A v B [2002] CKHC 6; [2004] 4 ITELR 877 (4 April 2002)

[2004] 4 ITELR 877

HIGH COURT OF THE COOK ISLANDS
RAROTONGA
(CIVIL DIVISION)

Plaint no 17/2001

A

v

B and others

WILLIAMS J

HEARING DATE: 20 MARCH 2002
JUDGMENT DATE: 4 APRIL 2002

Administration - Cook Islands - Secrecy -Action against trust allegedly created to deprive judgment creditor in foreign proceedings -Application for discovery - Whether discovery prohibited by statute - Discovery permitted where provisions of Act required - International Trusts Act 1984, ss 13B, 23

Procedure - Cook Islands - Discovery -Action against trust allegedly created to deprive judgment creditor in foreign proceedings - Whether discovery prohibited by statute - Discovery permitted where provisions of Act required - International Trusts Act 1984, ss 13B, 23

An action was taken against a Cook Islands trust registered under the International Trusts Act 1984 alleging that it had been created to deprive the plaintiff of the benefit of a judgment debt resulting from legal action in the USA. Section 13B of the Act provided for causes of action which would enable the plaintiffs to recover from the trust the amount required to satisfy any general damages or restitutionary order under the foreign judgment. The plaintiff applied for orders of discovery of documents relating to the establishment and affairs of the trust. The defendants resisted the order for discovery on the ground that to give discovery would constitute a criminal offence under s 23(1) of the Act which provided that it was an offence to communicate to any other person any information relating to the establishment or affairs of an international trust, except 'where the provisions of this Act require' and subject to the other provisions of s 23.

HELD (allowing the application for discovery):

On its true construction s 23 of the International Trusts Act 1984 did not prohibit orders for discovery of documents concerning the establishment of a trust if those documents had reasonably to be revealed to ensure fair and proper determination of a cause of action under s 13 of the Act. Such orders were required to make the provisions of s 13 work. Section 23 was subject to exception where the provisions of the Act required and in determining what the provisions of the Act required the court would work out a practical interpretation that appeared to accord best with the intention of Parliament.

There was no indication that Parliament had intended illicit or illegal dealings to take place under the cover of the Act and the fraud provisions of s 13 would be rendered useless if in s 13 cases there could not be full and proper discovery (see [30]-[34], post). Re Galileo Group Ltd, Elles v Hambros Bank Ltd (Bank of England intervening) [1999] Ch 100 and Northland Milk Vendors Assoc Inc v Northern Milk Ltd [1988] 1 NZLR 530 applied.

Cases referred to in judgment

515 South Orange Grove Owners Assoc v The Orange Grove Partners (6 November 1995, unreported), Cook Is CA.
Controller and Auditor-General v Davison [1996] 2 NZLR 278, NZ CA.
Galileo Group Ltd, Re, Elles v Hambros Bank Ltd (Bank of England intervening) [1999] Ch 100, [1998] 1 All ER 545, [1998] 1 BCLC 318, [1998] BCC 228.
Northland Milk Vendors Assoc Inc v Northern Milk Ltd [1988] 1 NZLR 530, NZ CA.

Counsel:

J R F Fardell (NZ Bar) for the plaintiff.
A F Grant (NZ Bar) for the settlors.
W Akel (NZ Bar) for the trustees.

Solicitors:

Browne Gibson Harvey for the plaintiff.
M C Mitchell and Co for the settlors.
Timothy Arnold for the trustees.

Cur adv vult

4 APRIL 2002. THE FOLLOWING JUDGMENT WAS DELIVERED.

WILLIAMS J.

The Nature of the Proceedings

[1] The plaintiff, A, is a bank, first defendant E is a settlor and together with her husband (first defendant B) and their children they are beneficiaries of the trust. B also transferred property to the trust. The trust is a registered international trust pursuant to the International Trusts Act 1984. The Cook Islands Trust & Banking Corporation Ltd is a trustee company licensed pursuant to the Trustee Companies Act 1981-82 and carries on the business of the creation, establishment, maintenance and administration of international trusts.

[2] The trust was purportedly established and created pursuant to a trust settlement dated 12 July 2000 made between the first defendants and the second defendants (C and D) as trustees.

