WAHO V OLSEN-RĀTANA CA677/2014 [2014] NZCA 612

WAHO V OLSEN-RĀTANA CA677/2014 [2014] NZCA 612 [15 December 2014]IN THE COURT OF APPEAL OF NEW ZEALANDCA677/2014[2014] NZCA 612BETWEEN TONI JAMES DAVIS WAHOAppellantAND TINA OLSEN-RĀTANAFirst RespondentTE KŌHANGA REO NATIONALTRUSTSecond RespondentHearing: 28 November 2014Court: Ellen France P, Harrison and French JJCounsel: F E Geiringer for AppellantM McClelland QC and E Coburn for First RespondentN H Russell and S I Jones for Second RespondentJudgment: 15 December 2014 at 10 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the second respondent costs for a standard appeal on a band A basis and usual disbursements.C No order for costs in respect of the first respondent.____________________________________________________________________REASONSEllen France P and French J [1]Harrison J [52]ELLEN FRANCE P AND FRENCH J(Given by French J)Introduction[1] Mr Waho was a trustee of the Te Kōhanga Reo National Trust (the Trust). Amajority of his fellow board of trustees (the Board) believe he has brought the Trust into disrepute. They have therefore removed him as a trustee.[2] Mr Waho brought an action in the High Court prior to his removal. He argued that his removal would be in breach of trust and sought interim relief restraining the Board from removing him.[3] The application for interim relief was heard by MacKenzie J. The Judgefound that Mr Waho's claim in relation to his removal did not disclose an arguablecase and declined his application.1 Mr Waho now appeals that decision. Although Mr Waho has since been removed, the Trust does not take the point that the appeal is now moot. It has undertaken that if the appeal is successful, it will immediately reinstate Mr Waho.Background[4] In October 2013 the media published allegations of financial impropriety bythe management of Te Pātaka Ōhanga Ltd (TPO), the Trust's commercial arm and itswholly owned subsidiary. Amid further allegations, the Minister of Education commissioned a review of the Trust's activities by Ernst & Young. TPOindependently commissioned an investigation by an auditor, George Reedy. Hereported that the company's former chief executive, Lynda Tāwhiwhirangi, hadmisused her credit card and obtained unauthorised payments of more than $10,000.In late 2013 steps were taken to dismiss Mrs Tāwhiwhirangi and recover themisappropriated funds.1 Waho v Olsen-Rātana [2014] NZHC 2729.[5] Mrs Tāwhiwhirangi is the daughter-in-law of another trustee Dame IritinaTāwhiwhirangi. Dame Iritina is also the chair of the Board of TPO.[6] It is common ground that before being dismissed Mrs Tāwhiwhirangi soughta severance payment of $400,000. When that was rejected, her husband Mr Tāwhiwhirangi gave Dame Iritina (his mother) an eight page documentcontaining a number of allegations of financial impropriety on the part of other members of TPO and the trustees of the Trust. The allegations included matters that appeared to amount to criminal offences. Mr Waho further contends that Mr Tāwhiwhirangi demanded a payment of $800,000 and said that if it was not paid, he would give the allegations to the media.[7] According to Mr Waho, there was support for making a payment from some of the other trustees. This is disputed. Mr Waho says this support was of concern to him and that he and Ms Barrett (a director of TPO) took the position that the allegations needed to be investigated and that no money should change hands. Mr Waho further says he advised the Trust's co-chair, the first respondent, on 21 December 2013 that he was considering going to the Serious Fraud Office (the SFO) unless the allegations were thoroughly investigated. He was assured they would be investigated.[8] At meetings held in January and February 2014, the Board purported to dismiss Ms Barrett as a director of TPO and replace her with a trustee who had earlier spoken out in favour of making a payment. Mr Waho contends that these moves were part of a plan to commence negotiations with Mr and Mrs Tāwhiwhirangi.[9] On 10 March 2014 Mr Waho wrote a lengthy letter to his fellow trustees. He detailed recent events and set out four steps which he considered the Board was required to take – in particular, to launch an investigation into each of Mr Tāwhiwhirangi's allegations; to insist that no payments be made toMrs Tāwhiwhirangi; to require TPO to report back on a plan to recover the funds misappropriated by her; and to inform the police, the SFO and Ministers of theCrown of Mr Reedy's findings, the allegations made by Mr Tāwhiwhirangi and hisattempt to blackmail the Board.[10] Mr Waho concluded that:If the Trust Board will not agree to do these things collectively then I believe I will have no option but to report the issues to the proper authorities independently.[11] On 12 March Ernst & Young delivered its final report.[12] The Board planned to discuss the report and Mr Waho's letter at a meeting tobe held the following day on 13 March.[13] However, the meeting never took place because the first respondent cancelled it at very short notice. The reason given for the cancellation was to allow the Board time to obtain advice about a letter received from Ms Barrett, making similar allegations to those made by Mr Waho. Mr Waho says the reason given for the cancellation was just a pretext to prevent his concerns being ventilated. This is disputed.[14] The trustees then agreed to hold a hui to discuss all matters in accordance with tikanga.