Pirihira Fenwick, Wiremu Kingi and Hiwinui Heke v Jillian Naera, Kereama Pene, Anaha Morehu, Warwick Morehu aAnd Eric Hodge

• Jurisdiction: New Zealand
• Judge: McGRATH,Glazebrook,,Regan,Blanchard JJ
• Judgment Date: 20 May 2015
• Neutral Citation: [2015] NZSC 68
• Docket Number: SC 95/2013
• Court: Supreme Court
• Date: 20 May 2015

Between

Pirihira Fenwick, Wiremu Kingi and Hiwinui Heke

Appellant

and

Jillian Naera, Kereama Pene, Anaha Morehu, Warwick Morehu and Eric Hodge

First Respondents

Tai Eru

Second Respondent

[2015] NZSC 68

Court:

McGrath, William Young, Glazebrook, O'Regan and Blanchard JJ

SC 95/2013

IN THE SUPREME COURT OF NEW ZEALAND

Appeal by trustees against a Court of Appeal (CA) decision that some of the trustees had been disqualified by a conflict of interest from voting on a resolution to enter into a joint venture arrangement — trust was constituted under Te Ture Whenua Maori Act 1993 (TTWMA) — trustees argued that that s227 and s227A TTWMA were intended to be a code to deal comprehensively with trustee participation and decision making where there were conflicting interests and that common law did not apply — whether general trust principles applied to conflicts of interests under TTWMA — whether the transaction was voidable under the rule against self-dealing or whether this rule was limited to purchases — whether there was a limited interest exception to the rule against self-dealing — whether the beneficiaries had an automatic right to rescission.

Counsel:

D G Hurd and J F Anderson for Appellants

F E Geiringer and M I de Villiers for First Respondents

No appearance for Second Respondent

• A The appeal is allowed in part and the matter remitted to the Maori Land Court to decide on the conflicts and on the consequences of a breach of s 227A of the Te Ture Whenua Maori Act 1993 in light of this judgment.

• B The reasonable costs and disbursements of the first respondents are to be paid by the Whakapoungakau 24 Ahu Whenua Trust (the Tikitere Trust).

• C The question of costs in the Maori Land Court, the Maori Appellate Court and the Court of Appeal should (if an application is made) be considered by those Courts in light of this judgment.

JUDGMENT OF THE COURT

REASONS

McGrath, Glazebrook, O'Regan and Blanchard JJ	[1]
William Young J	[145]

McGRATH , Glazebrook, O' Regan AND Blanchard JJ (Given by Glazebrook J)

Table of Contents

	Para No
Introduction	[1]
Relevant statutory and trust provisions	[4]
More detailed background	[7]
Tikitere Trust	[7]
The trustees of the Tikitere Trust	[11]
Tikitere Geothermal	[13]
The other trust parties	[14]
The land and the geothermal resource	[15]
Joint venture agreement	[18]
Other agreements	[21]
Meetings	[25]
Procedural history	[26]
Maori Land Court	[26]
Maori Appellate Court	[31]
Leave application to this Court	[40]
The parties' submissions	[43]
The Trustees' submissions	[43]
The Beneficiaries' submissions	[47]
Issues	[50]
What is the scope of ss 227 and 227A of the Act?	[52]
Alleged conflicts in this case	[56]
Pirihira Fenwick	[57]
Tai Eru	[58]
Winnie Emery	[59]
Application	[60]
Does the self-dealing rule apply?	[66]
Trustees' duties	[69]
Is the self-dealing rule restricted to purchases?	[75]
Limited beneficial interest exception	[82]
Placed in position of conflict	[95]
Conclusion	[101]
Consequences of breach of s 227A	[102]
Submissions	[102]
Preliminary comments	[103]
Structure of the Act	[105]
Should rescission be automatic?	[113]
Further comments	[128]
Summary	[137]
Result	[139]
Costs	[140]

Introduction

1 This appeal concerns alleged conflicts of interest in relation to a joint venture. The joint venture agreement (and related royalty and option agreements) 1 were entered into by the Whakapoungakau 24 Ahu Whenua Trust, commonly referred to as the Tikitere Trust, with two other Maori trusts (the Paehinahina Mourea Trust 2 and the Manupirua Ahu Whenua Trust) and with a company owned by the Tikitere Trust, Tikitere Geothermal Power Co Ltd (Tikitere Geothermal).

