Spencer v Spencer

• Jurisdiction: New Zealand
• Judge: Randerson J
• Judgment Date: 27 September 2013
• Neutral Citation: [2013] NZCA 449
• Docket Number: CA108/2012
• Court: Court of Appeal
• Date: 27 September 2013

BETWEEN

Barry Robert Spencer

First Appellant

David James Underwood and Philip Joseph Vavasour

Second Appellants

and

Barry Robert Giuseppe Spencer

First Respondent

Spencer Group Limited

Second Respondent

[2013] NZCA 449

Court:

Arnold, Randerson and White JJ

CA108/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against High Court judgment against appellant trustees for a total of $564,000 — trust was established in 1995 after first appellant separated from his first wife — in terms of 1995 Family Court order, first respondent son was to receive specific payment of $200 per week for his maintenance as he had a disability — principle asset of trust was commercial building managed by Spencer Group Ltd (“SGL”) — first appellant was a director and shareholder and was employed by SGL as its manager — proceedings were issued in 1998 on behalf of son seeking variation of the trust deed — order for rectification made in 2001 which prohibited trustees from employing first appellant to undertake work on behalf of trust — proceedings issued in 2001 alleged irregularities in the administration of the trust — whether the trust (or obligations under it) ever came into effect — whether trustees were in breach of trust — whether trustees were protected by the terms of the trust deed and/or entitled to relief under s73 Trustee Act 1956 (power to relieve trustee from personal liability).

Counsel:

C J Hodson QC for First Appellant

H A Cull QC and P A Walker for Second Appellants J C Corry for First Respondent

No appearance for Second Respondent (struck off)

• A We decline the application for leave to adduce further evidence on appeal.

• B The appeal is allowed in part.

• C The judgment entered in the High Court is set aside.

• D The appellants are ordered, jointly and severally to pay to the first respondent's solicitor, Mr David Booth, a total of $155,184 plus interest calculated in accordance with [156] hereof on the following terms:

  • (a) The judgment debt and interest thereon due to the first respondent in accordance with [160] hereof is to be paid to him; and

  • (b) Any balance is to be held by Mr Booth in trust pending the appointment of new trustees for the No.2 Trust and otherwise upon the terms of that Trust.

• E The first respondent is entitled to judgment against all appellants jointly and severally for $65,000 together with interest calculated in accordance with [156] hereof.

• F The costs order in the High Court is undisturbed.

• G The appellants must pay jointly and severally the first respondent's costs in this Court for a standard appeal on a Band A basis and his usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

	Para No
Introduction	[1]
The facts	[12]
Did the No.2 Trust or the obligations under it ever come into effect?	[26]
Interpretation of the condition	[30]
Waiver/estoppel	[34]
The breaches alleged	[38]
Failure to pay Robert the $200 per week	[38]
The SGL debt	[44]
Origins	[44]
Were the trustees in breach of trust by failing to take steps to recover the SGL debt?	[48]
The onus of proof of loss	[54]
What was the evidence of SGL's ability to satisfy the debt?	[67]
The management fees charged by SGL	[72]
The fees charged	[73]
Was it a breach of trust for the trustees to employ Barry Spencer and thereby incur management fees?	[77]
Retrospective application	[88]
The effect of clause 5(m)	[90]
Were the management fees excessive?	[96]
Conclusion	[101]
Should SGL have been charged rent for the use of the premises?	[102]
Interest on Barry Spencer's drawings and amounts debited to the children's current accounts	[106]
Conclusions to this point	[113]
Were the trustees entitled to protection under the terms of the trust deed or entitled to relief under s 73 of the Trustee Act 1956?	[115]
Discussion	[120]
This case	[132]
Conclusion on whether the trustees were entitled to protection under the trust deed or to relief under s 73 of the Trustee Act	[140]
Quantum	[148]
Result	[152]
Interest	[154]
Disposition	[157]
Costs	[161]

Introduction

1 The matters at issue in this appeal arise from a family trust established in 1995 after the separation of the first appellant, Barry Spencer, and his first wife Alida.

2 The couple had three children including Robert Spencer. Robert has a disability and his mother has pursued litigation on his behalf as his guardian. In terms of a Family Court order made in 1995, all three children were to be discretionary beneficiaries of the trust. In addition, there was to be a specific payment of $200 per week for Robert's maintenance.

