GUEST v GUEST and WARNER [2017] NZHC 921

GUEST v GUEST and WARNER [2017] NZHC 921 [3 May 2017]IN THE HIGH COURT OF NEW ZEALANDWHANGAREI REGISTRYCIV-2015-488-183[2017] NZHC 921UNDER the Trustee Act 1956BETWEEN JOANNE ELIZABETH GUEST,GUEST TRUSTEE LIMITED, ASTRUSTEES IN THE MARTIN ANDANNE GUEST FAMILY TRUSTANDGUEST INVESTMENT TRUSTLIMITEDFirst PlaintiffsMELISSA ANNE GUESTANDJOANNE ELIZABETH GUESTAS EXECUTORS OF THE ESTATE OFMARY ANNE GUESTSecond PlaintiffsAND JUDITH ANNE WARNERDefendantCIV-2016-488-15BETWEEN JOANNE ELIZABETH GUESTANDGUEST TRUSTEE LIMITED ASTRUSTEES IN THE MARTIN ANDANNE GUEST FAMILY TRUSTFirst PlaintiffsMELISSA ANNE GUEST andJOANNE ELIZABETH GUEST ASEXECUTORS OF THE ESTATE OFMARY ANNE GUESTSecond PlaintiffsAND GLENIS DOREEN GUEST ASEXECUTOR OF THE ESTATE OFWILLIAM JOHN GUESTFirst DefendantIAN CLIFFORD WALKER ANDGLENIS DOREEN GUEST ASTRUSTEES OF THE BILL ANDGLENIS GUEST FAMILY TRUSTSecond DefendantsCIV-2016-488-102BETWEEN AARON NICHOLAS GUESTPlaintiffAND MELISSA ANNE GUESTANDJOANNE ELIZABETH GUESTAS EXECUTORS AND TRUSTEES OFTHE ESTATE OF MARY ANNE GUESTFirstDefendantMELISSA ANNE GUESTANDJOANNE ELIZABETH GUESTAS EXECUTORS AND TRUSTEES OFTHE ESTATE OF NICHOLAS MARTINGUESTSecond DefendantsJOANNE ELIZABETH GUESTANDGUEST TRUSTEE LIMITEDAS TRUSTEES OF THE MARTIN ANDANNE GUEST FAMILY TRUSTThird DefendantsHearing: 3 May 2017Appearances: G Mathieson for Plaintiffs in the 183 and 15 proceedingsand for defendants in the 102 proceedingC M Webster for defendants in the 183 and 15 proceedingsNo appearance for Aaron Guest, plaintiff in the 102 proceedingJudgment: 3 May 2017ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELLIntroduction[1] The plaintiffs in CIV-2015-488-183 ("the 183 proceeding") and CIV-2016- 488-15 ("the 15 proceeding") apply for further discovery under r 8.19 of the HighCourt Rules. The proceedings are between different arms of the Guest family. I willcall them the "Martin Guest group" and the "Bill Guest group". Martin and Billwere brothers. They farmed at Te Kopuru near Dargaville. Their parents bought the original farm back in 1945. In the 1970s their father transferred the farm to the brothers. At that stage Bill was living on his own and Martin was married to Anne. Bill took title to some lots, Martin and Anne took title to other lots of land. Bill and Martin acquired the livestock, farm equipment, and a contracting business which they owned in equal shares. They formed a partnership. That partnership operated the farm. The partnership leased the land from Bill on the one hand and Martin on the other. Over time the farm has expanded with neighbouring lots bought. There was no written lease between the partnership and any of the land-owners. Equally, there was no written partnership agreement between Bill and Martin.[2] Martin and Anne's children are Melissa, Aaron, Philip and Joanne. In the1980s, Bill married Glenis Guest. The children of Bill and Glenis are Lana, Emmaand Sam. The partnership between Martin and Bill lasted until Martin's death in2012.[3] In 1998 Martin and Anne formed the Martin and Anne Guest Family Trust. Some of the land they owned, including the land with their house on it, was transferred to the Family Trust. At the same time, Bill and Glenis formed the Bill and Glenis Guest Family Trust and the land with their house on it was transferred to that trust.[4] Bill Guest was involved in rural advocacy. He formed a farming group which broke away from Federated Farmers. The group was called FONZ – "Farmers of New Zealand". The defendant in the 15 proceeding, Anne Warner, startedworking for FONZ in 1997.[5] Martin died on 15 August 2012. Under his will, his interest in the partnership with Bill passed to the trustees of the Martin and Anne Guest Family Trust. Theparties agree that after Martin's death the trustees continued the farming operation inpartnership with Bill. The partnership between Martin and Anne Guest Family Trust and the Bill Guest also had no written partnership agreement.[6] Bill died on 23 July 2016. For this decision, I treat the partnership that endedon Martin's death as a different partnership from the partnership that ended on Bill'sdeath. It is common ground that the death of one of the partners marked the end of the partnership. It is also common ground that a new partnership came into existence when the Martin and Anne Guest Family Trust continued operating the business with Bill Guest. No fresh partnership has replaced the one that was terminated on the death of Bill Guest.[7] In recent years, differences have arisen between Martin Guest's family and Bill Guest's family. It appears that, except for Aaron, the children of Martin Guest have led lives away from the family farm. Aaron has stayed on the family farm. His interests seem to be more aligned with the Bill Guest group than with his siblings. Anne Guest has now died. The present litigation is associated with the efforts of the children of Martin and Anne Guest to separate their interests from those associated with Bill Guest. Aaron Guest stands aside from his siblings. He has brought hisown claim against the executor of his father's estate, the executor of his mother'sestate, and the trustees of the Martin and Anne Guest Family Trust. His claim is typical of those made by a child of a farming family who has worked on the farm in the expectation of receiving some greater provision than might be made available to siblings who have left and made their lives off the farm.