WONG & ORS V BURT & ORS CA CA100/03

WONG & ORS V BURT & ORS CA CA100/03 4 August 2004IN THE COURT OF APPEAL OF NEW ZEALAND CA100/03BETWEEN L S WONG AND OTHERS Appellants AND L W BURT AND OTHERS Respondents Hearing: 29 and 30 March 2004 Coram: Anderson P Hammond J William Young J Appearances: M A Peters and M V Robinson for Appellants B A Scott and E A France for Respondents Judgment: 4 August 2004JUDGMENT OF THE COURT DELIVERED BY HAMMOND J Introduction[1] The broad issues in this appeal from a judgment of Ronald Young J (now reported in [2003] 3 NZLR 526) concern the lawfulness of two distributions made by the trustees in the estate of the late William Wong. [2] More distinctly, we have before us an appeal by the appellants in relation to one distribution, which is said to constitute a somewhat unusual case of a fraud upon a power. There is also a cross-appeal by the respondent trustees against certain findings of the trial Judge which essentially turns on whether certain income said to have been paid out of the estate was capital, and was therefore wrongly distributed to William Wong's wife, Estelle.The parties[3] William Wong was married to Phillipa Estelle Wong (Estelle). William died on 16 August 1984; Estelle on 17 December 1999. The Wongs were successful business people in the Wairarapa. This couple had three children, two of whom are now deceased: William (jnr) (who died in 1958), and Phillipa (who died in 1995). Phillipa had two children, Mei-Ling (1978) and Matthew (1981). Wong Liu Sheung (the third child, who is the first appellant), was born in 1944. Wong Liu Sheung has two children, Simone (1969) and Blair (1972) (who are also appellants). [4] William Wong settled three inter vivos trusts: the William Wong Family Trust (WWF), the Janice Deidre Wong Trust (JDW), and the Phillipa Estelle Wong (PEW) Trust. William and Estelle were trustees of all three trusts. Ms Marie Chun (Estelle's niece) was a trustee of PEW and JDW, from their inception. Mr Lionel Burt, who was for many years an accountant at Chapman Tripp, solicitors in Wellington was made a trustee of WWF in 1985, and of PEW in 1996. [5] Probate of Mr William Wong's will was granted to Phillipa Estelle Wong, Mr Lionel Burt, and a Mr Soon, in 1984. Mr Soon died in 1987. In 1990 Estelle was appointed a trustee in Mr Wong's estate. [6] Estelle's trustees and executors are Mr Lionel Burt, and Mr Paul Barnett, a solicitor in Wellington. [7] The respondents in this proceeding are the trustees of the William Wong Estate.The challenge to the distribution of $250,000 from the estate of William Wong to Estelle WongThe facts[8] The essential facts relating to this issue can be shortly stated.[9] Clause 5 of William Wong's will, in summary, provided as follows:• The residuary estate was to be held in trust with the net annual income payable to Estelle Wong until her death.• After the death of Estelle Wong, the net annual income was to be payable in equal shares to those of Phillipa and Wong Liu Sheung who were still alive. It is of singular importance to this case that there was no substitutionary provision in favour of grandchildren, if one of those daughters predeceased Estelle; in that event, all the income was to be paid to the other surviving daughter.• After the death of the last surviving child, the estate is to be distributed amongst the children, or grandchildren, or great grandchildren of Phillipa. The exclusion of Wong Liu Sheung's children appears to have been quite deliberate, as a result of a family falling out. [10] Clause 6 of the will conferred upon the trustees a discretion to pay to Estelle, out of the capital of the estate:... such sum or sums as they in their absolute discretion may think fit if they shall consider it necessary, desirable or expedient so to do by reason of the state of my wife's health or her desire to travel or to acquire a home or by reason of before in the purchasing power of money or for any other reasons whatsoever whether similar or dissimilar to the foregoing.[11] When Phillipa Wong died in 1995 Mrs Estelle Wong became concerned as to the position of Mei-Ling and Matthew. She viewed the inability of these two children to take their mother's share of the estate income, in the event of their mother's death, as inappropriate, and unfair. [12] To overcome this disability, in 1996 the trustees distributed $250,000 of the capital of the William Wong estate to Estelle. Estelle then lent this sum of $250,000 to the Phillipa Estelle Wong Trust (PEW Trust). The beneficiaries of PEW are Mei- Ling and Matthew.