CMS Trustees Limited v CEVR [2014] NZHC 1428 (24 June 2014)

Last Updated: 23 July 2020

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE HTTP://WWW.JUSTICE.GOVT.NZ/COURTS/FAMILY- COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2013-485-9326 [2014] NZHC 1428

BETWEEN	CMS Trustees Limited Appellant
AND	C E V R Respondent

Hearing:	18 June 2014
Counsel:	M L Greenhough for Appellant D G Dewar and C F Rieger for Respondent
Judgment:	24 June 2014

JUDGMENT OF RONALD YOUNG J

• [1] Mr and Mrs V R were involved in lengthy litigation regarding relationship property. The appellant in these proceedings is a professional trustee and a trustee of a number of trusts considered by the Family Court as part of the V R’s property relationship litigation.

• [2] Ultimately the Family Court made property relationship orders which included orders under s 182 of the Family Proceedings Act 1980 which resettled property owned by one trust (referred to as the Dutch Trust) on Mrs V R’s family trust. After the hearing Mrs V R sought costs against both Mr V R and CMS Trustees Ltd. Unfortunately, the Judge who heard the relationship property proceedings was unable to hear the costs application and with the agreement of the parties another Judge did so.

CMS v C E V R [2014] NZHC 1428 [24 June 2014]

• [3] The appellant accepted a costs award would be made against it but argued for a limited order. The Judge in the Family Court concluded that, applying the District Court Civil Rules relating to costs that this case justified costs order on a 3C basis. In addition, the Judge considered a 30 per cent uplift for certain steps in the proceedings were justified. As to who paid the costs, the Judge divided the case into relationship property proceedings and proceedings under s 182 of the Family Proceedings Act. The Judge concluded that the vast majority of the litigation involved the s 182 proceedings. The total costs payable based on the 3C assessment plus the 30 per cent uplift was $67,640.

• [4] The Judge required Mr V R in his personal capacity to pay $6,764, that portion of costs the Judge considered was incurred in the relationship property part of the proceedings. She ordered the trustees of the Dutch Trust being Mr V R and CMS Trustees Ltd to pay costs of $60,876 in relation to the s 182 Family Proceedings Act part of the proceedings. In addition, the two trustees were required to pay costs on the costs hearing on a 3C basis.

• [5] Finally, the Judge decided that the Trustees were entitled to be indemnified by the Dutch Trust only with respect to 50 per cent of the costs awarded in favour of Mrs V R (being both the substantive hearing and costs hearing costs).

• [6] CMS Trustees Ltd appeal against:

(a) the assessment of these proceedings as 3C; and

(b) the 30 per cent uplift.

• [7] They say neither are justified by the facts in this case.

• [8] Some further background. As to the relationship property the Judge at the costs hearing said:

• [11] The parties were married in October 1997, and separated in December 2003 with their marriage being dissolved in June 2008. The two children born during the marriage are now over 20 years old. During the course of the marriage the parties established the Dutch Trust. The trustees

are Mr V R and CMS Trustees Limited. The beneficiaries are Mr and Mrs V R and the children of the marriage and are not at issue. The final beneficiaries are the children of the marriage and are not at issue.

• [12] In the substantive hearing Mrs V R sought orders for division of relationship property. The actual relationship property was minimal. The former family home was sold following separation and the proceeds of sale divided equally. The parties had established mirror trusts during the course of the marriage and each mirror trust received a half share of the proceeds of sale of the relationship home. Orders were made in the hearing removing Mr V R as a discretionary beneficiary of Mrs V R’s family trust and replacing him with Mrs V R as a beneficiary. It was directed that it would be made in due course but pending compliance with other orders. Two companies that Mr V R had established during the course of the marriage, Tradepoint Distribution Limited (TDL) and B V R Decorators Limited (BVR) had continued to trade post-separation. The Court held that TDL had been retained by Mr V R as part of a trading arm with Mr V R’s business in China. He had post-separation established another company called Tradepoint Distributors (Xiamen) Limited (TDL Xiamen).

• [9] At separation the Dutch Trust had significant capital in three properties. The parties had set up and invested in the Trust as a retirement fund. After separation Mr V R with the co-operation of CMS Trustees Ltd, essentially reduced the Dutch Trust to insolvency. The Dutch Trust borrowed significant funds which it advanced to Dutch Trust No. 2 to purchase property. It also advanced other money to companies owned and run by Mr V R. Mrs V R was not a beneficiary of the Dutch Trust No. 2.

• [10] Further, by the time the matter came to trial, neither the Dutch Trust No. 2 nor Mr V R’s companies had paid interest on the loans advanced by the Dutch Trust. The Dutch Trust’s capital position, therefore, had further deteriorated. It could not meet the interest on the money it had borrowed.

• [11] CMS Trustees Ltd is a professional trustee set up by a law firm. One of the partners of that firm, Mr Collins, was the primary functionary of the company. In the relationship property proceedings the Family Court Judge said:

[21] Put bluntly Mrs V R’s position is this. The trust was set up during the course of the marriage with a view to buying and owning investment properties that would provide an income stream for the couple upon their retirement. Since separation the trust has been, according to Mrs V R, milked of its assets to the point where CMS Trustees now claims that the trust is insolvent. Mrs V R does not accept that that represents the true position for reasons which she has advanced.