[8] Anne Warner is associated with the Bill Guest interests. She, however, is a trustee of the Martin and Anne Guest Family Trust, although the plaintiffs say that she has been removed as trustee. She contests that. In the 183 proceeding the plaintiffs seek orders declaring that she has been removed or, if she has not been removed, orders for her removal.[9] In recent years the Martin Guest group and the Bill Guest group have had to deal with accounting and financial problems. In particular, a mortgage over the landsecured to a solicitor's nominee company has fallen due. That has triggered someaction. There has been a mediation which has resulted in arrangements for land to be sold and livestock to be divided between the parties. I am advised by the parties that an independent stakeholder is to hold the proceeds of sale pending arrangements for the division between the groups.The partnership proceeding[10] The discovery application mainly concerns the 15 proceeding. In casemanagement I have referred to the 15 proceeding as the "partnership proceeding".The plaintiffs primarily seek the appointment of a receiver for the partnership and related directions. At the start of the hearing I explored this with Mr Mathieson. He accepted that what was required was a final settlement of accounts, so that there could be certainty as to how funds held by the stakeholder were to be divided between the Bill Guest group and the Martin Guest group. That might potentially involve a final settlement of accounts of the partnership between Martin and Bill asat the date of Martin's death, and a final settlement of accounts as at the date of Bill'sdeath, plus adjustments between the parties for any transactions following Bill'sdeath.[11] The plaintiffs are concerned that a distribution which simply followed financial statements that have been prepared from time to time would not be a fair reflection of their entitlements. Their case is that there are good grounds to believe that the financial statements prepared from time to time are not a fair and true reflection of the partnership. They say that Bill Guest was the financial controller and Martin had little influence in accounting matters. They also say that Bill,through his activities for Farmers of New Zealand ("FONZ"), arranged matters sothat partnership time and partnership assets were used for the benefit of FONZ without adequate return or compensation to the partnership. They criticise Anne Warner, saying that she has benefited from her position as a trustee of the Martin and Anne Guest Family Trust, having been paid remuneration for her trusteeship which they say was not authorised. They are concerned that the Bill Guest interests usedpartnership assets for their own purposes without properly accounting for them. They also say that their mother and they were rebuffed by Bill Guest when they pressed for fuller financial disclosure.[12] Given those concerns, they have instructed an independent accountant to review matters. The accountant has qualified her advice by saying that she has not received complete records to enable her to carry out a complete reconciliation of thepartnership affairs. That, in part, has driven the plaintiffs' efforts to obtain complete discovery of financial records.[13] I note this by way of general case management for the proceeding. Once discovery is completed, I anticipate that each side will instruct their respective accountants to prepare accounts for the distribution of assets upon the dissolution of the partnership between the Martin and Anne Guest Family Trust and Bill Guest.That may take into account any distributions or transactions after Bill's death aswell. Once the accountants have provided that advice, I anticipate that the plaintiffs will amend their present statement of claim so that the thrust of their case becomes one seeking orders for distribution of partnership assets on terms which they will specify in their new pleading. I would expect the statement of claim to include schedules setting out the basis for the proposed distribution. Once that comes to hand, I anticipate that the defendants will likewise file a similar statement ofdefence, perhaps attaching their accountant's calculations as to how the assets are to be distributed. Those pleadings should then show what is really in issue and may allow the parties to take part in alternative dispute resolution or directions to be given for trial. The accountants are understandably reluctant to embark on that exercise until they are satisfied that they have adequate materials to work with.The discovery applications[14] A number of discovery applications were filed for today. The only matterrequiring hearing was the plaintiffs' application against the defendants in the 15 proceeding. I accept the point made by Ms Webster that discovery is not required for the 183 proceeding under the Trustee Act. On the other hand, while the primary purpose of the discovery orders I shall make is to allow the plaintiffs to use thedocuments in the 15 proceeding, the plaintiffs have applied for the 102 proceeding brought by Aaron Guest. It is open to the plaintiffs to use in the 102 proceeding by Aaron Guest any documents discovered in the 15 proceeding.