[13] In effecting this payment of $250,000, the trustees relied on their powers under clause 6 of the will. The debt was then periodically forgiven over a period of years, and by this will.The claim in the High Court[14] Wong Liu Sheung bought proceedings in the High Court claiming that, in so proceeding, the trustees:• had acted ultra vires the terms of the trust;• breached their duty to exercise their discretion for a proper purpose; and• breached their duty to act impartially and even handedly towards all classes of beneficiaries.The judgment in the High Court[15] Ronald Young J dismissed this claim, in its entirety, in a judgment delivered on 6 May 2003. [16] The Judge noted that Courts do not sit as appellate bodies from the decisions of trustees. He viewed the grounds of review in this instance as being analogous to a review of an administrative decision and referred in this respect toWrightson Limited v Fletcher Challenge Nominees Limited (1998) 1 NZSC 40, 388. [17] The Judge rejected the appellant's primary argument: that clause 6 of the will did not empower the trustees to make a payment that would defeat the testator's testamentary intention as expressed in clause 5 of the will. [18] As to the argument that the distribution of capital so effected was ultra vires(in that it was not for Estelle's benefit), the Judge took the view that the payment was for Estelle's benefit, in that it relieved her of the moral duty she obviously felt towards Phillipa's children. The Judge considered that "benefit" need not berestricted to immediate financial benefit in the way of distribution. And, in any case, this payment enabled Estelle to conserve her own capital (in that she would have had to make payments out of her own funds had the trustees not distributed this capital sum). Moreover, in the Judge's view, the plain meaning of clause 6 did not require a distribution to benefit Estelle alone. [19] The Judge held that even if the distribution had been improperly made, the trustees would not have been personally liable through the combined effect of s73 of the Trustee Act 1956 and a clause in the will which had a wide exoneration provision for the trustees. The Judge's given reasons for this holding were the absence of dishonest motive; that the trustees had obtained legal advice before making their decision; and that there had been a family emergency requiring financial provision for two vulnerable children.The grounds of appeal[20] Ms Peters argued that the exercise of the discretion by the trustees in the impugned respect was for an improper purpose. This submission rested essentially on two propositions. First, that the sole purpose of the exercise of the discretion was to "remedy" a perceived inequality that had arisen under clause 5 of the will (the appellants really say as a device to circumvent the plain meaning of clause 5). Secondly, that the distribution made was to benefit a person who was not an object of the clause 6 discretion (i.e. not Estelle). [21] As to remedies, Ms Peters submitted that the $250,000 can be traced to the PEW Trust, and as such, the trustees of that trust hold the funds as constructive trustees for the William Wong estate. [22] Alternatively, the appellants submit that the trustees are personally liable. The essential issue both under clause 13 of the will (the exoneration provision) and s73 is whether the trustees acted dishonestly. The appellants submit that the trustees' actions, particularly when they were specifically warned that the will prohibited the course of conduct proposed, amounted (at least) to "recklessness".The argument for the respondents[23] Mr Scott argued that, on the facts, Ronald Young J had determined that the distribution was for the benefit of Estelle (in the sense that it soothed her moral qualms and allowed her to provide for her grandchildren without resorting to her own money). Mr Scott pointed to a line of authority (ending in Re Gerbich [2002] 2 NZLR 791) under which, in some High Court judgments, Courts have held that trustees may distribute capital to an object to enable the object to provide for family members or charities, if the object feels some need to do so. [24] Mr Scott also submitted that, on the proper interpretation of clause 5, Mr Wong's intention was not to exclude Phillipa's children. [25] As to remedies, the respondents submitted that the appellants cannot seek a constructive trust in respect of the funds held by the PEW Trust. [26] Finally, Mr Scott submitted that the trustees of the William Wong estate are not personally liable.The law[27] The notion of a fraud on a power itself rests on the fundamental juristic principle that any form of authority may only be exercised for the purposes conferred, and in accordance with its terms. This principle is one of general application. [28] The particular expression, a "fraud on a power", applies to both a power and a discretion. The word "fraud" here denotes an improper motive, in the sense that a power given for