KINNON v HONG [2023] NZHC 1052

KINNON v HONG [2023] NZHC 1052 [5 May 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-0030[2023] NZHC 1052BETWEEN DOUGLAS MURRAY KINNON andAVRYL MARGARET KINNON astrustees of the CEDAR LODGE TRUSTPlaintiffs/counterclaim defendantsAND BOON GUNN HONGFirst defendant/counterclaim plaintiffNOMINEES AND TRUSTEES LIMITEDSecond defendantDOUGLAS MURRAY KINNONFirst counterclaim defendantJAALA FERNANDE DYERSecond counterclaim defendantHearing: 24 April 2023 and 26-27 April 2023Appearances: M C Nicholls for plaintiffs/counterclaim defendantsFirst defendant/counterclaim plaintiff in personDate of judgment: 5 May 2023JUDGMENT OF JAGOSE JThis judgment was delivered by me on 5 May 2023 at 11.00am.Pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Martin Nicholls Limited, KerikeriCopy to:B G Hong, Auckland[1] This judgment concerns Mr Hong's 25 March 2021 counterclaim against thepresent trustees of Cedar Lodge Trust (the trust) and Ms Dyer and Mr Kinnon, thetrust's beneficiaries, to recover their alleged indebtedness and other contendedliabilities to him.Preamble[2] In this proceeding, the trustees claimed to recover from Mr Hong as a formertrustee and legal advisor — and Nominees and Trustees Ltd, a company of which heis sole director and shareholder — a Kerikeri property of which he is alleged to havedefrauded the trust. The claim awaits this Court's determination of its formal proof,heard in September 2022.[3] Mr Hong's unorthodox combined pleading of his defence to that claim andcounterclaim includes for relief a declaration the trustees and Ms Dyer and Mr Kinnon"no longer had any interest in the Kerikeri property" and an order their caveat over ittherefore lapse. That is relief referrable only to the trustees' claim. Pursuit of such nowas relief on Mr Hong's counterclaim would be an abuse of process: "improper use of[the court's] machinery";1 use of that process "for a purpose or in a way significantlydifferent from its ordinary and proper use".2 Duplicative proceedings in themselvesare abusive, even if the former proceeding remains undetermined.3[4] This judgment therefore addresses only the separate relief sought by Mr Hong,on grounds the trustees, Ms Dyer and Mr Kinnon fraudulently obtained advances fromhim to acquire the Kerikeri property, and unconscionably have not repaid thoseadvances or paid rent due on the property. Given the trustees' claim remains1 Simon Goulding, DB Casson and William Blake Odgers Odgers on Civil Court Actions (24th ed,Sweet & Maxwell, London 1996) at [10.15] as cited in Commissioner of Inland Revenue vChesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [87].2 Attorney-General v Barker [2000] 1 FLR 759 (QB) at 764.3 Mahon v Waimauri Ltd [2022] NZCA 96 at [65]–[66]; Paul Finance Ltd v Commissioner of InlandRevenue HC Auckland CP65-SD00, 17 August 2000 at [35], citing Buckland v Palmer [1984] 1WLR 1109 (CA), Otis Elevator Co Ltd v Linnell Builders Ltd (1991) 5 PRNZ 72 (HC), Fraser vRobertson [1991] 3 NZLR 257 (CA) at 260 and Bank of New Zealand v Rada Corp Ltd (1989) 2PRNZ 147 (HC) at 150; and Cowley v Shortland Publications Ltd (1991) 5 PRNZ 76 (HC). Seealso Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at[HR15.1.05(2)(c)].undetermined, to the extent this judgment refers to that property's ownership, it onlyis descriptive and not determinative.Background[5] The trust originally was settled by Mr Kinnon's father on himself and Ms Dyerand Mr Hong as trustees for the benefit of Ms Dyer and Mr Kinnon. The father laterresigned as trustee and subsequently conferred his power of appointment ontoMs Dyer and Mr Kinnon. On 13 June 2007, under that power of appointment,Mr Hong was replaced as trustee by BGH Trusteeship Limited, of which he was itssole director (its shares owned by his spouse).[6] By agreement dated 28 September 2005, the trustees agreed to purchase aproperty in Northland's Kerikeri — ultimately for an increased price of $645,000 tomatch a competing offer, after paying a $40,000 deposit to the vendors — forsettlement in November 2005. The $40,000 deposit was set at the time of agreeing aninitial $630,000 purchase price. After the increased price was established, Ms Dyerand Mr Kinnon transferred $5,000 to Mr Hong, nominally for further payment towardthe purchase price.