DON ALAN ROBERTSON (AS TRUSTEE OF THE G&A FISHER FAMILY TRUST) V THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF GRAEME CHARLES FISHER (A BANKRUPT) CA CA587/2007

DON ALAN ROBERTSON (AS TRUSTEE OF THE G&A FISHER FAMILY TRUST) V THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF GRAEME CHARLES FISHER (A BANKRUPT) CA CA587/2007 28 November 2008IN THE COURT OF APPEAL OF NEW ZEALAND CA587/2007 [2008] NZCA 500UNDER ss 54 and 86 Insolvency Act 1967 BETWEEN DON ALAN ROBERTSON (AS TRUSTEE OF THE G&A FISHER FAMILY TRUST) Appellant AND THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF GRAEME CHARLES FISHER (A BANKRUPT) Respondent Hearing: 17 September 2008 Court: Arnold, Potter and Harrison JJ Counsel: C T Walker for Appellant G S Caro for Respondent Judgment: 28 November 2008 at 11.30 amJUDGMENT OF THE COURT A The appeal is allowed in part. We set aside the High Court judgment to the extent that it found the sum of $138,868 was a voidable disposition against the respondent. But we uphold the High Court's finding that the balance of $34,717 was voidable. B There will be no order as to costs.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] This is an appeal against a judgment of MacKenzie J setting aside as a gift voidable by the Official Assignee a transfer of $173,586 by Mr Graeme Fisher, who has since been declared bankrupt, to the trustees of a family trust, the G & A Fisher Family Trust (the Trust): HC BLE CIV-2003-406-214 8 October 2007. The disposition represented the net proceeds of sale of 140,000 shares held in Mr Fisher's name in Blenheim Finance Ltd. The appellant is Mr Don Robertson, one of the original trustees. [2] The questions arising are, first, whether Mr Fisher made a valid declaration of trust in favour of the Trust for 10,000 of the shares and, second, whether the Trust acquired beneficial ownership of a further 40,000 shares issued shortly afterwards. The answers will determine beneficial ownership of the remaining 90,000 shares which were the subject of two later bonus issues. [3] We note that the grounds of appeal advanced by Mr Campbell Walker, who appeared for Mr Robertson but was not counsel in the High Court, differ materially from the trustees' case before MacKenzie J and are only arguable in this Court because of the broad and non-specific nature of the original pleadings.Facts[4] The relevant facts are as follows. [5] Mr Fisher was issued with 10,000 ordinary shares of $1 in Blenheim Finance Ltd, being half of the company's share capital on incorporation, in April 2000. The Trust was settled on 1 December 2000. The appointed trustees were Mr Fisher, Mrs Andrea Fisher (his wife), and Mr Robertson, an accountant.[6] On the same day the three trustees met at a trustees' meeting and made three resolutions (the resolutions):(1) All assets owned jointly and severally by Graeme Charles Fisher and Andrea May Fisher be vested in the G & A Fisher Family Trust;(2) It is agreed that any company shares owned by Graeme Charles Fisher and Andrea May Fisher will remain in their names but be held in trust for the G & A Fisher Family Trust;(3) It is agreed that Don Alan Robertson is appointed as a professional trustee and his liability is limited to professional trustee. (Emphasis added.)[7] Mr Fisher subscribed for an additional 40,000 shares in Blenheim Finance Ltd on 12 January 2001. He was issued with a further 20,000 shares on 7 August 2001 and 70,000 shares on 9 September 2002, both as bonuses in lieu of dividends. [8] Provincial Finance Ltd agreed on 6 September 2002 to purchase all the shares in Blenheim Finance Ltd held by Mr Fisher "and parties associated with him" for $189,481. The agreement contemplated the further issue of shares to Mr Fisher on 9 September for the purpose of exhausting imputation credits held by the company. Settlement was effected on 10 September and Mr Fisher's solicitors accounted to him the next day for the net proceeds of $173,586. These funds were paid into a bank account held in the names of the Trust and Mr and Mrs Fisher. The account intermingled funds used by a range of entities. [9] Mrs Fisher retired as a trustee of the Trust on 28 March 2003 and was replaced by the Fishers' son, Joel. Mr Fisher was adjudged bankrupt on 16 July 2004. Mr Robertson resigned as a trustee on 21 July 2004. [10] The Official Assignee filed and served a notice on 8 August 2006 stating:The transfer of $173,586.46 being the proceeds of sale of the bankrupt's shares in Blenheim Finance Ltd, to Graeme Charles Fisher, Andrea May Fisher and Don Alan Robertson on or about 11 September 2002. This disposition is set aside because it comprises a voidable gift pursuant to s 54 Insolvency Act 1967.