[3] The first defendants are also the sole shareholders of Group Inc, which was indebted to the plaintiff under a $US 17m promissory note dated 31 May 1999. They unconditionally guaranteed full payment to the plaintiff of all indebtedness owed under the note.

[4] It was alleged that the defendants were in breach of their obligations as guarantors and arbitration proceedings were commenced by the plaintiff against the first defendants claiming in excess of $US 17m in July 2000. It is contended by the plaintiff that while the arbitration proceedings were pending the first defendants allegedly transferred assets to the second defendants in their capacities as trustees of the trust for no consideration.

[5] On 31 October the first defendants consented to two arbitration awards against them and in favour of the plaintiff for the amounts due under the guarantee. On 28 December 2000 the Circuit Court for Baltimore City, State of Maryland, United States, entered a judgment on the first arbitration award against the first defendants.

[6] The central allegation against the defendants in these proceedings, which are brought pursuant to s 13B(1) of the International Trusts Act, is as follows:

'That the transfer of the Residence, Furnishings and Liquid Assets to the Second Defendants as trustees of the Trust were [sic] made with the intention and effort to hinder, delay, deprive or defraud the Plaintiff and has left the First Defendants without property sufficient to satisfy the First Defendants indebtedness to the Plaintiff or in respect of the Guaranty evidenced by the judgment entered in the Circuit Court State of M entered on 28 December 2000 in favour of the Plaintiff in the amount of United States Dollars Sixteen Million Eight Hundred Forty One Thousand One Hundred and Twenty Dollars Twenty Nine Cents (USD$ 16,841,120.29) together with pre-judgment interest in the amount of United States Dollars Six Hundred Thirty Five Thousand Forty Dollars and Sixty Cents (USD$ 635,040.60) plus post-judgment interest and costs pursuant to the First Defendants consenting to an arbitration award dated 31 October 2000 against them in favour of the Plaintiff for amounts due under the Guaranty.'

[7] There is pending an application to amend the statement of claim by adding a new cause of action but that is not material to the issues to be determined in this judgment.

The Issue for Determination

[8] By application dated 8 February 2002 the plaintiff applied for orders for discovery against first defendants B and E and D the second named second defendant.

[9] It is not disputed that the plaintiff's application for specific discovery encompasses documents 'relating to the establishment, constitution, business undertaking or affairs of an international trust', namely the trust which is involved in this litigation.

[10] On 18 March 2002 the solicitors for the first defendants filed a notice of opposition to the application, the first ground of which stated:

'1. Section 23(1) International Trusts Act 1984

To the extent that discovery is sought of documentation "relating to the establishment, constitution, business undertaking or affairs of" The Trust, section 23(1) of the International Trusts Act provides that it is an offence for such information to be "divulge[d] or communicate[d] to any ... person" and it is accordingly contended that discovery cannot be ordered of such documentation.'

[11] The notice of opposition filed on behalf of C dated 15 March 2002 makes the same objection. The issue for determination is therefore whether s 23(1) precludes an order for discovery in this case.

[12] An unusual feature of the case is that some documents relating to the establishment, constitution, business undertaking or affairs of the trust have been secured by the plaintiff in the course of discovery orders against the first defendants in the state proceedings. However, the parties agreed that the court could not avoid a ruling on the applicability of s 23 for two reasons. First the question would remain as to whether the documentation secured in the Maryland proceedings could be used in these proceedings without breaching s 23. Second, and in any event, there were additional documents relating to the establishment of the trust which the plaintiff was seeking in its specific discovery application.

Relevant Statutory Provisions

[13] The International Trusts Act 1984 as amended in 1999 creates a regime for the establishment of international trusts in the Cook Islands. It is part and parcel of the legislation that has been passed in the Cook Islands to establish itself as a South Pacific tax haven. This legislation comprises the Cook Islands Monetary Board Act 1981, the Offshore Banking Act 1981, the International Companies Act 1981-82, the Offshore Insurance Act 1981-82, the Trustee Companies Act 1981-82, the International Partnership Act 1984 and the International Trusts Act 1984. A prominent feature of the various Acts is the incorporation of secrecy provisions which broadly prohibit any person or entity from divulging information relating to an international company or a foreign company, trust or partnership or to offshore banking or insurance business.

