IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV [2013] NZHC 1628
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1 IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV [2013] NZHC 1628 UNDER BETWEEN AND AND Section 145A of the Land Transfer Act 1952 D S GRIFFITHS AND K JAFFE AS TRUSTEES OF THE ALLAN MITCHELL (1972) TRUST Applicants J L MITCHELL First Respondent D S GRIFFITHS AS EXECUTOR OF THE ESTATE OF ALLAN GABRIEL MITCHELL Second Respondent Hearing: 23 May 2013 Appearances: H McKee for Applicants S Grant and B Saldanha for Respondents A Barker for Proposed Party, (Allan Brooke Mitchell) Judgment: 1 July 2013 RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Joinder application) This judgment was delivered by me on 1 July 2013 at 3 pm pursuant to Rule 11.5 of the High Court Rules Registrar/Deputy Registrar Date... GRIFFITHS AND JAFFE AS TRUSTEES OF THE ALLAN MITCHELL (1972) TRUST v MITCHELL [2013] NZHC 1628 [1 July 2013]
2 Introduction [1] The applicants Daniel Stephen Griffiths and Kevin Jaffe are the current trustees of the Allan Mitchell (1972) Trust. They have filed an originating application for orders: Under s 145A of the Land Transfer Act 1952 to sustain a caveat (being caveat ); and (b) To add Allan Brooke Mitchell (Brooke) as a party to the proceeding. [2] Counsel for all parties and counsel for Allan Brooke Mitchell (who appears by leave) have agreed by memorandum that the application for joinder should be determined first. That is the application I am required to determine. It is made in reliance upon High Court Rule 4.23(3). [3] Brooke Mitchell supports the application to add him as a party to the proceeding. The first respondent, June Lillian Mitchell, is his mother. She is opposed to his joinder. Background [4] The settlor of the trust was Allan Gabriel Mitchell who died on 9 December He was the husband of Mrs June Mitchell and father of Brooke Mitchell. June and Brooke are discretionary beneficiaries of the trust. [5] Prior to his father s death Brooke Mitchell issued a proceeding in this Court against his father as a former trustee of the trust, and against the applicants as current trustees. The proceeding is awaiting trial. In the proceeding, Brooke Mitchell alleges: Certain properties held at the date of Allan Mitchell s death in the names of Allan and June Mitchell as joint tenants are trust property;
3 (b) These properties were acquired by Allan Mitchell in his personal capacity at a time when he was a trustee, in breach of the trust deed and the rules against self-dealing. The result is that the equitable title to the properties remains with the trust; and (c) The applicants have breached their duties as trustees, they have failed to fully investigate Allan Mitchell s past breaches of trust and to take necessary enforcement and recovery action. [6] The properties that are the subject of Brooke Mitchell s proceeding are: Two properties at Blind Bay, Great Barrier Island being the land identified in Certificate of Title identifiers NA23D/851, NA23D/861, North Auckland Registry; and (b) Two properties at 13 and 15 View Road, Campbells Bay, Auckland being the land identified in Certificate of Title identifiers NA122B/129 and NZ122B/130, North Auckland Registry. [7] After Allan Mitchell died, at Brooke Mitchell s request, the current trustees lodged the caveat against the title to the four properties. The interest claimed in the caveat is:... a beneficial interest in the land... as cestui que trust. [8] Mrs Mitchell does not agree that the trust has an interest in the properties and has applied to Land Information New Zealand to lapse the caveat. The current trustees filed this application to sustain the caveat and to join Brooke as a party. Trustees application [9] The application is made in reliance on r 4.23 of the High Court Rules. [10] Rule 4.23 relevantly provides:
4 (1) Trustees... may sue... on behalf of... the property or estate of which they are trustees... (2) There is no need to join persons beneficially interested in a trust... to a proceeding because the trustees... represent those persons. (3) However, the Court may, at any stage order that a beneficially interested person be made a party, either in addition to or instead of the trustees... [11] The commentary on r 4.23 in McGechan on Procedure relevantly notes: 1 Synopsis This rule is essentially one of convenience, consistent with r 4.1. It aims to limit the number of parties named in a proceeding by or against a trust. The trustees, executors, or administrators concerned, having the legal rights and duties in relation to the administration of trust property, are generally regarded as sufficient parties, because they represent the beneficiaries... [12] Materially the commentary at HR states (emphasis added): The qualification to the rule, which permits joinder of beneficiaries in person, has particular relevance in situations where issues exist as between the beneficiaries and the trustees... For example, if questions arise between beneficiaries and trustees as to the trustees conduct, it is appropriate that the beneficiaries be joined and have separate status: see McDonald v Simmonds (1994) 8 PRNZ 12, where joinder of beneficiaries was ordered even after judgment when it was discovered that the trustee defendant had a personal interest: see also Davies v Deputy Official Assignee (1904) 24 NZLR 747 and James v Public Trustee [1935] GLR 557. [13] The trustees rely on the same formal grounds to sustain their caveat as they rely on for joinder in the application. Essentially, they are: The land comprising the Campbell s Bay properties was as to a onefifth share held by Allan Mitchell on trust for the beneficiaries of the trust. That share was acquired by him in his personal capacity, together with the first respondent as joint tenants, at a time when he was a trustee. 1 Andrew Beck and Others McGechan on Procedure (online looseleaf ed, Brookers) at [HRPt ].
