IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-6668 [2013] NZHC 590

IN THE MATTER OF	Claims in Equity and for imposition of a constructive trust

BETWEEN	EMILIE PETRONELLA CORADINA VERVOORT
Plaintiff

AND	RUSSELL FORREST, WILLIAM DUFFY AND RAYMOND DENNIS SPEARS Defendants

Hearing:	22 November 2012

Counsel:	P T Finnigan for Plaintiff
P J McPherson for Defendants

Judgment:	26 March 2013

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Dismiss Proceeding)

This judgment was delivered by me on 26 March 2013 at 4.45 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:
Romaniuk & Associates Law Offices, PO Box 105-763, Auckland
Hesketh Henry, Private Bag 92093, Auckland

VERVOORT V FORREST,  DUFFY AND SPEARS HC AK CIV-2011-404-6668 [26 March 2013]

Introduction

[1]       Before  the  Court  is  the  defendants’  application  for  an  order  that  this proceeding be dismissed. The application is made in reliance on High Court Rule
5.49 or in the alternative on r 15.1.

[2]       The defendants, Messrs William Duffy, Russell Forrest and Raymon Spears are  the  trustees  of  the  William  Duffy  Family  Trust.  The  plaintiff,  Ms  Emilie Vervoort, was in a de facto relationship with Mr Duffy between 1999 and 2011 and she claims in her statement of claim that the Trust holds property, much of it located in Fiji, in which she is entitled to a share.1

[3]       On 6 April 2011, Ms Vervoort and Mr Duffy signed a Deed of Release that complicates  her claim.   The Deed  is  relevant  to  the current  proceeding for the following reasons:

a)      Pursuant to the Deed, Ms Vervoort was paid $327,002.17 and she and Mr Duffy agreed to “release and discharge each other from any and all claims ... which they now have or at any time hereafter may have”. The Deed provides that the payment is full and final payment for any claim that she is entitled to for continuing maintenance or rights to property owned by Mr Duffy “or his trust”.

b)	The Deed states that Ms Vervoort and Mr Duffy are domiciled in Fiji.

It states that the “Deed is governed by the laws of the Republic of the Fiji Islands” and that “[e]ach party submits to the non-exclusive jurisdiction of courts exercising jurisdiction there in connection with
matters concerning this Deed.”

1   Ms Vervoort’s counsel acknowledges that  her  present claim in  equity that led  to  the  present application is a back-up to a separate relationship property proceeding that she has commenced under the Property (Relationship) Act 1976 in the Family Court.

c)      Mr Duffy has initiated legal action in the High Court of Fiji to change the word “non-exclusive” to “exclusive” in the Deed.  Ms Vervoort has filed a statement of defence and counterclaim in the Fijian proceeding seeking a declaration that the Deed is null and void and an order that Mr Duffy pay various damages to her.

[4]       Ms Vervoort relies on three causes of action in her amended statement of claim, though they are rolled into one express cause of action. First, she claims to have made direct and indirect contributions to property owned by the Trust in the reasonable expectation of an interest therein. Alternatively, she claims that Mr Duffy treated the Trust as a sham and that the Trust’s assets are actually his.  Finally, she claims that the Deed is void or voidable due to undue influence, duress and unconscionable conduct. Pursuant to these causes of action, Ms Vervoort seeks relief as follows:

a)	a declaration that the Deed is void;

b)      a further declaration that the funds she received pursuant to the Deed are on account of any further monies or property due to her in terms of any judgement under these proceedings;

c)      judgement against the defendants for equitable damages based on a constructive trust in respect of property that she asserts she contributed to; and

d)	interest, costs and such other relief as are just.

[5]       An amended statement of claim is required as the current statement of claim is not in accordance with r 5.27(2) which requires that the relief sought must be specified in respect of each cause of action.2 In the current statement of claim one is left to surmise the specific relief that is sought in respect of each cause of action. However I proceed on the basis that an amended statement of claim could be filed to
rectify the deficiency.