[14] So far as the International Trusts Act is concerned the relevant provisions for the purposes of this judgment are the following:

'3. Saving of existing laws

The laws applicable to trusts in force in the Cook Islands shall apply to international trusts except in so far as they are inconsistent with or have been modified by the provisions of this Act.

...

13B. Fraud

(1) Where it is proven beyond reasonable doubt by a creditor that an international trust settled or established or property disposed to an international trust-

(a) was so settled established or disposed by or on behalf of the settlor with principal intent to defraud that creditor of the settlor; and

(b) did at the time such settlement establishment or disposition took place render the settlor, insolvent or without property by which that creditor's claim (if successful) could have been satisfied,

then such settlement establishment or disposition shall not be void or voidable and the international trust shall be liable to satisfy the creditor's claim out of the property which but for the settlement establishment or disposition would have been available to satisfy the creditor's claim and such liability shall only be to the extent of the interest that the settlor had in the property prior to settlement establishment or disposition and any accumulation to the property (if any) subsequent thereto.

(2) In determining whether an international trust, settled or established or a disposition, has rendered the settlor insolvent or without property by which a creditor's claim (if successful) may be satisfied, regard shall be had to the fair market value of the settlor's property, (not being property of or relating to the trust) at the time immediately after the settlement establishment or the disposition referred to in subsection (1)(b) and in the event that the fair market value of such property exceeded the value of the creditor's claim, at that time, after the settlement establishment or disposition, the trust so settled or established or the disposition shall for all purposes be deemed not to have been so settled established or the property disposed of with intent to defraud the creditor.

(3) An international trust settled or established and a disposition to such trust shall for all purposes be deemed not to be have been so settled or established, or the property disposed of with intent to defraud a creditor-

(a) if settled established or the disposition takes place after the expiration of 2 years from the date that creditor's cause of action accrued; or

(b) where settled, established or the disposition takes place before the expiration of 2 years from the date that the creditor's cause of action accrued, that creditor fails to commence in a court of competent jurisdiction proceedings in respect of that creditor's cause of action before the expiration of 1 year from the date such settlement establishment or disposition took place,

Provided that this subsection shall not have effect if, and subject to subsection (5), at the time of settlement, establishment, or disposition, as the case may be, proceedings in respect of that creditor's cause of action against that settlor have already been commenced in a court of competent jurisdiction.

(4) An international trust settled or established and a disposition of property to such trust shall for all purposes be deemed not to have been so settled or established, or the property disposed of with intent to defraud a creditor if the settlement establishment or disposition of property took place before that creditor's cause of action accrued.

(5) A settlor shall not have imputed to him an intent to defraud a creditor, solely by reason that the settlor-

(a) has settled or established a trust or has disposed of property to such trust within two years from the date of that creditor's cause of action accruing;

(b) has retained, possesses or acquires any of the powers or benefits referred to in paragraphs (a) to (f) of section 13C;

(c) is a beneficiary, trustee, or protector;

(d) has settled or established a trust, or has disposed of property to such trust at a time when proceedings in respect of that creditor's cause of action against that settlor have already been commenced in a court of competent jurisdiction.

(6) Where an international trust is liable to satisfy a creditor's claim in the manner provided for in subsection (1)-

(a) the creditor's rights to recovery shall be limited to that property referred to in subsection (1), or to the proceeds of that property, to the exclusion of any rights against the trustees of the international trust or any of them, against any other property of the international trust, or against any other of the property or assets of the trustees of the international trust, or any of them;

(b) where the international trust is unable to satisfy the creditor's claim by reason of the fact that the property referred to in subsection (1) has been disposed of, other than to a bona fide purchaser for value, then any such disposition shall be void.

(7) For the purpose of this section the onus of proof of the settlor's intent to defraud the creditor lies on the creditor.

