An overseas Court says a Court of Appeal decision was “illogical” and “unfair”

Bench-marking is used everywhere to assess the measure of an enterprise’s success.

These are four ways by which the decisions of our Courts can be bench-marked.

One, to subject them to institutional scrutiny.  This occurred when we had the Privy Council as our final Court of Appeal.  Those days have gone forever. 

Two, to have an international jurist or jurists of renown sit on our final Court – as occurs in Hong Kong.  (If the second largest economy on Earth sees benefit in having Lord Hoffman, Lord Millett, Lord Neuberger, Lord Woolf, and thirteen other luminaries from the Common Law world available to sit on its Court of Final Appeal, why on earth doesn’t our Government acknowledge the very obvious benefits that such people would bring to our Supreme Court?)

Three, to be critiqued by academic writers. 

Four, to be analysed by judges in other countries.

This week’s article concerns category 4.

The NZ case was Johns v Johns [2004] 3 NZLR 202, a decision which Tipping J delivered for the Court of Appeal. 

I was at a Trusts conference in London three weeks ago where I learned that the Court of Appeal in the Cayman Islands had said, among other things, that the decision in Johns is not supported by logic or fairness” – and that our Court of Appeal chose to interpret a Statute in a way that “assume[d] the legislature intended an arbitrary result.”

That is an uncharacteristically harsh criticism for a Court of one country to say of a Court in another.

A question for determination in Johns was whether the six year limitation period for suing Trustees for breach of trust begins to run against a discretionary beneficiary when he or she first learns of the breach or could reasonably have done so, or whether the period is suspended unless and until the Trustees make an appointment in favour of the discretionary beneficiary.

Our Court of Appeal said in Johns that time runs from the day the discretionary beneficiary first learns of the breach or could reasonably have done so.  The Cayman Islands’ Court of Appeal strongly disagreed.  In Coutts (Cayman) & Others v Lemos & Others CICA No20 of 2005 it said that time does not begin to run until an appointment is made in favour of the discretionary beneficiary.  (I will put a copy of the Cayman decision on the “Trusts” page on my website for those who want to read it.)

The Johns and Lemos decisions involve the interpretation of s21(2) of our Limitation Act and the equivalent provision in the Cayman legislation. 

The Cayman’s Court of Appeal said that: 

“The decision in Johns v Johns results in a beneficiary with a fixed future interest facing no limitation period until his or her interest becomes a present interest, while the object of a discretionary power having no legal entitlement to benefit, and who may or may not have benefitted or benefit in future, is time-barred should he or she fail to sue within the limitation period….

"The rationale in [s21(2)] has as its logic that no one should be put to the expense of bringing action without a present right to benefit from the trust.  The alternative proposed by the trustees expresses a possible meaning for the legislative language that produces the result arrived at in Johns v Johns, but it is not supported by logic or fairness.”

It isn’t “logical” because an action by a discretionary beneficiary for breach of trust would constitute one of the purest and most successful forms of financial suicide.  What trustee would reward that person by making an appointment in his or her favour? 

And it isn’t “fair” since a discretionary beneficiary should not be required to incur the expense of suing a Trustee for breach of trust when he/she may never receive anything from the trust.

Of course, the fact that the Cayman Court of Appeal was so critical does not mean that it was “right” and the NZ Court of Appeal was “wrong”.  The interpretation of Statutes is notoriously difficult.  It is, however, interesting to note that there is a right of appeal from the Court of Appeal in the Caymans to the Privy Council.  Senior Counsel for the unsuccessful party in Lemos – Michael Briggs QC who is now a Judge in the Chancery Division, and a very able Judge too – threatened the Cayman Court of Appeal that if it rejected the Johns interpretation, his clients might appeal to the Privy Council – but there was no appeal.  Counsel in the Lemos litigation tell me that the litigation settled a couple of months after the Court of Appeal’s Decision.

I will end with a general observation of no particular relevance to Johns v Johns.  I say “no particular relevance” to that case because I acknowledge that the wording of S21(2)is unhelpfully unclear. 

Decisions concerning investment in this country are affected by the perceptions of the international business community and their advisers.  The decisions of our Judges – at all levels in our legal system and, in saying that, I include Judges in the Family Court – should be seen in this light.  They are all liable to be picked apart by participants at international conferences.  If the decisions are not seen to be sensible and sound, then in small but not insignificant ways this may lead to adverse economic consequences that affect us all.

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