COOK v ROMANES and [2018] NZHC 2650

COOK v ROMANES and [2018] NZHC 2650 [12 October 2018]IN THE HIGH COURT OF NEW ZEALANDROTORUA REGISTRYI TE KŌTI MATUA O AOTEAROATE ROTORUA-NUI-A-KAHUMATAMOMOE ROHECIV-2018-463-82[2018] NZHC 2650IN THE MATTER OF the Companies Act 1993BETWEEN RAYMOND NOEL COOKKIM JUDY LORRIGAN andMIOCHAEL JOHN ROMANESas trustees of the M J ROMANES TRUSTPlaintiffsAND DANIELLE NATAHSA ROMANES andJOANNE CYNTHIA ROMANESas trustees of the J C ROMANES TRUSTDefendantsHearing: 26 September 2018Appearances: K Quinn for the PlaintiffsJ Hosking for the DefendantsJudgment: 12 October 2018JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 12 October 2018 at 12 noonpursuant to Rule 11.5 of the High Court Rules.Deputy RegistrarSolicitors:Foley Hughes, Rotorua, for the PlaintiffsMJC Legal Ltd, Rotorua, for the DefendantsCopy for:Kelly Quinn, AucklandJo Hosking, Auckland[1] The trustees of the M J Romanes Trust apply for an order that their partnershipwith the trustees of the J C Romanes Trust be put into liquidation. In response, theJ C Romanes trustees have applied for a stay of the proceeding.[2] The proceeding arises out of the break-up of the marriage of Mrs JoanneCynthia Romanes and Mr Michael John Romanes. Mr and Mrs Romanes married in1986. They separated in July 2016. They have four adult children. The family homewas on a "hobby" farm called Big Hill Farm. The owner of the farm is a partnershipof mirror family trusts: the plaintiffs and the defendants. The trusts were eachestablished by deeds on 30 April 1991. Mr Romanes is the settlor of the M J Romanestrust, but not a beneficiary. The final beneficiaries of each trust are the children.Mrs Romanes is one of the discretionary beneficiaries of the M J Romanes Trust.Mrs Romanes is the settlor of the J C Romanes Trust, but not a beneficiary.Mr Romanes is one of the discretionary beneficiaries. The two trusts carry on businessin partnership, but there is no written partnership agreement. The partnership ownsnot only Big Hill Farm (said to have an estimated value of $4 million), but alsoproperties on Kawau Island and in Lawrence, Otago. Before the partnership ownedit, Big Hill Farm was an asset of Mr Romanes' company, Mikro Holdings Limited.[3] Part of the background to this case is a proceeding in the Family Court underthe Property (Relationships) Act 1976 between Mr and Mrs Romanes. Mr Romanesrelies on agreements under s 21 of the Property (Relationships) Act to say that muchof his wealth is separate property. Mrs Romanes has applied to have the agreementsset aside and to divide relationship property. She also claims under s 9A of theProperty (Relationships) Act increases in Mr Romanes' separate property attributableto the application of relationship property or her contributions to it.[4] The Family Court has given a decision on an application for interim relief byMrs Romanes. Finding that Mr and Mrs Romanes lived at Big Hill Farm under atenancy from the partnership, it made a tenancy order allowing Mrs Romanes to livein the house and curtilage subject to her meeting the costs of outgoings.1 Mr Romaneshas appealed against the orders for interim relief, including the tenancy order.This proceeding[5] Under s 240B of the Companies Act 1993, the court can order an associationto be put into liquidation. "Association" is defined in s 2 to include a partnership.2Section 240B replaces former s 17A of the Judicature Act 1908, which gave the courtjurisdiction to make liquidation orders for associations.3 Under the Companies Act,schedule 11, cl 2, the grounds for putting an association into liquidation are that theassociation is dissolved, has stopped business, is terminating its affairs, is unable topay its debts, or that it is just and equitable.[6] The Michael Romanes trustees began this liquidation proceeding in July 2018relying on the just and equitable ground. The statement of claim pleads that the twosets of trustees have lost trust and confidence in each other. Mrs Romanes is allegedto have accused Mr Romanes of verbal abuse, bullying, domestic violence,aggressiveness, deceitfulness, acting in bad faith and with ulterior motives, andconducting economic warfare against her. The Michael Romanes trustees say that theyhave lost confidence in the Joanne Romanes trustees' management of the farm andgive particulars. They complain that they have been excluded from any meaningfulparticipation in the partnership business. The Michael Romanes trustees invited theJoanne Romanes trustees to agree to a dissolution of the partnership, but that wasrejected. They plead that as the parties remain in serious conflict it is just and equitablethat the partnership be put into liquidation. While the Michael Romanes trustees saythat Mr Romanes' company, Concrete Structures (NZ) Limited, has not been paid forwork it carried out on the Big Hill Farm, there is no suggestion of balance sheet orcash flow insolvency. The Michael Romanes trustees do not allege that the partnershipis unable to pay its debts.1 Romanes v Romanes [2017] NZFC 9928 at [71].2 Companies Act 1993, s 2.3 Section 17A was inserted by s 2 of the Judicature Amendment Act 1993 with effect from 1 July1994.The stay application – principles[7] The Joanne Romanes trustees have applied for a stay of the proceeding underr 31.11 