[15] The Board had earlier arranged to meet two Ministers of the Crown on 18 March to discuss the Ernst & Young report and its public release. The report largely exonerated the Trust of any misuse of public funds. However the report writer was unaware of Mr Tāwhiwhirangi's allegations.[16] Mr Waho says he realised that the discussion with the Ministers would involve the trustees giving assurances that all was well with the Trust. He believed it would be wrong to do so while not revealing the existence of Mr Tāwhiwhirangi'sallegations.[17] Mr Waho then emailed his fellow trustees. He told them he was still committed to the hui and the tikanga process. However he stated that if the meeting occurred before the hui, he could not keep things hidden from the Ministers.[18] The first respondent, Ms Olsen-Rātana, attempted to defer the meeting withthe Ministers until after the hui but was unsuccessful.[19] On 17 March Mr Waho sent both Ministers a copy of his 10 March letter. His covering letter stated:I am due to meet with you tomorrow together with the rest of Te KōhangaReo National Trust Board. The purpose of that meeting is to discuss the Ernst and Young report. I am writing to alert you to certain matters relatedto the use of funds by the Board and its commercial arm, Te Pātaka ŌhangaLimited. I do not believe it would be honest to discuss the report with you and not reveal these other matters.Attached is a letter dated 10 March 2014 which I sent to my fellow trustees. That letter sets out a brief history of events and records my concerns at that time.I have been unable to convince my fellow trustees to address these concerns collectively. The meeting arranged to discuss those issues was cancelled .I therefore feel compelled to raise these matters with you directly.[20] Following receipt of the letter, a ministerial staff member contacted Mr Waho and asked him if he intended to raise his letter at the meeting with the Ministers. Mr Waho said he would leave it to the Ministers to decide if they wished to raise it.[21] It appears the Ministers may not have fully appreciated the significance of the letter. In any event, they did not raise the letter at the meeting with the trustees and went on to make a public announcement clearing the Trust of wrongdoing. Twenty-four hours later however the Ministers made another public announcement saying they had new information which they would refer to the SFO. The new information was Mr Waho's correspondence.[22] The Board hui took place on 22 March 2014. According to Mr Waho, although Board members had different views about recent events, it was a cordial meeting. He further claims it was agreed that they should all put aside their past differences and work together for the benefit of the Trust. Mr Waho also states therewas general agreement that all trustees would resign at a national hui to be held in April.[23] The next thing that happened from Mr Waho's perspective was that a meeting was called on 31 March 2014 to consider whether he had brought the Trust into disrepute by writing to the Ministers. At that meeting a majority of the other trustees said they thought he had brought the Trust into disrepute but that no action should be taken against him.[24] On 10 June 2014 the SFO advised the Board that its investigation disclosed no criminal offending. Mr Waho questions this report and claims it is based on misleading information supplied to the SFO.[25] On 27 August 2014 the trustees resolved again at a special meeting that Mr Waho had brought the Trust into disrepute. A further meeting was then called to have him removed as a trustee.[26] That prompted Mr Waho to file proceedings in the High Court seeking an interim injunction. Mr Waho's amended statement of claim filed on 19 September 2014 makes numerous allegations against his fellow trustees. His primary cause of action alleges unlawful exclusion of him from trust business. He also pleads that the first respondent had been misusing her role as co-chair and trustee by actively preventing proper investigation of allegations of misconduct made by Mr Tāwhiwhirangi against the Trust or TPO; had misled the responsible Ministers of the Crown, the SFO and the public in relation to those allegations; had attempted to cover up or prevent the Trust or TPO from properly dealing with the allegations; had failed to take steps to protect and retrieve trust property from being lost or harmed; and had falsely claimed that the Board had made decisions on matters which had never been considered.[27] On 25 November 2014 the Board informed Mr Waho it had passed a resolution with a majority of over 75 per cent of trustees to remove Mr Waho because he was unfit or unsuitable to continue in office as a trustee.[28] The reasons given in evidence for the decision to remove Mr Waho areconveniently summarised in the affidavit of the Board's co-chair, Dr Karetu:(a) Mr Waho had directly contacted Ministers to advise of allegations of financial irregularities in the management of the Trust without theBoard's knowledge and consent. In doing so he had pre-empted any Board decision or effective response to the allegations. He took this step knowing that the Board had attempted to postpone the meeting scheduled with the Ministers on 18 March and that there would be a further Board meeting on 23 March convened specifically to discuss his allegation.