[11] Graeme and Joel Fisher applied to the High Court on 28 August 2006 to set the notice aside. The principal grounds relied upon were that Mr Fisher transferred his shares to the Trust in 2000; that the issue of shares on 12 January 2001 was not paid for by Mr Fisher but by the Trust; that Mr Fisher held all shares as nominee for the Trust; and that the funds of $173,586 were the proceeds of sale of trust property. [12] Mrs Fisher and Mr Robertson applied separately to set aside the notice on 7 September 2006, principally on the ground that neither received any benefit or consideration from the transfer of shares from Mr Fisher to the Trust, which had sufficient assets to meet the payment. [13] The Official Assignee filed a notice of opposition alleging that, when he sold his shares in Blenheim Finance Ltd, Mr Fisher was the only legal and beneficial owner, and that the disposition of $173,586 was made otherwise than in good faith and for valuable consideration: ss 54, 58 and 86 Insolvency Act 1967. [14] The Official Assignee's notice of defence asserted that the four applicants should have filed a statement of claim rather than an interlocutory application. An exchange of pleadings would have committed the parties to fixed legal positions and identified discrete issues. But formal pleadings were not filed, allowing Mr Robertson to re-shape his case on appeal. [15] The Official Assignee accepts that the Trust does not have the amount of the disposition of $173,586 or any part of it available for payment. The funds were applied towards reduction of the Trust's indebtedness to a lending institution. Mr Guy Caro for the Official Assignee advises that the claim remains live, however, for the purpose of determining whether to pursue Mr Robertson personally.Decision(1) Declaration of Trust[16] In a reserved decision delivered on 8 October 2007 MacKenzie J found that the transfer of $173,586 from Mr Fisher to the Trust constituted a gift of property (s 54(6)) and was accordingly voidable (s 54(1)): at [14]. He was satisfied that none of the shares were ever beneficially owned by the Trust. He held that the second of the resolutions (see [6] above) was ineffective to transfer to the trustees Mr Fisher's beneficial ownership in the 10,000 shares. He said:[9] The resolution did not have the effect of transferring the beneficial interest in the shares to the trust. The resolution was a resolution of the trustees, not an action by Mr Fisher in his personal capacity. The trustees did not, in that capacity, have the power to transfer shares owned by Mr Fisher to themselves. The trustees' case in the High Court was that Mr Fisher did in fact transfer the first 10,000 shares to the Trust on 1 December 2000 (although Mr Robertson confirmed that he had not signed any minutes to this effect). MacKenzie J found that there was no evidence of a transfer and that the resolution did not have that effect, even if it was treated as a statement of Mr Fisher's personal intention: at [10]–[11]. Mr Walker does not challenge the Judge's conclusion on this point. [17] Mr Walker advances a new argument on appeal. He submits that the resolution took effect as a valid declaration of trust. He disclaims the argument for the trustees in the High Court, based upon Mr Fisher's assertion that he actually transferred the 10,000 shares to the Trust. He says this was no more than Mr Fisher's construction of events, contrary to the primary evidence. He submits that MacKenzie J erred in finding that the Trust was not beneficially entitled to the first 10,000 shares issued by Blenheim Finance Ltd to Mr Fisher. [18] MacKenzie J had considered the question of whether Mr Fisher made a declaration of trust when discussing the general rule that equity will not perfect an imperfect gift by construing it as a declaration of trust. The Judge said this:[11] Mr Fisher's participation in the resolution could at best take effect as a declaration of intention to make a gift to an existing trust, not as a declaration of trust creating a new trust. The fact that it is a resolution by the trustees and not by Mr Fisher personally, tells against the proposition that it was a declaration of trust by Mr Fisher sufficient to constitute a perfected gift. There are other considerations that suggest that that position was not reached. The making of a gift would have given rise to a liability to lodge the appropriate gift statement, and that was not done. Mr Fisher's actions subsequent to the resolution are not consistent with his having transferred ownership and control of the shares to the trustees I find that there was no sufficient declaration of trust by Mr Fisher to constitute a valid gift of the shares to the trust.[19] The relevant legal principles are settled. An express trust can be created in two different ways. The conventional means is by one party transferring property to another as trustee: Dal Pont & Chalmers, Equity & Trusts in Australia (4ed 2006) at 490. The other is by the owner declaring a trust over the property, which will be effective and binding in law providing there is certainty of intention, subject matter and objects. The Court must be satisfied also that a present irrevocable declaration of trust has been made. While express words of declaration are unnecessary, the settlor must use words having the equivalent meaning: Pettit Equity and the Law of Trusts (10ed 2005) at 102. [20] In our judgment Mr Walker's submission that the resolution constituted a declaration of trust must fail. The resolution was made with two other resolutions at a meeting of trustees of the Trust, which were signed by the Fishers and Mr Robertson in their capacity as trustees. The resolution says that it is agreed that any shares owned by Mr and Mrs Fisher would remain in their names – that is, they would retain legal ownership – but they would be held in trust for the Trust. In the circumstances, we are not satisfied that Mr Fisher made an irrevocable declaration of trust, in particular because he made the resolution as a trustee of the Trust and not in his personal capacity as owner of the shares. [21] We consider that, at best, Mr Fisher was doing no more than indicating what was proposed in terms of future arrangements for the shares. It remained for him to do or say something in his personal capacity as owner of the shares to make an irrevocable declaration of trust. We regard this as more than simply a matter of form. It follows that Mr Fisher retained both the legal and beneficial interest in the 10,000 shares in Blenheim Finance Ltd.