PERCY v PERCY [2020] NZHC 3537

PERCY v PERCY [2020] NZHC 3537 [19 November 2020]IN THE HIGH COURT OF NEW ZEALANDNAPIER REGISTRYI TE KŌTI MATUA O AOTEAROAAHURIRI ROHECIV-2019-441-089[2020] NZHC 3537IN THE MATTER of claims of breach of contract, breach oftrust and fiduciary duty and an applicationfor removal of TrusteesUNDER Section 51 of the Trustee Act 1956 and theCourt's inherent and supervisory jurisdictionBETWEEN DOUGLAS WILLIAM PERCYFirst ApplicantVIRGINIA FRANCES BENNETTSecond ApplicantAND VANCE CHARLES PERCYFirst RespondentSTEPHEN PETER LUNNSecond RespondentSTEPHEN ALEXANDER GREERThird RespondentSTEPHEN HUGH ORR REANEYFourth RespondentHearing: 19 November 2020Counsel: J L Bates for ApplicantsJ O Upton QC and D J O'Connor for RespondentsJudgment: 19 November 2020JUDGMENT OF GRICE J[1] This is an application seeking joinder of two additional defendants and for thedetermination of two pre-trial questions.1[2] The application seeks to add the third respondent, Mr Greer, and the fourthrespondent, Mr Reaney, as defendants in the substantive proceedings. They wereappointed as trustees of the Percy Farming Trust by a Deed of Settlement dated5 June 2020. The applicants say that their appointments as trustees, in effect, was anabuse of process and went against the provisions of the Deed of Settlement, whichsettled earlier proceedings,2 where a process of appointment of trustees had beenagreed.[3] The first and second plaintiffs in the substantive proceedings (the applicants inthis decision) are Mr Douglas Percy (Douglas) and Virginia Bennett (Virginia). Thefirst respondent is Mr Vance Percy (Vance): the first defendant in the substantiveproceedings. The second respondent is Mr Stephen Lunn: the second defendant in thesubstantive proceedings. The third respondent is Mr Stephen Greer and the fourthrespondent is Mr Stephen Reaney. The third defendants in the substantive proceedingsare Vance and Denise Percy, in their capacities as the partners of the Shiloh SantaGertrudis partnership.3Background[4] The first and second plaintiffs filed these proceedings in November 2019.They allege breaches of trust, breaches of fiduciary duty, that the third defendantknowingly assisted the first defendant to breach his fiduciary duties, and a constructivetrust over the profits received from grazing stock on the farm property. In addition,there is a claim for breach of contract. The fourth cause of action is for the removaland appointment of an independent professional trustee. The then trustees whoseremoval was sought (the first and second respondents/defendants) have now beenremoved as trustees by a deed dated June 2020.1 This judgment was delivered orally on 19 November 2020 and has been footnoted and edited forgrammar and flow. No change is made to the substance of the decision.2 Percy v Percy [2017] NZHC 1989.3 See below at [5] for the background of the Shiloh partnership.[5] The summary of the background is set out in the decision of Doogue J on anapplication for prospective costs. She said:4[6] The trust was established on 15 December 1969 by Frank WilliamPercy (the settlor), the father of Douglas, Virginia and Vance. Thebeneficiaries were the settlor's wife and his children and grandchildren andthe wives or widows of any sons or grandsons of the settlor.[7] The F W Percy Farming Company Limited (the company) wasincorporated on 16 December 1969. The company operates a farm in Hawke'sBay. The trust owns 50 per cent of the shares in the company. The thirddefendants operate the Shiloh Stud and graze their stock on the farm ownedby the company.[8] Vance became a director of the company on 3 August 1995.[9] The trustees of the trust changed over time. Vance was appointed asa new trustee of the trust on 23 February 2001. He accepted such appointmentvoluntarily. As a result of his appointment he then held two fiduciarypositions, one as director of the company and the other as trustee of the trust.[10] On 13 November 2002 the settlor signed a memorandum of guidancefor the trustees of the trust (the memorandum of guidance). It set out hiswishes concerning the administration and management of the trust.[11] The settlor died in April 2008.[12] In May 2015 the capital of the company was 200,000 $1.00 shares:100,000 shares held by the trustees of the trust, 59,999 shares held by Vance,40,000 shares held by the settlor's wife, and one share held by Denise.[13] The settlor's wife died in July 2015, and she bequeathed her shares inthe company to Vance. Virginia contested that bequest in the Family Courtand was granted ownership of 4,000 shares in the company.[14] On or about 2 May 2016 Douglas filed High Court proceedingsagainst the then trustees: Vance and a Mr Riddell. The Shiloh Stud was laterjoined as second defendant. Mr Riddell agreed to resign, and Mr Lunn wasthen appointed as a trustee in 2017.