I didn’t read it …

The background to Kusabs v Staite, which relates to the rectification of a lease, is complex and fact specific and highlights the need for parties to written documents to ensure an accurate record of the agreement that is being recorded.

Relevant considerations from the Court of Appeal include:

• the standard of proof for rectification is the same as that for civil proceedings
• cogent evidence is required to counteract the evidence of the parties’ intention as provided by signatures on the relevant documents
• as noted in Davey v Baker (editor’s emphasis) at [40] “It is suggested that a mistake in the interpretation of an instrument or in the legal consequences of entering into an instrument is regarded as insufficient to ground rectification; rectification is a remedy to ensure the instrument contains the provisions which the parties intended it to contain, and not those which it would have contained had the parties been better informed. The remedy of rectification is strictly limited to a clearly established disparity between the words of the document and the intentions of the parties.
• the observation that the evidential weight of a document may depend on the circumstances (Tartsinis v Navona Management)

Note that the Court of Appeal subsequently made an order for recall of this decision on 28 June 2022.  The agreed issues for determination are:

(i) Whether there was a breach of fiduciary duty by Mr Moke in light of
Tumunui’s proposed limited interest exception;
(ii) If there was a breach, is a remedy warranted and, if so, which remedy:
equitable damages or rescission?
(iii) Whether a hearing is required to determine remedy and, if so, whether
in the High Court or the Court of Appeal.

Background – High Court judgement 

In the High Court, Heath J accepted that Mr Moke breached his fiduciary duty of loyalty to the Whaoa Trust by acting on both sides of the lease transaction and that his involvement had provided material assistance to the Tumunui Trust in the lease negotiations.   Notwithstanding this Heath J found that Mr Moke was not responsible for  an error in the drafting of the rental provision.  An order was made for rectification of the lease rather than rescission.

Background – Court of Appeal judgement 

The Court of Appeal allowed the appeal against the order for rectification on the basis that it was unclear whether the parties had a common intention that the rental provision in the lease should have been in the revised form proposed.  As stated at [6] to [9]:

[6] In terms of the alleged breach of fiduciary duty, the Court of Appeal held that “[t]aking a robust approach to the standard, Mr Moke’s interests in the two blocks may be described as de minimis”. The Court of Appeal considered that the wider context supported this approach, including that all those involved were aware of Mr Moke’s dual trusteeship, that no one had suggested a conflict of interest at any time prior to Mr Moke’s death in 2003 and that the lease was not just a commercial agreement but also an expression of the whanaungatanga between the three hapū. It was also significant that Mr Moke stood to gain far more financially by favouring the Whaoa Trust over the Tumunui Trust and thus had no financial incentive to favour the Tumunui Trust. The Court also differed from the High Court’s conclusion that Mr Moke’s primary affiliation was to Tumunui and that this created a cultural conflict.

[7] The Court of Appeal concluded that:

… a reasonable person cognisant of the nature of Māori land ownership,
tikanga principles of whanaungatanga and mana, and the wider factual matrix,
would not have considered there was a “real sensible possibility” that
Mr Moke had a conflict at the time the Tumunui Lease was entered into or at
any stage thereafter.

[8] In coming to that conclusion the Court of Appeal applied the principles set out in this Court’s decision in Fenwick v Naera. The Court of Appeal described the approach in that case as follows:

[125] Although the Supreme Court was very clear that the self-dealing rule applied to Māori land trusts as it did for any other trust, Glazebrook J, writing for the majority, was very much alive to the distinctive context of Māori land ownership and tikanga. The Court reflected this firstly by emphasising the requirement in Boardman v Phipps that the facts must disclose a “real sensible possibility of a conflict,” not a remote, speculative, or negligible risk. Furthermore, citing a passage from the speech of Lord Upjohn in Boardman, the majority emphasised that the test for breach is an objective one – that of a “reasonable man looking at the relevant facts and circumstances of the particular case…”. Tikanga and the whanaungatanga context of Māori
trusteeship is, obviously, an important context for that “reasonable man” to take into account.
[126] Second, the majority left open the possibility of a limited interest exception to the otherwise strictly applied rule against self-dealing. It did not finally decide the point as it would not have affected the result in that case. On the facts, one of the trustees was, like Mr Moke in this case, also a trustee of a counterparty, so even if that trustee did have a limited interest, the
exception could not apply.
[127] Third, the majority acknowledged that, in any event, the self-dealing rule would not apply at all to a trustee who had, not just a limited, but a de minimis interest in the counterparty. Disapplication of the rule in such circumstances meant that cross-trusteeship would not be fatal. Instead, the focus for the Court should be the ‘sensible possibility’ test applied in light of
the scheme of Te Ture Whenua Māori Act and the realities of Māori land ownership. William Young J, who wrote separately, was also cognisant of the whanaungatanga context. He suggested that it could be “accommodated by a robust application of the de minimis principle.” We agree with that approach.
[128] Fourth, even if the trustee was found to have a conflict of interest and/or loyalty, the Court held that rescission would not be an automatic remedy at the election of the aggrieved party. Better to reserve to the trial court (whether the Māori Land Court or the High Court) a broad discretion in relation to relief. A full appreciation of the wider commercial and cultural
context was required before a decision on remedy could be made. …
…
[133] … The approach in Naera was to seek to strike an appropriate balance by applying equitable doctrines with context, including the context implicit in the broader objects of Te Ture Whenua Māori Act, firmly in mind.

[9] The Court of Appeal said that, even if Mr Moke had acted in breach of the rule against self-dealing, it still did not consider the Whaoa Trust should obtain a remedy for that breach.  In the Court’s view the tikanga context was important to the issue of remedy. It considered that the lease was not unfair at the time seen in its proper context. Further, the Whaoa Trust was independently advised, the alleged drafting error was not a mistake and in any event it had nothing to do with Mr Moke. The Whaoa Trust would also derive an inappropriate benefit from an order for rescission
and unwinding the lease after so long would cause considerable difficulties.

The Supreme Court was of the view that case relates to application of the principles set out by this Court in Fenwick v Naera and that, while the proposed appeal might have commercial significance to the parties, it does not concern issues of general or public importance.

References:

• Kusabs v Staite [2022] NZCA 270
• Kusabs v Staite [2022] NZSC 123
• Kusabs v Staite [2019] NZCA 420
• Davey v Baker [2016] NZCA 313
• Fenwick v Naera [2015] NZSC 68
• Tartsinis v Navona Management [2015] EWHC 57 (Comm)