The matter of Stokes v Insight Legal has resulted in one Court of Appeal and four High Court and judgments.
The facts can be boiled down to:
- Mrs Colebrook (since remarried, although in the court decisions she is referred to by her former married name) defaults on the purchase of a property
- the Vendors fail in their attempt to recoup their loss from the trustees of a trust (RM Colebrook Family Trust (RMCFT)) that could have purchased the property, but did not.
On the face of it, what basis could there be for the trustees to be liable? The trustees were not party to the contract. Simple contract law. If only.
To be fair the vendors lost a heap of money, and credit to their advisers for the different arguments run but, trite as it is, hard cases make for bad law.
Round one (see My Trust is My Creature) found in favour of the vendors on a novel argument of undisclosed agency. However, from then on (see Undisclosed Agency Decision Overturned) things didn’t go so well for the vendors.
The difficulty faced was that while there were indicators that the trust in question (the RMCFT) would have settled the purchase (or enabled Mrs Colebrook to) had its own sale not failed to settle, this simply is not enough to legally bind that trust to the agreement for sale and purchase.
To put the latest case technically, and quoting from the decision, “[t]he vendors’ case is that Mrs Colebrook, a former trustee of the RMCFT, has a right of indemnity in respect of that amount from the assets of the RMCFT, that such right of indemnity gives rise to a lien in Mrs Colebrook’s favour against those assets, and that the vendors are entitled to subrogate to Mrs Colebrook’s lien.”
Much can be said about the witnesses and who remembered what and how well (or not) the trustees of the RMCFT executed their trustee obligations. The problem was there was no obligation to meet Mrs Colebrook’s debts just because matters might have played out differently.
The message to take away from this is that – when trusts are seemingly under regular attack – they still work. Contract principles remain. Trust law remains. This doesn’t mean that matters will all go swimmingly for Mrs Colebrook who has been noted as being insolvent and accordingly bankruptcy must be a possibility in her future.
- Stokes v Insight Legal  NZHC 543