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High Court of New Zealand Decisions |
Last Updated: 11 December 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-3606 [2014] NZHC 2995
BETWEEN
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RHONDA MARIE NICHOLS
Plaintiff
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AND
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RACEY CONSTRUCTIONS PTY LTD First Defendant
DAVID GEOFFREY PUNTER Second Defendant
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Hearing:
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20 October 2014
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Appearances:
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C K Lyon for the Plaintiff
D G Punter on behalf of the Defendants
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Judgment:
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28 November 2014
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JUDGMENT OF BROWN J
This judgment was delivered by me on 28 November 2014 at 10 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Law Direct, Kerikeri Counsel: C K Lyon, Auckland Copy
To: Defendants
NICHOLS v RACEY CONSTRUCTIONS PTY LTD [2014] NZHC 2995 [28 November 2014]
[1] Mrs Rhonda Nichols as trustee of the Eungella Trust (“the Trust”) brought a proceeding to recover the sum of $359,120 together with accrued interest of
$163,300, from the first and second defendants on the grounds that the
principal sum was a loan advanced to them by the Trust which
has not been
repaid. The defendants resist the claim on the bases that first, there was no
relationship at any material point in
time between them and the plaintiff and
secondly, the nature of the transaction was not a loan advance but instead a
direct investment
by the Trust in a property development undertaken by Calliope
Resort Developments Pty Ltd.
[2] In the course of the hearing a question arose as to whether the
consent of the other trustee, Mrs Nichols’ former
husband Mr Roy Nichols,
to the bringing of the proceeding had been obtained. An application was then
made for leave to amend the
pleading to delete Mrs Nichols as a plaintiff in her
trustee capacity and to add her as a plaintiff in her personal
capacity.
[3] Consequently the following issues fall for determination: (a) Was the claim validly brought by Mrs Nichols?
(b) If not, should the application to amend the pleadings be allowed? (c) If the answer to (a) or (b) is yes, is the claim made out?
Was the claim validly brought by Mrs Nichols?
[4] The Eungella Trust was established by a Deed of Trust dated 21
April 1996. The beneficiaries of the Trust included Mrs Nichols
and Mr Nichols.
A minimum number of trustees was provided for in clause 13 as follows:
13. (a) THE minimum number of Trustees shall be two PROVIDED HOWEVER
that there shall at all times be at least one Trustee
who is not a beneficiary
nor a relative of a beneficiary within the meaning of Section 96 of the Income
Tax Act 1976.
(b) THE Trustees right to exercise discretionary powers under this Deed of Trust shall be suspended during periods of non-compliance with Clause
13(2) hereof.
Clause 13 of the Schedule of Powers and Conditions provided that all
decisions of the trustees were to be unanimous.
[5] By a Deed of Settlement dated 12 March 2004 the then
trustees of the Eungella Trust were removed and replaced
as trustees
by Mrs Nichols and Mr Nichols.
[6] On or about 26 July 2007 the trustees obtained from the National
Bank of New Zealand (“National Bank”) a loan
of $400,000. In the
letter of offer to the trustees the National Bank recorded that it had
approved the loan structure
“to purchase investment
property”.
[7] The minutes of the meeting of the trustees of the Trust held on 26
July 2007 stated:
Eungella Trust
Held at the office of Law Direct, First floor, Unit 2, 98 Kerikeri Road,
Kerikeri on the 26th day of July 2007
Present: Rhonda Nichols and Roy Nichols
National Bank Borrowings
Resolved: “that the trustees borrow from the National Bank the sum of
$400,000.00, being a $360,000.00 term loan agreement and $40,000.00 flexible
loan facility in order to assist the beneficiaries and
further the aims of the
Trust
Trustees Duties
Having read the Trust Deed that the trust activities accord with the
objectives and that the Trustees have met their obligations under
the Trustee
Act 1956.
Powers of Trustees
The Trustees acknowledge that they have power pursuant to clause 12 (x) of
the Trust Deed to borrow money and that it is in the best
interests of the Trust
to do so.
Payment of Funds
Resolved: “that the Trust authorises Law Direct to pay the funds from
the National Bank draw down to the account of Rhonda and
Roy Nichols to their
Westpac Account in Kiparing, Queensland, Australia.
Signed by all trustees
Rhonda Nichols
Roy Nichols
[8] The brief of evidence which Mrs Nichols read made reference to the
trustees of the Trust seeking judgment against the defendants.