(8) For the purposes of this section and section 13K-

(a) the date of the cause of action accruing shall be, the date of that act or omission which shall be relied upon to either partly or wholly establish the cause of action, and if there is more than one act or the omission shall be a continuing one, the date of the first act or the date that the omission shall have first occurred, as the case may be, shall be the date that the cause of action shall have accrued;

(b) the term "cause of action" means the earliest cause of action capable of assertion by a creditor against the settlor of an international trust or, as the case may be, against the settlor of property upon an international trust, by which that creditor has established (or may establish) an enforceable claim against that settlor;

(c) where a creditor has, or asserts, or could have asserted, multiple or successive causes of action against a settlor (whether by virtue of the nature of the relevant circumstances of the case, or by reason of having attained the status of a judgment creditor in respect of one or more of such causes of action, or by reason of asserting or being able to assert an allegedly fraudulent settlement of or disposition to an international trust, or otherwise) the entitlement of such a creditor to relief under this section shall be determined, and the periods referred to in this section shall be calculated with reference to one only of the creditor's causes of action, being that cause of action which accrued first in time in accordance with paragraph (b);

(d) nothing in paragraphs (b) or (c) shall apply so as to affect the right or requirement of a creditor to commence separate proceedings under this section in relation to a cause of action which is separate from and independent of another cause of action where the court is satisfied, having regard to paragraph (c), that both the circumstances out of which the cause of action arose and the subject matter of that cause of action are wholly unrelated to those of the other cause of action.

(9) The provisions of this section shall apply to all civil actions and proceedings brought in the Court in which fraud, deceit, unconscionable conduct or any other inequitable conduct however described or any species of unjust enrichment is alleged, against any person (whether a party to the proceedings or not) with regard to the settlement or establishment of an international trust or the disposition of property to such a trust, or receipt of property by or for such a trust (or subsequent disposition of property from such a trust with the intention of prejudicing creditors of the settlor of such property or such trust), and the remedy conferred by subsection (1) shall be the sole remedy available in such an action or proceedings, to the exclusion of any other relief or remedy against any party to the relevant action or proceeding.

(10) The provisions of this section shall operate to the exclusion of any other remedy, principle or rule of law, whether provided for by statute, or founded in equity or in common law including, for the avoidance of doubt, the imposition of a constructive trust upon any interested party or the recognition and enforcement of any constructive trust imposed or recognised by the laws of any other jurisdiction.

(11) Subject to the section 16(6), the provisions of this section shall apply to every international trust and to every trust which having been registered as an international trust, is no longer so registered, and in respect of all dispositions to such a trust.

(12) For the purposes of this section the term "creditor" means a creditor of the settlor and includes any person who alleges a cause of action against a settlor.

(13) A creditor seeking to enforce a claim under this section in reliance on a foreign judgment may not enforce such claim until such time as it can demonstrate to the reasonable satisfaction of the court that:

(a) it has exhausted all remedies available to it against the settlor's remaining property, and

(b) all rights of appeal against that foreign judgment have been exhausted.

(14) For the purposes of assessing the liability of an international trust to a creditor under this section, where the amount of that creditor's claim against the settlor is, wholly or partly, in any way related to or evidenced by a foreign judgment, the Court in making any award in favour of that creditor shall disregard and exclude any amount awarded in that foreign judgment to that creditor which comprise any form of exemplary, vindictive, retributory or punitive damages (by whatever name), or is an amount of damages arrived at by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage (which types of damage are in this section together called "punitive damages").

(15) The burden of proof shall be on a creditor to establish that an amount awarded in a foreign judgment does not wholly or partly comprise punitive damages.

(16) Subsection (14) shall not apply if, at the time of settlement, establishment, or disposition, as the case may be, an award of punitive damages has already been made in a foreign judgment against a settlor.

...

13K. Commencement of proceedings

(1) No action or proceedings whether pursuant to this Act or at common law or in equity to-

(a) set aside the settlement of an international trust; or

(b) set aside any disposition to any international trust; or

(bb) seek relief or remedy under section 13B,

shall be commenced, unless such action or proceedings is commenced,-

(c) in the High Court of the Cook Islands; and

(d) before the expiration of 2 years from the date of,-

(i) the settlement of the international trust; or

(ii) the disposition to the international trust,

as the case may be.