[15] The plaintiffs sought disclosure of a number of categories of documents: (a) to (cc). For good measure, the plaintiffs filed an amended application adding two further categories. I was relieved to learn that counsel had conferred and reduced the number of documents for which directions were sought. I commend counsel for conferring and reaching agreement on so many categories of documents. Equally during the hearing, both sides showed good sense in trying to find efficient ways to allow for the disclosure of relevant materials.[16] Before dealing with particular categories of documents, I make some preliminary observations as to how discovery is handled when the matter in issue is the taking of accounts for the dissolution of a partnership. For this, I draw a distinction between what I call procedural discovery and substantive disclosure. Procedural discovery is dealt with under Part 8 of the High Court Rules. It is part of procedural law. Under that, the court can direct disclosure of documents for a proceeding, in which other substantive matters will be decided. With discovery directions under Part 8, the court is typically concerned with the relevance of the documents, proportionality and restricting the use of the documents to the proceeding.[17] But aside from procedural discovery, there are other occasions in the law where documents can be required to be disclosed as a matter of substantive law. That is, someone may be entitled to have information disclosed as a matter of right independently of any other legal proceeding seeking other substantive relief. For example, under the Companies Act 1993, directors are entitled to inspect records of a company.1 And, as the Supreme Court outlined in a recent decision, there are principles under which beneficiaries may have access to trust records.2 In a similar way, under the Partnership Act 1908, partners and their personal representative are1 Companies Act 1993, s 191.2 Erceg v Erceg [2017] NZSC 28, (2017) 4 NZTR 27-003.entitled to information relating to the partnership. Section 31 of the Partnership Act says:31 Duty of partners to render accounts, etcPartners are bound to render true accounts and full information of all things affecting the partnership to any partner or his or her legal representatives.[18] A partner may apply to the court in his own right simply for disclosure of information held by the partnership – for example, accounts. In a substantive application for disclosure under s 31 a partner does not have to justify his or her reasons for seeking the information. Generally there is little restriction on thepartner's use of the information. Questions of proportionality are not likely to arise. Relevance questions go only to whether the records are for partnership matters.[19] Partners' rights to records of matters relating to the partnership affect the waythe court considers applications for procedural discovery when there is to be a final settlement of accounts. Relevance falls by the wayside. The question is simply: are these partnership records to which the partner is entitled? Similarly, proportionality may be less important as a ground for resisting disclosure to a partner.The documents still in issueInsurance invoices[20] Mr Mathieson said that the plaintiffs' concern is that partnership funds wereused to pay insurance on vehicles and other assets not owned by the partnership. The defendants have indicated their willingness to provide an authority to the insurance company. That will allow the plaintiffs to approach the insurance company to obtain information that they require – such as invoices and documents showing the extent of cover.Electricity invoices[21] The plaintiffs have requisitioned for electricity invoices. Mr Mathieson explained that they sought invoices from 1 June 2008 onwards. The only monthsmissing were one for 2009, and from January 2011 to July 2012. The plaintiffs say that they are concerned that electricity used for private purposes has been charged to the partnership without any adjustment being made in the accounts for private use. If this had been an ordinary procedural discovery application, I may have blanched at directing discovery under that head. That could well have been disproportionate, given that there seemed to be adequate information from which inferences could be drawn. It seemed to be pushing the defendants too hard to obtain records going back many years.[22] Notwithstanding that, the defendants took a pragmatic stance. Ms Webster advised that the defendants have provided an authority to the plaintiffs which will allow them to go to the power companies to obtain invoices, if available.Telephone invoices[23] The plaintiffs have a similar request for telephone invoices. Here, the issue may not be as trifling as for the electricity invoices. The accountant advising the plaintiffs says that the telephone charges are unusually high. I understand that the accountant is experienced in farm accounting. In particular, the plaintiffs consider that some of the charges ought properly to be borne by FONZ. Again, the defendants say that they have given an authority which will allow the plaintiffs to approach Spark to provide copies of all relevant records.Legal invoices[24] The plaintiffs say that partnership funds were used to pay legal expenses which were not required for the partnership. It instances, for example, a payment of legal fees incurred by Aaron Guest. The defendants say that they will provide the legal invoices requested, with one qualification. There is a request for an invoice relating to Anne Warner and they say that no such invoice actually exists. I understood Mr Mathieson to accept that to be the case.Livestock records[25] The issue here is that livestock numbers cannot be reconciled. In passing, I note that this seems to be a common problem with farmers who have difficulty reconciling the animals in the paddocks with the numbers on the books. But the discrepancies here seem to be relatively large.