However Mr
Nichols was not a plaintiff in the proceeding. When I asked Mrs Nichols whether
there was a reason for his not participating,
she replied that Mr Nichols did
not want to take Mr Punter to court. She then confirmed that there was not a
unanimous resolution
of the trustees agreeing to commence the current
proceeding.
[9] In response to a question to Ms Prosser, the solicitor for the
Trust, as to her awareness of any resolution of the two trustees
to commence the
proceeding, reference was made to their relationship property agreement. That
document, which was obtained during
the luncheon adjournment, contained clause 6
which read as follows:
THE PARTIES acknowledge and agree that there are outstanding claims
which may be resolved and paid out on that are as a result of claims being
made
through the Courts or otherwise monies owed to them. Rhonda and Roy both agree
that if any are successful and monies received
that any such monies or payments
in any form whatsoever to benefit them be split equally between
them.
[10] Decisions of the trustees of the Eungella Trust must be unanimous. It is not necessary however for both trustees to be plaintiffs in a proceeding brought on behalf of the Trust provided that the trustee who does not participate has consented to the proceeding. As the Court of Appeal stated in Visini v Cadman:1
[17] The flaw in Mr Lawn’s argument is that it proceeds on a
premise which equates the existence of Mr Wood’s consent
to the proceeding
with a requirement that he be joined as a party. As Mr Steele concedes, trustees
must agree unanimously to issue
a proceeding. Mr Wood has now given his express
consent to the Cadmans’ decision to issue the proceeding. The
judgment
of Romilly MR in Messeena v Carr is settled authority for the
proposition that one trustee can subsequently approve another trustee’s
exercise of a discretion.
Mr Wood’s retrospective consent confirms
the trustees’ unanimous decision to issue the proceeding. ...
[11] In the present case there is no evidence that Mr Nichols has consented, or does consent, to the proceeding against the defendants. Clause 6 of the relationship
property agreement does not amount to such a consent. The
responses by
1 Visini v Cadman [2012] NZCA 122, (2012) 21 PRNZ 70 (footnotes omitted).
Mrs Nichols both to Mr Punter’s questions and to questions from me
suggested that
Mr Nichols has not consented to the proceeding.
[12] While those matters are sufficient to warrant the conclusion that
there is an absence of consent by Mr Nichols to the proceeding,
his position is
made abundantly clear in an affirmation made by him on 16 January 2014 in
Australia and which Mr Punter sought to
have adduced in evidence.
[13] Mr Lyon objected to the receipt of that affirmation as constituting
a hearsay statement. While the objection may be valid
insofar as the
substantive dispute is concerned, nevertheless I consider that it is appropriate
to receive that affirmation as a
communication to the Court on the issue of Mr
Nichols’ stance as a trustee of the Trust. In particular, in that
document Mr
Nichols states:
... I have not asked or instructed Rhonda Nichols or the Eungella Trust to
act on my behalf with this matter that she is now pursuing
against David Punter
and Racey Constructions Pty Ltd, I have spoken to Rhonda Nichols on a number of
occasions in the last few months
and advised her that she has no authority or
reason to take action against David Punter and Racey Constructions Pty Ltd and
to date
she has chosen to ignore my requests.
[14] In these circumstances the proceeding has not been brought in
accordance with the requirement of the Trust Deed that the
trustees be
unanimous. Hence the proceeding is not validly commenced and, subject to the
issue of amendment, is one which should
be struck out.
Should the application to amend the pleadings be allowed?
[15] On 7 November 2014 Mrs Nichols lodged a proposed amended statement
of claim together with a memorandum in support of an application
for leave to
amend the pleading.
[16] In essence the nature of the amendment is that throughout the pleading all references to the trustees of the Eungella Trust are substituted with references to Mr and Mrs Nichols. So, for example, the key introductory paragraph in the statement of claim stated:
1.1 In July 2007, the Plaintiff as a trustee of the Eungella Trust
and the First and Second Defendants concluded a joint venture agreement
[JVA] which involved:
(i) The trustees of the Eungella Trust mortgaging a property at
Whananaki, Northland for the sum of NZD400,000;
(ii) Advancing the sum of NZD359,120 (AUD300,000) to the First and
Second Defendants in Queensland, Australia, for the purposes
of financing a
property development;
(iii) That the terms upon which the advance was made by the Plaintiff
as a trustee of the Eungella Trust, included a requirement that the monies
advanced by the Plaintiff as a trustee of the Eungella Trust, to the
First and Second Defendants would be repaid when a plan of subdivision was
registered in Queensland, Australia and with the
Department of Natural Resources
& Water and, in any event, would be repaid no later than three years from
the date of the JVA
and loan advance, i.e. by 28 July 2010.