...

23. Privacy

(1) Except where the provisions of this Act require, and subject to this section, it shall be an offence under this Act for a person to divulge or communicate to any other person information relating to the establishment, constitution, business undertaking or affairs of an international trust.

(2) All judicial proceedings, other than criminal proceedings relating to an international trust shall, unless ordered otherwise be heard in camera and no details of the proceedings shall be published by any person except in accordance with subsection (3).

(3) Every decision of the Court in respect of any proceedings concerning the application or interpretation of this Act shall be published or reported for the purposes of affording a record of those proceedings, provided that in every case-

(a) the written decision of the Court shall be edited to such extent as shall be necessary to preserve secrecy in respect of the identity of the trust of every interested party and of the subject matter of the proceedings; and

(b) no such decision shall be reported or published unless or until a judge of the Court shall have ascertained the views of the parties to the proceedings as to the adequacy of any editing undertaken, and certified in writing to the Registrar of the Court that the decision as edited may be released for publication or reporting.

(4) Unless excluded by the terms of a trust instrument, a trustee or an officer or employee of a trustee or trustee company may divulge or make available information relating to the establishment, constitution, business undertakings or affairs of an international trust-

(a) to any person or class of persons as that trustee, officer or employee considers necessary from time to time, in its complete discretion, for carrying out the management and administration of the trust assets in the ordinary course of business; or

(b) to a legal practitioner-

(i) for the purpose of obtaining legal advice relating to establishment, constitution, business undertakings or affairs of an international trust; or

(ii) for the purpose of prosecuting or defending any litigation relating to the establishment, constitution, business undertakings or affairs of an international trust.

...

28. Penalties

(1) Any person who:

(a) does anything which is forbidden by or under this Act; or

(b) omits to do something required or directed by or fails to comply with any provisions of this Act,

shall be guilty of an offence against this Act and shall be liable on conviction to a fine not exceeding US$10,000.00 or to imprisonment for a term not exceeding 1 year or to both.'

Submissions for Defendants in Opposition

[15] For the first defendants Mr Grant began his submissions by outlining the structure of the Cook Islands tax haven and the legislation which supports it, including the International Trusts Act, by reference to the Report of the New Zealand Wine Box Inquiry. He referred to the recent OECD Project on Harmful Tax Practices, a concerted international campaign underway at present to reform various aspects of tax havens throughout the world. He noted that the Cook Islands was one of the countries which had not at the time of the OECD 2001 Progress Report, made a political commitment to eliminate those elements of the tax haven which were thought by the OECD to be inappropriate. He sought to have the court infer that the non-compliance to date by the Cook Islands government indicated that it was intending to enforce in their full rigour the existing provisions of its tax haven legislation including s 23(1). Whatever weight might have been due to this submission has been eliminated by the recent announcement that the OECD is removing the Cook Islands from its 'blacklist' following pledges of co-operation from its government (see New Zealand Herald, 2 April 2002, p C3).

[16] As to the precise question for decision, Mr Grant submitted that the plain words of s 23(1) prevented the court from making orders for discovery in so far as the documents sought related to the establishment, constitution, business undertaking or affairs of an international trust. He stressed that it was an offence to divulge such information 'except where the provisions of this Act require'. As to that, he submitted that the phrase necessitated an explicit provision in the International Trusts Act referring to and authorising a person to divulge or communicate the identified information. He pointed out that there was no such specific provision. He contended that the court should not be astute to carve out exceptions to the basic rule about secrecy and privacy because case by case ad hoc exceptions would be inconsistent with a regime where unauthorised disclosure was a criminal offence. In such circumstances all parties should know in advance what was the position about disclosure and must know where they stood because of the dangers of breaching the criminal law if they made a wrong decision.

[17] He also suggested that if exceptions to the general rule of privacy were allowed in the case of discovery in civil proceedings 'one would be able to drive a lorry' through the secrecy provisions of the statute by simply making tenuous allegations of fraud and then seeking the disclosure of information relating to the trust on discovery. Any exceptions needed to be spelt out by the legislature and not by the courts, if the court was deprived of relevant information so as to make it difficult to adjudicate, then that too was a matter that should be addressed by the legislature and not by the court.