[7] The unsuccessful purchaser lodged a caveat. Settlement then was deferred butthe vendors nonetheless granted the trustees exclusive possession of the property,apparently to avoid penalty on late settlement, and Ms Dyer and Mr Kinnon and theirfamily initially lived at the property. The trustees also earned income from and madeexpenditure on the property from that time. However, given the uncertainty caused bythe caveat, in June 2006, the trustees purchased another property in Northland'sMangōnui, financed by Ms Dyer and Mr Kinnon's bank facility originally intendedfor acquisition of the Kerikeri property. Ms Dyer and Mr Kinnon and their familyrelocated to the Mangōnui property.[8] Clear title to the Kerikeri property became available in July 2006, after theunsuccessful purchaser's caveat was withdrawn in wake of this Court's order for itsremoval.4 Settlement followed Mr Hong's payment of the balance of the purchase4 Keogh v Lund HC Auckland CIV-2005-404-7151, 28 June 2006 at [31].price in August 2006, for which he drew on the $5,000 transferred to him by Ms Dyerand Mr Kinnon and otherwise on the reserves of Orano Developments Limited,another company under his control.[9] Taking advantage of an error by the vendors' solicitors in rendering settlementstatements at the lower initial offer of $630,000, the trustees disputed the purchaseprice, meaning the balance paid on settlement was $15,000 short. The vendors' furthercaveat over the property protected the disputed sum, until it was discharged onMr Hong's payment of the outstanding amount into the vendors' solicitors' trustaccount in November 2007. The trustees ultimately were held liable also to pay thedisputed sum.5[10] The parties discussed with each other the prospect Mr Hong might personallyjointly acquire the Kerikeri property with Ms Dyer and Mr Kinnon (or the trustees).The precise timing of that discussion is unclear on the evidence. The starting pointappears to have been a discussion between Mr Kinnon and Mr Hong, seemingly inanticipation of the Mangōnui's property's acquisition. At issue presumably was thetrustees' commitments to the Kerikeri property's acquisition: deposit and settlement.[11] Mr Kinnon's evidence was Mr Hong had said to him:[I]t's coastal property, we need to keep this property, go buy whatever youwant, don't worry, we will own the [p]roperty together, we both bank withWestpac, we will own as tenants in common, I have lots of money, once weknow that the [t]rust can purchase the [p]roperty I will settle it, then you go tothe bank and borrow as much as you can, you can borrow even more than thepurchase price, and then you will get your deposit back and you can use thosefunds for working capital or whatever you want to and will have your[Mangōnui p]roperty.to which Mr Kinnon had responded "well that seems reasonable" and proceeded onthe basis "that was our deal". At various times after the trustees obtained exclusivepossession of the property, Ms Dyer and Mr Kinnon made payments to Mr Hong —in payment or return of contended 'rent' for the property, but also $50,000 atMr Hong's request — totalling some $220,000.5 Dyer v Grove Darlow & Partners HC Auckland CIV-2008-404-8136, 17 July 2009.[12] On 16 March 2007, Ms Dyer and Mr Kinnon wrote to Mr Hong to observetheir failure that week to sell the Mangōnui property meant they "very likely would beover-extended in raising [a] half-mortgage for [the Kerikeri property]", and proposedhe "consider the possibility of taking on the [Kerikeri] property 100% yourself".Mr Hong responded he preferred: the half share each but if you wish to quit that then I am considering justputting the property on the market as I do not wish to tie up too much capitalthere either.[13] In April 2007, the Mangōnui property successfully was sold, and Ms Dyer andMr Kinnon and their family resumed their occupation of the Kerikeri property.Mr Kinnon has remained in residence there ever since, later separating from Ms Dyer.