2 High Court Rules, r 5.27(2).

Defendants’ case

[6]       The defendants apply to dismiss Ms Vervoort’s proceeding on two grounds:

a)	That there is no serious issue to be tried because the Deed is a complete defence to her first two claims.

b)	That New Zealand is not the appropriate forum to pursue the claim.

Rather,  Fiji  is  the  appropriate  forum  and  that  Ms  Vervoort  has submitted to that jurisdiction by engaging in legal proceedings there.

[7]       The defendants argue that the issue of the Deed’s validity appropriately lies before the Fijian Courts. They submit that if this Court finds that Fiji is the appropriate jurisdiction  to  assess  the Deed’s  validity,  and  a key reason  for that finding is Ms Vervoort’s submission to the Fijian jurisdiction, then that reason must be an equally powerful factor in determining whether remedies  (b), (c) and (d) should also be determined in Fiji, unless there are discretionary factors that turn issues (b), (c) and (d) the other way.

[8]       Alternatively, counsel says, the proceedings should be stayed pending the

outcome of the Fijian Courts’ assessment of the Deed’s validity.

Background

The William Duffy Family Trust

[9]       The Trust  was  settled  on  1 August  1994  and  at  all  material  times  until December 2010, Mr Forrest and Mr Duffy were the trustees of the Trust.  Mr Forrest retired as trustee in 2010 and Mr Spears was appointed as the new trustee instead. Mr Duffy has continued as a trustee.3

[10]     On 6 December 2010, Mr Spears provided Mr Duffy with an irrevocable power  of  attorney.    The  power  of  attorney  authorised  Mr  Duffy to  execute  all documents on Mr Spears’ behalf for the purposes of the Trust.  It also authorised Mr Duffy to irrevocably transfer or assign the Trust’s assets.  This arrangement has led to Ms Vervoort’s argument that the Trust is a sham.

The property

[11]     While Mr Duffy and Ms Vervoort were in a relationship, Mr Duffy purchased various properties, all of which were placed in the names of the trustees of the Trust. The  assets  that  are  the  subject  of  Ms Vervoort’s  application  in  this  proceeding include the value of:

a)	the proceeds of the sale of a Coatesville property;

b)	the proceeds of two apartments in central Auckland in buildings known at Metropolis and Scene Two;

c)	the home at Lot 6 Marina Point, Denerau, Fiji;

d)	an apartment at the Hilton Resort, Denerau, Fiji;

e)	the family chattels (or their value) in the above properties and the

Meridian launch ‘Slainje’;

f)	shares in Curries Property Limited and United Containers Limited (NZ

and Fiji); and

g)	all other assets of the Trust.

[12]     As noted, Ms Vervoort claims to have made direct and indirect contributions

to the Trust’s property in the reasonable expectation of an interest in the same.  She

also relevantly claims in the alternative that Mr Duffy treated the Trust as a sham and

that the Trust’s assets are actually his.

Mr Duffy’s relationship with Ms Vervoort and the Deed of Release

[13]     In April 1999 Ms Vervoort commenced living with Mr Duffy in a de facto relationship in Auckland.  From May 1999, Mr Duffy met Ms Vervoort’s expenses. In February 2000 Mr Duffy purchased a life style block in Coatesville and it became their family home.   Mr Duffy and Ms Vervoort, together with their children from previous relationships, lived in the Coatesville property for approximately 10 years until about May 2009.

[14]     The relationship does not appear to have been very stable over the years. Ms Vervoort makes various allegations of physical and mental abuse and on several occasions the relationship temporarily ceased. After Mr Duffy purchased a property in Fiji in 2008, the couple spent much of their time there.