[18] Mr Grant relied upon Re Galileo Group Ltd, Elles v Hambros Bank Ltd (Bank of England intervening) [1999] Ch 100, [1998] 1 All ER 545. That case involved s 82 of the Banking Act 1987 (UK) which makes it a criminal offence for a person who, under or for the purposes of the Act, has received information relating to the business or other affairs of any person to disclose that information without the consent of the person from whom it was received. The court does not find the case of any assistance since the prohibition on disclosure in that case was absolute except in cases where the person from whom the information was received consented to its disclosure.

[19] Mr Akel for the trust company made similar submissions. He accepted that under s 3 of the International Trusts Act the rules of civil procedure of the High Court Code of Civil Procedure and the Judicature Act would apply to international trusts but that they had been modified by s 23. He further submitted that the exception in s 23(4) showed the carefully circumscribed limits to the general rule of privacy and secrecy. Parliament had thus carefully drawn the lines for any exception relating to civil proceedings and the court should not go further. As to the true interpretation of s 23(4), he conceded that on the strict construction for which he contended, only the trustee and its lawyer could use the otherwise protected material in the course of defending any litigation. He acknowledged that this would necessarily result in a situation where relevant evidence relating to the establishment of the trust etc, could only be produced by one side in civil proceedings such as the present. If that side elected not to produce the information it would be impossible for the court to have access to it for the purposes of making its decision.

Submissions for the Plaintiff in Reply

Section 23 generally

[20] Mr Fardell for the plaintiff began by suggesting that s 23 required a careful analysis and was not as limited as the defendants suggested. Section 23(4) was relied upon as authorising discovery in this case. Section 23 essentially fell into three parts, which had points in common but which also had significant points of difference. The first part was contained in sub-s (1) and comprised a general restriction on the divulging of information relating to the establishment, constitution, business undertakings or affairs of an international trust. But importantly, this general proscription was expressly subject to other provisions of the Act and, in particular, s 23(4). The second part contained in s 23(2) and (3) provided for a presumptive position that proceedings relating to an international trust shall be heard in camera and every decision of the court should be edited so as to provide for secrecy in relation to the identity of the trust, of every interested party and of the subject matter of the proceeding. But even then, in the case of the former, the court could order the proceedings to be heard in public and in the case of the latter, the court could require its decision, suitably edited, to be released for publication or reporting.

Consequently, although there was a premium on secrecy/privacy in relation to the conduct and reporting of proceedings, there were important limits, no doubt in recognition that the justice of the case and the inevitable public interest factors would need to be determined on a case by case basis.

[21] He also drew attention to the significant fact that s 23(2) provided for a comprehensive exception to the secrecy/privacy provisions in the case of criminal proceedings. He accepted that although civil proceedings involving an allegation of fraud did not fall within the broad exception of s 23(2), the scheme of s 23 recognized that the court should have the necessary discretion to create an exception to the presumptive rule where the allegations were criminal or quasi-criminal in nature, as otherwise the International Trusts Act would itself become an instrument of impropriety.

Section 23(4)

[22] Subsection (4) was the third part of s 23 and the one most directly relevant in this case. It was in two parts. First, s 23(4)(a) involved a broad discretion vested in a trustee, officer or employee of a trustee or trustee company to release information (and without restriction if necessary) to anyone, for carrying out the management and administration of the trust assets in the ordinary course of business. Second, s 23(4)(b) was an enabling power to disclose to a legal practitioner (but not necessarily the legal adviser of the trustee) for the purpose of prosecuting or defending any litigation relating to the establishment or affairs of an international trust.

[23] He submitted that both limbs applied to this case and justified the orders sought. In respect of s 23(4)(a), the qualification of 'carrying out the management and administration of the trust assets in the ordinary course of business' embraced the defence of proceedings relating to the ongoing undertaking of the trust's affairs. Given that a central purpose of the International Trusts Act was to establish international trusts which hold assets and administer property which will often be derived from foreign jurisdictions, it was inevitable that in the ordinary course of running the business of such an international trust, the trustee would need to deal with litigation about the management and administration of the trust's affairs. The phrase, 'ordinary course of business' was wide in its import and included everything from the day to day management, taking steps to preserve the assets and wealth of the trust (which included defending litigation that poses a challenge to that) to the more mundane things, such as paying bills, preparing accounts and attending to regulatory filings.