(b) Mr Waho was not abiding by the kaupapa or practice or policy of the Board which dictates that any issue should be discussed collectively. The Board then votes on a course of action to which all members abide, regardless of personal views. Board members unable to comply with that practice should resign.(c) The Board had lost confidence in Mr Waho because of his conduct.Trust deed[29] Clause 6.3 of the Trust deed provides:A Trustee may be removed from Office by a 75% majority vote of the Trustees present voting at a meeting duly constituted for the purpose of considering the fitness or suitability of the Trustee in question. A meeting to consider the fitness or suitability of Trustee to continue as Trustee may be called by simple majority of the Board if:6.3.1 The Trustee has been absent without consent of the Board for 3 successive meetings of the Board; or6.3.2 The Trustee has brought the Trust into disrepute.[30] MacKenzie J considered Mr Waho's application for interim relief by reference to the settled two stage approach of inquiring whether there was a seriousquestion to be tried and, if so, where the balance of convenience lay.2 On the threshold inquiry into whether Mr Waho had a seriously arguable case MacKenzie J found:[17] When the interpretation of cl 6.3.2 is viewed against that background, I do not consider it is seriously arguable that the question of whether a trustee has brought the Trust into disrepute is other than a question to be decided, in the first instance, by an exercise of judgement by the trustees, reflected in a decision of the majority of the trustees. That decision would be reviewable by the Court only on the limited grounds to which I have referred.[18] I am not satisfied that the plaintiff has demonstrated a seriously arguable question to be tried that cl 6.3.2 imposes a condition precedent which requires a decision other than one made by the trustees in the proper exercise of their powers under the Trust Deed. I am also not satisfied that the plaintiff has demonstrated a seriously arguable case that the decision of the trustees falls within the range of situations which are reviewable by the Court. On this interim application, it is best that I say no more than that on the question.[31] On the question of the balance of convenience, the Judge concluded as follows:[20] I do not consider that the balance of convenience justifies the intervention of the Court. All of the trustees are bound to have regard in the best interests of the Trust. Neither Mr Waho nor any of the other trustees have any personal interest to protect. Their interests are solely as trustees. It seems from the extensive affidavit evidence filed, which I have not found it necessary to discuss, that there is a serious risk of dysfunctionality in the operation of the Board. Nothing which I have said should be taken as indicating any view on the steps taken by the trustees in relation to the plaintiff. But, whatever the merits may be, I see no basis on which the Court should intervene, to preserve his position as a trustee.[32] In view of these findings it was unnecessary for the Judge to address any relevant discretionary factors.Decision[33] In support of Mr Waho's appeal Mr Geiringer submitted that MacKenzie J erred at both stages of his inquiry.2 It is clear MacKenzie J was applying the law as set out in American Cyanamid Co v Ethicon Ltd[1975] AC 396 (HL) and Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).Seriously arguable issue[34] First, Mr Geiringer submitted that the Judge erred in finding that Mr Waho had failed to show a seriously arguable issue. He identified the Judge's particularerror as a finding that cl 6.3.2 vested the trustees with a discretionary power and that the decision on whether Mr Waho had brought the Trust into disrepute was one of judgment for the Board alone.3 Mr Geiringer maintained his argument in the High Court that cl 6.3.2 imported the condition precedent which was arguably not satisfied.[35] Alternatively, Mr Geiringer submitted, it was seriously arguable that Mr Waho had shown that the Court's interference with the trustees' discretion – if the Judge was correct in describing it as such – was justified. In support, he submitted that no reasonable board could have decided that Mr Waho had brought the Trust into disrepute. Thus its decision to consider his removal was perverse or capricious or was an act of bad faith or done with improper motive.[36] We see merit in Mr Geiringer's argument that the Judge erred in finding thatthe threshold requirement for considering removal – that a trustee has brought the Trust into disrepute – is one of judgment for the Board. In our view the wording of the Trust deed supports the view that the trustees must satisfy themselves that there is an objectively supportable factual foundation for asserting that a trustee has brought the Trust into disrepute before determining that question in exercise of their collective judgment. If that threshold is satisfied, then we accept that it is also aquestion for the Board's judgment or evaluation whether the trustee should beremoved on the ground that he or she is unfit or unsuitable to hold office. It is a two stage process.[37] The issue therefore is whether Mr Waho can seriously argue that the Board did not have a sufficient factual basis for considering the resolution.[38] As will be readily apparent, many of the critical facts are in dispute.3 At [17].