[15]     On  6 April  2011,  Ms  Vervoort  and  Mr  Duffy  signed  the  Deed  and  the relationship came to an ultimate end on 29 July 2011.4

Service

[16]     The fact that Ms Vervoort has initiated distinct proceedings against the same defendants in the Family Court created some uncertainty as to where the defendants were served.  In submissions and at the hearing however, counsel for the defendants clarified that he accepts that in this proceeding they were served overseas without leave and that he takes no issue with the validity of such service, conceding that it was in accordance with r 6.27.

[17]      I proceed on that basis which means there is no scope to assess whether the

Ms Vervoort’s  proceeding  should  be  stayed  under  r  15.1.    That  is  because  the

application under r 15.1 is based on the defendants having been validly served within

New Zealand under r 6.29(3), which provides:

When service of process has been validly effected within New Zealand, but New  Zealand  is  not  the  appropriate  forum  for  trial  of  the  action,  the defendant may apply for a stay, or for a dismissal of the proceeding under rule 15.1.

[Emphasis added]

Relevant law

[18]	The defendants’ application to dismiss Ms Vervoort’s proceeding relies on rr

5.49, 6.27, 6.28 and 6.29.

[19]	Rule 5.49 relevantly provides:

5.49   Appearance and objection to jurisdiction

...

(3)     A defendant who has filed an appearance may apply to the court to dismiss the proceeding on the ground that the court has no jurisdiction to hear and determine it.

(4)     The court hearing an application under subclause (3) must,—

(a)     if it is satisfied that it has no jurisdiction to hear and determine the proceeding, dismiss the proceeding; but

(b)     if it is satisfied that it has jurisdiction to hear and determine the proceeding,   dismiss   the   application   and   set   aside   the appearance.

...

(7)     To the extent that an application under this rule relates to service of process effected outside New Zealand under rule 6.27 or 6.28, it must be determined under rule 6.29.

[20]	Rule 6.29 relevantly provides:

6.29   Court's discretion whether to assume jurisdiction

(1)     If service of process has been effected out of New Zealand without leave, and the court's jurisdiction is protested under rule 5.49, the court must dismiss the proceeding unless the party effecting service establishes—

(a)	that there is—

(i)	a good arguable case that the claim falls wholly within 1 or more of the paragraphs of rule 6.27; and

(ii)	the  court  should  assume  jurisdiction  by  reason  of  the matters set out in rule 6.28(5)(b)to(d);

[21]     The first component, in respect of an arguable case under r 6.27, is not disputed by the defendants.

[22]      Thus the issue is the second component. These are the reasons that a Court should assume jurisdiction as referred to in rule 6.29(1)(a)(ii):

6.28	When allowed with leave

...

(5)	The  court  may  grant  an  application  for  leave  if  the  applicant establishes that—

(a)	the  claim  has  a  real  and  substantial  connection  with  New
Zealand; and

(b)	there is a serious issue to be tried on the merits; and

(c)	New Zealand is the appropriate forum for the trial; and

(d)	any  other  relevant  circumstances  support  an  assumption  of jurisdiction.

[23]     In determining what is a serious issue the Court of Appeal in Wing Hung Printing v Saito Offshore Pty Ltd5 adopted the test set out in Seaconsar that a serious issue exists where “… at the end of the day, there remains a substantial question of law or fact or both, arising on the facts disclosed by the affidavits, which the plaintiff bona fide desires to try …”.6

Issues

[24]     As  the  defendants  do  not  dispute  that  Ms  Vervoort’s  claim  falls  within

r 6.27(2), Wing Hung confirms that the claim will therefore be assumed to have a real

and  substantial  connection  with  New  Zealand  as  required  by  r  6.28(5)(a).7

Furthermore,  counsel  for  the  defendant  acknowledges  that  the  case  turns  on  r

6.28(5)(b) and (c).

[25]     Therefore the remaining issues are:

a)	whether there is a serious issue to be tried on the merits; and8

b)	whether New Zealand is the appropriate forum for the trial. 9

Discussion

Does Ms Vervoort’s claim disclose a serious issue to be tried?