[15] In those proceedings, Douglas made an interlocutory application foran order appointing auditors and reviewers under s 83B of the Trustee Act1956 (the Act) to investigate alleged irregularities. That application wasdeclined by Associate Judge Smith in a decision dated 18 August 2017, andcosts were awarded in favour of the Shiloh Stud. As part of that claim,Douglas sought the removal of the then trustees, to be replaced by independenttrustees.[16] The proceedings were settled by a deed of settlement in December2017. Douglas' claim was settled and a process for the appointment ofreplacement trustees was established.4 Percy v Percy [2020] NZHC 828 at [6]–[19] (footnotes omitted).[17] The deed of settlement provided as follows:1. The current trustees Vance Percy and Stephen Lunn agreed toresign as Trustees to be replaced by agreed independentprofessional Trustees and failing such agreement the partiesagree that the President of the New Zealand law Society (or hernominee) shall have power to nominate two independentprofessional Trustees from the Hawkes Bay District, and suchnomination shall be accepted by the parties as finding.2. The two independent Trustees shall have no conflict of interest.3. One independent Trustee must come from an accounting firmor company.4. The other professional Trustee must come from a law firm orcompany.5. Douglas Percy agrees to discontinue his proceedings and theparties agreed that costs are to lie where they fall.6. Each party will put forward up to four names as potentialprofessional Trustees within 7 days.7. Absent agreement as to the composition of the Trustees within21 days, the power of nomination set out in clause 1 shall vestin the President of the NZLS (or nominee).8. Vance Percy shall indemnify Douglas Percy in the event DenisePercy claims costs against Douglas upon discontinuance.9. Clause 1 is an arbitration clause for the purposes of theArbitration Act.[18] Contrary to the terms of the settlement, when the parties were unableto agree on replacement trustees, they continued to negotiate the identity ofthe replacement trustees; a process which took about 18 months.[19] In June 2019 Douglas referred the matter to the Law Society. Mr Lunnclaimed the Law Society had no jurisdiction in the matter and that the deed ofsettlement was contrary to the Act.[6] The claims in the present proceedings in some respects resemble those madein an earlier proceeding settled by the deed dated 17 December 2017. Douglas claimsthat Vance and Mr Lunn repudiated the Deed of Settlement. Vance and Mr Lunnrespond that Douglas and Virginia have repudiated the Deed of Settlement. All partieshad agreed that Vance and Mr Lunn should be removed, and new trustees be appointedbut the parties can now not agree on who those trustees would be.The substantive proceedings[7] The judgment of Doogue J went on to comment on the various substantiveclaims as follows:5[22] At the heart of Douglas and Virginia's case is the allegation that Vancehas a conflict of interest in being both a trustee of the trust and a director ofand controlling shareholder in the company. They allege that Vance is inbreach of the self-dealing rule, binding on all trustees, as he is using companyproperty (the farm) for the benefit of the Shiloh Stud, in which he has apersonal interest.[23] Over time Douglas has been concerned about the manner in which thetrust has been operated. In particular, he has been concerned at the very lowrate of return received by the trust from its shareholding in the company andthe low rate of interest (one per cent per annum) paid on a loan ofapproximately $220,000.00 from the trust to the company.[24] In addition, Douglas and Virginia allege distributions made by thetrustees over the years have favoured Vance's family over the otherbeneficiaries.[25] Douglas and Virginia also harbour concerns about Mr Lunn's breachof trust and fiduciary duties owed to them. They say Mr Lunn has failed toprevent Vance from personally dealing with the company's assets.[26] Finally, Douglas and Virginia allege that Vance and Denise haveknowingly assisted Vance in his capacity as trustee to enter into transactionswith Shiloh Stud in breach of his duties to the trust. They say Vance andDenise have benefitted from their ability to graze stock owned by the ShilohStud on the company's property.[27] On the other hand, Vance and Mr Lunn deny that Vance placed himselfin a position to self-deal. They say he was placed in that position by the settlor,the settlor's will, the memorandum of guidance, and the terms of the trust.They say that there has been an implied exemption from the self-dealing rulein this case, as the settlor intended to waive the conflict of interest rule forVance. They also deny that the Shiloh Stud has profited from the company.[28] Affidavits have been filed by Douglas and Vance. They disclose acomplete breakdown in the relationship between Douglas and Virginia andVance and Mr Lunn. It would be difficult to characterise the relationships asanything other than intensely acrimonious.[8] The Judge went on to review the strength of each position in the substantiveproceedings insofar as she could at that preliminary stage. She said:65 Percy v Percy, above n 4, at [22]–[28].6 At [47].