2 The Court of Appeal held that two of the five trustees of the Tikitere Trust should not have participated in discussions and voting on the above joint venture arrangements because of interests in, and links with, the other trust parties to the joint venture. 3 The Court held that the remedy for such a breach is rescission (the setting aside of the transaction). 4 However, as that remedy is not available where the interests of innocent third parties are affected, the Court remitted the matter to the Maori Land Court for further evidence and consideration on that issue. 5

3 On 19 May 2014, this Court granted leave to appeal to the Trustees (the appellants) against the Court of Appeal's findings on the conflict of interest issue. 6 The Court refused leave to appeal by the Beneficiaries (the first respondents) on other issues. 7

Relevant statutory and trust provisions

4 The Tikitere Trust was set up as an ahu whenua trust under, and governed by, the Te Ture Whenua Maori Act 1993 (“the Act”). Section 227A of the Act deals with conflicts of interest:

227A Interested trustees

• (1) A person is not disqualified from being elected or from holding office as a trustee because of that person's employment as a servant or officer of the trust, or interest or concern in any contract made by the trust.

• (2) A trustee must not vote or participate in the discussion on any matter before the trust that directly or indirectly affects that person's remuneration or the terms of that person's employment as a servant or officer of the trust, or that directly or indirectly affects any contract in which that person may be interested or concerned other than as a trustee of another trust.

5 The wording of s 227A is incorporated into the Tikitere Trust Order under cl 4:

4 Personal Interest of Trustees

Notwithstanding any general rule of law to the contrary no person shall be disqualified from being appointed or from holding office as a Trustee or as a representative of the Trust by reason of his employment as a servant or officer of the Trust or by his being interested or concerned in any contract made by the Trustees PROVIDED THAT he shall not vote or take part in the discussion on any matter that directly or indirectly affects his remuneration or the terms of his employment as a servant or officer of the Trust or that directly or indirectly affects any contract in which he may be interested or concerned PROVIDED FURTHER THAT if a Trustee is employed by the Trust in any capacity whatsoever he shall not be paid any fees, costs, remunerations or other emolument whatsoever until same has been approved by the Court.

6 Section 227 of the Act provides that trustees may act by majority:

227 Trustees may act by majority

• (1) Subject to any express provision in the trust order and except as provided in subsections (2) and (3), in any case where there are 3 or more responsible trustees of a trust constituted under this Part, a majority of the trustees shall have sufficient authority to exercise any powers conferred on the trustees.

• …

• (6) Where any trustee dissents in writing from the majority decision of the trustees before the decision is implemented, that trustee shall be absolved from any personal liability arising out of the implementation of that decision.

More detailed background

Tikitere Trust

7 According to the Maori Land Court's records, 8 Whakapoungakau 24 (held by the Tikitere Trust) is a block of Maori freehold land 32.0923 hectares in area. It was created by partition order on 15 December 2003. As at 27 August 2009, there were 1,222 owners in the land holding 83.63567 shares. 9

8 The objects of the trust are contained in cl 2 of the trust order, which states:

2 Objects

Except as hereinafter may be limited the objects of the Trust shall be to provide for the use management and alienation of the land to best advantage of the beneficial owners or the better habitation or use by beneficial owners, to ensure the retention of the land for the present Maori beneficial owners and their successors, to make provision for any special needs of the owners as a family group or groups, and to represent the beneficial owners on all matters relating to the land and to the use and enjoyment of the facilities associated therewith.

9 Clause 3(a) of the trust order allows the trustees, in furtherance of the objects of the trust, to do all or any of the things they would be entitled to do as absolute owners of the land, apart from alienating the whole or any part of the fee simple by gift or sale. 10 Clause 3(b) provides more specific powers including the power to develop and improve the trust lands and to effect improvements. 11

10 Amendments to the trust order were allowed by the Maori Land Court on 3 September 2004 and 4 December 2006. 12 The following sub-clauses were added, respectively:

• (a) Clause 3(b)(xvi) grants the power to “develop the area to support the Geothermal Tourism Park concept”.

• (b) Clause 3(b)(xviii) grants the power to “join with others and to undertake and form companies and enter into joint ventures with other Maori Authorities sited over the same field to investigate the possibility of establishing a Geothermal Power Station and to take advantage of the findings”.

The trustees of the Tikitere Trust

11 The Trustees at the relevant time were Hiwinui Heke, Pirihira Fenwick, Tai Eru (or Morehu), Winnie Emery and Wiremu Kingi. They voted unanimously in favour of the joint venture arrangements.

12 The alleged conflicts at the time the trustees entered into the transaction were as follows:

• (a) Mrs Fenwick owned 1.57991 shares in the Tikitere Trust out of a total of 83.63567 shares (approximately 1.89 per cent). She was a trustee of the Paehinahina Mourea Trust and her family owned at least 20 per cent of the shares in that trust. She personally owned 93,187.322 out of 1,977,351 shares in the...