5 (b) The land comprising the Blind Bay properties was acquired by Allan Mitchell who, at the time was a trustee of the trust, and in circumstances where the trust had an indirect interest in the property. (c) Brooke Mitchell asserts that: (i) In acquiring an interest in the View Road and Blind Bay properties in his personal capacity, Allan Mitchell breached his duty as trustee not to deal with the trust property for his own benefit. Accordingly he held his acquired interest on constructive trust for the trust; and (ii) The applicants have a beneficial interest in the properties by virtue of that constructive trust. (d) Brooke Mitchell, as a discretionary beneficiary of the trust, has no caveatable interest in the View Road and Blind Bay properties, but has an interest in the outcome of the application. (e) In circumstances where allegations are being made by Brooke Mitchell about the conduct of the current and former trustees of the trust in separate proceedings, it is appropriate for him to be made a party to, and be heard in respect of the application and for the applicants as current trustees to abide the decision of the Court (the applicants having brought this application to preserve the status quo and give Brooke Mitchell the opportunity to be heard). [14] In her submissions in support of the application, counsel for the trustees advises that they seek to join Brooke Mitchell to this proceeding because they consider that they are in an invidious position of potential conflict. On the one hand there is a disincentive to pursue the arguments in support of the caveat when their own conduct in respect of the interest claim has been called into question by a beneficiary in this proceeding, and on the other it would be a breach of trust not to do so (if Brooke Mitchell s claims are right). She submits this is the classic case
6 where the Court should use its discretion to order joinder. She says that the trustees position is perhaps more than passive abiding (and in that respect has sought to correct the grounds set out in the application). Rather, the key concern is to give Brooke Mitchell the chance to put the case that the trustees do have the interest claimed in the caveat, so that it cannot be said that they have allowed their personal interest to colour the case. [15] Counsel relies on McDonald v Simmonds (1994) 8 PRNZ 12 at 17. She submits the following statement of Anderson J is apposite: It is a common practice for which there is clear authority that if there might be a conflict of interest between a trustee s obligation to the trust and the trustee s other interest or obligations, then the beneficiaries of the trust ought be separately represented. A conflict of interest justifying separate representation may arise where a trustee s interest in maintaining his character might provide of more weight with him, and induce him to adopt, in regard to a suit, a course of conduct different from that which he might be presumed to pursue, if his character were not at stake: Read v Prest (1854) 1 K & J 183. [16] Counsel for the applicants is supported in her submissions by counsel for Brooke Mitchell who appears with leave in support of the application. The basis for opposition [17] In her notice of opposition Mrs Mitchell sets out some 17 grounds as the basis for her opposition to joinder, a number of which traverse at length the factual background to the acquisition of the properties, and how they come to be registered in the joint names of Allan Mitchell and herself. [18] In her submissions counsel for Mrs Mitchell, Ms Grant, distilled these grounds into threefold submissions: Brooke Mitchell has no standing to act as the applicant as he is not the caveator; (b) There are no special circumstances justifying his joinder; and (c) There are significant factors against his joinder.
