STOKES & ORS v INSIGHT LEGAL TRUSTEE CO LTD [2014] NZHC 2543

STOKES & ORS v INSIGHT LEGAL TRUSTEE CO LTD [2014] NZHC 2543 [16 October 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-001317CIV-2011-404-002399[2014] NZHC 2543BETWEEN BRYAN JAMES STOKES,ALEXANDRA MARY STOKES andOWEN NEIL WILLIAMS as trustees ofthe STOKES FAMILY TRUSTApplicantsAND INSIGHT LEGAL TRUSTEE COMPANYLIMITED and GRAHAM KEITHHEENAN as trustees of the R MCOLEBROOK FAMILY TRUSTFirst DefendantsELAINE MARGARET COLEBROOKSecond DefendantHearing: 15 October 2014Appearances: A J Steele for PlaintiffR Hindle and A Choi for the DefendantsJudgment: 16 October 2014JUDGMENT OF VENNING JThis judgment was delivered by me on 16 October 2014 at 12.30 pm, pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Martelli McKegg, AucklandInsight Legal, WarkworthCopy to: R Hindle, AucklandA Choi, AucklandIntroduction[1] By an amended application dated 13 October the applicants seek:(a) leave to lodge a second caveat;(b) a freezing order;(c) ancillary orders.Background[2] I take the summary of the background largely from the recent decision of Associate Judge Sargisson.1 In 2007 Ms Colebrook agreed to buy the applicants'property at Bucklands Beach for $1.8 million at the height of the then property boom. She was at the time a trustee of the R M Colebrook Family Trust (RMCFT). The market collapsed before the settlement date and Ms Colebrook defaulted.[3] The applicants pursued and obtained judgment against Ms Colebrook personally for just over $940,000, the shortfall they suffered when the property was on-sold to another buyer. Ms Colebrook has been unable to pay the judgment sum (although she has not been bankrupted).[4] The applicants consider the assets of RMCFT are their only hope of recovery. RMCFT owns two properties. The applicants registered caveats over those two properties.[5] The applicants argue that they are entitled to subrogate to a right of indemnity vested in Ms Colebrook as a trustee of the RMCFT. The right of indemnity is said to be against the assets of the RMCFT.[6] The parties have been engaged in ongoing litigation on this issue for years. For present purposes there are two recent decisions of this Court that are particularly relevant. In the first, on 21 March 2014, Peters J delivered a judgment declining the1 Stokes & Ors v Insight Legal Trustee Company Ltd & Ors [2014] NZHC 2475.applicants' claim to a declaration they were entitled to subrogate to a right of indemnity.2 The Judge considered she was unable to draw an inference that the other trustee of the RMCFT at the relevant time, Ms Carr, consented to the acquisition of the Bucklands Beach property as an asset of the RMCFT. There was no basis for the applicants' claim to a right of indemnity against the assets of the RMCFT.[7] That decision is the subject of an appeal to the Court of Appeal. The casebook has been filed. The appeal is awaiting a hearing date.[8] The second decision is that of Associate Judge Sargisson delivered on 8 October 2014. In that decision the Associate Judge concluded the caveats lodged by the applicants against the two properties owned by the RMCFT could not remain. The Associate Judge came to that view for the reasons that:(a) they faced the extremely difficult hurdle of overturning the finding of fact by Peters J that Ms Carr did not retrospectively ratify or consentto Ms Colebrook's purchase of the applicants' property;(b) the interest claimed by the applicants (an equitable lien) was not one that could have been held when the caveat was lodged. At that time they were mere creditors. Even if successful in overturning the finding of Peters J their position as mere creditors would not change unless they obtained a declaration they were entitled to subrogate tothe trustee's right of indemnity; and(c) this was not a case where the Court should exercise its discretion to decline to make an order sustaining the caveat. The applicants had no interest in the property other than for the purposes of indemnity. Against that, maintaining the caveat would have a serious impact on the respondents. The caveat would prevent them from completing an agreement for the sale of the properties where settlement was imminent.2 Stokes & Ors v Insight Legal Trustee Co Ltd & Ors [2014] NZHC 543.[9] Following delivery of the decision the caveats were to lapse the respondents sealed the Court order and served it on the Land Registrar. The caveats have lapsed. RMCFT then accepted an offer to purchase one of the properties. A deposit has been received. The property is for settlement on 24 October 2014.[10] On learning the caveats had lapsed the applicants then made application for the above orders. I heard argument on the application at the conclusion of the Duty Judge list.Application for leave to lodge second caveats[11] The application to lodge a second caveat is governed by s 148 of the Land Transfer Act 1952. A second caveat may only be lodged in respect of the same interest by order of the Court. In Cotton v Keogh Blanchard J, delivering the judgment of the Court, stated:3A Court does not lightly consent to the lodgement of a second caveat. It is in the nature of an indulgence and the applicant's claim is scrutinised carefully.[12] Where, as here, the caveats have lapsed following order of the Court after a determination of the matter on the merits it would be very rare for the Court to grant leave to lodge a second caveat. To do so would be to subvert the effect of the decision. The starting point must be that until the decision is overturned on appealthe Court's order the caveats are to lapse stands.[13] This is not a case of the orders lapsing by oversight in relation to time limits or a misdescription of the interest claimed in the caveat. Associate Judge Sargisson found the caveats could not be sustained. Her reasoning that at the time the caveat was lodged there could be no interest because at that time the applicants were mere creditors is convincing.