one purpose is improperly used for another purpose. [29] Over the years a number of attempts have been made to categorise the circumstances in which a fraud on a power will arise. For instance, Hanbury and Martin Modern Equity (16 ed 2001) at 188 divides the cases into three categories.The first arises where the appointment is made as a result of a prior agreement or bargain with the appointee as to what he or she will do with the proceeds. Secondly, there are those cases where the power is exercised improperly so as to benefit the appointor. The third category are those cases in which an appointment is drafted so that the intent appears to benefit objects of the power, but the real intent is to benefit non-objects. [30] These distinctions are useful for analytic and descriptive purposes, but it is necessary to recall that the sine qua non which makes the exercise of a discretion or power "improper" is the improper intention of the person exercising it. The central principle is that if the power is exercised with the intention of benefiting some non- object of the discretionary power, whether that person is the person exercising it, or anybody else for that matter, the exercise is void. If, on the other hand, there is no such improper intention, even although the exercise does in fact benefit a non-object, it is valid. See Vatcher v Paull [1915] AC 372 at 378 per Lord Parker (PC Jersey). [31] In the case of a discretionary power to be exercised in favour of one of its objects, but in the "hope" that the recipient will benefit a non-object, the validity of such an exercise will depend upon whether the recipient had legal and moral freedom of action (Birley v Birley (1858) 25 Beav 299; 53 ER 651). [32] The case law in this area is difficult, not so much for the underlying principles, which seem plain enough, but in their application to often quite complex estates, or inter-related transactions. Assume, for instance, a case in which a discretionary power is exercisable in favour of an adult male (X) who states that, if it is in fact exercised in his favour, he will give part of the relevant fund to his parents, Y and Z, who are not objects of the discretionary power. If the true intention of the appointment is to benefit the parents, the exercise is invalid. If that is not the case, but X is under some distinct pressure to benefit Y and Z, the exercise would also be invalid (re Dick [1953] Ch 343). On the other hand, if X has genuine freedom of action and wishes to give Y and Z a benefit, then it appears that the exercise of the power would be good (Re Marsdens Trusts (1859) 4 Drew 594; 62 ER 228; and see Parker and Mellows, The Modern Law of Trusts (8 ed, Oakley) at 222).[33] As to the effect of a finding of a fraud on a power, it has long been held that where a power is successfully impugned, its exercise is totally invalid (Re Cohen [1911] 1 Ch 37), unless the improper element in the appointment can be severed from the remainder of that appointment (Topham v Duke of Portland (1858) 1 De GJ & S. 517; 46 ER 205).This case[34] It is necessary at this point to add some further facts. On the evidence, Mrs Estelle Wong was devastated by the death from cancer of her daughter Phillipa, in August of 1995. Phillipa was then only 43 years old, and Matthew and Mei-Ling were teenagers. Estelle was very close to Phillipa. Although Phillipa's family were in Australia, Estelle spoke regularly to Phillipa, and she would frequently go to Australia to visit her daughter. [35] On one occasion, after she had returned from Australia, Estelle expressed concern to Mr Burt (who is now a retired chartered accountant and had a long association with the Wong family) "about the effect of Bill Wong's will". Estelle suddenly came to appreciate that, under the will, Phillipa's share of the income would not pass to her children. [36] It was in those circumstances that advice was sought from Chapman Tripp on this issue. It seems that it was Mr Burt who calculated various figures, and "concluded that $250,000 would partly redress the situation and should be loaned to the PEW Trust, and successively forgiven". As Mr Burt put it, "the purpose of the loan and forgiveness programme was to restore the expected benefit that Mei-Ling and Matthew would have received on their mother's death had they been entitled under Bill's will to her life interest in the PW Estate Trust." [37] Chapman Tripp advised Mr Burt that in making any such arrangement the trustees had to take into account the interests of all beneficiaries, and that there might be a challenge to the capital distribution to Estelle. Mr Burt said, "At that time I believed such a challenge was unlikely. I had earlier raised this possibility withEstelle who was emphatic that Liu-Sheung would not challenge