[26]     The plaintiff ’s statement of claim identifies three causes of action which in

essence allege:

a)	A constructive trust over the trust property;

b)	That the trust is a sham;

c)      That  the  Deed  of  Release  is  void  or  voidable  due  to  the  undue influence, duress or unconscionable conduct perpetrated by Mr Duffy over Ms Vervoort.

[27]     It is useful to clarify the interaction between the three causes of action. The first applies if the Trust is not a sham, with the result that the property could not be considered to be either relationship property or separate property, and therefore the
Property (Relationships) Act would not apply.

7 Wing Hung Printing Company Ltd v Saito Offshore Pty Ltd, above n 4.
8 Rule 6.28(5)(b).
9 Rule 6.28(5)(c).

[28]     If under the second cause of action the Trust is a sham, then the Property (Relationships) Act applies and the contributions referred to in the first cause of action will be dealt with under the Act.

[29]     In the third cause of action Ms Vervoort essentially claims that the Deed should  not  bar  relief  in  either situation  as  it  is  void  or voidable  due  to  undue influence, duress or unconscionable conduct.

Constructive Trust Claim

[30]     To establish a constructive trust under Lankow v Rose four factors must be established:10

a)      That a direct or indirect contribution has been made to the property;

b)	That there was an expectation of an interest in the property. c)	That such an expectation was reasonable;
d)	That the defendant should reasonably be expected to yield the claimant an interest.

[31]     Hardie  Boys J provides useful commentary on the extent of the contributions required:11(emphasis added)

[When referring to] contributions to assets one is not referring to those contributions to a common household that are adequately compensated by the benefits the relationship itself confers. The contribution must manifestly exceed the benefits. Putting it in conventional estoppel terms, the plaintiffs contributions must have been to his or her detriment; or in Canadian terms they must have resulted by the end of the relationship in the enrichment of one to the juristically unjustified deprivation of the other.

[32]     On the evidence it is only in respect of the Coatesville property that an argument for contributions could be formed, the principal contribution being redecorating the sleep out. However it must be asked if the contributions to this property by Ms Vervoort manifestly exceeded the benefits she received. She must be able to show that Mr Duffy was enriched by her contributions and that in such circumstances that it would be unjust to allow him to retain the benefit of such
contributions.12

[33]     Even  if  it  can  be  shown  that  Ms  Vervoort  made  direct  or  indirect contributions there is a real issue in respect of the two final points, that the expectation was reasonable and that the defendant should reasonably be expected to yield the claimant an interest. The property in this case involves trust property. In Genc v Genc, a case involving a claim against a trust, Potter J stated that no claim
could arise under Lankow v Rose: 13

...as she could not reasonably expect to have a claim to an interest in the trustees’ property; nor could the trustees be reasonably expected to yield an interest to her. This is because any relationship which might give rise to such an expectation was with Mr Genc not the trustees.

[34]     This is supported by Boys v Calderwood which outlines that when claiming a constructive trust against trust property it must be established that the trustees had a reasonable expectation that the claimant would share in the assets and that it is reasonable for them to yield such an interest.14  It is clear that such an intention cannot be expressed by one trustee without the other trustees’ knowledge, as a trustee cannot delegate his or her duties or powers, not even to co-trustees. Trustees must act
unanimously in all decisions they make, including expressing an intention to give away an interest in trust property. They cannot be bound by general delegation.15

[35]     There is no evidence of any agreements or discussions with the trustees in respect  of Ms Vervoort  obtaining an  interest in the Coatesville property.  In  the
circumstances there is nothing to suggest it may be reasonable to expect the trustees

12 Gillies v Keogh [1989] 2 NZLR 327, 342.
13 Genc v Genc 26 FRNZ 67.
14 Boys v Calderwood HC Auckland CIV-2004-404-290, 14 June 2005.

to yield such an interest. The only way in which this could be expected is if the Trust was a sham or merely the alter ego of Mr Duffy as per Prime v Hardie16 and Glass v Hughey.17 However, as aforementioned if this was the case any interest would have to be pursued under the Property (Relationships) Act, as it would be relationship or separate property, and not through a constructive trust.