Family Court decision

• [12] The Judge in the Family Court assessing costs concluded that this was a case which took significant time and had major complexity. This was primarily because of the failure by CMS Trustees Ltd and Mr V R to openly disclose not just the accounting and other information about the various entities, but because of their failure to tell Mrs V R what had happened post separation with the various Trust and the new borrowing. This left Mrs V R to investigate and thereby piece together what had happened. Together these factors meant that this was a 3C case.

• [13] The Judge then turned to the issue of increased or indemnity costs. Mrs V R had sought indemnity costs but the Judge rejected that claim. The Judge did, however, consider that this was a case for increased costs. She identified each of the relevant factors set out in r 4.6.3 of the District Court Rules 2009 and made an assessment of each. She concluded overall that increased costs were justified with respect to some steps in the proceedings. The uplift was set at 30 per cent.

Discussion

• [14] The first ground of appeal relates to the assessment of costs on a 3C basis. The appellant argued that this was a case which was neither lengthy nor complex. There was little or no relationship property and so the only issue was the question of the application of s 182 of the Family Proceedings Act and an analysis of the various transactions that took place. And so category 2B was appropriate.

• [15] I am satisfied the Judge in the Family Court when considering costs applied appropriate criteria to assess what costs category these proceedings fell within. The proceedings took over two years to resolve. There were volumes of affidavit evidence. Establishing the existence of qualifying circumstances under s 182 involved some real complexity. Mr V R effectively abandoned any co-operation part way through the litigation. While there is dispute about the extent of appropriate disclosure by Mr V R and CMS Trustees Ltd (which I will deal with in the uplift question), I am satisfied the Judge in the Family Court made no demonstrable error in her assessment. I reject this ground of appeal.
• [16] The second ground of appeal relates to the 30 per cent uplift from the 3C costs. The appellant’s case is that this was essentially based on a mistaken view by the Judge that CMS Trustees Ltd had failed to adequately provide information to Mrs V R and that she had had to go to extraordinary lengths to find relevant information in relation to the Dutch Trust and its post separation borrowing. This was reflected, counsel submitted, in erroneous conclusions by the Judge about the provision of loan documents; the date on which the existence of the various loans relating to the Dutch Trust were incurred; and an allegation that CMS Trustees Ltd failed to comply with Court orders relating to making demands for debts owing. The delay in resolving the proceedings were as much the responsibility of Mrs V R and her counsel than CMS Trustees Ltd. A late filed affidavit by CMS Trustees Ltd had no affect on the hearing.

• [17] I am satisfied that the 30 per cent uplift was justified in this case. The fundamental point was that both Mr V R and CMS Trustees Ltd as the sole trustees of the Dutch Trust, knew what had compromised the assets of the Dutch Trust. Both, therefore, had participated in obtaining loans and making loans from and to the Dutch Trust and in the arrangements which ultimately resulted in the Dutch Trust’s financial vulnerability. Neither Mr V R nor CMS Trustees Ltd at any time in these proceedings gave Mrs V R a clear exposition of what had happened with respect to the Dutch Trust’s borrowing post separation. As a result Mrs V R was left to try and piece together what had happened so that she could understand the change in financial circumstances of the Dutch Trust. It was only once she understood what had happened and was in possession of the relevant information that the s 182 application could be advanced.

• [18] It is true as counsel for the appellant pointed out, that counsel who originally acted for Mr V R and the CMS Trustees Ltd and later acted only for CMS Trustees Ltd, provided some of the accounting and other material. But in that correspondence counsel made it clear that he did not consider Mrs V R had any interest in the Dutch Trust No. 2 or in the companies subsequently incorporated after separation by Mr V

R. In fact the position of the Dutch Trust No. 2 and those companies, was of high relevance to the s 182 claim. If Mrs V R was to succeed in that claim, she would need to know where the Dutch Trust money had gone. Her claim after all was about
dissipation of assets and the capacity to order those entities who had received the property to return it in some form. Whether the Dutch Trust No. 2 and/or the companies had received the advances in good faith was also relevant (s 182(4)).

• [19] The Judge who heard the relationship proceedings made it clear in his judgment that he considered CMS Trustees Ltd had failed to adequately and openly provide relevant information to Mrs V R. Finally, CMS Trustees Ltd did not swear and file an affidavit until shortly before the relationship property hearing despite Court orders that they should do so earlier.

• [20] The appellant is correct, as I have noted, that some financial and other information was provided to Mrs V R about the transactions involving the Dutch Trust No. 2, the loan documents and the companies. However, she was not provided with a clear explanation so that she could understand all of the transactions. CMS Trustees Ltd were professional trustees being paid to do a job. The Judge in the Family Court was understandably unimpressed with their claim that they did not know what was going on or did not have documentation relating to the loans and advances.

• [21] In my view, there was ample evidential justification for an uplift from 3C costs given the approach of Mr V R and CMS Trustees Ltd to this litigation.

• [22] For the reasons given, therefore, the appeal will be dismissed.

Ronald Young J

Solicitors:

D G Dewar, Wellington

M L Greenhough, Wellington