Trott v Barnett

[2018] NZHC 1191

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-2896

[2018] NZHC 1191

BETWEEN

MICHAELENA MARY TROTT

Plaintiff

AND

DEBORAH JOSEPHINE BARNETT

First Defendant

ELAINE LILLIAN SMITH

Second Defendant

Hearing:	5 March 2018
Appearances:	P T Finnigan for Plaintiff S J Tee for Defendant
Judgment:	25 May 2018

JUDGMENT OF PALMER J

This judgment is delivered by me on 25 May 2018 at 3.00 pm pursuant to r 11.5 of the High Court Rules.

.....................................................

Registrar / Deputy Registrar

Counsel/Solicitors:

P T Finnigan, Barrister, Auckland Foley Hughes Lawyers, Auckland Morton Tee & Co, Auckland

TROTT v BARNETT [2018] NZHC 1191 [25 May 2018]

Summary

[1]                  Mrs Michaelena Trott, the plaintiff, is engaged in litigation with the daughters of her late husband, the defendants Ms Deborah Barnett and Ms Elaine Smith. Mrs Trott claims Ms Barnett and Ms Smith are unlawfully leasing her a leaky home and seeks compensation. They counterclaim she holds funds on trust for them under their father’s will. Mrs Trott applies to strike out the counterclaim and to require security for costs. I decline the applications because the counterclaim may be tenable on the pleadings and I am not satisfied Ms Barnett and Ms Smith could not pay costs. I make orders for discovery and for costs.

What happened?

[2]                  Mrs Trott is now 87 years old. Ms Barnett and Ms Smith are the daughters of Mrs Trott’s late husband Mr Bob Trott. In 1997, Mr and Mrs Trott sold a house at Tairua, in the Coromandel, to Ms Barnett and Ms Smith. The sale was subject to a lease giving Mr and Mrs Trott the right to occupy the property for life.

[3]Mr Trott died in 2006. His will provided, amongst other things:

4 I give all my shares in GRAND SLAM HOLDINGS LIMITED (“the company”) which I may own at the date of my death to my trustees UPON TRUST:

(a)To pay and apply all or any income received from the company in respect of the shares first towards taxation and administration and accountancy costs relating to shares, secondly for the benefit of my wife MICHAELENA MARY TROTT (“my wife”) during her lifetime in such sum or sums in each year as my trustees in their absolute and unanimous discretion may determine depending upon my wife’s needs, and circumstances at the time, and thirdly in respect of any income not already paid or applied or appropriated, to a capital fund; and

(b)Upon the death of my wife, if my trustees are themselves directors of the company or if not, to direct the directors of the company, to wind up the company and to pay one-half of the net proceeds to which my estate may be entitled upon the liquidation by virtue of my shareholding together with any capital fund accumulated out of income to my said daughters ELAINE LILLIAN SMITH and DEBORAH JOSEPHINE BARNETT in equal shares and to pay the other half to the sons of my wife, namely GREY INGLEBY SEAGAR, MARK INGLEBY SEAGAR and BRETT INGLEBY SEAGAR in equal shares.

5 I GIVE the balance of my estate after  payment  of  my  debts  and expenses relating to my estate to my wife, the said MICHAELENA MARY TROTT absolutely …

[4]                  In February 2016, the shareholders’ account in Grand Slam Holdings Ltd (GSHL) was paid out to Mrs Trott. There were arguments between Mrs Trott and Ms Smith about inheritance. Later in 2016, Mrs Trott discovered the house she lived in was leaky.

[5]                  In 2017, Mrs Trott filed these proceedings against Ms Barnett and Ms Smith. The second amended statement of claim alleges Ms Barnett and Ms Smith breached the lease and relevant legislation by failing to provide a watertight dwelling and failing to undertake maintenance work. She seeks orders for specific performance for remedial works, or damages of around $380,000, or the actual cost of remediation. She seeks damages totalling around $135,000 for loss of quality of life and distress and for her costs of maintenance, investigation of the building and alternative accommodation. She also seeks a declaration that, under the lease, the property should be sold within three months and the proceeds used to purchase a specific apartment over which Mrs Trott has an option to purchase.

[6]                  Ms Barnett and Ms Smith defend the claims on the basis Mr and Mrs Trott were responsible for repairs and maintenance of the property and they deny the alleged defects in the building. They plead affirmative defences:

(a)They seek rectification of the lease to include an express obligation on Mrs Trott to be responsible for external repairs.

(b)They claim Mr and Mrs Trott acknowledged they were responsible for external repairs, or are estopped from bringing the claim on the basis of waiver, acquiescence or delay.