[14] The applicant fails to satisfy the Court this is one of those rare cases where it would be appropriate to grant leave. Further, one of the properties at least is due for sale. There would be real prejudice in granting the application.3 Cotton v Keogh [1996] 3 NZLR 1 (CA) at 9.[15] The application for leave to lodge a second caveat is declined.Application for a freezing order[16] That leaves the second application, an application for an injunctive order in the nature of a freezing order under r 32.2.[17] While acknowledging that RMCFT has assets to which an order could apply Mr Hindle submitted that the applicants could not establish a good arguable case andthat there was no or insufficient evidence to show a real risk of dissipation. Further,and in any event, the undertakings proffered by the applicants were insufficient.[18] Mr Steele submitted that the applicants had a good arguable case. The case had been reviewed by senior counsel following the judgment of Peters J and the appeal was pursued in good faith.[19] While I accept the appeal is pursued in good faith the appellants face the factual findings of Peters J (as noted by Associate Judge Sargisson in her caveat decision). While not impossible it will be difficult for the appellant to overturn those findings on appeal. For present purposes I accept the applicants' case is capable ofserious argument but it is difficult to say that it is any stronger than that. On some authorities that would be insufficient to support the grant of a freezing order.4[20] Next, however, and of more difficulty for the applicants is the need for them to satisfy the Court that there is a real risk of dissipation of assets. The application for the freezing orders is directed at the assets of the RMCFT trust. On the information before the Court the trust has two properties, one of which is for settlement on 24 October. The sale of that property will not, however, dissipate the assets of the trust. The sale of that property will lead to a conversion of the assets of the trusts from real estate into, initially at least, cash in a bank account. The assets will still be within the RMCFT but in a different form.4 Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH "The Niedersachsen" [1983] 1 WLR 1412 (CA) at 1417.[21] Mr Steele submitted that, absent a freezing order there would be no impediment to the respondents distributing the sale proceeds to the beneficiaries of the trust or resettling the assets out of the trust. However, that is speculative. Theapplicants' assertion they believe that the RMCFT might dissipate its assets, which inthis case has to extend to the suggestion of distribution of the assets or resettlement of the trust, is not of itself sufficient. There is no evidence that the respondents intend to dissipate the assets in that way. The fact the respondents intend to sell the property is not something that is a recent development. It has been an issue theapplicants have been aware of for months, if not years. The RMCFT has been openabout its wish to sell the properties.[22] As Mr Heenan deposed in his affidavit in the caveat proceeding, the RMCFT bought the properties with a resource consent in relation to one which enabled development. The RMCFT was not able to finance the development because of the caveats and the consent has now lapsed. It is for that reason the properties are to be sold.[23] I do not overlook the correspondence of 12 December 2013 in which theRMCFT's solicitors offered an undertaking to hold $1,375,000 on the followingterms in exchange for withdrawal of the caveats:That on delivery of a final judgment given in favour of your clients and the conclusion of any appeals thereon, we will pay to you so much of the funds as are required to satisfy that judgment and will pay any balance then remaining to our clients (with interest earned on the stake while it is being held to follow the apportionment of the principal sum to be held).That on delivery of a final judgment given in favour of our clients and the conclusion of any appeals thereon, and the conclusion of any appeals thereon, we will pay to them all funds held.[24] It appears from the correspondence leading up to that undertaking that it was intended to enable settlement of any sales. However, it did not prevent the RMCFT taking steps to have the caveats removed, which they did, successfully. The basis on which the undertaking was given, namely to address the presence of the caveats, has been removed. The undertaking no longer applies. Further, the undertaking only refers to the proceeds of sale being paid to the RMCFT. For the reasons givenabove, payment of the proceeds of sale to the RMCFT does not amount todissipation of the trust's assets.[25] For all those reasons, and on the information currently before the Court, the applicants fail to satisfy the Court of the necessary risk of dissipation of assets.[26] Finally, and in any event, the undertakings offered by Mr and Mrs Stokes on behalf of the respondents are insufficient. Rule 32.2(5) requires the applicant for a freezing order to file a signed undertaking. The undertakings are noted to be given in Mr and Mrs Stokes in their personal capacity. In their evidence at trial, which Mr Hindle referred to, they both confirmed they had no property or other assets. The undertakings are worthless. Rule 32.6 confirms that unless there are special circumstances, the Court must require an undertaking and may require security to support the undertaking. There is no security for the undertakings offered in this case.[27] For those reasons the application for freezing orders (and ancillary orders) must also be dismissed.[28] As the matter has come before the Court on an urgent basis and the evidence reflects that, I reserve leave for the applicant to make a further application in the event there is evidence of dissipation (and they can address the undertaking issue).Costs[29] Costs to the respondents on a 2B basis.__________________________ Venning J