY TRUST First Applicants DAVID MUIR MCLAREN AND LENORE MARY MCLAREN AS APPOINTOR OF THE MCLAREN FAMILY TRUST Second Applicants DAVID MUIR MCLAREN, LENORE MARY MCLAREN AND MARK PHILIP BROWN AS TRUSTEES OF AN UNNAMED TRUST Third Applicants
	AND	SUSAN MARY MCLAREN Respondent

Court:	Brown and Clifford JJ
Counsel:	M I S Phillipps for Applicants A R Shaw for Respondent
Judgment: (On the papers)	10 December 2018 at 11.00 am

JUDGMENT OF THE COURT

A The application for leave to appeal is declined.

2. The applicants are to pay the respondent costs as for a standard application for leave to appeal on a band A basis together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Brown J)

Introduction

[1] By a statement of claim dated 10 May 2017 the respondent alleged breaches of trust and breaches of fiduciary duty by the applicants. The applicants’ application to strike out the proceeding for failure to disclose a reasonably arguable cause of action was declined in a judgment of Associate Judge Matthews dated 28 March 2018.^[1]
[2] The applicants’ application under s 56(3) of the Senior Courts Act 2016 (the Act) for leave to appeal that judgment was declined by Associate Judge Matthews in a judgment dated 6 July 2018.^[2] The applicants now apply to this Court under s 56(5) of the Act for leave to appeal.

Relevant principles

[3] The requirement in s 56 that leave be required for appeals from decisions of the High Court made on interlocutory applications represents a significant change in procedure and procedural rights.^[3] In Finewood Upholstery Ltd v Vaughan Fitzgerald J described the leave requirement as a “filtering mechanism” to ensure that unmeritorious appeals of interlocutory orders or appeals of interlocutory orders of no great significance to either the parties or more generally do not unnecessarily delay the proceedings to which the orders were made.^[4]
[4] Similarly in Ngai Te Hapu Inc v Bay of Plenty Regional Council this Court observed that there was no doubt that s 56(3) was intended to reduce the volume of appeals to this Court from interlocutory decisions in the High Court.^[5] The Court noted the comparison made with s 24G of the Judicature Act 1908 concerning commercial list appeals in the Explanatory Note to the Judicature Modernisation Bill and then referred to the statement of the s 24G principles in Meates v Taylor.^[6]
[5] While the Court did not consider Ngai Te Hapu was an appropriate case to provide definitive guidance on the principles to be applied on applications for leave under s 56, it stated:^[7]

We agree that leave to appeal should only be granted where the significance or implications of an arguable error of fact or law, either for the particular case or for the applicant or as a matter of precedent, warrants the further delay which the appeal process would involve.

[6] The applicants placed reliance on the Supreme Court’s statement in Siemer v Heron to the effect that this Court would ordinarily proceed to hear an appeal from an interlocutory decision which would be dispositive of the case.^[8] However that proposition was rejected in Ngai Te Hapu, the Court observing that the Supreme Court’s statement was made in the context of the recognition of this Court’s discretion to decline to hear appeals under s 66 of the Judicature Act in advance of trial.^[9]

Relevant background

[7] The substantial difference between the parties’ views on the material facts was demonstrated in their submissions on this application. The applicants’ submissions attempted to summarise the narrative of the facts relevant to the appeal and the alleged facts on which the respondent’s pleading is based. However the respondent did not accept those summaries, stating that reliance was placed on her second amended statement of claim as pleaded in its entirety.
[8] In those circumstances we refrain from attempting a summary, being mindful of the fact that, as Associate Judge Matthews noted,^[10] on an application to strike out the pleaded facts are assumed to be true. It will suffice for the purposes of this judgment to refer to two paragraphs from a minute of Associate Judge Matthews issued at the conclusion of the first day of argument on the strike out application:^[11]

[6] Ms McLaren is the daughter of Mr and Mrs McLaren senior. They are both first defendants (with Mr Brown) in their capacity as trustees of the McLaren Family Trust, and as second defendants in their capacity as appointers under the McLaren Family Trust deed. Summarised very briefly Ms McLaren’s case is that in 2002 she agreed to sell her one-third share of an asset described as “Marine Farm PE14”. Exactly what this is is not entirely clear. Counsel variously described it as a resource consent and a coastal permit. For present purposes I accept that it seems to be the right to operate a mussel farm in a designated area in the Marlborough Sounds. Ms McLaren owned one-third of this, and her brother and her father a further third each. However, Ms McLaren also owned certain items of infrastructure which is not specifically described in the statement of claim. On the face of both the agreement for sale and purchase, and one other document, this appears to have been retained by Ms McLaren but made available for use by the Trust. The other document to which I refer is a paper headed “Estate and Trust Management” in which Mr and Mrs McLaren senior set out certain facts and intentions as at November 2003, around 21 months after the agreement for sale and purchase was entered. Amongst other matters this records that marine farm sites have all been transferred, and the process of taking over the management by the Trust of individual ownership lines is underway.