[36]     At best on the evidence as it stands, Ms Vervoort could assert a claim over Mr

Duffy’s beneficial interest in the Trust itself.

[37]     Thus, it does not appear that Ms Vervoort could satisfy the four elements required for a constructive trust over Mr Duffy’s property. I have not overlooked that discovery has not occurred, but I am far from satisfied that it would assist in this case as there is no suggestion in evidence that the trustees had any awareness of her expectation. Thus, I must conclude that there is no serious issue to be tried under this cause of action.

Sham Trust

[38]     The second cause of action put forward by the plaintiff is that the Trust is a sham or the alter ego of Mr Duffy, and therefore the assets are either relationship property or separate property and the Property (Relationships) Act applies.18

[39]     A sham is:19

...acts  done  or  documents  executed  by  parties  to  the  ‘sham’ which  are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.

16 Prime v Hardie (2002) 22 FRNZ 553.
17 Glass v Hughey (2003) 23 FRNZ 674.
18 It is doubtful that the Family Court could determine that the trust was a sham in accordance with F v W HC Wellington CIV-2009-485-000531, 16 July 2009 which states “The ability to grant remedies in equity is not the equivalent of having inherent jurisdiction in the Family Court to declare a trust a sham... Inherent jurisdiction is vested only in the High Court.”
19 Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802.

[40]     Thus a sham trust is where a trust is created and is intended to give the appearance of a legitimate trust to third parties but is actually not intended to affect the rights and obligations of the parties in the way that a valid trust would.20

[41]     Counsel claims that the Trust is the alter ego of Mr Duffy.  Alter ego is a situation where a structure is used and controlled by an individual so that it is merely an extension of that person and not a separate identity.  In the context of a trust, if the trust is not managed by the trustees as it should be but by another, the trust can be said to be the alter ego of that person.

Where the assets of a trust fund are dealt with and treated for practical purposes as if they were one party’s absolute property or under a party’s absolute control, the trust in question is in effect the alter ego of the party.21

[42]     Claiming the Trust is the alter ego of Mr Duffy is not a separate ground to invalidate the Trust, but rather provides evidence that the Trust is merely a facade and therefore a sham trust. It is important to note that the Court of Appeal has made it clear that factual control of a trust is not in itself enough to invalidate a trust.22

[43]     There is evidence of a high degree of control of trust assets, and while this does not alone prove the Trust is a sham it does create a substantial question on the facts as to the legitimacy of the Trust. Thus there is a serious issue to be tried.

Deed of Release

[44]     Given my finding that there is no serious issue under the constructive trust cause of action, the Deed is only relevant in that it could be a barrier under the sham trust cause of action. If the Trust is found to be a sham and the Deed is valid, then Ms Vervoort would be prevented from bringing proceedings against Mr Duffy under
the Property (Relationships) Act.

20 Official Assignee v Wilson [2008] 3 NZLR 45.
21 O v S FC Dunedin FAM-2004-002-80, 12 December 2006 at [44].
22 Official Assignee v Wilson, above n 19.

[45]     However while maintaining that if the Deed is valid it would be an absolute defence to the proceeding, counsel concedes that the claim that Ms Vervoort may have been under inappropriate pressure to sign the Deed is arguable, though not going so far as to concede that such is established. Therefore it would appear that there is a serious issue to be tried.

[46]     It must also be the case (or arguably so) that the Deed will not bar an action under the Property (Relationships) Act unless it complies with s 21.

Conclusion

[47]     I proceed on the basis that there is a serious issue to be tried, but only in relation to the whether the Trust is a sham and whether the Deed of Release acts a barrier to such a claim or if it is voidable due to duress.  I turn to whether or not New Zealand is the appropriate forum, which Counsel for the defendants submits must be taken to be the decisive issue.

