THE TRUSTEES OF THE PUKEROA ORUAWHATA TRUST V MITCHELL CA CA557/2008

THE TRUSTEES OF THE PUKEROA ORUAWHATA TRUST V MITCHELL CA CA557/2008 2 December 2008IN THE COURT OF APPEAL OF NEW ZEALAND CA557/2008 [2008] NZCA 518BETWEEN THE TRUSTEES OF THE PUKEROA ORUAWHATA TRUST Appellants AND TE KIRI WHERO EWA MAKARETA MITCHELL Respondent Hearing: 4 November 2008 Court: Glazebrook, Robertson and Baragwanath JJ Counsel: D F Dugdale and G J Dennett for Appellants J P Kahukiwa and J A Fong for Respondent Judgment: 2 December 2008 12 noonJUDGMENT OF THE COURT A The application for extension of time to appeal the decision in Pukeroa Oruawhata Trustees v Te Kiri Whero Ewa Makareta Mitchell 11 Waiariki MB 66 is dismissed. B The application for extension of time to appeal the decision in Re The Pukeroa Oruawhata Trust 12 Waiariki MB 1 is granted. C The following orders are made by consent: (a) The appeal in respect of Re The Pukeroa Oruawhata Trust 12 Waiariki MB 1 is allowed on the grounds:(i) The doctrine of res judicata is inapplicable; (ii) The case stated was unnecessary; (iii) The first sentence of para [16] of Judge Harvey's judgment of 19 December 2007 was incorrect. (b) We order that the case be referred back to the Maori Land Court. We direct that that Court continue its consideration of appellants' application under s 244 of the Te Ture Whenua Maori Land Act 1993. (c) We order that the appellants pay the respondent $4,000 for costs together with travelling expenses and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Baragwanath J)Context of application for extension of time to appeal[1] The appeal challenges a decision of the Maori Land Court, supported by the respondent Ms Mitchell and upheld on appeal to the Maori Appellate Court, that the six appellant trustees should have added to their number a seventh, an independent professional trustee. Mr Kahukiwa, for the respondent, told us that this is the first visit of Ngati Whakaue to this Court since 1912. That this appeal can be resolved by consent and referred back to the Maori Land Court, the proper authority for adjudicating upon the best interests of the Trust and the land owners it represents, is further evidence of the good sense and moderation of its members. Whether theorder increasing their number should be revisited is now for consideration by that Court. [2] "Ahu whenua" means cultivate the soil. It is used more broadly to signify putting assets to use. The Pukeroa Oruawhata Trust is an ahu whenua trust established by the Maori Land Court under ss 211 and 215 of Te Ture Whenua Maori Act 1993. [3] An ahu whenua trust may be constituted where to do so would promote and facilitate the use and administration of Maori land or general land owned by Maori (s 215(2)). The Court must be satisfied, before granting an application to constitute such a trust, that the owners of the land in question have had sufficient notice of it and opportunity to discuss and consider it and that there is no meritorious objection to the application among the owners, having regard to the nature and importance of the matter (s 215(4)). The assets of an ahu whenua trust are held in trust for the persons beneficially entitled to the land (s 215(5)). The constitution of the trust does not affect a person's entitlement to succeed to any beneficial interest in land vested in trustees for the purposes of the trust. [4] In this case the land comprises a large number of residential and commercial Maori land titles in and around the city of Rotorua. Three of the current trustees, Messrs Short, Harris and Wilson, have held office since 1980 when control of the lands (which had been administered by the Maori Trustee) was handed back to the Ngati Whakaue owners. Messrs Rangatauira and Kingi were appointed in 1982 and 1983 respectively. Mr Tapsell was appointed by the Court in 2003. [5] The six trustees seek an extension of time to appeal against two decisions of the Maori Appellate Court, delivered on 27 April 2006 (Pukeroa Oruawhata Trustees v Te Kiri Whero Ewa Makareta Mitchell 11 Waiariki MB 66) and 27 June 2008 (Re The Pukeroa Oruawhata Trust 12 Waiariki MB 1). The former upheld two orders of the Maori Land Court (Pukeroa Oruawhata Trustees v Te Kiri Whero Ewa Makareta Mitchell 227 Rotorua MB 285). The matter came before that Court on an application (which was granted) to vary the trust deed by introducing rotation of trustees. The order which is challenged in this proceeding was an order the Courtmade on its own motion, varying the trust deed by inserting cl 7(g) which requires appointment of a seventh trustee who would be an independent professional trustee. [6] In the 2008 decision, which came before the Maori Appellate Court by way of case stated, the Court held that the decision to appoint an extra trustee could not be revisited on an application to vary the deed because that would offend against the principle of res judicata. [7] The appeal against the 2006 decision is well over two years out of time. The appeal against the 2008 decision is just over two months out of time.Underlying contentions[8] The trustees contend that the order varying the trust deed so as to require appointment of the seventh trustee was unlawful. Section 244 of the Te Ture Whenua Land Act 1993, which empowers variation of a trust, states:244 Variation of trust (3) The Court may not exercise its powers under this section unless it is satisfied— (a) that the beneficiaries of the trust have had sufficient notice of the