3 The trust was established with effect from 28 July 1995. We will refer to it as the No.2 Trust. The second appellants, Mr Underwood and Mr Vavasour, were trustees from the outset along with a solicitor, the late Mr Terrence Brandon. Barry Spencer became a third trustee in November 1996, replacing Mr Brandon. We will refer to them collectively as “the trustees”. Robert and his two siblings were discretionary beneficiaries. Barry Spencer also later became a discretionary beneficiary of the trust.

4 A principal asset of the No.2 Trust was a commercial building on Thorndon Quay, Wellington built on land leased from the Wellington City Council. 1 The building was heavily mortgaged and had little equity. There were a number of tenants and the building was managed by a company called Spencer Group Ltd (SGL). At material times Barry Spencer was a director and shareholder and was employed by the company as its manager.

5 The Thorndon Quay property produced very little net income, if any. It was sold in October 2000 after being freeholded. The No. 2 Trust is now insolvent and SGL was struck off the register of companies in 2004.

6 Some of the weekly payments due to Robert were made in 1995, but they were stopped in December of that year and did not resume. Mrs Alida Spencer2, on behalf of Robert, issued court proceedings in 1998 seeking a variation of the No.2 Trust deed. We will refer to this in more detail later. It was not until October 2001 that Robert issued proceedings against Barry Spencer personally, and against Messrs Barry Spencer, Underwood and Vavasour as trustees alleging irregularities in the administration of the No.2 Trust. 3 SGL was joined as a third defendant but had already been struck off the register of companies by the time of trial. The remedies sought included an inquiry into the trust's income and orders for the restoration of losses said to have resulted from breaches of trust.

7 In a judgment issued on 19 October 2011, French J found that the trustees

had committed breaches of trust for which they were personally liable. 4 She also found that the trustees had acted dishonestly and were not entitled to protection under an exemption clause in the trust deed for the No.2 Trust or to relief under s 73 of the Trustee Act 1956

8 In a second judgment delivered on 3 February 2012, the Judge decided the quantum of losses sustained. 5 Judgment was given against Barry Spencer in his personal capacity and against the trustees for a total of $564,131 made up as follows:

(a) Payments due to Robert up to 31 March 2004	$ 65,000
(b) Interest thereon from 21 December 1995 to date of judgment (3 February 2012)	$ 52,125
(c) Amount that ought to have been recovered from SGL	$ 80,000
(d) Income that the Trust would have received from rent that should have been charged to SGL and from interest on the SGL debt	$100,373
(e) Cash paid to SGL for management fees improperly charged to the Trust	$ 53,784
(f) Interest on Barry Spencer's drawings at 31 March 2004	$ 17,403
(g) Advances to Barry Spencer charged to children's current accounts	$ 30,878
(h) Interest on the total of items (c) to (g) to 31 March 2004	$ 35,738
(i) Interest from 1 April 2004 to 3 February 2012	$101,295
(j) Costs	$ 25,816
(k) Disbursements	$ 1,719
Total	$564,131 6

9 This appeal brought by Barry Spencer and the trustees challenges almost all the findings of the High Court Judge as being wrong in fact and law. 7 A preliminary point is whether the terms of the 1995 court order meant that the No.2 Trust or the obligations thereunder did not come into effect. The argument is that the order was subject to a condition that was never fulfilled.

10 In broad terms, the issues are:

• (a) Whether the No.2 Trust (or the obligations under it) ever came into effect.

• (b) Whether the trustees were in breach of trust and whether they and Barry Spencer in his personal capacity were liable for:

  • (i) Failing to pay Robert the $200 per week.

  • (ii) Failing to recover the debt due to SGL and to charge interest on it.

  • (iii) Charging management fees through SGL to the No.2 Trust or, if permitted to do so, charging excessively.

  • (iv) Failing to charge SGL rent for the use of the No.2 Trust's premises.

  • (v) Failing to charge Barry Spencer interest on his drawings from the No.2 Trust.

  • (vi) Charging advances made to Barry Spencer to the children's current accounts.

• (c) If the trustees were in breach of trust in any respect, whether they are protected by the terms of the No.2 Trust deed and/or

  whether they are entitled to relief under s 73 of the Trustee Act? 8

11 We observe at the outset that the High Court Judge was placed in a most unsatisfactory position. First, only limited documentary records were available in relation to the affairs of the No. 2 Trust. Second, there was inordinate and unexplained delay of 10 years between the date the court proceedings were issued and the date of hearing. That led to understandable...