[26] The defendants have agreed to provide authorities to go to freezing works, stock agents, and also any home-kill operators identified by the plaintiffs, authorising those businesses to provide to the plaintiffs such information as they request, including invoices which show livestock disposed of by the partnership.National Animal Identification and Tracing (NAIT)[27] There is agreement that logon details are to be given for the NAIT records for the animals farmed by the partnership. Those records were maintained up until the mediation this year when it was agreed that livestock would be divided between the parties. Ms Webster advises that following that division of livestock, the Bill Guest interests established fresh NAIT records for the livestock they took under that division. The defendants are not required to disclose those livestock records. Mr Mathieson said that the plaintiffs' purpose was to look into past livestock dealings, not to enquire into what the defendants were doing with the livestock they took following the mediation this year.Bank account statements[28] There was likewise agreement as to access to bank account statements. The plaintiffs are to arrange with Westpac that both sides are to be able to access the Westpac bank records of the account frozen by the plaintiffs. I record that Glenis Guest has signed an authority which will allow the plaintiffs access to the ASB Bank account records.Xero files[29] For a period, partnership records were kept on the Xero system. That is a cloud-based accounting system. The accountant retained by the defendants to advise on accounting matters apparently arranged that. I am advised that that accountant printed out hard copies of the Xero records, then deleted the records so that they are no longer available for online access. I am also advised that the hard copies printed out by the accountant have been made available to the plaintiffs.[30] Given those circumstances described to me, I direct the defendants to provide an affidavit by the accountant explaining what accounting records were kept on the Xero system, to confirm that the records she printed out in hard copy are a true and accurate record of that which was stored on the Xero system, and explain whether fresh access to the Xero system is available. That affidavit by the accountant is to be provided by 6 June 2017.Discovery by plaintiffs[31] That completes the discovery directions sought by the plaintiffs. Although she had not filed a formal application, Ms Webster sought directions for discovery by the plaintiffs. The defendants say that Anne Guest held invoices for the partnership contracting operation. Ms Webster points out that just as the plaintiffs are entitled to disclosure of the partnership records, the defendants are likewise entitled, and she sought a direction for disclosure of the contracting invoices accordingly. Mr Mathieson did not resist that. I direct the plaintiffs to file and serve an affidavit listing all contracting invoices which is to be filed and served by 6 June 2017.Costs[32] I reserve costs on the application because I am not clear that I can declare a winner or a loser given that there has been extensive co-operation between the parties. I do take into account that the plaintiffs have had to drive discovery. It remains to be seen whether they pushed too hard or not. That will become clearerwhen this case goes to a hearing. The trial Judge will be in a better position to assess what orders ought to be made in respect of costs.Further case management directions[33] I expect the plaintiffs to file and serve a fresh statement of claim. If no fresh statement of claim has been filed and served within three months, the Registrar is to direct a telephone case management conference for further directions. If a statement of claim is filed before three months, the defendants are to file and serve a statement of defence within six weeks of receiving that statement of claim. I expect their statement of defence to give a detailed response, in particular highlighting where there are differences between the parties on accounting issues. The Registrar is to allocate a conference no earlier than two weeks after the defendants file their statement of defence. At that conference I expect to give trial directions, but that may be subject to any proposals for alternative dispute resolution..Associate Judge R M BellSolicitors:Garth Mathieson Lawyer, Mt Maunganui, for Plaintiffs in the 183 and 15 proceedingsDevonport Law Ltd (Cushla Webster), Auckland, for defendants in the 183 and 15 proceedingsThe Oaks Law Centre (A P Luxford), Whangarei, for Aaron Guest in the 102 proceedingCopy for:Greg Kelly Law Ltd (C J Kelly), Wellington, for Plaintiffs in the 183 and 15 proceedingsJ G Ross, Barrister, Whangarei, for Aaron Guest in the 102 proceeding