[47] I find that Douglas and Virginia have a strong case that Vance is ina position where he has a conflict of interest, where he can self-deal and doesnot have express authorisation to do so.[9] The Judge then turned to whether Douglas and Virginia had a strong case thatVance, Denise and the Shiloh Stud had in fact profited from Vance being in a positionto self-deal. In relation to the earlier proceedings that had been settled in December2017, she said:7[52] Those proceedings were of course settled. But it could not be said onthe evidence that existed at that time that Douglas' case was strong andconclusive proof of profiting from self-dealing by Vance.[53] The present proceedings had been brought on the basis that there hasbeen self-dealing resulting in losses to the trust and the company between2016 and now. No financial evidence over and above that contained inMr Gardiner's affidavit has been filed. There is a vacuum as to the financialdealings since 2016. There is insufficient evidence before the Court to assessthe strength of the plaintiffs' case in this respect.[54] Given the background and the outcome of the earlier proceedings andthe lack of evidence of current self-dealing to the detriment of the trust, itcould not be said that on this cause of action Douglas and Virginia have sucha strong case that the only order a judge could make would be to find the causeof action proven.[10] In relation to the cross claims made in relation to the allegations of repudiationof the Deed of Settlement of December 2017, she said:[62] little is to be gained in pursuing this cause of action in my viewwhen it is common ground how acrimonious the history and relationships inthis family are, where it is secondary to the other causes of action, and whereall parties agree new trustees need to be appointed.[11] The Judge noted:[66] I consider that the case for removal of the trustees is strong on thebasis that Vance is in a position to self-deal, and that over many years he hasfailed to adequately provide information to Douglas when reasonablyrequested to do so. Under the current Act there is no legal obligation on thetrustees to provide that information to beneficiaries, but it may have been ameasure that would have alleviated the deep level of suspicion harboured byDouglas over the years. Even in the absence of any misconduct and allowingfor the fact that Vance and Mr Lunn might have had a reasonable belief that itwas Douglas who repudiated the deed of settlement or that the deed didcontravene the Act, there is such a high level of distrust and dysfunction that7 Percy v Percy, above n 4, at [52]–[54].removal of the trustees and the appointment of replacement trustees seemsinevitable.[67] In fairness to Vance and Mr Lunn, that must be the view they havethemselves arrived at. They no longer oppose removal, they simply disputethe mechanism by which successor trustees should be chosen and theappropriateness of the trustees proposed by Douglas and Virginia.[12] Since that judgment in April 2020, Vance and Mr Lunn have resigned andappointed Mr Greer and Mr Reaney as trustees.[13] Vance says, as does Mr Lunn, that these appointments were by agreementbetween the parties and that agreement had followed the provisions of the Deed ofSettlement. Nevertheless, they agree that the timeframe in the Deed of Settlementslipped but say that neither party adhered to that. Mr Upton QC took me through theletters and exchanges of emails, which he indicated supported the fact that agreementhad been reached between the parties, or at least between the lawyers for the variousparties, that Mr Greer and Mr Reaney should be appointed.[14] On that approach Mr Upton says there was agreement reached evidenced bythe exchange of emails and letters by March 2019, but certainly well before the hearingbefore Doogue J in March 2020, although the formal deed of appointment of Mr Greerand Mr Reaney was not executed until June 2020. Mr Bates says the trails of emailsand the correspondence was squarely before Her Honour at the time of her judgment.She made no comment on that issue.[15] For completeness I note that Her Honour indicated that the discretionarybeneficiaries need not be served because the trustees represent them. She said, "[t]hereis nothing in the circumstances of this case to warrant service on all discretionarybeneficiaries" and the cost of doing so would be "disproportionate in monetary termsand amount to further and unnecessary delay".8[16] Douglas says in his affidavit that he and Virginia had invited Vance andMr Lunn to approach the Court to jointly decide the question as to who should be the8 Percy v Percy, above n 4, at [73].replacement trustees. Instead, Douglas alleges Vance and Mr Lunn proceeded toappoint the new trustees without agreement in a deed dated 5 June 2020.