Annan v Douglas
[2020] NZHC 1666
•13 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-771
[2020] NZHC 1666
BETWEEN REBECCA MARY ANNAN
Plaintiff
AND
SCOTT JAMES DOUGLAS
First Defendant
CHRISTOPHER JAMES MANSFIELD
Second Defendant
Hearing: 8 July 2020 Appearances:
R O Parmenter for Plaintiff First Defendant in person Second Defendant in person
Judgment:
13 July 2020
JUDGMENT OF LANG J
This judgment was delivered by me on 13 July 2020 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
Daniel Overton & Goulding, Onehunga R O Parmenter, Barrister, Auckland
ANNAN v DOUGLAS [2020] NZHC 1666 [13 July 2020]
[1] Ms Annan and Mr Douglas lived together in a relationship for several years. In October 2013 they decided to purchase a property situated in Malters Place, Browns Bay. Mr Douglas’ parents, Mr Mansfield and Ms King, agreed to advance them the sum of $30,000 to enable them to pay the deposit on the property.
[2] Mr Douglas and Ms Annan signed a deed of acknowledgement of debt recording the terms on which this sum was advanced on 30 October 2013. By that stage they had already received the funds. On the same date, Mr Mansfield made a payment in the sum of $600 into a bank account in the name of the Fresh Start Trust. Mr Douglas and Ms Annan were the trustees of that trust. They had incorporated it as the entity that was to acquire the Malters Place property.
[3] Thereafter, Mr Mansfield made 35 further weekly payments in the sum of $600 into the same bank account. In total he paid the sum of $21,600 into the bank account of the Fresh Start Trust. The funds were applied towards the repayment of a loan Mr Douglas and Ms Annan had obtained to purchase the Malters Place property.
[4] Ms Annan and Mr Douglas ended their relationship in 2016. The issue that now arises is whether the weekly payments constituted a loan by Mr Mansfield that Ms Annan and Mr Douglas are required to repay before they distribute the assets of the Fresh Start Trust. Mr Mansfield and Mr Douglas contend that they did; Ms Annan contends she never agreed to obtain any loan from Mr Mansfield. Resolution of this issue is the only matter preventing Ms Annan and Mr Douglas from going their separate ways.
The pleadings
[5] The assets owned by the Fresh Start Trust have now been sold and the net proceeds of sale are held in a solicitor’s trust account. Ms Annan and Mr Douglas have agreed how the funds should be distributed and this is recorded in a written agreement (the settlement agreement). The only issue preventing distribution of the trust’s funds in accordance with this agreement is the dispute regarding the alleged debt to Mr Mansfield.
[6]The prayer for relief in the statement of claim seeks the following relief:
a.A direction, under this Honourable Court’s inherent jurisdiction, that [Mr Douglas] should join in with [Ms Annan], qua trustees, to distribute the balance of trust funds equally to the parties qua beneficiaries;
b.In the alternative, a direction, under this Honourable Court’s inherent jurisdiction, that [Mr Douglas] should join in with [Ms Annan], qua trustees, to set aside $21,600 pending receipt of a proceeding from Mr Mansfield and to distribute the balance of trust funds equally to the parties qua beneficiaries;
…
[7] The parties now agree that they do not wish the sum of $21,600 to be set aside pending receipt of a proceeding from Mr Mansfield as sought in the alternative prayer for relief. Instead, they ask this Court to determine whether they owe the debt to Mr Mansfield in their capacities as trustees of the Fresh Start Trust. They also ask the Court to make such directions regarding distribution of the trust assets as may be appropriate in light of that determination.
Did the weekly payments constitute a loan?
The argument for Mr Douglas and Mr Mansfield
[8] It is common ground that there is no written document expressly recording the terms on which the weekly payments were made. Mr Mansfield and Mr Douglas contend there was a verbal agreement between all parties on or about 30 October 2013 that Mr Mansfield and Ms King would provide further financial assistance to assist Mr Douglas and Ms Annan in making mortgage payments after they acquired the Malters Place property. They say this was the reason why the weekly payments were made.