of the High Court Rules 2016. The Court's inherent jurisdiction is not limitedby the rule.4 Stay applications come up most frequently on creditors' liquidationapplications against companies. For those cases it is common to cite the principlesstated by Wallace J in Nemesis Holdings Ltd v North Harbour Industrial HoldingsLtd.5 Those principles are important as illustrating the application of the inherentjurisdiction. While that was an alleged insolvency case, parts of what he said applymore widely:6The jurisdiction to stay is an inherent one to prevent abuse of process and thatthere is no inflexible rule.The governing consideration is whether the proceedings savour of unfairnessor undue pressure.It is, however, a serious matter to stay winding-up proceedings so that thedecision to do so is never made lightly. The onus is on the applicant and it isnormally necessary to demonstrate "something more" than the balance ofconvenience considerations which it is usually appropriate to consider on anapplication for an interim injunction.That caution is required, lest the court prejudge the merits of the case. In a proceedingon the just and equitable ground, there are invariably differences between the parties.In a stay application the court cannot and should not pre-judge the ultimate outcomewhen it has only limited evidence, which has not been tested in cross-examination.Something more is required to find an abuse of process.Is this proceeding an abuse of process?[8] The Joanne Romanes trustees point to the pending proceeding in the FamilyCourt as a reason for staying the proceeding. That proceeding, however, is under theProperty (Relationships) Act and deals with other matters – the division of propertyowned by Mr and Mrs Romanes personally, not the termination of a partnership of4 Rule 31.11(3).5 Nemesis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC).6 At 385.their trusts. This proceeding cannot be said to be abusive for dealing with a matterthat is the subject of a concurrent proceeding in another Court.7[9] The Joanne Romanes trustees also attack the proceeding as a spitefulmanoeuvre by Mr Romanes to defeat the Family Court tenancy order. They also allegeoppressiveness by fighting Mrs Romanes on two fronts when he is in a better positionto fund proceedings than she is. They say that once the partnership is put intoliquidation, Mr Romanes will be able to buy Big Hill Farm from the liquidators andforce Mrs Romanes from the property. Those arguments go to the merits of theproceeding. They do not provide grounds for finding an abuse of process. In caseswhere abuse of process is said to arise from improper use of the court process, it isstandard to distinguish between a plaintiff's intention to achieve a result and his motivefor taking the proceeding. In Williams v Spautz the High Court of Australia explained:8The purpose of a litigant may be to bring the proceedings to a successfulconclusion so as to take advantage of an entitlement or benefit which the lawgives the litigant in that event. Thus, to take an example mentioned inargument, an alderman prosecutes another alderman who is a politicalopponent for failure to disclose a relevant pecuniary interest when voting toapprove a contract, intending to secure the opponent's conviction so that he orshe will then be disqualified from office as an alderman by reason of thatconviction, pursuant to local government legislation regulating the holding ofsuch offices. The ultimate purpose of bringing about disqualification is notwithin the scope of the criminal process instituted by the prosecutor. But theimmediate purpose of the prosecutor is within that scope. And the existenceof the ultimate purpose cannot constitute an abuse of process when thatpurpose is to bring about a result for which the law provides in the event thatthe proceedings terminate in the prosecutor's favour. It is otherwise when thepurpose of bringing the proceedings is not to prosecute them to a conclusionbut to use them as a means of obtaining some advantage for which they arenot designed[10] Under that distinction the Joanne Romanes trustees have not shown that thisproceeding is an abuse of process. The Michael Romanes trustees say that thepartnership should be terminated by being put into liquidation. That can be done onlyby a court order under s 240B of the Companies Act. The fact that Mr Romanes hopesto gain some advantage by obtaining a liquidation order does not make the proceedingillegitimate.7 As in Yeoman v Public Trust [2011] NZFLR 753.8 Williams v Spautz [1992] HCA 34, (1992) 174 CLR 509.The relevance of alternative remedies[11] Liquidation is commonly regarded as a remedy of last resort when the just andequitable ground is relied on. The court normally needs to be satisfied that there is noalternative remedy. The basis for this can be seen in decisions for proceedings to windup a company on the just and equitable ground. Liquidation was regarded as such adrastic remedy that the alternative of relief against oppression under s 174 of theCompanies Act was enacted.9 In Jenkins v Supscaf Ltd Heath J recognised that theavailability of alternate remedies remained a cogent consideration.10 InSEA Management of Singapore Pte Ltd v Professional Service Brokers Ltd I said:11The deadlock must be so serious as to impede the continued operation of thecompany. The essential basis for the court to give relief is frustration byinternal discord. The court may order liquidation in its discretion if it issatisfied that there is no other way out of the impasse.