[17] Douglas and Virginia say they did not agree to the appointment and that it fliesin the face of the application to the Court. They say the Court was seized of the matterin its supervisory jurisdiction over trusts. They say that, while they did not obtainprospective costs, they were heartened by the Court's preliminary findings, whendealing with that application, as to the strength of their case.[18] The reply submissions of Douglas and Virginia begin by taking issue with therespondents' submissions, which had alleged misquotes and fundamental errors,misinterpretations and inadmissible evidence filed by the respondents. This exchangeunderscores the significant disputes on the facts and illustrates the heightened tensionsbetween the parties.[19] While counsel took me through the various emails and factual matters that,counsel submit, indicate agreement or not as to the appointment of Mr Reaney andMr Greer in 2019, that cannot be resolved today.9 The matter is heavily disputed andI have little, if any, more evidence before me than did Doogue J before her.Joinder of defendants[20] A Court order is required to join new defendants to a proceeding. InMcLachlan10 Potter J said:An application for joinder does not make the party the subject of anapplication, a plaintiff or defendant in proceedings. That requires a Courtorder.9 There are a number of disputes over the comments made in the affidavit of Douglas. At a casemanagement conference Cooke J struck out paragraph [10] of Douglas' affidavit as inadmissible:Percy v Percy HC Wellington CIV-2019-441-89, 7 September 2020.10 McLachlan v MEL Network Ltd HC Auckland CIV-1998-404-253, 9 December 2004, at [60].[21] The Courts take a liberal approach to the joinder of parties and imposes a fairlylow threshold.11 Joinder is governed by r 4.56 of the High Court Rules 2016 (Rules).It says:12(1) A Judge may, at any stage of a proceeding, order that—(b) the name of a person be added as a plaintiff or defendantbecause–(i) the person ought to have been joined; or(ii) the person's presence before the court may benecessary to adjudicate on and settle all questionsinvolved in the proceeding.[22] Rule 4.3 refers to joinder of defendants and says:(1) Persons may be jointly, individually, or in the alternative as defendantsagainst whom it is alleged there is a right to relief in respect of, orarising out of, the same transaction, matter, event, instrument,document, series of documents, enactment, or bylaw.(2) It is not necessary for every defendant to be interested in all reliefclaimed or every cause of action.[23] The authors of McGechan on Procedure note that the object of the Rules is toprovide for the inclusion of necessary parties, rather than judgment being obtained inthe absence of necessary parties.13 The Court must be in a position to do completejustice by deciding upon and settling the rights of all persons interested in the subjectof the suit. This Court explained the reasoning for this approach in McKendrick GlassManufacturing Company Ltd v Wilkinson, where Richmond J said:14It is the constant aim of a Court of equity to do complete justice by decidingupon and settling the rights of all persons interested in the subject of the suit,to make the performance of the order of the Court perfectly safe to those who11 Chan v Seyip Association of NZ Inc [2008] NZAR 37 (HC) at [12]; Beattie v Premier Events GroupLtd [2012] NZCA 257 at [24]; and Newhaven Waldorf Management Ltd v Allen [2015] NZCA 204,[2015] NZAR 1173 at [46].12 High Court Rules 2016, at r 4.56.13 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) [McGechan onProcedure] at [HR4.56.04].14 McKendrick Glass Manufacturing Co Ltd v Wilkinson [1965] NZLR 717 (SC) at 723; citingJohn Mitford A Treatise on the Pleadings in Suits in the Court of Chancery (5th ed, 1847) at 190.are compelled to obey it, and to prevent future litigation. For this purpose allpersons materially interested in the subject ought generally to be parties to thesuit, plaintiffs or defendants, however numerous they may be, so that the Courtmay be enabled to do complete justice by deciding upon and settling the rightsof all persons interested, and that the orders of the Court may be safelyexecuted by those who are compelled to obey them, and future litigations maybe prevented.[24] The two separate tests contemplated under r 4.56(1)(b)(i) and (ii) indicate atwo-stage inquiry:(a) first, whether, objectively there is jurisdiction to join the proposedparty; and(b) secondly, if there is jurisdiction, whether the Court should exercise itsdiscretion to order joinder.[25] The first requirement is that the person ought to be joined.15 The word "ought"means in order to do justice. The jurisdictional threshold is met if the proposeddefendant's presence is necessary to enable the Court to adjudicate upon the preciseissues raised in the proceedings.