[9] Mr Mansfield and Mr Douglas say that all parties understood that the terms of the advances were to be those contained in the deed of acknowledgement of debt. The Lender in that agreement was named as the Moonlight Trust, the corporate trustee of which is Limelight Trustee Limited. Ms King is the sole director and shareholder of that company. Ms King signed the deed of acknowledgement of debt on behalf of the Moonlight Trust in that capacity on 30 October 2013. Mr Douglas and Ms Annan signed the deed in their capacities as trustees of the Fresh Start Trust.
[10] The deed of acknowledgement of debt provided for the loan of $30,000 to be repayable as follows:
3.2Notice Required by Lender for Repayment: The Lender may call for repayment of all or part of the sum outstanding to the Borrower (as is outstanding from time to time) at any time upon demand. For the avoidance of doubt, the sum outstanding under this deed and any subsequently increased or decreased sum outstanding (from time to time arising from further advances or repayments by the Borrower) remains upon demand.
[11] Mr Mansfield and Mr Douglas rely on the following clause in the deed of acknowledgement of debt as evidencing the fact that the parties anticipated that Mr Mansfield and Ms King would make further advances to the Fresh Start Trust in addition to the sum of $30,000 they had already advanced:
2.1 Acknowledgment of Debt: In consideration of the advancement of monies to them the Borrowers acknowledge that they owe the Debt to the Lender. The Debt shall include any further advances, which may be made by the Lender to the Borrower after the date of this Deed.
(emphasis added)
Mr Douglas and Mr Mansfield say they understood that any further advances would also be repayable on demand as was the case with the original advance in the sum of
$30,000. They contend the weekly payments that Mr Mansfield made to the bank account of the Fresh Start Trust constituted further advances of the type contemplated by the deed of acknowledgement of debt.
[12] This argument does not get off to a promising start because there was clearly confusion on the part of Mr Mansfield and Ms King regarding the entity that made the 36 weekly payments. After Mr Douglas and Ms Annan separated in 2016, Ms King served a notice of demand on them in her capacity as director of the corporate trustee of the Moonlight Trust. This sought repayment of a sum that included the sum of
$21,600. It was not until 19 February 2018 that the solicitors acting for the Moonlight Trust advised Mr Douglas and Ms Annan that the weekly payments had been advanced by Mr Mansfield and not the Moonlight Trust. The confusion was then compounded by the fact that Mr Mansfield did not serve a notice of demand on Mr Douglas and Ms Annan until 15 March 2019.
Ms Annan’s position
[13] Ms Annan has always been adamant she never agreed to accept the weekly payments on the basis that they were a loan. She says she was aware the payments were being made, but she believed that they were the result of an arrangement between Mr Douglas and his parents. She understood the object of this arrangement was to reduce Mr Douglas’s income in order to correspondingly reduce his liability to make child support payments to his former partner.
[14] During 2013 and 2014 Mr Douglas was employed by an entity called Blacklime Limited (Blacklime). Ms King is the sole director and shareholder of that company. Blacklime undertook film and television projects and paid Mr Douglas wages on a weekly basis. Ms Annan believes Mr Douglas paid funds to Blacklime and Blacklime then paid those funds to Mr Mansfield. Mr Mansfield then advanced the funds by way of gift to Mr Douglas, thereby completing what Ms Annan describes as a “money go round”. She categorically rejects any suggestion that the payments made by Mr Mansfield to Mr Douglas took the form of a loan.
The financial statements
[15] The strongest evidence in support of the argument advanced by Mr Douglas and Mr Mansfield flows from the fact that Ms Annan signed financial statements for the Fresh Start Trust for the years ended 31 March 2014, 2015 and 2016 in her capacity as a trustee of the Fresh Start Trust. Each of these showed the sum of $21,600 as a liability that the Fresh Start Trust owed to Mr Mansfield. Not surprisingly, Mr Douglas and Mr Mansfield contend this is convincing evidence that Ms Annan was fully aware that the payments constituted a loan that the Fresh Start Trust was required to repay on demand.
[16] Ms Annan says, and there appears to be no dispute, that she signed all three financial statements at the same time on 11 March 2019. She did so in the knowledge that the Moonlight Trust had earlier abandoned its claim for the repayment of the sum of $21,600. At that stage Mr Mansfield had not served his notice of demand on Mr Douglas and Ms Annan. He did not do so until 15 March 2019, four days after Ms Annan had signed the accounts.