[14] On 27 November 2007, Mr Hong advised Ms Dyer and Mr Kinnon clear titleto the Kerikeri property then was available and: We can now transfer the property to ourselves in equal half shares. If youguys want the house as your homestead, you could take me out with a goodoffer I hope.Otherwise arrange for a Westpac mortgage .'Arranging for a mortgage' was rendered impossible by intercession of thecontemporaneous global financial crisis, in which Mr Hong's and Mr Kinnon'srespective experience was New Zealand banks ceased to lend.[15] Despite settlement occurring in August 2006, and Mr Hong's replacement astrustee in June 2007, the Kerikeri property only was registered transferred to Ms Dyerand Mr Hong on 31 July 2008. On 6 August 2008, the property was transferred toBGH Trusteeship Limited. On 4 August 2011, the property was transferred toNominees and Trustees Limited. On 12 December 2012, the property was againtransferred to Mr Hong. Those transfers are the subject of the trustees' claim againstMr Hong awaiting determination on formal proof.[16] The Auckland Standards Committee 5 of the New Zealand Law Societybrought professional disciplinary charges against Mr Hong, arising from his dealingswith Ms Dyer and Mr Kinnon and the trust. Largely on the basis of Mr Hong's deemedacceptance of the facts — and his admission he advanced funds to assist Ms Dyer andMr Kinnon to settle acquisition of the Kerikeri property, by making a loan to them oncontended terms — the New Zealand Lawyers and Conveyancers DisciplinaryTribunal (the Tribunal) found the charges proved,6 and struck his name from the roll.7[17] Mr Hong's appeals against those decisions were dismissed.8 Critically,Mr Hong should have ceased acting for Ms Dyer and Mr Kinnon from the time hecontemplated entering into any "financing arrangement" for acquisition of the Kerikeriproperty;9 thereafter had at least a likely conflict of interest;10 and ceased to actindependently on the property's transfer to BGH Trusteeship Ltd,11 riskingcompromise of his duties to Ms Dyer and Mr Kinnon,12 and failing to protect theirinterests.13Mr Hong's claims[18] On his counterclaim, Mr Hong alleges:(a) against Ms Dyer and Mr Kinnon personally, their "commission ofperjury" in the Tribunal; and(b) against the trustees, and Ms Dyer and Mr Kinnon personally, their"commission of equitable fraud" against him, and breach of goodfaith contended owed to him.Under both heads, Mr Hong seeks revesting of assets allegedly "stripped" from thetrust so as to meet his claims to recover their contended indebtedness to him and"equitable losses" he sustained in lost opportunity for alternative benefit from hiscapital (and exemplary damages of $20,000, interest and costs).6 Auckland Standards Committee 5 v Hong [2020] NZLCDT 5.7 Auckland Standards Committee 5 v Hong [2020] NZLCDT 12.8 Hong v Auckland Standards Committee 5 [2020] NZHC 1599 (leave to appeal declined, Hong vAuckland Standards Committee 5 [2021] NZCA 85).9 At [94]–[99].10 At [109].11 At [117].12 At [126].13 At [136].Discussion—"commission of perjury"[19] So far as 'perjury' is concerned, Mr Hong alleges Ms Dyer's and Mr Kinnon'sevidence in the Tribunal was unconscionable given the extent of his professionalrelationship with them.[20] Under the Lawyers and Conveyancers Act 2006, everyone has the sameprivileges in giving evidence before the Tribunal "as witnesses have in a court oflaw".14 Witnesses in a court of law have "immunity from suit in respect of anythingthey may say in the course of the proceedings".15 By 'suit' is meant civil suit, such asthe present proceeding, distinct from professional sanctions or criminal prosecution.16[21] Mr Hong's counterclaim in this proceeding Ms Dyer and Mr Kinnoncommitted perjury or gave 'unconscionable' evidence in the Tribunal accordinglycannot be maintained and will be dismissed.17—"commission of equitable fraud"[22] So far as 'equitable fraud' and 'breach of good faith' is concerned, Mr Hongalleges the trustees (presumably meaning Ms Dyer then as his co-trustee) and Ms Dyerand Mr Kinnon misled him into advancing some $600,000 to them to settle acquisitionof the Kerikeri property. He says the relationship of mutual trust between the three ofthem was breached by their failure to repay him as a priority to funds becomingavailable to them in the wake of other trust dealings.