the capital distribution, as she had no reason to." [38] Mr Burt said further:In the end, the likelihood or not of a challenge did not weigh in my decision making on the issue of the appropriateness of the capital distribution to Estelle. I too was persuaded by the obvious inequity resulting from Bill Wong's will. We wished to partly correct this inequity. Just as important to my thinking was that the trustees were clearly entitled to make a capital distribution to Estelle for any reason in my view, Estelle had contributed to the development of the assets which made up the WW Estate Trust, just as much as Bill Wong had. Estelle worked tirelessly in the businesses. As far as I was concerned the assets that comprised the assets of the WW Estate Trust belonged as much to Estelle as they did to Bill. The right vested in the trustees to transfer capital to Estelle was, in my view, a recognition of that fact.[39] In their opinion (which was disclosed to the Court) Chapman Tripp advised that clause 5 must be read in "its plain words". The solicitors said, "In other words there is no statutory remedy to allow Phillipa's two children to receive the income that she would have received". The solicitors then detailed three options which, as they saw it, were "available to remedy this matter". One was to resort to the discretionary power available to the trustees under clause 6 of the will, which "[Estelle] could then invest in [her] own name". Estelle could then amend her will to provide for that sum to be left equally to Mei-Ling and Matthew. Secondly, the capital sum received from the estate could be loaned to the PEW Trust and then, on Estelle's death, the assets of that trust automatically vest in Mei-Ling and Matthew. A third option was identified as being an interest-free loan from the husband's estate, but repayable on Janice's death. [40] Although some disadvantages in each of these alternatives were identified, it was at no point suggested by the solicitors that the potential difficulties relating to a fraud on a power might have to be addressed in relation to the first option. [41] The evidence in the case in this respect is well documented and quite clear. In summary, on Phillipa's premature death, Mrs Estelle Wong became concerned that there was no gift-over provision as to income for Phillipa's children. A member of Chapman Tripp recorded in a file note: "this is of great concern to Mrs Wong andalthough she accepts that her late husband may never have anticipated their daughter predeceasing Mrs Wong she is adamant that it would have been his intention for Phillipa's share of the income to pass to her children". Thus it was that a scheme was settled by Mrs Wong, with the trustees, and after taking legal advice, which had the overt and pre-determined idea that the trustees would utilise clause 6 of the will to avoid the effect of clause 5 of the will, in the circumstances which had arisen. This exercise was not undertaken as a distinct, or separate advance to Mrs Wong or in the "hope" that Estelle Wong would benefit a non-object. The exercise was already constrained by a pre-considered course of action which also avoided Mrs Estelle Wong having to resort to any assets under her control or direction to assist her grandchildren. [42] In our view, this deliberate, and pre-conceived, device amounted to a fraud on the power. If Mrs Estelle Wong had simply been advanced the money out of the estate and had then exercised genuine freedom of action to benefit the children (as for instance by setting up a trust for them), that would not have been unlawful. But what was knowingly erected was a deliberate scheme to subvert the terms of the will. What was overlooked was that the property was vested in those entitled in default of the exercise of the power, subject to its being divested by a proper exercise of the power in clause 6, and the steps in fact taken gave rise to a fraud on those entitled in default.Remedies[43] In the event that the distribution of the sum of $250,000 by the trustees was found to be unlawful, the appellants sought orders that:• the trustees of the PEW Trust hold that amount of $250,000 as constructive trustees for the William Wong estate and/or that the payment can be traced to the PEW Trust, and hence the PEW Trust must account to the William Wong estate for that amount, plus interest;• the trustees of the William Wong estate and the Estelle Wong Estate must personally account to the William Wong estate for the loss caused to the residue of the William Wong estate due to that distribution. [44] It appears to be common ground that, upon receipt of the $250,000, Estelle immediately lent the funds to the PEW Trust interest free, and proceeded to forgive the loan over time. It will be recalled that the