[17] Before she signed the statements, Ms Annan engaged in email correspondence with the trust’s accountants in which she expressed concerns about the ramifications of signing the statements from a relationship property perspective. Ms Annan said in evidence that she ultimately signed the statements “under duress”.
[18] Ms Annan has never said she did not see the entry in the accounts relating to the debt that was allegedly owing to Mr Mansfield. It is clear, however, that Ms Annan’s principal concern before she signed the accounts related to the fact that they showed that Mr Douglas had provided greater financial input into the trust than she had. She was concerned that this might give him an advantage in a relationship property context. Mr Douglas responded to these concerns in an email on 5 March 2019 as follows:
If I read your email correctly, you want to change the current account figures in the Trust Financial accounts.
The figures are a true reflection of our financial transactions to the Trust. I want the financial accounts to remain a true and correct record of the financial transactions. The point made by the accountant is that the final distribution is not based on the beneficiary account figures. The trustees (us) decide how to distribute the residual fund and we already have an agreement in place.
We agreed:
1.That the accounts are to be finalised and submitted to the IRD.
2.Documentation to be completed to wind up the trust.
3.All outstanding accounts/debts are to be paid. Then the residual funds are distributed 50/50.
Out of my 50% I pay Ray [Mr Parmenter] and your share of the rent, and just so we’re clear, in this equation you end up with a half share of the difference in our contributions (being $18,545 as per the financial statements) so you end up with a whole lot more than me.
So, in summary, I agree to uphold the [sic] our existing agreement that the final distribution will be 50/50 and I have no desire to falsify the trust accounts in order to achieve this. Keep in mind, if we don’t have the accounts and distribution done by end March then we’ll need to have the accountant complete a final set of accounts.
[19]Ms Annan responded to Mr Douglas’ email on 8 March 2019 as follows:
I’ll be signing the accounts as they are. I have explained my position.
I suggest you tell your lawyer to draft up the final resolutions as she has said she wants to do it and didn’t like the way Ray drafted them.
Ray has told your lawyer to make sure that the funds don’t earn any interest
after 31 March, so we don’t end up with the risk of another return and extra costs.
We need to end all contact between us as soon as possible.
Rebecca
[20] It is difficult to see how Ms Annan could miss an entry in three sets of accounts that clearly showed the debt of $21,600 owing to Mr Mansfield. It appears, however, that she raised no concern about that issue before she signed the accounts. It is possible that Ms Annan’s concerns were allayed completely by the assurances contained in Mr Douglas’s email dated 5 March 2019. She must, however, live with the consequences of her actions. The fact that she immediately challenged the accuracy of the financial statements when Mr Mansfield served his notice of demand a few days after she signed them does not alter this fact.
[21] Importantly, however, although financial statements may record the existence a debt it is rare that they will actually create a debt. Generally speaking they will merely be evidence that a debt may exist. If the debt never existed, the financial statements become irrelevant. I therefore move directly to the critical issue, which relates to the issue of why the payments were made.
Why were the payments made?
[22] Resolution of this issue depends to a large extent on the interpretation of transactions that are recorded in the bank accounts operated by Mr Douglas and Mr Mansfield during 2013 and 2014.
[23] Between July and October 2013 Mr Douglas’s bank account reveals he was receiving income in the sum of $665.25 per week from the Accident Compensation Corporation (ACC). As Mr Parmenter put to Mr Douglas in cross-examination, this suggests he had advised ACC he had been receiving wages of around $830 per week before becoming eligible to receive ACC payments.
[24] Mr Douglas received a final payment from ACC in the sum of $572.91 on 16 October 2013. He then received weekly payments in the sum of $817.24 from Blacklime on 21 and 30 October 2013. Starting on 4 November 2013, however, the weekly wage payments he received from Blacklime dropped to the sum of $219.50 per week. They remained at this level until at least July 2014, when the bank statements produced in evidence cease.