[24] The short point was said to be that a trustee encounters litigation of the present type only because of its function of carrying out the management and administration of the trust's business in the ordinary course. This was the very raison d'être for joining the trust companies as defendants. They were in control of the trust assets, which the plaintiff alleged they had received pursuant to a fraudulent conveyance.

[25] The present proceeding was seeking to impeach the very establishment of the trust, its business undertakings and affairs, in the sense that it was alleged that the sole purpose of the trust was to put beyond reach assets that would otherwise answer the unsatisfied judgment of the Circuit Court. The plaintiff and more importantly the court, needed to know all of the circumstances affecting the transfer and receipt of the trust assets and the way in which those assets have been continually managed and administered for the purposes of determining the current proceeding.

[26] There was little doubt that the trustee was empowered to disclose under s 23(4)(a) to the first defendants and their advisers documentation relating to the management and administration of the trust assets for the purposes of this proceeding. Such disclosure would be in the ordinary course of the trust's business and was not different in principle to disclosure for statutory/regulatory compliance purposes. Similarly, if the trustee was acting bona fide or reasonably, it would disclose to the other parties in the litigation and to the court relevant documents that related to the management and administration of the trust assets for the purposes of the current proceeding. In summary, s 23(4)(a) authorised discovery of the type sought by the plaintiff. At the very least, the first-named second defendant should be required to advise the court whether it had made any disclosure in relation to the establishment, management and administration of the trust assets in the context of this proceeding to the first defendants and, if so, whether it intended to discriminate against the plaintiff in relation to the same disclosure and if so, the reasons for that. In the absence of a genuine, bona fide reason for distinguishing between the two sides in this litigation (it was hard to see any, given the allegation of fraudulent conveyance and the wish no doubt of the trustees to be seen to be acting neutrally and objectively in that context) the trustees and their employees were accountable under this provision and could be required to make appropriate discovery. This was said to be entirely consistent with the principles enunciated in Controller and Auditor-General v Davison [1996] 2 NZLR 278 at 287-288 where the Court of Appeal discussed in depth the public policy issues that arise when secrecy provisions of Cook Islands legislation were invoked to assist in the perpetuation of a scheme in the nature of fraudulent evasion.

[27] Passing to s 23(4)(b), sub-cl (iii) was expressly directed towards disclosure for the purpose of prosecuting or defending any litigation and again related to the establishment, constitution, business undertakings or affairs of the trust. In other words, disclosure under this limb was for all purposes associated with the trust, both in relation to its initial establishment and its subsequent management and administration. Disclosure was limited under this subclause to a legal practitioner, but the use of the indefinite article 'a' showed that it was not just the legal adviser of the trust, but any legal adviser involved in the proceeding for any party that could and should be the recipient of disclosure. (The court does not agree with this latter interpretation although in the circumstances it is not a material factor.) Mr Fardell submitted that a significant aspect of sub-cl (b) was that a trustee did not have the same ample discretion as arose under sub-cl (a). Although the opening words of sub-s (4) included reference to 'may divulge or make available', this was an enabling power, rather than conferring a broad discretion. This must be so, as otherwise the reference in sub-cl (a) to 'considers necessary from time to time in its complete discretion', would be otiose. In summary, in the context of litigation, Mr Fardell contended that there was a virtual mandate on the trustee, as officers and employees to disclose to legal advisors all relevant documents in the context of litigation.

[28] By way of overall summary it was submitted that disclosure under s 23(4) was permitted. If the trustees, their officers and employers were acting bona fide and reasonably, they would disclose in this case under sub-cl (a) and would not differentiate for this purpose between the plaintiff and the first defendants. It would be an improper exercise of the discretion under this clause to refuse disclosure, when the allegation was one of fraudulent conveyance and there were overriding public policy issues to ensure that the trustees did not assist in a fraudulent and iniquitous exercise. Disclosure under this head would extend to the plaintiff's employees and not just its legal advisers.

