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Beneficiaries, breach of trust, trust

Protecting misdirected trust assets

Dr Love, was the Executive Chairman and a trustee of the Wellington Tenths Trust (the Trust). The Trust manages assets for the Maori people of the Wellington and Taranaki regions.

The trustees of the Trust developed a “partnership” business model whereby the Trust  retained ownership of Trust land,  but that development was carried out by third party property developers.  The Trust would then share in the income stream of the finished development.

Dr Love (in his capacity as a trustee)  dealt directly with a property developer in regard to a development at Pipitea Street, Wellington. In 2006 a  lease premium was negotiated.  This up front payment gave the property developer the right to develop the Pipitea Street.  This payment was in addition to annual rental that would be paid to lease the land.

When the agreement was finalised Dr Love  directed that the lease premium be paid to a company (Pipitea Street Developments Limited (PSDL)), a company formed on the instructions of Dr Love’s partner, Ms Skiffington. The developer made an initial payment of $1.5m plus GST to PSDL understanding that this was to be used for the purposes of the Trust. Instead the payment was transferred to two trusts settled by Dr Love and Ms Skiffington, and used to reduce a loan those trusts had used shortly before to purchase a property in Plimmerton in which Dr Love and Ms Skiffington then lived.

The funds were then transferred back to PSDL  and used to pay fictitious invoices rendered by entities operated by former accountants Messrs Skinner and Rowley. $1.17m of the funds where then transferred to a joint account in the names of Dr Love and Ms Skiffington and then again applied in reduction of the loan against the Plimmerton property.

As noted in R v Love at [22]:

“Matters then proceeded on. Ultimately, the agreement to lease never proceeded. Instead, the Trust entered into a new arrangement with the developers. Under this arrangement, the Trust was to retain ownership not only of the land but also a share of the completed building. That is the development that was ultimately undertaken. However, none of the trustees or beneficiaries knew about the $1.5 million payment that Pipitea Street Developments had received until several years later when the Serious Fraud Office began investigating the affairs of Messrs Skinner and Rowley. At that point matters came to light and [Dr Love] stood down from your position in the Trust.

Dr Love was charged (and subsequently convicted) with obtaining property by deception under s 240 of the Crimes Act 1961. The Crown also sought a reparation order that the “diverted” lease premium be paid to the Trust.

The Plimmerton property was also subject to a restraining order under the Criminal Proceeds (Recovery) Act 2009 and the Police sought an order that the property be forfeited to the Crown.

Dr Love was sentenced to two years and six months imprisonment. However, the order for reparation to the Trust was declined.  The reasons for this are summarised as follows:

  • Although $1.5m plus GST was received by Dr Love and Ms Skiffington’s trusts, Dr Love’s trust, by the time of the hearing he was no longer a trustee of his trust and he had no direct ability to require the trust to sell its one-half share of the Plimmerton property. Nor did Dr Love have any direct ability to require the other trust set up by Ms Skiffington to sell its property interest.  Accordingly, there was no practical utility in making an order for reparation
  • Under the Criminal Proceeds (Recovery) Act the Tenths Trust could register its interest in the Plimmerton property so it can receive part of the eventual sale proceeds

While that then discharged the criminal aspect of Dr Love’s offending, it did not put the Trust back in the position it would have been but for the breach of trust.

The Trust is now seeking summary judgment  to recover the unauthorised payments made to PSDL and  Strategic Directionz Ltd (SDL) a company of which Ms Skiffington was the director and shareholder of.

Pending the outcome of the summary judgment application the  Trust  sought an interim freezing order in respect of assets that ended up in the hands of  Ms Skiffington and SDL.

An applicant for a freezing order must show:

(a) it has a good arguable case on the substantive claim;

(b) there are assets of the defendant within the jurisdiction to which the orders can apply;

(c) there is a real risk that the defendant will dissipate or dispose of assets so as to render itself “judgment proof”.

Ms Skiffington, who has not responded to requests for reparation proposals took the position that (see [19]):

“… Dr Love’s convictions do not provide an evidential basis on which liability for fraud can be established against Ms Skiffington for the purposes of a summary judgment claim. Dr Love’s obligations as chair of a board of trustees included fiduciary duties to those trustees whereas Ms Skiffington owed no such duty to the Trust. To argue that Dr Love’s convictions provide an evidential basis for liability of Ms Skiffington is wrong in principle and in law…”

Clark J’s response to this submission (see [26]) was  that there is a “… good arguable case [that] is grounded in the High Court’s verdict which was not, in any respect, impeached on appeal. Of relevance to this proceeding are the Court of Appeal’s criticisms of Ms Skiffington’s involvement in the elaborate deception of the Trust and her ‘apparently fraudulent influence’ on Dr Love.”

With regard to the question of whether or not there was a real risk of dissipation of assets, Clark J said at [48] that:

“… While the plaintiff has not, and is not required to, produce proof of the likelihood that a successful judgment will prove barren because of dissipation of assets I am satisfied that the plaintiff has demonstrated that a danger exists. This is all that is required.”

In closing Clark J noted at [52] that:

“… Tenths has demonstrated that the overall interests of justice favour the grant of an interim freezing order … the overall interests of justice do not favour the defendants in circumstances where there is a tenable argument they have engaged in fraudulent activities that have caused serious loss to the plaintiff, its beneficiaries, and the wider Maori community in Wellington and Taranaki …”



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