[25] Mr Douglas was unable to recall why his wages from Blacklime reduced so significantly in early November 2013. He initially thought it may have been due to a downturn in work, but later said it may have been because he began undertaking tertiary education studies at this time. His bank account shows the Ministry of Social Development deposited the sum of $1,000 into his account on 17 July 2014. This may provide some support for the latter explanation although it was made approximately eight months after his wages from Blacklime began to be reduced.
[26] Putting that issue to one side, however, Mr Mansfield’s bank account shows that as from 30 October 2013 he began making the weekly payments of $600 into the bank account of the Fresh Start Trust. He obtained the funds to make those payments from wages paid to him by Blacklime, for whom he said he had been working since 2011.
[27] I do not consider these events have any element of coincidence. The reduction in wages paid by Blacklime and the commencement of payments from Mr Mansfield to the bank account of the Fresh Start Trust are obviously connected. Mr Mansfield acknowledged as much in answer to a question from me. I consider the transactions through the two bank accounts demonstrate that Mr Douglas reached an agreement with his parents on or about 30 October 2013 that his wages from Blacklime would reduce significantly as from 4 November 2013. This reduction in wages would be replaced by money provided by Blacklime that Mr Mansfield would deposit into the bank account of the Fresh Start Trust. In practical terms, therefore, Blacklime continued to provide Mr Douglas with the same level of income as he had been receiving up until his wages reduced on 4 November 2013.
[28] It is not necessary (or possible) to determine exactly why Mr Douglas and his parents decided to enter into this arrangement. It is certainly consistent, however, with Ms Annan’s theory that Mr Douglas wished to reduce his income from Blacklime in order to reduce his liability to make child support payments to his former partner. The new arrangement resulted in the wages that Mr Douglas received from Blacklime dropping to around $12,000 per annum after payment of tax. This would have an obvious impact on his liability to pay child support. In addition, the passage of funds through Mr Mansfield’s bank account to the bank account of the Fresh Start Trust effectively concealed the fact that Blacklime had funded the payments.
[29] Although the reason for this arrangement need not be decided, its effect is obviously significant in terms of the issue I am required to decide. Given that the payments were made to replace the income Mr Douglas had lost from Blacklime, the proposition that they amounted to a loan cannot be sustained.
Other factors suggesting the payments did not constitute a loan
[30] This conclusion is reinforced by several other factors. First, the evidence given by Mr Douglas and Mr Mansfield regarding the alleged verbal agreement relating to the terms on which the weekly payments were made is extremely vague. They go no further than asserting that all parties understood the payments were to be a loan that was repayable on demand.
[31] This evidence needs to be viewed in light of the fact that both Mr Douglas and Mr Mansfield were also at pains to emphasise that Mr Mansfield and Ms King are persons who require financial transactions to be formally documented. Ms King has considerable skill in that area, as the deed of acknowledgement of debt and other documents that she prepared demonstrate.
[32] It also needs to be remembered that the weekly payments commenced on the same date the parties signed the deed of acknowledgement of debt. On that date Mr Douglas and Ms Annan also signed a resolution of trustees in which they agreed the Fresh Start Trust would accept the loan of $30,000 from the Moonlight Trust. Ms King prepared both documents. The arrangement regarding the weekly payments had obviously been agreed to by that time. If Mr Mansfield had truly regarded the
payments as constituting a loan to the Fresh Start Trust I have no doubt he would have asked Ms King to document that arrangement formally.
[33] The evidence suggests, in fact, that Ms King is the person who requires transactions to be formally documented. It is therefore likely that, if the arrangement related to a further loan, she would have insisted it be formally recorded.
[34] Mr Douglas and Mr Mansfield also emphasised that, although Mr Mansfield is generous with his time, he is not a person who would ever make a gift of money to his children. I accept that this may be so. However, my earlier finding means the weekly payments did not take the form of a gift of money from Mr Mansfield. Rather, they constituted a supplement to the wages Mr Douglas was receiving from Blacklime. Blacklime was funding the payments and not Mr Mansfield. He was merely the conduit through whose bank account the funds passed before they were paid to the Fresh Start Trust.