[7] Ms McLaren’s complaint is that she sold her share of PE14, but not all the other assets she owned (including lines) which were needed in order to run the mussel farm in that area, that she has not been fully paid for her share of PE14, and that she has not seen any funds from operation of the mussel farm in the 15 or so years that have passed since the transfer took place and the new arrangement for running the mussel farm was set up. Rather, all the profit has gone to her parents.

[9] The claim pleads five causes of action which we consider may be fairly summarised as follows:

• (a) The trustees of the McLaren Family Trust breached their duty of fair dealing when they purchased mussel farm PE14 and took control of the infrastructure by failing to inform the respondent of the need to obtain independent legal advice and not to proceed without it.
• (b) The trustees, by making distributions to David and Mary McLaren and by failing to keep adequate records, breached their duties to responsibly manage mussel farm PE14 without reference to their personal interests, to keep proper records, and to take account of the needs expressed in the unsigned 2003 management document generally, including to generate income from the infrastructure for the respondent.
• (c) The trustees breached their fiduciary duties as set out in (b) above and their fiduciary duty to enforce the McLaren Family Trust deed fairly and not allow their personal interests to conflict with those of the discretionary beneficiaries.
• (d) The appointers under the McLaren Family Trust deed (David and Mary McLaren) fraudulently or for an improper purpose or by acting irrationally and imprudently, breached their fiduciary duties by removing or purporting to remove the respondent as a discretionary beneficiary on 3 July 2012.
• (e) The trustees settled a new express or implied trust either when they acquired legal ownership of mussel farm PE14 and accepted obligations to hold and manage it and the infrastructure in 2002, or later in 2003 when they acknowledged those responsibilities in the unsigned management document. There are no discretionary beneficiaries of the new trust but Susan, Bruce, David, and Mary McLaren are the final beneficiaries. The trustees of the new trust have breached their obligations to the beneficiaries of that trust by distributing to beneficiaries of the McLaren Family Trust all the income earned from the new trust’s assets.

The High Court judgment

[10] In response to Associate Judge Matthews’ invitation at the conclusion of argument on the strike out application on 27 November 2017, counsel agreed that the appropriate course was to allow time for an amended statement of claim to be proferred instead of proceeding to judgment. Associate Judge Matthews then issued the minute earlier referred to which adjourned the application for further consideration and provided observations to assist in the task of repleading.^[12]
[11] A first amended statement of claim was filed on 20 December 2017. Further argument took place with reference to it on 19 March 2018.
[12] In the judgment of 28 March 2018 Associate Judge Matthews recited the principles applicable to strike out applications, noting the directive in Couch v Attorney General that it is inappropriate to strike out a claim summarily unless the Court can be certain that it cannot succeed.^[13] The Judge faithfully applied those principles in considering each of the five causes of action, as exemplified in his conclusion in relation to the first cause of action:

[50] ... a claim should not be dismissed summarily unless the Court is certain it cannot succeed, and particular care is required with areas where the law is developing. In my opinion the Court should not make a summary decision dismissing this cause of action on the ground it cannot succeed when the pleaded facts disclose circumstances by which Ms McLaren lost her right to income from her infrastructure assets in return for a possibility of receiving income as a discretionary beneficiary. The transaction has the appearance of being manifestly unfair to Ms McLaren and beneficial to David and Mary McLaren. Independent advice would have put squarely before Ms McLaren the real possibility of a conflict of interest and the risk to her arising from that conflict.

[13] The Judge did not regard all the causes of action as having the same prospects of success as is apparent from the view he expressed in relation to the fifth cause of action:

[76] The test for striking out is not whether a cause of action may succeed at trial, because the facts as pleaded are assumed to be true in this context. However unlikely it is that this cause of action will succeed, assuming the pleaded facts to be true leads to the result that this cause of action should not be struck out.

Indeed the Judge observed that if the respondent wished to persist with the fifth cause of action it needed to be brought against David McLaren, Mary McLaren and Mark Brown as trustees of the alleged separate trust and to that end a further amended statement of claim should be filed. The respondent filed a second amended statement of claim on 13 April 2018.

Discussion

[14] Mr Phillipps for the applicants identified a multitude of factors in support of the grant of leave:

• The decision being appealed from goes to the heart and substance of the proceedings.
• The determination of the appeal could be dispositive of the proceedings.
• The merits of the appeal are strong.
• The proceedings are at an early stage with a trial a long way off.
• The key pleaded events are historic requiring significant effort to obtain the necessary evidence.
• Discovery is likely to be particularly onerous given the period under review.
• Allowing the fifth cause of action significantly alters the risks and exposure of Mark Brown, David and Mary McLaren who have no ability to rely on any Trust indemnities.
• The claims involve important questions of law and general public importance — fundamental legal concepts including obligations of trustees and relief to which a discretionary beneficiary might be entitled, and the boundaries of contract law.
• There are relatively few authorities touching on the issues arising from the pleadings.
• The claims are novel in their approach.
• The delay occasioned by the appeal is warranted.