[12] In the case of companies there are commonly alternative remedies throughshare pre-emption provisions in the constitution and relief under s 174 of theCompanies Act. Liquidation may be oppressive if it halts the operation of a viablebusiness, by the appointment of a liquidator who takes control of the company out ofthe hands of shareholders and directors appointed by them, with the added costsassociated with a winding up under Part 16 of the Companies Act. Experience showsthat when shareholder differences continue into liquidation, expenses can escalate.12[13] Those considerations may not apply quite so strongly in the case of apartnership. Here there is no written partnership agreement. There is nothing to stopeither partner giving notice under s 35(1)(c) of the Partnership Act 1908. Equally theCourt can order the dissolution of a partnership on the just and equitable ground.13One of the differences between a dissolution under the Partnership Act and aliquidation under the Companies Act is that the partners retain control of thedissolution and arrange a distribution after a final statement of accounts (but withrecourse to the court when there are differences), whereas an independent liquidator9 Latimer Holdings Ltd v SEA Holdings NZ Ltd [2005] 2 NZLR 328 (CA) at [57].10 Jenkins v Supscaf Ltd [2006] 3 NZLR 264 (HC) at [98] and [117].11 SEA Management of Singapore Pte Ltd v Professional Service Brokers Ltd HC Auckland CIV-2011-404-5315, 25 January 2012 at [3].12 For example, see Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).13 Partnership Act 1908, s 38(f).takes control of the partnership assets, administers the liquidation under Part 16 of theCompanies Act. A liquidation under Part 16 of the Companies Act is a more drasticremedy for taking control of assets away from the partners and imposing an addedlayer of costs on the partners. The availability of alternative remedies remains a properconsideration on an application to put a two-member partnership into liquidation onthe just and equitable ground.[14] The separation of Mr and Mrs Romanes bears on the termination of thepartnership. They are unravelling their property interests and other ties. That makesit unlikely that the partnership will continue, at least not in its present form. The useof mirror trusts operating in partnership, with each spouse a trustee of a trust in whichthe other is a beneficiary, may have been suitable during the marriage, but cannot beexpected to survive their separation. The question is not so much whether thepartnership will be terminated, but how it should be brought to an end. Liquidation isonly one option. Others are dissolution by one party giving notice to the other unders 35 of the Partnership Act; dissolution by court order on the just and equitable groundunder s 38(f); an application for division of property under s 339 of the Property LawAct 2007; and an application adjusting the trustees of the trusts, if necessary, by courtorder.14 Given that liquidation is a more severe remedy, the court will need to considerwhether other options are not viable.[15] For the Joanne Romanes trustees Ms Hosking referred to another option –orders under s 182 of the Family Proceedings Act 1980:182 Court may make orders as to settled property, etc(1) On, or within a reasonable time after, the making of an order underPart 4 of this Act or a final decree under Part 2 or Part 4 of theMatrimonial Proceedings Act 1963, the Family Court may inquire intothe existence of any agreement between the parties to the marriage orcivil union for the payment of maintenance or relating to the propertyof the parties or either of them, or any antenuptial or post-nuptialsettlement made on the parties, and may make such orders withreference to the application of the whole or any part of any propertysettled or the variation of the terms of any such agreement orsettlement, either for the benefit of the children of the marriage or civilunion or of the parties to the marriage or civil union or either of them,as the court thinks fit.14 Trustee Act 1956, s 51.(2) Where an order under Part 4 of this Act, or a final decree under Part 2or Part 4 of the Matrimonial Proceedings Act 1963, has been madeand the parties have entered into an agreement for the payment ofmaintenance, the Family Court may at any time, on the application ofeither party or of the personal representative of the party liable for thepayments under the agreement, cancel or vary the agreement or remitany arrears due under the agreement.(3) In the exercise of its discretion under this section, the court may takeinto account the circumstances of the parties and any change in thosecircumstances since the date of the agreement or settlement and anyother matters which the court considers relevant.(4) The court may exercise the powers conferred by this section,notwithstanding that there are no children of the marriage or civilunion.(5) An order made under this section may from time to time be reviewedby the court on the application of either party to the marriage or civilunion or of either party's personal representative.