[26] The alternative requirement is the question of whether the person's presencebefore the Court may be necessary to adjudicate on all and settle all questions involvedin the proceeding.16 The jurisdictional question is whether the proposed defendant'srights against or liabilities to any party in the proceedings will be directly affected byany order that may be made in the proceedings. In Tourplan Pacific Ltd v AustralianTours Management Pty Ltd, Venning J noted:17[22] It is not for the Court on an application such as this to determine themerits of the proposed claim. As Randerson J noted in Bridgeway ProjectsLtd v Webb the Court will ordinarily accept the applicant's factual assertionsrelevant to the proposed causes of action against the parties to be joined andwhat is required is a tenable cause of action.15 High Court Rules 2016, at r 4.56(1)(b)(i).16 Rule 4.56(1)(b)(ii).17 Tourplan Pacific Ltd v Australian Tours Management Pty Ltd [2017] NZHC 2310 (footnotesomitted).[27] If the Court is satisfied the jurisdiction has been established, the discretionaryquestion of whether the joinder should be granted, in respect of additional defendants,is almost always answered positively.18[28] There is no specified procedure, but established practice is for the applicationto be served on existing parties but not the person sought to be added.19[29] The applicants say the new trustees (the third and fourth respondents) arenecessarily parties because, as trustees, they represent all persons beneficiallyinterested under the trust. If a beneficiary has a contribution or opposes the ordersought, they may be heard through those trustees. Rule 4.23 of the High Court Rulesprovides:4.23 Trustees, executors, and administrators(1) Trustees, executors, and administrators may sue or be sued on behalf of,or as representing, the property or estate of which they are trustees (2) There is no need to join persons beneficially interested in a trust or anestate because the trustees represent those persons.[30] The applicants first submit that it was an abuse of process that Vance andMr Lunn appointed the third and fourth respondents as trustees after the Court'sdecision in April 2020.20 The applicants submit that given that action Vance andMr Lunn interfered with a lawful process that had been set in train before theHigh Court and under the Deed of Settlement the President of the New Zealand LawSociety should have been allowed to determine the appointment of trustees.Therefore, Vance and Mr Lunn have repudiated or breached the Deed of Settlement.[31] Vance and Mr Lunn say that the new trustees (third and fourth respondents)need not be part of the proceedings in order for the claims to be determined. Theysubmit that Douglas is incorrect in his comments in his affidavit that the third andfourth respondents need to be joined to be bound by the judgment.18 McGechan on Procedure, above n 1313, at [HR4.56.11].19 At [HR4.56.02].20 The appointment was made by deed, dated June 2020.[32] Mr Upton says the issue before the Court is about the fact of their status astrustees and not their conduct. He says they have done nothing since their appointmentand therefore a judgment in rem, which is binding on everybody without the third andfourth respondents needing to be parties to the proceedings, would suffice. He citesThe Laws of New Zealand on that topic:21all persons, whether parties to the proceedings or not, are estopped fromaverring that the status of persons or things, or the right or title to property, isother than the Court has declared or has made it to be such a judgment.[33] Mr Upton also noted that the third and fourth respondents say in their affidavitsthat they do not want to take an active part in the proceedings, and that as professionaltrustees they must remain neutral between the parties. In addition, the respondentsnote that Mr Greer and Mr Reaney have not taken any active steps in the administrationof the trust pending the outcome of these proceedings. Furthermore, no allegationsconcerning their conduct have been made, nor are they made, in the proposed draftamended statement of claim submitted to the Court.[34] The respondents say that the existing fourth cause of action, which relates tothe appointment of new trustees, allows the issue to be argued before the Court. Thatis, the removal of the present trustees and the appointment of new trustees.[35] The applicants reply that the fourth cause of action does not allow for properargument on the present situation. They say that the Court must be able to remove thepresent trustees who are not the trustees initially named in the statement of claim. TheCourt will not have that jurisdiction on the basis of the current pleadings which wasdirected at the former trustees. The power to appoint a trustee is consequential on thejurisdiction to remove a trustee.22[36] The applicants also say that the third and fourth respondents need not take anactive or partisan approach in the proceedings, but they do represent the views and21 C Fraser The Laws of New Zealand: Estoppel (online looseleaf ed, LexisNexis) at [8]; citingCastrique v Imrie (1870) LR 4 HL 414, [1861-73] All ER 508.22 Thurston v Thurston [2013] NZHC 1886, (2013) 3 NZTR 23-023 at [6]. The Court has inherentjurisdiction to control a trust and it may remove a trustee in the exercise of that