balance of the loan was forgiven in Estelle's will. It would appear that there are sufficient funds in the PEW Trust to repay this sum of $250,000 together with interest. However, if that should prove not to be the case, the appellants submit that the trustees of William Wong's Estate are personally liable to account to that estate for the loss caused to the estate by their breach of trust. [45] At an earlier point in this litigation - indeed continuing down to the hearing before us - an argument was advanced that the trustees, not the appellants, are the proper claimants for such orders. However, in submissions filed subsequent to the oral hearing, Mr Scott confirmed that if a remedy is available to the appellants "it can be pursued in these proceedings", and "the trustees of the William Wong estate now consent to [this] Court determining whether this remedy is available". However, the substantive remedy is still resisted by the trustees of the PEW Trust on the grounds that they had no knowledge (constructive or actual) that the distribution was made in breach of trust. [46] Then it is said by the appellants that, if the foregoing head of relief is not available, the trustees of William Wong's Estate are personally liable to account to that estate for the loss caused to the estate by their breach of trust. [47] The respondent trustees say that, in the event they are found to have acted in breach of trust, they are protected from personal liability by either or both of clause 13 of the will, and s73 of the Trustee Act 1956. [48] Clause 13 of the will provides that no trustee is:liable for any loss not attributable to his or her own dishonesty or to the wilful commission by him or her of an act known to be a breach of trust [49] Section 73 of the Trustee Act 1956 gives the High Court a discretion to relieve trustees from personal liability if the Court is satisfied that, although acting in breach of trust, the trustees nevertheless acted "honestly and reasonably" and "ought fairly to be excused". [50] The proposition that trustees can transfer away, as a fraud upon a power, a sum of $250,000 - particularly when there is an explicit agreement to the transfer - and not restore that sum from the PEW Trust, if there are funds to do so, is a startling one. With all respect to Mr Scott, whose submissions were difficult to follow under this head, the argument for the trustees appears to reduce to one that the trustees did not know, nor should they have known, that the distribution was unlawful and should not therefore be required to restore the monies. And a subsidiary argument that somehow the trustees took as "purchasers for value" cannot stand either, for the trustees knowingly entered into an unlawful transaction. [51] On any question of personal liability, the trustees bear the onus of establishing that they are protected by one or both of these exemptions. And any exemption clause is construed narrowly against trustees seeking to rely on it (Walker v Stones [2000] 4 All ER 412 at 445-446 per Slade LJ). [52] Walker v Stones (supra) appears to be the leading decision. There, the English Court of Appeal applied a holding of the Privy Council in Royal Brunei Airlines Sdn Bhn v Tan [1995] 3 All ER 97 that the essential question is whether the trustees acted dishonestly. Lord Nicholls said:[A]cting dishonestly or with lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard (at 105).[53] Although at first sight the word "honest" may point to a state of mind, its scope is not so limited. A person can be acting dishonestly, according to the ordinary use of language, even though he or she genuinely believes that his or her actions are morally justified. [54] The argument for the appellants here is that it was suggested to Estelle on at least two occasions (2 October and 26 October 1996) that William's will was clear,and had to be read in terms. Yet the trustees set in motion a course of action to circumvent clause 5 by forwarding funds to the PEW Trust, via Estelle, knowing that they could not achieve that objective directly. And, as Ms Peters said, "They could have endeavoured to vary the will lawfully by obtaining the consent of all beneficiaries and the Court. However they devised an improper process to vary the trust". The trustees were also warned that their decision to make the capital distribution could be open to legal attack, but they nevertheless proceeded. [55] Mr Scott argued that the trustees acted on the advice of their solicitors that the proposed payment was within the power conferred on them, and that the trustees' conduct could not be characterised as "dishonest". But acting on incorrect advice cannot of itself provide trustees with a shield. See Doyle v Blake (1804) 2 Sch & Lef 231 at 243; and National Trustees