Is New Zealand the appropriate forum?

[48]     The underlying issue in this case is a claim to property that the plaintiff says is not placed beyond reach by the Trust and the Deed of Release.  One of the key issues to be considered when deciding the appropriate forum for this proceeding, therefore, is the governing law of the Trust.  The Trust is governed by New Zealand law as established by the Trust deed. Further, the Trust is comprised largely of assets in or acquired in New Zealand.   These are factors suggesting New Zealand is the appropriate forum.  (Though there are two pieces of realty in Fiji, I am satisfied that if this proceeding goes ahead in New Zealand the trial Judge would be able to refuse jurisdiction over the two foreign  pieces of realty, as  was done in  M  v   D .23  The existence of such realty is not therefore determinative).

23 M v D  [2012] NZHC 1152.

[49]     The defendants argue that the Deed of Release is governed by Fijian law and therefore the question of the validity of the Deed should be heard in the Fiji Courts. Though the Deed says it is governed by the law of Fiji it also states that parties submit to the ‘non-exclusive’ jurisdiction of the Fijian Courts. The defendants argue that  this  is  a  mutual  mistake  and  that  the  deed  should  read  the  ‘exclusive’ jurisdiction. However there is no factual evidence of it being a mutual mistake. Furthermore it seems futile to hold that the Deed must be considered by Fijian law, as if it is held to be void, any decision as to the impact of such a finding on the Trust will still have to be determined by a New Zealand court given that the Trust is governed by New Zealand law. Furthermore, if the Trust is found to be a sham trust then Ms Vervoort’s claim under the Property (Relationships) Act will have to be considered. That could involve a determination as to whether the Deed constitutes a s
21 agreement. Any finding of a Fijian court as to duress would only be persuasive in such a proceedings.

[50]     There  is  evidence  of  both  parties  having  a  strong  connection  with  New Zealand. Throughout the greater part of the relationship the parties resided in New Zealand  and  the  main  assets  are,  or  are  derived  from,  assets  acquired  in  New Zealand.    Furthermore,  Mr Duffy holds  a New  Zealand Residency Visa,  which means that he may properly be considered to be a resident who is temporarily absent from New Zealand.   Though the evidence is unclear as to where Ms Vervoort is currently living, her evidence is that she is living between New Zealand and Fiji and her case is that New Zealand is a convenient forum for her.

[51]     Due to such strong connections with New Zealand it is logical, and arguably just, that the property proceedings are heard in New Zealand.   The possible application of the Property (Relationships) Act is also a factor and would give Ms Vervoort the full benefit of s 21, which for obvious policy reasons contains strict criteria surrounding contracting out agreements.

[52]     The real factors standing against Ms Vervoort’s claim that New Zealand is the appropriate forum are two-fold. The first is that she entered into the Deed of Release in Fiji and that those involved in advising on the Deed are situated in Fiji.  While the

point is correct, it is but one factor to take into account.  The second is that she has voluntarily engaged in proceedings in Fiji and thereby appears to have submitted to that jurisdiction.   This factor is also to be taken into account, but it is not determinative.  Her counterclaim in the Fijian proceedings makes similar claims as are made in the current proceedings.

[53]     Based on submissions made and weighing all of the factual considerations put before me, I am persuaded that Ms Vervoort has established that New Zealand is the appropriate forum for the trial.

Result

[54]     For  the  above  reasons  I  am  satisfied  that  the  plaintiff  has  met  the requirements of r 6.28(5)(c) and (d). Thus r 6.29 requires that the court assume jurisdiction.  The defendants’ application to dismiss the proceedings is dismissed and their appearance under protest is set aside.

[55]     As costs follow the event under the statutory costs regime the plaintiff is entitled to costs on a 2B basis plus disbursements as fixed by the Registrar.  I order accordingly.

[56]     The Registrar is to allocate an initial case management conference.

Associate Judge Sargisson