jurisdiction:Thurston v Thurston, above n 22, at [7]; citing Letterstedt v Broers (1884) 9 App Cas 371 (PC);Miller v Cameron (1936) 54 CLR 572 (HCA); and Hunter v Hunter [1938] NZLR 520 (CA).interests of all the beneficiaries. In addition, the applicants indicate that the presenceof the third and fourth respondents will be necessary as there are issues raised in theclaim such as seeking an audit of the trust, which would necessarily involve the presenttrustees.Analysis[37] Rule 5.46 sets out the appropriate steps. In this case, the Court needs to havejurisdiction over the trustees in the event that it decides to make an order to removethose trustees. That was the order that was originally sought in the proceedings againstthe previous trustees. They have now removed themselves, therefore it follows theremust be an amendment to the pleadings. It is necessary to have them before the Courtto adjudicate on their removal and the appointment of new trustees.[38] I acknowledge Mr Upton's submission that the removal of trustees involvesstatus and nothing more and that, in any event, they will abide the decision of theCourt. However, in the circumstances of this case, those trustees have been trusteessince June 2020. Regardless of what steps they have taken, it will be necessary toconsider what the trust has done since that time given the wide-ranging allegationsthat have been made in these proceedings. There were already indications, althoughthey were not set out in the draft proposed amended statement of claim, the applicantsconsider the new trustees should have been doing more than they have been doing.For instance, in Douglas' affidavit, at paragraph [11], he says that the trustees appearto be taking a passive role. That is disputed by the respondents, who say that all thenew trustees have done is await the outcome of these proceedings. Nevertheless, it isapparent that the new trustees will be drawn into the controversy one way or the other.[39] As I noted, an amended draft statement of claim is annexed to thememorandum of counsel, dated 17 July 2020. It appears appropriate that theamendments are made. The correct trustees should be before the Court.[40] Mr Bates, for the applicants, indicated there may have been another way to getthe trustees before the Court: by filing specific applications in relation to the removalof the trustees and the appointment of new trustees and then seeking a consolidationof that action with this action. However, that seems to be a round-about,time-consuming and costly way to achieve the same outcome as sought here.[41] There are likely to be disputes about the financial statements concerningwhether the trust is receiving proper returns from its investments. Those are mattersthat are now under the control of the third and fourth respondents and have been sinceJune 2020. The end of the financial year for the trust is 31 March 2020. It is not clearwhether final accounts have been prepared for that year-end. If they have not been, itwill be the new trustees who are responsible for the preparation of those accounts. Nodoubt these actions will be under scrutiny.[42] In addition, the trustees will be involved in the proceedings for thebeneficiaries. As I noted, there was no order to serve the beneficiaries separately, norshould there have been. The beneficiaries include children of the parties, not just theparties who are now before the Court.[43] In my view, the trustees should be joined as defendants. The trustees' presencemay be necessary to adjudicate and settle all questions involved in the proceedings.The extent to which they wish to be involved is a matter for them. In my view, theyshould be joined. I make that order accordingly.Pre-trial preliminary questions[44] The applicants set out the two preliminary questions that they suggest shouldbe dealt with at a pre-trial stage. First, who should be appointed as trustees of thePercy Farming Trust; and, secondly, whether the power of removal and appointmentof trustees should vest in the new trustees.[45] The applicants say that there may be a duty on the new trustees, or any newtrustees, to take on or continue proceedings against the former trustees in relation tothe self-dealing claims.[46] Secondly, they submit that if the preliminary questions are determined in theirfavour (that is, if either Perpetual Guardian or the Public Trust, both of which arestatutory trustee corporations, are appointed as trustee) the applicants might abandontheir substantive claims. That, however, is subject to Perpetual Guardian or the PublicTrust determining whether to pursue the present claims and, if not, whether theapplicants decide to continue to pursue them.[47] The applicants also sought another precondition of discontinuance of thesubstantive claim: that their costs for the previous proceedings and this application bepaid out of the trust assets.[48] The applicants say the preliminary question can be dealt with on the paperswithout the need for further evidence other than affidavit evidence from the third andfourth respondents if they wish to be heard.