(c)They claim it would be an unconscionable bargain for the house to have been sold to them while imposing on them a repair obligation.

(d)They claim Mrs Trott has failed to maintain, clean and ventilate the property.

[7]                  Ms Barnett and Ms Smith also make a counterclaim that Mrs Trott holds a constructive or resulting trust on their behalf, under the will, over half of the debt owed to Mr Trott by GSHL and paid to Mrs Trott. They seek a declaration to that effect.

[8]                  The trial has been set down for two weeks commencing 26 July 2018. Four interlocutory applications were made. The defendants’ application to restrain previous counsel for Mrs Trott, Mr Grey Seagar, from acting was resolved, leaving only the costs of that application to be determined. The other applications are:

(a)Mrs Trott applies to strike out the defendants’ counterclaim;

(b)Mrs Trott applies for security for costs;

(c)The defendants apply for particular discovery.

Issue 1: Should the counterclaim be struck out?

Law of strike-out

[9]The law governing the striking out of proceedings is well established. Rule

15.1 of the High Court Rules 2016 provides:

15.1     Dismissing or staying all or part of proceeding

(1)The court may strike out all or part of a pleading if it—

(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b)is likely to cause prejudice or delay; or

(c)is frivolous or vexatious; or

(d)is otherwise an abuse of the process of the court.

[10]              As summarised by the Court of Appeal in Attorney-General v Prince and a minority of the Supreme Court in Couch v Attorney-General:1

(a)the facts pleaded are assumed to be true;

1      Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267. Approved by Elias CJ and Anderson J in Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

(b)the causes of action must be so untenable the court is certain they cannot possibly succeed;

(c)the jurisdiction is to be exercised sparingly and only in a clear case;

(d)the jurisdiction is not excluded by the need to decide difficult questions of law; and

(e)particular care is required in areas where the law is confused or developing.

[11]              Although facts pleaded are ordinarily assumed to be true in a strike-out application, that does not extend to allegations which are “self-evidently speculative or false” or plainly unsupportable and without foundation.2 It is possible “an essential factual allegation is so demonstrably contrary to indisputable fact that the matter ought not to be allowed to proceed further”.3

Submissions

[12]              Mr Finnigan, for Mrs Trott, submits the constructive trust counterclaim is so untenable it cannot succeed on the evidence and the law. He submits Mrs Trott either owns 100 per cent of the GSHL funds as the shareholders’ advance account or she owns 50 per cent and is entitled to the other 50 per cent of it under cl 5 of the will. In those circumstances, he submits no question Mrs Trott knowingly received the funds, or breached fiduciary duties to the defendants, could arise. He says the statement of defence supports that.4 He says no circumstances are pleaded that make Mrs Trott a fiduciary of the defendants. He submits the defendants should sue the executors of the estate if they have a claim.

[13]              If there is a cause of action for a constructive trust, Mr Finnigan submits it accrued when probate occurred in 2006, or certainly before 1 January 2011, and is accordingly time-barred under the Limitation Act 1950. He also submits the

2      Siemer v Judicial Conduct Commissioner [2013] NZHC 1853 at [13]; Commissioner of Inland Revenue v Michael Hill Finance (NZ) Ltd [2016] NZCA 276, [2016] 3 NZLR 303 at [4].

3      Attorney-General v McVeagh [1995] 1 NZLR 558 at 566.

4 Statement of Defence of 18 December 2017 at [61].

counterclaim is unrelated to the plaintiff’s leaky building claim, will require expertise in unrelated fields, will cause undue delay and should be separated out and dealt with on its own. He submits the defendants’ claim for rectification of the lease is a counterclaim not an affirmative defence and the counterclaim is frivolous, vexatious and an abuse of process.

[14]              Mr Tee, for the defendants, submits the tax records show the shareholders’ account was owned by Mr and Mrs Trott separately until 2013. Properly interpreted, he submits Mr Trott’s will envisaged income from the shares would be available to Mrs Trott during her lifetime and any residual accrued into a capital fund, but after that the company should be liquidated and, together with the shareholding, paid out to the residual beneficiaries. He submits that created a constructive trust for the benefit of Mr Trott’s children who did not anticipate demand would be made by Mrs Trott on the shareholders’ account during her lifetime. He submits knowledge of that can be imputed to Mrs Trott and trial is required to determine these points as a matter of fact.

[15]              Mr Tee also submits the defendants could not have brought their counterclaim earlier because it was not until 2016 or, at the earliest, 2013 when the cause of action accrued. He submits it is far more convenient to hear the claims and counterclaim together and the counterclaim is not an abuse of process.