[15] With reference to first, third and penultimate factors, he submitted that the respondent’s claim reflects a fundamental misconception both as to the law and the respondent’s rights and entitlements. Any rights and expectations the respondent may have had, or still has, as an owner of property cannot be rolled over into rights and expectations she may legitimately have in her capacity as a discretionary beneficiary. It was his contention that, at its core, the entire pleading is directed to the respondent obtaining relief by way of lost profit or damages arising from a breach of the sale and purchase agreement and agreement to use the infrastructure. He characterised the respondent as contending:

I sold my property to the trust and I provided my property for the trust to use, on the basis that the trust would pay me, as a discretionary beneficiary of the trust, all the profit which the trust has made and will make from my property.

[16] Mr Shaw for Susan McLaren responded that there is no confusion in the manner in which she has pleaded her case. The causes of action relate to breaches of fiduciary duty and the natural and foreseeable consequences of loss stemming from those breaches. In his view there was nothing in the applicants’ submissions that would surmount the high threshold of justifying the striking out of the respondent’s claim. With reference to Mr Phillipps’ final point above, Mr Shaw argued that it is unhelpful and inappropriate to summarise the respondent’s case in such terms. The Court needs to consider the statement of claim in its entirety and to consider whether each cause of action is untenable. At best the applicants had demonstrated that the causes of action are only arguable which is simply not sufficient to sustain a strike out application.
[17] Mr Phillipps’ rejoinder was that the respondent’s asserted novel issues are so far outside the boundaries of current accepted trust law that the Court does not need to await a substantive hearing, emphasising that on a strike out application the Court is able to decide difficult questions of law requiring extensive argument.
[18] While the Court undoubtedly has that power, the circumstances in which it should be exercised are limited. As the judgment of Elias CJ and Anderson J in Couch stated (in the context of alleged duties of care not previously recognised):^[14]

Caution in disposing of such cases on a summary basis is necessary both to prevent injustice to claimants and to avoid skewing the law with confident propositions of legal principle or assumptions about policy considerations, undisciplined by facts.

It was said that the case must be so certainly or clearly bad that it should be precluded from going forward.^[15] The judgment the applicants seek to appeal properly applied that approach.

[19] The applicants’ submissions formulated powerful arguments and it may well prove to be the case that the respondent’s claim ultimately fails at trial. In that event the applicants will be entitled to costs. However unless the claim is clearly untenable on the pleaded facts it is not the role of the Court on a strike out application to evaluate the competing contentions. Like the Associate Judge we are not satisfied that the respondent’s case is demonstrably so deficient that it warrants a divergence from the now settled practice in respect of strike out applications.
[20] In our view the Associate Judge’s conclusion on the application for leave to appeal was entirely apposite:^[16]

[21] Overall, I am not satisfied that the high threshold for the granting of leave has been met. Whilst the defendants allege errors of law, and might ultimately be found to be correct, they have not shown errors that are arguable given that they are based on propositions which require the establishment of an evidentiary foundation before they can be decided. It is always the position when considering an application to strike out, that in the end the defendants might be right, but that is not in itself a reason to strike out. Should that be the case the defendants would have been put to the cost of pre-trial work and trial itself, which might have been avoided, but the same applies to the plaintiff. Whilst the additional time that would be taken in an appeal process is not of significant weight in this case, the combined effect of all other factors is that leave to appeal should be declined.

For the same reasons we decline leave to appeal under s 56(5) of the Act.

Result

[21] The application for leave to appeal is declined.
[22] The applicants are to pay the respondent costs as for a standard application for leave to appeal on a band A basis together with usual disbursements.

Solicitors:
C & F Legal Limited, Nelson for Respondent
Vicki Ammundsen Trust Law Ltd, Auckland for Applicants

---

^[1] McLaren v McLaren [2017] NZHC 555 [strike out decision].

^[2] McLaren v McLaren [2018] NZHC 1668 [leave decision].

^[3] Sutcliffe v Tarr [2017] NZCA 360, [2018] 2 NZLR 92 at [8].

^[4] Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].

^[5] Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [15].

^[6] At [15]–[16], citing Meates v Taylor [leave] (1992) 5 PRNZ 524 (CA) at 526, confirmed in Clear Communications Ltd v Attorney-General (1998) 12 PRNZ 287 (CA) at 289.

^[7] Ngai Te Hapu Inc v Bay of Plenty Regional Council, above n 5, at [17].

^[8] Siemer v Heron [2011] NZSC 133, [2012] 1 NZLR 309 at [33].

^[9] Ngai Te Hapu Inc v Bay of Plenty Regional Council, above n 5, at [17].

^[10] Strike out decision, above n 1, at [7(a)].

^[11] McLaren v McLaren HC Nelson CIV-2017-442-31, 28 November 2017 (Minute of Associate Judge Matthews).

^[12] At [8] above.

^[13] Strike out decision, above n 1, at [7]–[8], citing Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

^[14] Couch v Attorney General, above n 13, at [32].

^[15] At [33], citing W v Essex County Council [2000] UKHL 17; [2001] 2 AC 592 (HL) at 601.

^[16] Leave decision, above n 2.