application by the trustees to vary the trust and sufficient opportunity to discuss and consider it; and (b) that there is a sufficient degree of support for the variation among the beneficiaries.The trustees contend that there was no such consultation or support. [9] An alternative route to variation can commence via s 231 as to review of trusts, but that section, in empowering the court to exercise its powers under section 244, encounters the same problem. [10] A third route, via s 237, is to rely on the power of the Maori Land Court to exercise the jurisdiction of the High Court in respect of the trusts generally. But it is apparent from the authorities cited in Re Philips New Zealand Ltd [1997] 1 NZLR 93at 99 – 100 (HC) that the general law of variation of trusts imposes similar safeguards of consultation and justification as are required by s 244. [11] A fourth logical option is s 239(1) which provides:239 Addition, reduction, and replacement of trustees(1) The Court may at any time, on application, in respect of any trust to which this Part applies, add to or reduce the number of trustees or replace 1 or more of the trustees.But it is common ground that there was never any application under that section. [12] Moreover in considering whether to exercise jurisdiction under s 239, which contemplates a simpler procedure for increasing the number of trustees, the Maori Land Court would no doubt reflect on whether the nature of the variation sought, entailing the introduction of an independent professional trustee, should be seen as a matter of such moment as to warrant recourse to the full s 244 procedure. [13] It is the appellant's contention that s 2(2) of the Act emphasises the exercise of rangatiratanga by the owners. That section states: it is the intention of Parliament that powers, duties, and discretions conferred by this Act shall be exercised, as far as possible, in a manner that facilitates and promotes the retention, use, development, and control of Maori land as taonga tuku iho by Maori owners, their whanau, their hapu, and their descendants, and that protects wahi tapu.[14] The respondent's contention emphasises the history of the trust, recounted in the 2006 decision of the Maori Appellate Court. Until 1993 the Trust was a largely passive leasing trust. In that year the claim of Ngati Whakaue to railway lands in Rotorua was settled by the transfer of a large area of railway reserve to a subsidiary of the trust. It was bare land with no leases of any substance, no income and an accumulating rates burden of some $200,000 per annum which, with penalties, resulted in a debt of over $1m. By attracting large-scale commercial development, as at 31 March 2005 the trust assets were valued at $76.4m with operating revenue of $6.2m and a net cashflow of $2.7m. In 2005 the trust declared dividends of $202,000 comprising some 37 per cent of the net profit of the trust's operations. The rates liability had been cleared long since.[15] Despite what the Maori Appellate Court termed the enormous hard work put in by the trustees, they received limited financial compensation until a variation of the trust order in 2003, which granted remuneration at broadly commercial rates. [16] At the time of the 2006 judgment the trust and its subsidiaries were in the course of planning additional development of the trusts urban lands which would be of a value exceeding $60m.The 2006 decision[17] In its judgment of 27 April 2006 the Maori Appellate Court stated:[33] It is true that only a minority of shares and shareholders supported the variation. It is true also that there is a risk in introducing an element of democracy into trustee's accountability – it might indeed prove something of a distraction to trustees who must be focused on protecting the trust asset come what may. There is also a risk that unfit trustees will be elected. This may indeed introduce instability to the trust and reduce the overall credibility of the organisation as a large player in the Rotorua retail property market. And we agree that there is an element of unfairness in introducing the ballot box to trustees who have worked solidly for 25 years to bring the trust to the success story that it so clearly is today – particularly given that for most of those years, the work was done for no or mere token remuneration. [34] But there is a principle which must in the end transcend these concerns. The Ngati Whakaue people who are beneficiaries of this trust, are the substantive owners of this land. In our view, we are well past the time when the role of Mäori land owners is merely to receive dividends and be occasionally consulted by otherwise unaccountable trustees. Owners must now be seen as having a right to participate directly and regularly in the choice of their representatives at trustee level, and by that means, to contribute to the strategic direction of the business. Far from militating against direct involvement by beneficial owners, the size and substance of the Pukeroa Oruawhata Trust makes the necessity for elections even greater in our view. (c) Risk unskilled trustees[38] Potential instability through the election of unskilled or inexperienced trustees can be a real risk. But it is to be remembered that even if elections are held, ultimately appointments are made by Court order. While the Court will always be guided by the collective voice of the beneficial owners, it is not bound by their view. There may be rare cases where the Court considers it