[49] The respondents respond and submit that determining the preliminaryquestions separately at a pre-trial stage is inappropriate for the following reasons:(a) First, the normal assumption is that all matters in issue are to bedetermined in one trial.(b) Secondly, the preliminary questions must be considered in the contextof all the evidence and cannot be isolated. The findings in thepreliminary determination would be the same matters that would needfull evidence and arguments in the trial. The applicants' claim for theremoval of the third and fourth respondents and replacement withPerpetual Guardian or Public Trust relies on the same pleadedallegations.(c) Thirdly, there is a risk of res judicata and issue estoppel becoming aproblem at trial.(d) Fourthly, there is a prospect of multiple appeals.(e) Fifthly, a split trial would cause substantial delay and substantial extraexpense.(f) Finally, that answering the preliminary questions will not resolve theproceedings.[50] The respondents say that answering the preliminary questions will involveadducing considerable disputed evidence which requires cross-examination. Thatshould await a full hearing where questions about credibility and interpretation can beconfronted. A split trial will not avoid the need for calling witnesses at the secondhearing, which will necessarily cover matters dealt with at the pre-trial stage.Therefore, there will be a duplication of time, both for the Court and for counsel, tocome up to speed again for the second hearing.[51] Mr Upton emphasised there have been judicial warnings emphasising the risksof ordering split trials. They are too often treacherous shortcuts and their price can bedelay, anxiety and expense. As Mr Upton put it, the shortest cut inevitably turns outto be the longest way around. In support of those propositions, he cited Tilling vWhiteman23 and Windsor Refrigeration Co v Branch Nominees.24[52] In response, the applicants submit the preliminary questions are narrow,significant costs may be saved, and the Court has the information before it to make apreliminary assessment in much the same way that Doogue J set out her preliminaryviews.25[53] The comments by Doogue J indicated a preliminary assessment of the strengthof the case. However, the facts upon which any preliminary findings would need tobe made are hotly contested. They can only be finally determined with all the evidenceduly tested before the Court.[54] Even dealing with the questions posed on a pre-trial basis, if that were possible,would not lead to the inevitable abandonment of these proceedings. The applicantshave made it clear that that would depend on whether the appointed trustee,(Perpetual Trust or the Public Trust), deciding it should take on the claims, and,23 Tilling v Whiteman [1979] UKHL 10, [1980] AC 1 (per Lord Scarman).24 Windsor Refrigeration Co v Branch Nominees [1961] 1 Ch 375 (CA) (per Lord Evershed MR).25 Percy v Percy, above n 4, at [66]–[67]. See above at [11].secondly, that the applicants' costs be paid not only for these proceedings but theearlier proceedings, which are no longer extant.Legal position on preliminary questions[55] Rule 10.15 of the High Court Rules deals with the issues of preliminaryquestions which provides:The court may, whether or not the decision will dispose of the proceeding,make orders for—(a) the decision of any question separately from any other question,before, at, or after any trial or further trial in the proceeding, and(b) the formulation of the case for decision and, if thought necessary, thestatement of the case.[56] The Court has a broad discretion under r 10.15, to take into account not onlythe interests of the immediate parties but also parties to other cases before the Court.[57] Eichelbaum J, as he then was, in Innes v Ewing observed that:26Clearly the underlying purpose is to expedite the proceedings by limiting ordefining the scope of trial in advance or obviating the need for a trialaltogether.[58] McGechan on Procedure, in its commentary suggests the following criteria tobe taken into account when determining whether to order a split trial.27 That list ofcriteria is based on Turners & Growers Ltd v Zespri Group Ltd28and Karam v FairfaxNZ Ltd29 as follows:(a) the likelihood of delay in finally resolving the proceedings;(b) the probable length of hearings if there is a split trial;26 Innes v Ewing (1986) 4 PRNZ 10 (HC) at [18].27 McGechan on Procedure, above n 13, at [HR10.15.06](1); citing Turners & Growers Ltd HCAuckland CIV-2009-404-4392, 5 May 2010.28 Turners & Growers Ltd v Zespri Group Ltd, above n 27, at [11].29 Karam v Fairfax NZ Ltd [2012] NZHC 1331 at [58]–[59].