[23] Mr Hong's payment of some $600,000 is to the vendors of the Kerikeriproperty, as the balance due on settlement. It is characterised by him as a loan toMs Dyer and Mr Kinnon. Ms Dyer and Mr Kinnon characterise the payment as14 Lawyers and Conveyancers Act 2006, Sch 4, cl 9.15 C v Complaints Assessment Committee [2006] NZSC 48, [2006] 3 NZLR 577 at [22]–[23], citingB v Auckland District Law Society [2004] 1 NZLR 326 (PC) at [63]. See also S v W [2022] NZCA181 at [22]–[25], citing Trapp v Mackie [1979] 1 WLR 377 (HL) at 379 (citing Dawkins v LordRokeby (1875) LR 7 HL 744 (HL) at 753).16 New Zealand Defence Force v Berryman [2008] NZCA 392 at [68].17 See at [69], citing Darker v Chief Constable of the West Midlands Police [2001] 1 AC 435 (HL)at 457.Mr Hong's contribution to their intended "joint venture", as they referred to the "halfshares" proposal. That proposal never developed into reality, even if it could have inthe financial constraints of the time. They apprehend the payment was made on thetrustees' behalf from Mr Hong's "Benevolence on the Conscience Loan Fund", ofwhich they became aware on learning of Mr Hong's tax proceedings, but resist anysuggestion they agreed to Mr Hong's contended terms for such lending.18[24] There is no judicial determination the payment is Mr Hong's loan to thetrustees or to Ms Dyer and Mr Kinnon; rather, to the extent characterisation of thepayment has been in issue, such determiners of fact have hedged their bets.19[25] So far as any advance from Mr Hong to the trustees or Ms Dyer and Mr Kinnonis concerned:(a) the only potentially subject payments are from Mr Hong to the vendorsof the Kerikeri property, consistently with the trustees' obligation tosettle its acquisition for the benefit of the beneficiaries.20 The trusteespersonally are liable for those obligations.21 In reasonably meetingthem from their own resources, as Mr Hong did in drawing at least inpart on Orano Development Ltd's resources to pay the vendors theoutstanding balance of the purchase price, he was entitled toreimbursement from the trust property;22 and18 Hong v Commissioner of Inland Revenue [2018] NZHC 2539, (2018) 28 NZTC 23-073 at [18(c)];Hong v Commissioner of Inland Revenue [2019] NZCA 336, (2019) 29 NZTC 24-015 at [7]–[8].19 Hong v Auckland Standards Committee No 5 [2020] NZHC 1599 at [74] and [97]; Hong vAuckland Standards Committee No 5 [2021] NZCA 85 at [4(a)] and [27]. The Tribunal acceptedMr Hong's 'admission' he advanced funds to Ms Dyer and Mr Kinnon: Auckland StandardsCommittee 5 v Hong, above n 6, at [20]; Auckland Standards Committee 5 v Hong, above n 7, at[2]. See also Hong v Commissioner of Inland Revenue [2018] NZHC 2539, (2018) 28 NZTC 23-073 at [18(c)], citing Commissioner of Inland Revenue v Stockwell [1993] 2 NZLR 40 (CA), andHong v Commissioner of Inland Revenue [2019] NZCA 336, (2019) 29 NZTC 24-015 at [40].With respect to Kinnon v Hong [2022] NZHC 1828 at [37(g)], n 16, which may be this Court'srepetition of counsel's submissions, the contention this Court "found as a matter of fact" Mr Hongmade a loan errs.20 Trusts Act 2019, s 26.21 Trusts Act, s 81(1), and see Re O'Donoghue [1998] 1 NZLR 116 (HC) at 121–122.22 Section 81(2); Trustee Act 1956, s 38(2). Under the trust deed also, the trustees were: indemnified in full by the Trust in respect of all acts or omission on their part or in anyway as a result thereof in the carrying out of their capacity as trustee, apart from acts ofrecklessness, fraud or dishonesty.(b) payments from Ms Dyer and Mr Kinnon to Mr Hong commenced priorto his making any payment to the vendors of the Kerikeri property. Iview those payments as accounting to the trust for their use of the trustproperty rather than in repayment of any 'loan'. Those paymentsexclude the $50,000 paid by Ms Dyer and Mr Kinnon to Mr Hong athis request.The position between the parties thus only is as contemplated by the agreement forsale and purchase of the Kerikeri property, for the trust's acquisition of it. I findMr Hong made no advance to the trustees, or to Ms Dyer and Mr Kinnon.