(6) Notwithstanding subsections (1) to (5), the court shall not exercise itspowers under this section so as to defeat or vary any agreement,entered into under Part 6 of the Property (Relationships) Act 1976,between the parties to the marriage or civil union unless it is of theopinion that the interests of any child of the marriage or civil union sorequire.[16] While Mr and Mrs Romanes have been separated for more than two years,there has so far been no application to dissolve their marriage. But once the marriageis dissolved, s 182 provides another arguable way of dealing with the partnership oftrusts.[17] It is arguable that not only each family trust, but also the partnership may bethe subject of orders under s 182. Each trust involves a post-nuptial settlement madeon the parties under s 182, in that assets (partnership property) were settled on thetrustees of each trust to hold according to the terms of their trust deeds. Theestablishment of each trust with the settlement of a share of partnership assets on eachtrust during the marriage comfortably meets the requirements for a nuptialsettlement.15 The provisions for the children of the marriage as ultimate beneficiariesdoes not count against each trust being a nuptial settlement. The fact that the twotrusts held assets in partnership should not count against s 182 applying. The15 Clayton v Clayton [2016] NZSC 30, [2016] 1 NZLR 590 [31]–[38].establishment of mirror trusts, under which each spouse is a trustee for a trust underwhich the other benefits, with both trusts acting in concert and partnership, can beconsidered an agreement relating to the property of the parties and a nuptial settlementmade on the parties. Given the failure of the marriage, orders under s 182 might bemade on or after dissolution of the marriage. In Clayton the majority said:16Nuptial settlements are premised on the continuation of the marriage or civilunion. The purpose of s 182 is to empower the courts to review a settlementand make orders to remedy the consequences of the failure of the premise onwhich the settlement was made.In that case the Supreme Court indicated that the parties' interests may be bestserved by creating two trusts. In this case two trusts are already established,thereby reinforcing equal sharing. The matter may instead require adjustment oftrustees and directions on how the partners are to deal with partnership assets.[18] There are potential advantages in using s 182 of the Family Proceedings Act todeal with the termination of the partnership and the adjustments to the trusts. ForMr and Mrs Romanes to disengage their interests, there is a greater efficiency if allmatters are dealt with in the same court. The Family Court has original jurisdictionfor relationship property proceedings and applications under s 182. As it is currentlydealing with the division of relationship property, it can ensure that any orders unders 182 mesh with any orders under the Property (Relationships) Act. Having all mattersheard in one court improves the prospects of an outcome tailored for the parties'circumstances.[19] Liquidation remains a possibility, but before the court should consider whetherto make a liquidation order, it should give the parties the opportunity to see whetherthe termination of the partnership can be better resolved by other remedies. Inparticular by orders under s 182 of the Family Proceedings Act.[20] It is a case management question how the alternative remedy question shouldbe addressed. The Joanne Romanes trustees could be left to argue the point at a finalhearing of the liquidation application along with all the other matters that would be16 Ward v Ward [2009] NZSC 125, [2010] 2 NZLR 31 at [15]; and Clayton v Clayton at [60].traversed in a contested hearing on the just and equitable ground. But Mrs Romanescan take steps now, by obtaining a dissolution of marriage, so as to apply for ordersunder s 182 of the Family Proceedings Act. If she is prepared to do that, it should notbe necessary for the parties to go through the pleadings and other interlocutory stepsin this proceeding. As liquidation is a remedy of last resort, as a matter of casemanagement the court should allow other remedies to be explored first. Further stepsin this proceeding are not required until it is known what will be done about otherremedies.Outcome[21] While this proceeding is not an abuse of process, the reasonable likelihood ofother remedies suggests that they should be addressed first before continuing with thisliquidation application. I direct the parties not to take any further steps in thisproceeding while they pursue other possible remedies.[22] I adjourn this proceeding to a telephone case management conference in theweek beginning 10 December 2018. Before the conference the parties should filememoranda advising whether other steps have been taken to seek alternative remedies.The judge taking the conference will then direct whether further steps need to be takenin this proceeding while alternative remedies are pursued.[23] If costs are sought on this application and counsel cannot agree, memorandamay be filed for me to decide costs on the papers. They should be sent to my associateas well as filed in court..Associate Judge R M Bell