(c) whether a decision one way or the other on the separate questions wouldend the litigation;(d) the impact on the length of any subsequent hearing;(e) a balancing of the advantages to the parties and the public interest inshortening the litigation against any disadvantages asserted by theparties opposing a split trial;(f) demarcation difficulties in defining issues to be addressed at the firsttrial and those left for the second;(g) resulting difficulties of issue estoppel;(h) inadvertent disqualification of a judge who has expressed views at thefirst trial on matters for decision at the second trial;(i) inadvertent findings at the first trial upon matters that are for fullevidence and argument at the second hearing;(j) the need to recall witnesses at the second hearing;(k) the duplication of time involved in the Court and counsel coming up tospeed for the second hearing;(l) the prospect of multiple trials;(m) the need for a second round of discovery and other interlocutories andamended pleadings following the first trial; and(n) rostering difficulties in ensuring the same Judge is available for thesecond hearing.[59] This Court, in Haden v Attorney-General, adopted in Karam v Fairfax NZ Ltd,considered that the following five questions represented the appropriate approach tothe question of split trials.30(a) Question 1: Will there be difficult demarcation questions between theissues to be addressed at the first trial and those for the second?(b) Question 2: Will the proceedings be brought to an end?(c) Question 3: What potential time saving does the separate questionoffer?(d) Question 4: How will appeals be dealt with?(e) Question 5: Are there any practical considerations tending one way orthe other?[60] The parties disagree about whether the preliminary questions can be disposedof in an efficient manner, on the papers and without calling new evidence. Theapplicants did note that, in addition to the evidence before the Court, further evidencewould be necessary from the newly appointed trustees, but that could be by affidavit.[61] It is not clear whether the pre-trial determination would result in resolving thequestions posed by the substantive proceedings and so leading to not requiring asecond trial. The applicants say that it depends on what Perpetual Guardian or thePublic Trust determines. Even then there would not be a final decision. If thosecorporations decided not to proceed, it would be up to the applicants as to whetherthey did in any event and, in addition of course, they seek the payment of costs.[62] Mr Bates indicated essentially that the Court needed to enter the fray to take aview in equity and have the "imbroglio" that the parties find themselves in resolved.30 Haden v Attorney-General (2011) 22 PRNZ1 at [50]–[67]; and Karam v Fairfax NZ Ltd, aboven 29, at [54]–[89].He implied that needed to be done in a summary manner in much the same way asDoogue J had reached preliminary conclusions in relation to the strength of the claims.[63] However, that is not what would happen in a pre-trial determination. The Courtrequires proper evidence and on any assessment of this matter the evidence involvedis contested. There is a question as to whether the new trustees were properlyappointed and if not, who should be appointed. There may be appeals from anypre-trial determination. It would be appropriate that the same Judge should presideover both the pre-trial questions and the trial, which creates rostering complications.[64] In my view, there are substantial risks of delay by the risk of appeals, as wellas duplications of time and cost if the trial were to be split.[65] In relation to the questions posed in Hannan, there are demarcation issuesbetween the pre-trial issues proposed and the trial matters. The issues are inextricablywoven, particularly in relation to the appointment of the new trustees.[66] The proceedings would, in my view, not likely be brought to an end. It isunlikely there will be much timesaving gained by dealing with only part of the mattersin issue at a pre-trial determination. There are likely to be delays, as I said, resultingfrom the possible appeal of pre-trial determinations. Given the longevity of thedispute, including the unsuccessful attempts at settlement and the acrimoniousexchanges between the parties, the indications are that the proceedings will continueon those lines. It is better that all the allegations and all the disputes are dealt with atonce. I also take to heart the prior judicial warnings against splitting the trials.[67] Therefore, in my view, there would be little to be gained by having a pre-trialdetermination of the questions as posed by the applicants.[68] In those circumstances I dismiss the application for the determination ofpre-trial questions.Costs[69] Counsel sensibly indicated costs should follow the event.[70] Costs should go to the applicants for the application to join and costs shouldgo to the respondent for the application for pre-trial questions. They are both awardedon a 2B basis together with reasonable disbursements as counsel agreed.[71] If there is any difficulty concerning the quantification counsel should file aschedule. Accordingly, I make those costs orders by consent.______________________Grice JSolicitors:Brown & Bates Limited, Napier for Applicants.Lunn & Associates, Napier for Respondents.