(2) Constructive Trust[22] MacKenzie J found that Mr Fisher was the beneficial owner of the second issue of 40,000 shares for the reason that:[12] The [40,000] shares were issued by the company to Mr Fisher. He was the shareholder in the company, and would have been entitled under s 45 of the Companies Act 1993 to have those shares offered to him. There is no evidence that they were ever offered to the trustees, or that Mr Fisher did anything to assign his right to acquire the shares to the trust. Payment by the trust of the purchase price cannot override that. The evidence is that the affairs of the trust and Mr Fisher were intermingled. Furthermore, Mr Fisher was a beneficiary of the trust. There was also evidence that, at least at some points in time, there were debts owing by the trust to Mr Fisher. Any of those situations might have provided a basis on which a payment by the trust to meet an obligation of Mr Fisher could have been made. The payment of the purchase price by the trustees is accordingly consistent with the payment being made on behalf of Mr Fisher. [13] For these reasons I do not think that an inference could properly be drawn, on the evidence, that the payment by the trustees in January 2001 was a payment made in consideration of the acquisition by the trust of the beneficial interest in the shares issued in respect of that payment. I therefore find that those shares were beneficially owned by Mr Fisher.[23] Mr Walker submits that the Judge erred in this finding. He initially submitted that Mr Fisher acquired the shares with trust funds as the Trust's nominee and held them as agent for the Trust. However, in his oral submissions he argued in the alternative that if Mr Fisher's use of trust funds to purchase the shares was in breach of trust, he had an obligation to account for the proceeds of their sale. [24] We agree with the latter argument. Mr Caro accepts that Mr Fisher purchased the shares with some of the proceeds of a loan raised by the Trust against the security of a residential property. The funds were trust property. Mr Fisher knew or must have known that they belonged to the Trust and could only be applied in accordance with the terms of the trust deed. The trustees did not resolve to purchase shares in Blenheim Finance Ltd. As Mr Caro observes, Mr Fisher acted on a frolic of his own. [25] Mr Fisher applied trust property for an unauthorised purpose. He breached his duties as trustee by transferring funds to Blenheim Finance Ltd to acquire the 40,000 shares. In that situation the law treats the shares as impressed with aninstitutional constructive trust in favour of the beneficiaries of the Trust:Fortex Group Ltd (In Receivership and Liquidation) v MacIntosh [1998] 3 NZLR 171 (CA) per Tipping J (at 172-173). Thus, from the moment of acquisition, Mr Fisher was under an obligation to account for the proceeds of sale. [26] Mr Caro submits that the relationship between Mr Fisher and the Trust was one of debtor and creditor. In a sense that observation is true of all relationships of this type. But the distinguishing characteristic is the law's imposition of an institutional constructive trust on the shares themselves. The beneficiaries immediately acquired a proprietary interest in them. Once the shares were sold, the beneficiaries were entitled to the proceeds of sale. Having acted in breach of trust, Mr Fisher discharged the obligation arising on the sale of the shares to Provincial Finance by depositing the proceeds into the Trust's bank account. (We acknowledge, of course, that the account was also used by Mr Fisher and other entities associated with him, but we consider that the proceeds are properly viewed as being to the credit of the Trust.) Accordingly, this part of the disposition did not constitute a voidable gift.(3) Bonus Issues[27] Both counsel accept that entitlement to the subsequent bonus issues of 20,000 and 70,000 shares respectively, to a total of 90,000 shares, will be governed by our findings on the first and second issues. That means that these extra shares were held in a ratio of 1:4 or 18,000 for Mr Fisher and 72,000 for the Trust.Result[28] The appeal is allowed in part to the extent that we find that the Trust, not Mr Fisher, owned 112,000 of the 140,000 shares in Blenheim Finance Ltd which Mr Fisher sold in September 2002. As a portion of the total disposition of $173,586, these shares represent the sum of $138,868. The balance of $34,717, being attributable to the sale of the remaining 28,000 shares owed by Mr Fisher, remains a voidable disposition to the extent found in the High Court.[29] Mr Walker requested us to reserve the question of costs. However, we are satisfied that costs should lie where they fall. The appeal has succeeded in part, but on arguments which were not advanced in the High Court. There will be no order as to costs.Solicitors: Gilbert Walker, Auckland, for Appellant Ministry of Economic Development, Auckland, for Respondent