Decision on strike-out

[16]              Mr Finnigan accepts that whether Mrs Trott had sufficient knowledge to sustain the constructive trust claim is a matter of fact. He submits under either of the only two factual alternatives, of 100 per cent or 50 per cent ownership by Mrs Trott of the fund, it would be impossible for Mrs Trott to have had sufficient knowledge to impose liability upon her as a constructive trustee. However, I consider whether Mrs Trott was a constructive trustee will depend on interpretation of the will and the circumstances surrounding the shareholders’ account being paid out to Mrs Trott. Determination of those matters will depend on the evidence adduced at trial. Accordingly, I consider it would be premature to strike out the counterclaim at this stage. It is not so untenable I can be certain it cannot succeed. Unless settled by the parties beforehand, it will go to trial.

[17]              I also accept it is possible the evidence at trial may bear out the defendants’ contention that the constructive trust cause of action, if established, accrued in 2016 or in 2013. In 2016 demand was made on the fund. In 2013 the company accounts were apparently changed for tax purposes to record the shareholders’ account being owed only to Mrs Trott. Accordingly, it would be premature to strike out the counterclaim on grounds of limitation. That, also, will have to be determined at trial, in the context of the evidence.

[18]              Finally, the two weeks for which the trial of this proceeding has been set down is based on estimates which cover the counterclaim as well as the primary proceeding. I accept Mr Tee’s submission it is more convenient to have the counterclaim heard at the same time as the primary claims. There will be common witnesses and documentary evidence. The subject matter of each claim is context for the other. I am quite satisfied the counterclaim is not an abuse of process. It may prove to have merit.

[19]              In the meantime, the defendants will be able to re-examine whether any affirmative defences should be presented as counterclaims and seek leave to amend the pleadings if necessary.

Issue 2: Should the defendants pay security for costs?

[20]              Rule 5.45(1)(b) and (2) of the High Court Rules 2016 provide a judge may order the giving of security for costs if satisfied “there is reason to believe a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding”. Under r 5.45(6), the reference to plaintiff also applies to a defendant making a counterclaim.

[21]              Mrs Trott applies for security for costs from the defendants. Mr Finnigan submits there is reason to believe the defendants will be unable to pay the plaintiff’s costs if they are unsuccessful in their counterclaim. He says the defendants have not adduced independent or documentary evidence showing they can pay the costs if unsuccessful. He raises questions about whether the defendants can raise funds from properties identified in their affidavits and relies on alleged omissions in those affidavits. He submits the counterclaim is untenable for the same reasons he argued in the strike-out application.

[22]              Mr Tee submits Mrs Trott’s  affidavit on this subject comprises her unsubstantiated opinion about the financial position of each defendant. The defendants have submitted detailed reply affidavits. He submits, on that basis, there is not even an inference available that the defendants would be unable to pay costs if unsuccessful.

[23]              I am not satisfied there is reason to believe the defendants will be unable to pay Mrs Trott’s costs if she is successful in opposing the counterclaim. The defendants’ affidavits are evidence they are likely to be able to do so.

Issue 3: Discovery orders

[24]              The defendants apply for tailored discovery of information specified in Schedule 1 of their application dated 15 October 2017. This is required for their expert witness, Mr Geoffrey Devine, to complete his enquiry into the status and ownership of shareholders’ account entitlements and/or treatment of capital in GSHL. The specific information Mr Devine seeks is detailed in Schedule B to Mr Devine’s affidavit of 7 December 2017 and reiterated, with reasons, in his affidavit of 19 February 2018.

[25]              A notice of opposition to the application for discovery was filed. However, at the hearing Mr Finnigan agreed to discovery being given by both parties along the lines of Schedule 1 of the defendants’ application. Mr Tee suggested the information specified in Schedule B to Mr Devine’s affidavit of 7 December 2017 would be narrower than that in Schedule 1 of their application.

[26]              As foreshadowed at the hearing, I order discovery as sought by the defendants in their application at Schedule 1 and as specified more precisely by Mr Devine in Schedule B of his affidavit of 7 December 2017.

Costs

[27]              The defendants have succeeded in opposing Mrs Trott’s interlocutory applications and in pursuing their interlocutory application for discovery. The defendants’ application to restrain previous counsel from acting was resolved when it

was no longer opposed, apparently in February 2018. The defendants seek costs for that application, which are not opposed. I award costs to the defendants for all four applications and associated steps, including half a day of hearing time, on a 2B basis plus disbursements.

Result

[28]I make the following orders:

(a)I decline the plaintiff’s applications for strike-out and security for costs.

(b)I grant the defendants’ application for tailored discovery.

(c)I award costs to the defendants on a 2B basis plus disbursements.

………………………….

Palmer J