[26] During his closing submissions for the trustees and Ms Dyer and Mr Kinnon,I enquired of Martin Nicholls if his clients might consider resolution based on trustees'statutory entitlement to reimbursement. I had in mind appointment of a Court expert,23to calculate Mr Hong's entitlement to reimbursement from the trust property on theevidence before me after taking into account the time value of money. Mr Nichollsflatteringly considered, although possibly without consideration of the time valuecalculations, I would not need a Court expert's assistance to make the calculation. Ofcourse, all turned on Mr Hong's attitude to such a proposal. I enquired similarly ofMr Hong during his closing submissions. He rejected the proposal, preferring tomaintain his counterclaim.[27] Given my finding Mr Hong did not advance funds to Ms Dyer andMr Kinnon,24 I also will dismiss the balance of Mr Hong's counterclaim.[28] As no factual foundation has been established for Mr Hong's counterclaim,meaning no disrespect for Mr Hong's and Mr Nicholls' diligence in addressing othercharacterisations of the parties' dealings, I am not prepared to consider the parties'respective arguments in the abstract.Result[29] Mr Hong's counterclaims are dismissed.23 High Court Rules 2016, rr 9.36–9.41.24 At [25] above.Costs[30] In my preliminary view, from what I presently know — as the unsuccessfulparty in this averagely complex proceeding requiring counsel of average skill andexperience, and in which a normal amount of time is considered reasonable for eachstep on the application — Mr Hong should pay 2B costs and disbursements jointly toMs Dyer and Mr Kinnon.[31] If my view is not accepted by the parties, or they cannot otherwise agree, Ireserve costs for determination on short memoranda each of no more than five pages— annexing a single-page table setting out any contended allowable steps, timeallocation and daily recovery rate — to be filed and served by Ms Dyer and Mr Kinnonwithin ten working days of the date of this judgment, with any response or reply to befiled within five working day intervals after service.Comment[32] I endorse prior judicial comment "[t]his case has become unnecessarilycomplex from a procedural point of view".25 This Court considered the claim andcounterclaim "overlap considerably",26 as counsel's submissions maintain.[33] Had I found a loan from Mr Hong to the trustees or to Ms Dyer and Mr Kinnon,I do not see how I could have determined Mr Hong's claim for its repayment withoutknowing also of the result of Ms Dyer's and Mr Kinnon's claim to recover the Kerikeriproperty from him. After all, if Mr Hong acquired a property for value in the amountand by application of the contended loan, any loan arguably is discharged.[34] Formal proof of Ms Dyer's and Mr Kinnon's claim was directed afterMr Hong's failure to respond to their amended pleading,27 adding a cause of action forfraud pursuant to the Land Transfer Act 1952. But Mr Hong could not be said by thatfailure to have "not file[d] a statement of defence within the number of working daysrequired by the notice of proceeding", as is the qualification for formal proof.28 Indeed,25 Kinnon v Hong CIV-2021-404-0030, 9 March 2023 at [1].26 Kinnon v Hong, above n 19, [2022] NZHC 1828 at [10].27 Kinnon v Hong CIV-2021-404-0030, 17 August 2022.28 High Court Rules 2016, r 15.6(1).he had filed his defence to the original claim and a counterclaim. Instead, he only wasrequired to file and serve his defence to the amended pleading "within 10 workingdays after the day on which the amended pleading is actually served".29 Except for theamended pleading, Mr Hong essayed a defence.[35] Particularly in absence of any comparator for the former High Court Rules'r 277, which empowered strike out of a defence for default in complying with aninterlocutory order, effectively debarring Mr Hong's defence at all may be thought "anextreme order proper in an extreme case only".30 If this was that is not for mydecision. But whatever may have been necessary to discipline Mr Hong for his failureto file a defence to the plaintiffs' amended claim, in my view, the counterclaim shouldhave remained for concurrent hearing.—Jagose J29 Rule 7.77(6).30 Stephens v Cribb CA339/90, 25 July 1991, (1991) 4 PRNZ 337 at 344.