[39] On Mr Waho's version of events, he emerges as a principled whistleblowerwho far from bringing the Trust into disrepute was concerned to protect the Trust and discharge his responsibilities as a trustee.[40] On the respondents' version of events, Mr Waho made statements thatimpugned and discredited the collective character of his fellow trustees and hence the Trust without reasonable justification.[41] We are obviously not in a position to resolve those conflicts at this preliminary stage. None of the evidence has been tested. Much may turn forexample on whether the Board meeting scheduled to discuss Mr Waho's letter wascancelled for genuine reasons or whether as Mr Waho claims it was part of a cover-up.[42] Aspects of Mr Waho's conduct are certainly questionable. But in our view itis impossible to say at this early stage with the necessary degree of confidence that he does not have a seriously arguable case that he was wrongly removed.[43] Unlike Harrison J we would not therefore dismiss the appeal on that ground.[44] For reasons which we now explain we are however all agreed that the balance of convenience is decisive against Mr Waho.Balance of convenience[45] Mr Geiringer submitted that it was in the interests of justice to grant the injunction and so preserve the status quo as it was when the proceedings were launched. He contended that should Mr Waho be removed but later vindicated, steps may have been taken in the interim that are irreversible. The Court would thereby be rewarding and facilitating bad behaviour. Conversely, there was in his submission no readily identifiable prejudice to the respondents if Mr Waho were to be reinstated pending the final determination of the case.[46] We do not accept those submissions.[47] Mr Waho's removal from the Board does not endanger his personal interests or place him at any personal disadvantage. Instead, it allows him to pursue his allegations of wrongdoing by fellow trustees freed from the constraints of collective responsibility. Any steps taken by the trustees which exclude Mr Waho from the decision making process will be subject to public scrutiny.[48] Additionally, as MacKenzie J noted, it would be contrary to the Trust'sinterests to reinstate Mr Waho even temporarily while his serious allegations of misconduct by Ms Olsen-Rātana and his application to remove all his fellow trusteesremained at large for determination by the High Court. It would compound the degree of dysfunctionality to which, on any view of it, Mr Waho has himself contributed. Mr Geiringer himself emphasised what he called the picture of a Board divided between open and honest behaviour epitomised by Mr Waho and "behaviour that is none of those things" – that is, covert and dishonest conduct by another or other trustees. Moreover, in his affidavit Mr Waho asserts that he has "lost all faith in the Board and its integrity" and wants to see it "dismantled". A Board exercisingsuch an important public function as this entity cannot continue to function effectively in such an environment of discord.[49] For these brief reasons, we are satisfied that the balance of convenience is determinative against Mr Waho with the result that Mr Waho's appeal is dismissed.[50] Costs are to follow the event in the usual way. Mr Waho must pay theBoard's costs for a standard appeal on a band A basis and usual disbursements.Mr Geiringer sought an order for payment of the parties' legal costs out of trustfunds under s 71 of the Trustee Act 1956. We see no basis for allowing that course here. We add that, although represented by counsel, the first respondent took no active role in the appeal. Accordingly, her costs lie where they fall.[51] It is in the best interests of all parties that Mr Waho's substantive claim forreinstatement and for orders removing his fellow trustees should be determined promptly. Mr Waho should seek an early fixture for trial in the High Court. Our expectation would be that the Board cooperates in expediting the proceeding for trial.HARRISON J[52] I agree with the majority that the appeal should be dismissed on the ground that the balance of convenience is against Mr Waho and that he should pay costs as ordered.[53] However, I would also dismiss the appeal on the separate ground that Mr Waho has failed to establish a seriously arguable question for trial.[54] Mr Waho applied for an interim injunction restraining the Board from acting on its resolution to remove him from office. In my judgment Mr Waho cannot seriously argue that the Board did not have a sufficient factual basis for considering the resolution. The Trust has no legal identity separate from its assets and must operate through its Board of trustees. It follows that a trustee will bring the Trust into disrepute if he or she makes statements which discredit or impugn the collective integrity of his or her fellow trustees.[55] The message conveyed in Mr Waho's 17 March letter was unequivocal. Itwas that his fellow trustees were failing without reasonable cause to act on serious allegations of misuse of funds by individual trustees, the Board collectively and TPO management and staff. He was implying that their inactivity was based on self interest or self protection, in collective derogation of their obligation to act in theTrust's best interests. Mr Waho's 17 March letter to the Ministers could only be construed as impugning or discrediting the collective integrity of his fellow trustees.