7 Discussion [19] Putting aside momentarily Ms Grant s submission that Brooke Mitchell has no standing to apply to sustain the interest that the trustees claim, I accept as she submits that under of r 4.23 it is only in special circumstances that a beneficiary may be joined to an action. The usual situation is that it is the role of the trustees to represent all the beneficiaries and they are already so represented. Additionally, as Ms Grant points out, Brooke Mitchell is merely a discretionary beneficiary and Mrs Mitchell, another discretionary beneficiary, does not support the action by Brooke Mitchell. She denies his claims. Other beneficiaries may also oppose his action. [20] Nevertheless, I am satisfied that this is the very kind of situation that the exception in r 4.23 is designed to provide for. I accept that the considerations referred to by Anderson J are apposite. [21] I am therefore unable to agree with Ms Grant that there are no special circumstances that require the Court to exercise its discretion in favour of joining Brooke Mitchell pursuant to HCR Though there are factors against joinder (and Ms Grant has pointed to a not insignificant number), in balancing them against the essential concern that the trustees have pragmatically and appropriately raised, that concern weighs in favour of joinder. [22] This is a case where given the issues that exist as between the beneficiaries (in this case one of the beneficiaries) and the trustees as to the trustees conduct, the trustees are acting responsibly in inviting a dissatisfied beneficiary to present the arguments he claims exist to support the trustees caveat. [23] Ms Grant is right that the beneficiaries have opposing views but there is no danger that the opposing views held by Mrs Mitchell will not be heard as she is a respondent. The more serious consideration, or the special circumstance, is as I have found, that the trustees have responsibly identified that they are in a position of potential conflict. They are concerned their interests in Brooke Mitchell s proceeding against them may induce them to offer less than enthusiastic support for the interest claimed in the caveat. They rightly feel vulnerable to criticism that they
8 may not be seen to perform their duties as trustees adequately in presenting their case to sustain the caveat. [24] Ms Grant raises other points. She argues that the costs of the application to sustain the caveat will be increased if two parties are making submissions in support and that this is not fair and reasonable to Mrs Mitchell. As against this however, is the fact that if the trustees application should prove ill-founded, she will be entitled to her costs (and possibly on an indemnity basis). There is also an added party to whom she may look to for costs should the court consider it appropriate. [25] It is not necessary to deal at length with other factors counsel has raised. Suffice to say I have considered them. They do not outweigh the desirability of joinder. [26] I turn then to the issue of standing. No Standing [27] If this were a case not involving a caveat there would be little argument but that joinder would be appropriate. There is also no argument that, as Ms Grant points out, Brooke Mitchell has no standing to make an application to defend a caveat lodged by someone else. Only a caveator may apply to the High Court for an order that a caveat not lapse: see Adcock v Mullany (HC Auckland, M 1573/IM99, 5 October 1999, Master Kennedy-Grant) at [7]-[9]. However, the substitution of Brooke Mitchell for the trustees as applicant is not what the trustees are seeking. Further, though I accept Brooke Mitchell should not be added as an applicant I see no impediment to his being joined as a respondent. [28] An alternative would be for the trustees to seek directions under the Trustee Act 1956 or pursuant to the Court s equitable jurisdiction, but the argument and directions sought would essentially be the same. [29] Ms Grant also submits that there is a real danger that the caveat procedure is being misused. She submits that if the trustees, as caveators, had no intention of
9 acting fully to support the application to sustain the caveat, they were not entitled to lodge the caveat. [30] I am mindful of the argument that this is a caveat case and that the trustees should not lay claim to an interest in land unless they are prepared to advance a tenable argument that they have the interest claimed but that is what they intend to do by the joinder application, and they cannot presume to know what the court will find when it hears the beneficiary s argument. Result [31] I am satisfied for the reasons discussed that an order for joinder is warranted. [32] The result is that I make orders as follows: Alan Brooke Mitchell is made a party to this proceeding in addition to the trustees (the applicants). (b) He is to be added as a respondent, and named as the third respondent. (c) Costs on the application are reserved. If costs are sought memoranda are to be filed and served within 5 working days. Any memoranda in response are to be filed and served within a further 5 working days. Associate Judge Sargisson
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