(iv) That the First and Second Defendants failed to repay the loan
advance by 28 July 2010 and thereafter dealt with the funds
in a manner
inconsistent with the proprietary interest of the Plaintiff as a trustee of
the Eungella Trust, in the amount of the advance, together with accrued
interest.
(emphasis added)
In the proposed amended statement of claim the equivalent paragraph
states:
1.1 In July 2007, the Plaintiff and her then husband, Roy Sydney
Bruce Nichols [RSBN] and the First and Second Defendants concluded a joint
venture agreement [JVA] which involved:
(i) The Plaintiff and RSBN mortgaging a property
at Whananaki, Northland [the Whananaki block] for the sum of NZD400,000;
(ii) Advancing the sum of NZD359,120 (AUD300,000) to the First and
Second Defendants in Queensland, Australia, for the purposes
of financing a
property development;
(iii) That the terms upon which the advance was made by the Plaintiff
and RSBN, included a requirement that the monies advanced by the
Plaintiff and RSBN, to the First and Second Defendants would be repaid when
a plan of subdivision was registered in Queensland, Australia and with the
Department of Natural Resources & Water and, in any event, would be repaid
no later than three years from the date of the JVA
and loan advance, i.e. by 28
July 2010.
(iv) That the First and Second Defendants failed to repay the loan advance by 28 July 2010 and thereafter dealt with the
funds in a manner inconsistent with the proprietary interest of the
Plaintiff and RSBN, in the amount of the advance, together with accrued
interest.
(emphasis added)
[17] In the memorandum in support of the application for leave to amend
the pleading it was suggested that, while r 7.77 of the
High Court Rules is the
primary rule under which amendments may be made, that rule was not available
given that the amendment was
sought in the course of trial. Here reliance was
placed on r 1.9.
[18] However in my view the primary application here is the proposed
substitution as a plaintiff of Mrs Nichols in her personal
capacity because all
the proposed amendments drive off that course. Consequently it is necessary to
consider the grounds for adding
a party in r 4.56(1)(b):
4.56 Striking out and adding parties
(1) A Judge may, at any stage of a proceeding, order that—
...
(b) the name of a person be added as a plaintiff or defendant
because—
(i) the person ought to have been joined; or
(ii) the person’s presence before the court may be
necessary to adjudicate on and settle all questions involved
in the
proceeding.
...
[19] The practical difficulty which Mrs Nichols faces in seeking to be
the sole plaintiff in her personal capacity is that the
proposed amended
pleading, which deletes any reference to the Eungella Trust or to actions taken
by Mr and Mrs Nichols as trustees
of the Eungella Trust, is entirely at odds
with the evidence and the documentary record.
[20] That documentary record includes the following:
(a) A letter of offer from the National Bank dated 25 July 2007 for a
loan “to purchase investment property” addressed
to “The
Trustees, The Eungella Trust C/- Mr & Mrs Nichols”;
(b) Instructions to Law Direct dated 25 July 2007 from the National
Bank to act on its behalf related to advances and/or banking
accommodation to Mr
and Mrs Nichols “as trustee(s) for The Eungella Trust (“the
Customer”)”;
(c) A loan agreement with the National Bank dated 26 September 2007
signed by Mr and Mrs Nichols as trustees of the Trust;
(d) The minutes of the meeting of the trustees on 26 July 2007
recording the resolutions in respect of the loan from the National
Bank;2
(e) The National Bank’s deposit/settlement confirmation dated 26
July
2007 to Law Direct, Kerikeri which stated in the subject line,
“The
Eungella Trust”;
(f) The statement from Law Direct recording the receipt of funds from
the National Bank addressed to Mr and Mrs Nichols as trustees
of the
Trust;
(g) The invoice from Law Direct in respect of the National
Bank mortgage addressed to Mr and Mrs Nichols as trustees
of the Trust;
and
(h) Subsequent correspondence from Law Direct in October 2008
addressed to “The Trustees, Eungella Trust C/- Mr
& Mrs R & R
Nichols”.