[56] The threshold question of whether the Board had a sufficient factual basis for considering the resolution does not require an evaluation of the merits of his complaints about the Board. It does not matter, for example, whether the Board had taken seriously his complaints in December 2013, or had purported to remove a fellow trustee because she opposed a payment to the former chief executive officer, or gave a false reason for cancelling a meeting.[57] Those facts may be material to determination at trial of the separate question of whether the Board acted unreasonably in concluding that Mr Waho was unfit for office. His claim may be advanced if he were able to portray himself as a principledwhistleblower who was performing the wider public duty of challenging a corrupt or inept Board. But the inquiry at this stage is significantly more limited.[58] On the state of the evidence presently before the Court, I do not think it can be seriously arguable, once it was satisfied on factual grounds that Mr Waho had brought the Trust into disrepute, that the Board acted unreasonably in exercising its judgment to remove Mr Waho. In particular I refer to these factors:(a) The genesis of the adverse publicity generated from October 2013 onwards was primarily an allegation of credit card misuse by Lynda Tāwhiwhirangi. One Minister had reacted immediately bycommissioning a report from a reputable professional firm. A finalcopy of Ernst & Young's report was not available for consideration bythe Board until 12 March.(b) It was incorrect of Mr Waho to seek to characterise the report as being limited only to an investigation into the use of credit cards with consequent recommendations to prevent misuse. While the report did not investigate specific allegations of fraud, such as those produced byMr Tāwhiwhirangi, its authors considered, and found no cause for concern about, a range of other aspects of the Trust's financialgovernance including payroll, revenue and cash receipting,administration of funds of behalf of Kōhanga Reo, expenses andrelated party payments. The firm was satisfied that the Trust'sprocesses were satisfactory. In particular Ernst & Young advised that the Trust had acted on its recommendation that, where the Board authorised a payment following an in-committee discussion, its authority should be recorded in the minutes with the essence of thereason for the Board's view that the particular payment is aligned to the Trust's purpose.(c) George Reedy's separate report identified specific instances ofMrs Tāwhiwhirangi's misuse of a company credit card. TPO tooksteps in late 2013 to remove her from office and recover unauthorised funds.(d) Mr Tāwhiwhirangi's allegations, which formed the basis ofMr Waho's 10 March letter to the Board, were wide ranging and lacked coherence. Mr Waho himself described the document as"messy" and "aimed at providing excuses for Mrs Tāwhiwhirangi's actions". Significantly, Mr Waho was of the opinion that "many things in it are provably false". It follows that without a preliminary analysis by the Board of the credibility or reliability of the allegations the Board could not responsibly take the steps demanded by Mr Waho.[59] Mr Waho must have recognised in his capacity as a trustee that the appropriate course for a Board acting responsibly in these circumstances in relationto his 10 March letter would be to meet and determine whether Mr Tāwhiwhirangi'sallegations appeared credible and, if so, to identify any allegations which required further investigation. In undertaking this step the Board would review Mr Tāwhiwhirangi's allegations against the benchmark of the investigationsconducted by Ernst & Young and Mr Reedy. A measured, balanced and careful assessment would be required before the Board took any affirmative action. A board would not lightly refer Mr Tāwhiwhirangi's allegations to the SFO, for example,given the likely adverse consequences for individuals who may be subject to investigation.[60] By communicating directly with the Ministers on 17 March, Mr Waho unilaterally pre-empted the Board's opportunity to give measured consideration tohis letter and proposed course of action. His 10 March letter had concluded with a thinly veiled threat to publicise Mr Tāwhiwhirangi's allegations if the Board did notfollow his demands. As the Board itself noted when advising Mr Waho of its opinion that he had brought the Trust into disrepute, he acted in the knowledge that Ms Olsen-Rātana had attempted to postpone the scheduled meeting with theMinisters and that the Board planned to meet on 23 March to discuss his allegations.His conduct was the direct antithesis of the collective responsibility required for Trust decisions.[61] It is also relevant that the SFO specifically investigated Mr Tāwhiwhirangi'sallegations and a number of loans made by TPO to staff and whānau. It concludedthere was no criminal wrongdoing, noting that corporate governance failures were being addressed.[62] I would add, however, that questions would arise about the Board'scompetence and integrity (separately from Mr Waho's suitability for office) ifevidence emerged that it did consider seriously a proposal to pay Mr or Mrs Tāwhiwhirangi a substantial sum in order dissuade either of them from going tothe media.[63] Accordingly, I am satisfied that Mr Waho has not shown a seriously arguable issue for trial. His appeal can be dismissed on this ground alone.Solicitors:Phil Mitchell, Wellington for AppellantDLA Phillips Fox, Wellington for First RespondentChen Palmer, Wellington for Second Respondent