Co of Australasia v General Finance Co of Australasia [1905] AC 373 (PC) 373 at 379. [56] Ronald Young J found that the trustees' actions were both honest and reasonable and there was no basis for them to obtain Court directions. He indicated that, if necessary, he would have excused the trustees from personal liability. This on the basis that: there was no suggestion of a dishonest motive of the trustees nor any evidence of it; the trustees obtained both legal and accountancy advice before making their decision; there was a real family emergency requiring the financial protection of two vulnerable children. [57] In our view, this is not a case in which the trustees can claim the protection of s73 of the Trustee Act 1956. The expression "honestly and reasonably" is conjunctive. It was not merely unreasonable - it was downright foolish - to proceed to implement a scheme of this kind knowing that it could come under critical legal scrutiny, as being an allegedly unlawful device. There may well be cases in which trustees are entitled to put to one side a quite untenable proposition. But with all due respect, in this case, patently, the appropriate course to have followed would have been to obtain directions under s66 of the Trustee Act 1956. This case would never have come about had that course been followed.[58] As to "dishonesty" in terms of clause 13 of the will, it is not necessary to go beyond the formulation of Lord Nicholls: "not acting as an honest person would in the circumstances ". The same sort of reasoning as applies to s73 applies here. The trustees may well have genuinely believed that their actions were morally justified, but the circumstances are that the trustees went forward - knowingly - with a scheme to achieve indirectly an objective they could not achieve directly. To adapt Lord Nicholls' language, in the circumstances of the case "an honest person" would surely have sought the directions of the Court. [59] Accordingly in our view, the appellants are entitled, in principle, to the relief they seek under both limbs advanced by them. That is, the trustees are liable, both as trustees, and in their personal capacities, to restore the sum of $250,000; together with interest which we would fix at 7% from the date of the advance to the date of restoration. That said, we are reluctant to direct that judgment be entered against the trustees at this point, when it may well be perfectly feasible to restore the funds from the PEW Trust. (It was suggested to us that there are sufficient funds in the PEW Trust to effect this restoration.) Having, therefore, given an indication of the course this Court would be prepared to take, we leave this matter on the footing that we reserve leave to the appellants to apply, if necessary, for further orders of this Court as to the particular form of relief to be entered by way of judgment.The cross-appealBackground[60] At trial, the appellants claimed that the trustees of the William Wong estate had wrongly apportioned (as between income and capital) money received from the sale of the assets of certain fruit agency companies. [61] The background is that in 1990 the William Wong estate had received "dividends" on shares owned by the estate in Wairarapa Fruit Agencies Limited ("Fruit Agencies"). That was a business set up by William and Estelle Wong in thecourse of their fruit growing, marketing and transportation businesses. The "dividends" were paid following the sale of assets of the company. [62] The company went into voluntary liquidation on 28 July 1989. In the year ended 31 March 1990, the estate received distributions totalling $604,000. Of this sum, the estate apportioned the distributions as follows:• $365,667.56 as income (which was therefore distributed to Estelle Wong as the recipient of income under the will);• $238,355 as capital. [63] Of the $365,667.56 said to be income, $54,720 was said to have been paid to the estate on 11 July 1989 and $310,947.56 was said to have been paid to the estate on 11 August 1989 (exempt from tax, after winding up distribution tax).The claim in the High Court[64] The appellants claimed that the $365,667.56 said to be income was in fact capital, and that it was therefore wrongly distributed to Estelle Wong. As pleaded, it was said that during the year ended 31 March 1990, Fruit Agencies paid dividends to the deceased's estate of $365,667.56; the dividends were capital in the hands of the trustees; and the dividend distribution caused a loss to the deceased's estate by reducing its residue in the year to 31 March 1990. [65] There is a substantial forensic difficulty with this counter claim in that, as the Judge recorded, "there is a significant factual lacuna in this part of the case." There is a paucity of detailed company