imprudent to accede to the expressed wishes of beneficial owners in their choice of trustees. In any event such risks can be adequately guarded against by imposing basic qualification requirements on those seeking office. By this means, the owners can exercise effective control in selecting their representatives without putting the land or the business of the trust at risk.The larger or more complex the business of the trust, the more onerous the qualification standard should be. In our view, such requirements are specifically contemplated by s 222(2)(a) which provides: "The court, in deciding whether to appoint any individual or body to be a trustee of a trust constituted under this Part of this Act, (a) shall have regard to the ability, experience, and knowledge of the individual or body." [39] The level of the requirements must bear in mind the size of the trust and the nature of its business and so on. In other words they must depend on the case. [40] In this case for example, bearing in mind the business, scale and revenue of the trust, prospective trustees should have had at least seven years experience in a Mäori land governance or management role or in law or commerce or, alternatively, to have completed an NZQA approved tertiary qualification in Mäori land or business administration or management.(d) Penalising Existing Trustees[41] While the introduction of elections after all the trustee's hard work may seem unfair to some, in truth it is a recognition of their outstanding success. Their very success has made it inevitable that the trust would be propelled to a new stage in the developing role of the beneficial owners. The more successful the trust is, the more interested the owners will be in its management. This is something that trustees should be proud of. [46] The trustees opposed the decision of the Court to increase the number of trustees to seven. It was submitted by Mr Dennett [for the existing trustees] that the trustees saw the increase in the number of trustees as an alternative to rotation but did not expect orders to be made imposing both requirements on the trust. That is as may be, but it is clear to us in considering a trust of this scale that it would be imprudent to maintain an even number of trustees over a long period. In addition, the creation of another trustee's position provides a useful opportunity to introduce a further safeguard and meet the current trustees' concerns in relation to governance standards. The seventh trustee will be an independent professional trustee nominated by the existing trustees after consultation at the next Annual General Meeting of beneficiaries. Within one month of such AGM, the trustees shall make application to the Court for the appointment of the independent trustee accordingly. This trustee will hold office for five years but will be eligible for re-nomination following consultation with the beneficiaries at the end of his/her tenure.The Maori Appellate Court made the challenged direction for appointment of a seventh, independent, trustee by varying the trust order with the insertion of cl 7(g).[18] With his usual candour, Mr Dugdale, for the appellant accepted that the absence of an appeal from the 2006 decision of the Maori Appellate Court to this Court could, given the quality of the trustees, be viewed only as an election to accept the decision. A belated change of mind to challenge a decision after all will rarely be a contender for an extension of time: see Reid v Tararua District CouncilCA72/05 20 June 2005. [19] Mr Dugdale did not argue otherwise. His contention was simply that to give an extension of time to appeal against that decision would be a convenient mechanism for achieving a practical result. But our advice during argument that we were minded to grant leave to appeal against the 2008 decision allowed both parties to agree to a consent order in the form recorded at [27] below. It is not necessary or appropriate to grant an extension in respect of the earlier decision.The 2008 decision[20] The 2008 decision of the Maori Appellate Court arose from the appellants' further application of 8 November 2006 for variation of the trust seeking deletion of clause 7(g). On 7 December 2006 Judge Harvey in the Maori Land Court adjourned the application until a meeting of the beneficial owners had been held to consider the Maori Appellate Court's decision to add an independent trustee. At a hui of owners on 24 March 2007, a majority of some 70 persons voted in favour of such deletion. Following a further hearing on 8 November 2007, Judge Harvey's reserved judgment was delivered on 19 December 2007. In his judgment he stated:[16] But I do not accept that this Court can override the Appellate Court judgement and delete clause 7(g) simply on the basis of an application for variation of trust. The Appellate Court orders are clear. The trustees have not taken steps to procure a nominee for the independent trustee position. They have not taken steps to appeal or seek a judicial review. [17] Despite the argument of counsel, I am not persuaded that this Court is possessed of the necessary jurisdiction to grant the present applicant and vary the trust order to delete the very clause inserted by the Māori Appellate Court without the express leave of that court.We have emphasised the first sentence of [16] which both parties agree was incorrect (see [27](2)(c) below).