Decision

[29] The court does not find it necessary to rule on Mr Fardell's submission that s 23(4) empowers the making of orders for specific discovery of the disputed documents in this case. Its tentative view is that s 23(4) is directed to a different topic namely the need to protect trustees from potential criminal liability under s 28 in respect of disclosure in the course of routine trust administration or in the course of obtaining legal advice.

[30] The crux of the case is the interpretation and application of the proviso found in the opening words of s 23(1). As to that it is important to note that the phrase is 'except where the provisions of this Act require' not 'provide'. This strongly supports the view that it is implicit that if something has to be done to make the statute work, it is permissible to allow it. There is no need for an explicit requirement in the Act. As to what is implicitly required, the court considers that the approach should be 'to work out a practical interpretation appearing to accord best with the general intention of Parliament as embodied in the Act' (per Cooke P in Northland Milk Vendors Assoc Inc v Northern Milk Ltd [1988] 1 NZLR 530).

[31] The provisions which require discovery in the present case are those in s 13 which provide an important limited protection to creditors in respect of the otherwise impregnable asset protection provisions of the International Trusts Act and related legislation. The purposes of s 13 are of central importance. As the Court of Appeal said in 515 South Orange Grove Owners Assoc v The Orange Grove Partners (6 November 1995, unreported) at p 24, 26, 27:

'The purpose of the Act may be said to be to provide a haven which protects funds deposited with trust companies to the exclusion of the rights of creditors. On another view, the purpose of the Act may be said to protect funds against actions by creditors but only after giving those creditors a chance of recovery within a certain time limit ...'

[32] The court went on to find, having examined the legislative history, that Parliament intended to maintain high quality services and the integrity of the offshore banking and trust industry. The court said it would be-

'...loath to interpret the International Trusts Act as a statute which was intended to give succour to cheats and fraudsters by totally excluding the legitimate aims of overseas creditors ... We cannot think that Parliament ever intended that by passing the International Trusts Act the Cook Island should become an Alsatia in the South Pacific from which the commercial comity of nations was completed ousted'.

[33] Against that background and those statements the answer in this case becomes straightforward, the Cook Islands legislature wished to ensure that no illicit or illegal dealings took place under cover of the International Trusts Act. Hence it enacted the fraud provisions of s 13B(1). It is inconceivable that s 23 was intended to emasculate the power of the court to render a fair and just decision in proceedings brought under the fraud provisions of s 13. Section 13 would be rendered useless if there could never be in s 13 cases full and proper discovery, especially bearing in mind that the creditor carries the unusually heavy onus of proving beyond reasonable doubt that there was either an intent to defraud or that the settlement rendered the settlor insolvent or without property by which the creditor's claim, if successful, could be satisfied. In s 13B cases the question of disclosure of the information is adequately protected by the requirement in most cases to hold the hearing in private and the various provisions about the non-publication of unedited judgments of the court.

[34] For all of these reasons the court rules that the true construction of s 23 is that it does not prohibit appropriate orders for discovery involving documents concerning the establishment of a trust if those must reasonably be revealed in order to ensure the fair and proper determination of a cause of action under s 13. In that sense the Act itself and a proper fulfilment of s 13 require an exception to be made for discovery purposes in s 13 proceedings. There was no dispute that the documents in question were discoverable based on the traditional tests as to relevance and discoverability. It is reasonable that they be discovered.

Result

[35] For all of the foregoing reasons the court rules that s 23(1) does not deprive the court of the jurisdiction to make the orders for specific discovery sought in this case. Such orders are required to make the provisions of s 13B work. Accordingly the application is granted subject to the various conditions and reservations recorded in the minute of the court dated 20 March 2002.

Costs

[36] The plaintiff is entitled to a modest order for costs. If costs cannot be agreed by the parties then the plaintiff must file submissions in support of an application for costs within 28 days from the date of this judgment. My tentative view is that costs of $1,500 for the plaintiff (in total) might be appropriate, to be paid in equal shares by the defendants but of course I shall give the matter full consideration if called upon to do so.

Application granted.