records including information regarding retained earnings, the sale of company assets as against sale of company shares, the circumstances of the distribution of the proceeds of the sale of the business, and associated matters. This is despite the best efforts of the parties to reconstruct records and events.The High Court judgment[66] The Judge began by noting that there was no direct guidance to be found from the terms of the William Wong will as to the division of funds between capital and income. Although William Wong would have known (given the business practices of the company) that the shares in Fruit Agencies would not produce an income for the estate, the terms of the will meant that the subsequent life tenants and remaindermen were always vulnerable to a reduced estate. [67] In these circumstances, the Judge turned to the common law rules developed to assist trustees in deciding how payments from companies should be treated. [68] The general rule is that company income should be distributed to the income beneficiaries, and capital distributions should be added to the estate capital (Hill v Permanent Trustee Company of New South Wales Limited [1930] AC 720 (PC)). The Judge also referred to the principle in Re Armitage [1893] 3 Ch 337 that, from the moment a company goes into liquidation, any sum distributed to shareholders must, by its nature, be capital. Conversely, all monies distributed to shareholders prior to liquidation will, in general, be income. [69] The Judge then considered when the company went into liquidation. This was determined by s270 of the Companies Act 1955 to be "the time of the passing of the resolution for voluntary winding up", in this case, 28 July 1989. Accordingly, in the Judge's view, the sum paid to the estate after this date was capital; the sum paid before that date was income. [70] The Judge briefly adverted to a submission from the respondents that the use of the word "dividend" in the pleading meant that the payment was a payment of income. However, in the context of this case, the Judge considered that the word "dividend" was neutral, and could cover both capital and income payments. [71] In the result, the Judge made a declaration that the distribution of $310,947.56 was capital, and not income.The grounds of the cross-appeal[72] The respondents (the appellants on the cross-appeal) say that this High Court declaration against their interests should be set aside, on two distinct grounds. (a) First, there is a pleadings point. It is said that the case against the trustees, and accepted by the High Court, was not the case pleaded or presented in evidence by the appellants prior to the commencement of the High Court hearing. The trustees answered the case pleaded. The appellants should accordingly not have been allowed to effectively recast their case without any amendment to the pleading in the manner that occurred during the course of the hearing. (b) Then it is said, if the appellants are now permitted to argue that the "dividend" was post-liquidation, the respondents' case then is that the legal question is not (as the Judge erroneously thought) whether the money was paid prior to the winding up resolution, but rather whether the obligation to pay that money was declared by the company prior to the winding up resolution. [73] These issues - already convoluted - were further strained by an application in this Court for leave to adduce further evidence from Mr Burt. At the outset of the appeal before us the Court received that affidavit, de bene esse. The essence of this late affidavit from Mr Burt is that he now recollects that the dividend in question was declared prior to, but paid after, the winding up.Resolution[74] This is a thoroughly messy and distinctly unsatisfactory part of this proceeding. It is very difficult, over a decade later, to deal with what appear to have been, in any event, somewhat unsatisfactory records. In the end, we think the resolution of this aspect of the case comes down to a combination of a fair pleading point, and the inability of the trustees to put before the Court, in timely fashion, allthe relevant information. Both of those points now militate against what is said on their behalf. [75] Regrettably, some further history is required. Prior to bringing these proceedings, Wong Liu Sheung had no information to speak of about this estate. She therefore obtained from the respondents the financial statements for the William Wong estate and the various individual trusts. She then caused enquiries to be made of the trustees regarding the payments received from Fruit Agencies in the year ending 31 March 1990. Through Chapman Tripp, she was advised that the "assets of the company were sold and the capital was distributed to the shareholders on winding