The latest instalment of the long-running saga involving one Mrs Colebrook, the trustees of the Stokes Family Trust and the trustees of the RM Colebrook Family Trust has held that the trustees of the Stokes Family cannot sustain caveats lodged against the titles of the properties owned by the trustees of the RM Colebrook Family Trust.
Litigation in this matter commenced in 2012. The trustees of the Stokes Family Trust have attempted in various ways to attribute liability for failing to complete a purchase under an agreement in Mrs Colebrook’s name to the trustees of the RM Colebrook Family Trust.
The current round (round 6) was an unsuccesful attempt to caveat the title to 2 properties owned by the trustees of the RM Colebrook Family Trust. To suceed the trustees of the Stokes Family Trust needed to demonstrate that in addition to Mrs Colebrook owing them money:
- Mrs Colebrook’s co-trustee ratified the agreement for sale and purchase signed by Mrs Colebrook; and that as a result Mrs Colebrook is entitled to be indemnified from the assets of the RM Colebrook Family Trust;
- the trustees of the Stokes Family Trust are entitled to subrogate to the right of idemnity as creditors (on the judgment following Mrs Colebrook’s default);
- that the trustees of the Stokes Family Trust have the same equitable lien as Mrs Colebrook over the assets of the RM Colebrook Family Trust;
- the equitable lien is a caveatable interest.
Ignoring the practical hurdle of oeverturning a finding that the trustees of the Stokes Family Trust are creditors of Mrs Colebrook only, the other significant issue is that without a declaration that they can subrogate to the rights of indemnity enjoyed by the trustees of the RM Colebrook Family Trust, they have no right to any equitble lien, and without that, no grounds to sustain a caveat.
In the context of rights of subrogation it is noted that a creditor seeking to subrogate must apply for a declaration that there is a trustee’s indemnity. The right of a creditor to be subrogated to the trustees’ right of indemnity can be explained as follows:
“Although unsecured creditors and other claimants to not have a direct claim against the Trust proeprty in respect of unsecured liabilities incurred by trustees in the administration of the Trust, and cannot levy execution upon the Trust proeprty, they may by subrogation have a right to stand in the place of the trustee and enforce their liabilities against the Trust property to the extent that the trustee would be so entitled”: Lewin on Trusts at  to .
As the trustees of the Stokes Family Trust do not have a right of indemnity that would support an equitable lien (pending the outcome of the appeal to the Court of Appeal) there is no interest that can protected by a caveat.
While the position the trustees of the Stokes Family Trust find themselves in is invidious, th current application suggests a cart before the horse approach. Further, the fixation with proceedings against a trust that might have completed the purchase, but was never obligated to do so, while understandable may be misguided. Had the existence of the RM Colebrook Family Trust not come to light, the trustees of the Stokes Family Trust might have better focussed their energies and resources on Mrs Colebrook, the acknowledged subject of judgment (see below).
The matter will not end here though. The next instalment in this exercise in what might be considered a determination that these Mounties “will get their man” is an appeal to the Court of Appeal. Curiously perhaps, Mrs Colebrook has not yet been bankrupted, despite the significant judgment against her. While this might be because the debts owing to her by the trustees of the Colebrook Family Trust are not considered large enough to warrant this exercise; it may well be that these debts are in fact larger than appreciated . One cannot help but wonder how the court action is being funded and whether there are significant unrecorded advances to the trustees of the Colebrook Family Trust, as is often the case.
- Stokes v Insight Legal  NZHC 2475
- Lewin on Trusts (18th ed, Thomson Reuters, United Kingdom 2007)
- Levin v IKuia  1 NZLR 400