[21] On 13 February 2008, the Maori Appellate Court gave judgment on appeal from that decision brought by way of case stated by Judge Harvey for its opinion. The questions for that Court were:(a) Does section 244(3) apply to a variation of a trust order, including a variation made by the Maori Appellate Court or can the powers of the High Court in respect of trust(s) be invoked to vary a trust order without the need to apply section 244(3)? (b) Does the definition of "independent professional trustee" simply mean, in the context of these proceedings, independent of the owners or something else?[22] The Appellate Court stated:[26] It is quite clear from the transcript of the hearing in the lower court that the trustees were not happy with the decision of the Maori Appellate court to impose a seventh trustee and that they sought to circumvent the decision by making application to the lower court for a variation of the trust order which would remove the offending clause 7(g), once they had the support of the beneficial owners. [27] However, it is our view that it is not open to the trustees to try and get around the Maori Appellate court decision in this way. [28] Our reasons for this are based on the doctrine of res judicata. The principles relating to the doctrine are set out in Chapter 7 entitled "Legal Nature of Powers" in Administrative Law (9th edition) by H W R Wade and C F Forsyth (Oxford University Press 2004). Res judicata is discussed at page 243 and following. The definition of res judicata is given as follows: "One special variety of estoppel is res judicata. This results from the rule which prevents the parties to a judicial determination from litigating the same question over again, even though the determination is demonstrably wrong. Except in proceedings by way of appeal, the parties bound by the judgment are estopped from questioning it. As between one another, they may neither pursue the same cause of action again, nor may they again litigate any issue which was an essential element in the decision" (at p 243). [29] There is no doubt in our minds that this Court determined the issue of whether there should be a seventh trustee for the Pukeroa Oruawhata Trust in the decision of 27 April 2006. The trustees' application for a variation of trust to remove the provision requiring a seventh trustee from the trust order is clearly an attempt to re-litigate that issue. Counsel for the trustees valiantly attempted to persuade us that a new situation presented itself to the Court. The "newness" arose from the Court now being apprised of the beneficial owners' views as to the necessity of a seventh trustee. The difficulty we see with that argument is that the proper course to follow if a party is dissatisfied with the decision of the Court is to appeal to a higher Court. Going to the lower court to revisit the question falls, in our opinion,fairly and squarely under the rubric of res judicata. If we allowed this kind of circularity of process there would be no end to the litigation.[23] It therefore declined to answer the first question posed by Judge Harvey stating:[36] In our view the application in the lower court for a variation pursuant to section 244 of Te Ture Whenua Maori Act 1993 to remove clause 7(g) ought to be dismissed on the basis that the issue is res judicata.[24] We are not concerned with the second question. [25] But the doctrine of res judicata can have no application in cases where, as here, the statute permits successive applications to be made. Section 231(2) permits the trustees or beneficiaries to apply for review at intervals of not less than 24 months. Section 244, which may be activated only by trustees, does not contain any limit on the intervals at which applications can be made. While that section does not refer explicitly to the power to apply repeatedly, s 16 of the Interpretation Act 1999 states:16 Exercise of powers and duties more than once(1) A power conferred by an enactment may be exercised from time to time. (2) A duty or function imposed by an enactment may be performed from time to time.[26] It follows that the foundation of the Maori Appellate Court's judgment was unsound.Decision[27] We withdrew to allow counsel to take instructions. They returned with a joint invitation for us to make the following orders which, together with an order for extension of time, we now pronounce: (1) The appeal in respect of the 2006 decision of the Maori Appellate Court is dismissed.(2) The appeal in respect of the 2008 decision is allowed on the grounds: (a) The doctrine of res judicata is inapplicable; (b) The case stated was unnecessary; (c) The first sentence of para 16 of Judge Harvey's judgment of 19 December 2007 was incorrect. (3) We order that the case be referred back to the Maori Land Court. We direct that that Court continue its consideration of the trustees' application under s 244 of the Te Ture Whenua Maori Act which had culminated in the 2008 decision. (4) The parties acknowledge that, there being no stay of the Maori Appellate Court's 2006 decision, as required by that decision the matter of the seventh trustee must be placed on the agenda of the Trust for its annual general meeting of 6 December 2008. (5) While the appeal has succeeded in certain respects and not in others this appeal may be regarded as effectively an application for directions and it is appropriate that the respondent should receive $4,000 for costs together with travelling expenses and usual disbursements.Solicitors: Lance Lawson, Rotorua for Appellants Corban Revell, Waitakere City for Respondent