[21] Furthermore the synopsis of opening submissions for the plaintiff, the brief of evidence read by Mrs Nichols and the brief of evidence read by Ms Prosser all
faithfully reflected the allegations in the statement of claim that the
relevant transactions were undertaken by the trustees for
the Eungella Trust.
It is against the background of that documentary record and that evidence that
the proposed amended statement
of claim would fall to be considered.
[22] Although the proposed amended statement of claim contains no
reference to the Eungella Trust or to Mr and Mrs Nichols’
role as trustees
of the Eungella Trust, I did not understand Mrs Nichols to make any challenge to
the documentary record referred
to above. Rather, as the memorandum in support
of the application for leave to amend explained, the essential amendment sought
is
that Ms Nichols, who sued in the original pleading as a trustee of the
Eungella Trust, now seeks to pursue her claim in her personal
capacity on the
basis that, while she purported to exercise her powers as a trustee of the
Eungella Trust, those powers were not
operative at the time when the transaction
with the first and second defendants took place.
[23] The memorandum stated:
3.3 The plaintiff initiated this proceeding in her capacity as a
trustee of the Eungella Trust. There were, however, legal
impediments to her
proceeding, namely:
(i) The plaintiff has become estranged from her former husband, Roy Sydney Bruce Nichols, who was not prepared to join in the action to retrieve the money owed by the first and second defendants. This offends the principle of the need for unanimity as trustees which forms the basis of the Court of Appeal decision in Visini v Cadman [2012] NZCA
122.
(ii) In any event in terms of the deed of trust of the Eungella
Trust dated 21 April 1996 clause 13(a) provides:
[Quoted at [4] above]
[24] It was submitted for Ms Nichols that it is clear from the decision of the Court of Appeal in Wong v Burt that trustees who act without the authority conferred on them in terms of the trust deed are liable personally for the consequences of transactions they have undertaken purportedly in the name of the trust.3
[25] While it is true that trustees have personal liability to account to
beneficiaries for actions taken in breach of trust,
it does not follow that a
person, who is a trustee in breach, derives a personal right of action against
third parties in relation
to trust property or the recovery of same.
[26] The parties to the alleged loan agreement were the trustees of the
Eungella Trust. It is the Trust, through the medium
of the trustees, which has
the rights of enforcement pursuant to the alleged agreement. That remains the
position whether or not
the transaction was undertaken in breach of the
requirements of the Trust Deed.
[27] As Waller LJ of the English Court of Appeal stated in Montrose
Investments
Ltd v Orion Nominees Ltd (No 2):4
I cannot see save on some ground of public policy which has not been
suggested why a breach of trust as between beneficiary A and
trustee B,
precludes B from enforcing such trust obligations as may arise between B and a
transferee of the trust property C. Indeed,
it seems to me that where it is the
very transfer of the trust property from B to C which constitutes the breach of
trust, public
policy positively requires that B should be in a
position to assert a claim for the recovery of the trust property or its
proceeds from C.
[28] Similarly in the present case, where the alleged advance of
the funds, borrowed in the name of the Eungella Trust,
constituted the
breach of trust as asserted by Mrs Nichols, it is for the trustees who acted
in breach of trust to pursue a claim
for recovery of the trust property or its
proceeds from the third parties. The individuals, who as trustees acted in
breach of trust,
do not have a personal right of claim against such third
parties. The third parties who are the recipients of the funds the subject
of
the alleged advance have no liability to such individuals in their personal
non-trustee capacity.
[29] Consequently Mrs Nichols’ reliance on Wong v Burt is misplaced. In view of the evidence, the documentary record and the relevant law, Mrs Nichols in her personal capacity is not a person who ought to have been joined as a plaintiff,5 nor is
she a person whose presence before the Court may be necessary to
adjudicate upon
4 Montrose Investments Ltd v Orion Nominees Ltd (No 2) [2004] EWCA Civ 1032 at [24].
5 High Court Rules, r 4.56(1)(b)(i).
and settle all questions involved in the proceeding.6 Any claim
that she may have is in her trustee capacity. Consequently the application for
leave to file an amended statement of claim
with Mrs Nichols as the substituted
plaintiff in her personal capacity is declined.
Disposition
[30] In view of my conclusions on issues (a) and (b), the third issue does not fall for determination. The proceeding is dismissed. The defendants are entitled to one
set of costs on a 2B basis.
Brown J
6 Rule 4.56(1)(b)(ii).
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