[35] I also consider it significant that each of the payments was accompanied in Mr Mansfield’s bank statements by the notation “Gift”. Mr Mansfield says Ms King arranged for the bank records to bear this notation to reflect the fact that the payments were conditional gifts. He considers the original advance of $30,000 was also a conditional gift. He says it was a gift that was conditional on demand for repayment not being made. This argument is not convincing. The deed of acknowledgement of debt related to a loan that was to be repaid on demand. It was not in any sense a conditional gift. I consider it more likely that Ms King wanted the payments to be shown on Mr Mansfield’s bank statements as gifts because that would deflect enquiry away from the possibility that the payments might be income in the hands of Mr Douglas.
[36] Mr Parmenter also placed considerable weight on the fact that it took considerable efforts to have Ms King and Mr Mansfield disclose the fact that Blacklime was the source of the payments to the Fresh Start Trust. When the parties undertook informal discovery Mr Mansfield only provided a list, verified by his bank, of the payments he had made to the bank account of the Fresh Start Trust.
[37] Associate Judge Andrew then made tailored orders for discovery on 17 September 2019. This resulted in Mr Mansfield providing a redacted set of bank statements that showed the payments to the Fresh Start Trust but not the source from which Mr Mansfield had obtained the funds with which he made the payments. It was not until Mr Parmenter threatened to file an application for further and better discovery that Mr Mansfield provided a further redacted set of bank statements. This revealed for the first time that, with one exception, Blacklime been the source of every deposit into the account.
[38] This was obviously highly relevant information and ought to have been provided much earlier. Even now, however, Mr Mansfield has not disclosed the amounts of the deposits Blacklime has made into his account. I consider these may well have been relevant. If, for example, the weekly amount that Blacklime deposited into Mr Mansfield’s account increased by $600 as from 30 October 2020, it would obviously support Ms Annan’s argument that Blacklime was using the payments to supplement Mr Douglas’ wages.
[39] I make some allowance for the fact that Ms King and Mr Mansfield are lay persons and do not have a detailed knowledge of discovery obligations. Nevertheless I consider they are relatively sophisticated business people, as is evidenced by the skill with which Ms King is able to draft legal documents. It is difficult to resist the inference that they were deliberately reticent about disclosing the source of the funds because they knew it could harm their case.
Conclusion
[40] I do not accept Ms Annan’ s theory in full because, unlike her, I do not consider there is any evidence to suggest Mr Douglas funded the payments that were made through Mr Mansfield’s bank account to that of the Fresh Start Trust. I nevertheless accept that Blacklime made the payments to supplement Mr Douglas’s reduced wages and they were never intended to be a loan. It follows that Mr Douglas and Ms Annan are not required to repay the sum of $21,600 to Mr Mansfield before they distribute the remaining assets of the Fresh Start Trust.
Relief
[41]I am therefore minded to make the following orders:
(a)The trustees of the Fresh Start Trust are to pay all outstanding debts owed by the Trust; and
(b)They are then to notionally divide the remaining sum into two equal parts, one to be held to the credit of Ms Annan and the other to be held to the credit of Mr Douglas; and
(c)From the amount held to Mr Douglas’s credit they are to transfer to Ms Annan an amount equal to one-half of the rental to be paid by Mr Douglas as required by Clause G(ii) of the settlement agreement; and
(d)From the amount held to Mr Douglas’s credit they are also to transfer to Ms Annan the sum of $7000 as required by Clause G(iii) of the settlement agreement; and
(e)From the amount held to Mr Douglas’s credit they are also to transfer to Ms Annan any costs that may be awarded to her in this proceeding; and
(f)The trustees are then to pay the resulting balance held to the credit of each party into the bank account nominated by each party.
[42] If any party wishes to comment on these proposed directions they should file and serve a memorandum within seven days of the date of this judgment. I may then convene a telephone conference to address any issue raised in this way.
Costs
[43] Ms Annan is the successful party and is entitled to an award of costs in her favour. If costs cannot be agreed within 14 days of the date of this judgment Mr
Parmenter should file and serve a concise memorandum (ie no more than five pages in length) setting out his submissions in relation to costs.
[44] Mr Douglas and Mr Mansfield will then have seven days within which to file memoranda in response. If Mr Parmenter wishes to reply, he shall do so within seven days of receiving memoranda from Mr Douglas and Mr Mansfield. I will then issue a decision on the papers.
Lang J
Annan v Douglas [2020] NZHC 1666
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