up". That in turn prompted enquiries on her behalf as to what had been treated as capital, and what as income. For some reason, the trustees refused to provide further information in this respect, but said they would be prepared to make this information available to the Court. It was in that context that Wong Liu Sheung issued these proceedings. [76] Unsurprisingly, given the advice which had been received, the relevant paragraphs of the statement of claim read as follows:30. As at 31 March 1989, the Deceased's estate included, amongst other things, 160,000 ordinary shares of $1.00 each in Wairarapa Fruit Agencies Limited ("Wairarapa Fruit Agencies") which were recorded in the said estate's accounts to that date as having a book value of $1.40 each, giving a total book value of $224,000. 31. During the year ended 31 March 1990, Wairarapa Fruit Agencies paid dividends to the Deceased's estate of $365,667.56 ("dividends"). 32. The dividends derived from a winding-up of Wairarapa Fruit Agencies. 33. The dividends were capital in the hands of the then trustees of the Deceased's estate, being Estelle and Mr Burt. 34. The dividends were capital in the hands of the said trustees. 35. In the year to 31 March 1990 the trustees of the Deceased's estate, being Estelle and Mr Burt: (a) paid the dividend to Estelle ("dividend distribution"). (b) so paid the dividend distribution as if it were income to which Estelle was entitled.36. The dividend distribution caused a loss to the Deceased's estate by reducing its residue in the year to 31 March 1990, and thereafter, by not less than $365,667.56.[77] We say "unsurprisingly" because the respondents appear to have been less than forthcoming with information. In any event, by their statement of defence the respondents admitted that the dividends were derived from the winding up, but denied that the sum was capital. [78] At trial, the appellants made it clear that they relied on the Armitage and Hilldecisions, and those authorities were considered and relied upon by the trial Judge. [79] In these circumstances, notwithstanding all that was said by Mr Scott on the trustees' behalf, the point really comes down to a quite straightforward pleading matter. The appellants put in issue, from the outset, where this money had come from; where it had been paid to; and what the character of it was. In the accepted legal parlance, a "fair reading" of the pleadings put those general matters in issue. It was for the respondents (and in particular Mr Burt) to respond thereto, promptly and accurately. The respondents are now endeavouring to resile, in an appellate Court, to a version of events based on an affidavit which has to be in the character of "after- thoughts" by Mr Burt. The respondents are effectively seeking to reopen this issue; and in a manner which, as Ms Peters rightly and forcibly pointed out, would necessarily have to lead to a full rehearing in the High Court, if this course is permitted. The matters arising could not possibly be resolved in this Court. Realistically, there would have to be a new trial on the counter claim, in the High Court. We are not therefore disposed to interfere, and in effect reopen this claim. Likewise, we are not disposed to grant the application for the admission of Mr Burt's further affidavit. [80] Once that point is reached, the issue is whether it has been shown that the Judge was wrong to have reached the view he did on the evidence before him. Based on everything that he had in front of him Ronald Young J said, "While the evidence in this case was less than ideal, on balance I am satisfied that the $310,947 was paid by Fruit Agencies after voluntary liquidation to its shareholder William Wong estate". We are not disposed to interfere with that finding by theJudge, based as we have said, on what he had in front of him at the time of trial. We consider there was real force in Ms Peters' point that, given the way the trial actually proceeded, the appellants succeeded on what was then in front of the Court. What is now sought is really an attempt on the respondents' part to recast the case, or at least to shift it to terrain more favourable to them. [81] In the result, the cross-appeal is dismissed.Conclusion[82] The appeal is allowed. Counsel should be able to settle an order. In the event that they are unable to do so, they may submit memoranda, in the usual way. [83] The cross-appeal is dismissed. [84] The appellants will have costs of $10,000 together with their disbursements. Those disbursements are to include the reasonable travel and accommodation expenses for two counsel. In the event of disagreement, the disbursements are to be fixed by the Registrar.Solicitors: Russell McVeagh, Auckland for Appellants Chapman Tripp, Wellington for Respondents