Armstrong v Morrison HC NAP CIV 2008-441-276

[2008] NZHC 2416

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV 2008-441-276

BETWEEN  DAVIDSON ARMSTRONG & CAMPBELL SOLICITORS NOMIINEE COMPANY LIMITED

Plaintiff

ANDCHRISTOPHER WILLIAM MORRISON Defendant

Hearing:         24 July 2008

Appearances: J. Krebs - Plaintiff

P. Ross and G McKay - Defendant

Judgment:      24 July 2008

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Solicitors:           David Armstrong & Campbell, PO Box 54, Waipukurau 4242

McKay Hill, PO Box 1143, Napier

DAVIDSON ARMSTRONG & CAMPBELL SOLICITORS NOMIINEE COMPANY LIMITED V CHRISTOPHER WILLIAM MORRISON HC NAP CIV 2008-441-276  24 July 2008

[1]      Before the Court is an application (which appears to be an oral application) made by the defendant to rescind or vary a Charging Order Nisi made by this Court on 23 July 2008 in a decision given by His Honour Justice MacKenzie.

[2]      That Charging Order Nisi relates to three categories of property in which it is said the respondent (“Mr Morrison”) has an interest. These are:

“a)Such portion of the proceeds of sale of the property in Certificates of Title HBF2/663 and HBW2/575 as adequately represents the value of the Defendant’s share of the lease and/or fee simple.

b)        The Defendant’s interest in the property described in Certificate of

Title HBL2/1255.

c)        The Defendant’s interest in his share portfolio as particularised in

Exhibit “G” to the affidavit of Hugh Edward Staples Hamilton sworn

23 July 2008 annexed to this Order.”

[3]      Before me, counsel for Mr Morrison challenged the Charging Order in so far as it affected these three items of property.

[4]      I now deal with each in turn.

Proceeds of Sale of Property in Certificates of Title HBF2/663 and HBW2/575

[5]      Counsel have indicated to me that these titles relate to a Havelock North property  which  has  just  been  sold.    The  net  proceeds  of  that  sale  total  some

$190,000.00 and are retained in a solicitor’s trust account.

[6]      There is no argument that the fee simple title to this Havelock North property since 1997 was owned by a family trust known as the CW Morrison Family Trust (“the Trust”).

[7]      Registered against the title to these properties, however, was a lease for life to the defendant Mr Morrison and his wife.  As I understand the position this lease was

surrendered contemporaneously with settlement of the sale of the Havelock North property.   This was, of course, required to pass clear title to the property to the purchaser.

[8]      The issue arising now is whether this lease for life (held as to a half share by Mr Morrison) had a value which is represented, at least in part, in certain of the sale proceeds retained following sale of this property.

[9]      The background to the lease for life would appear to follow the often used process for estate or asset  planning exercises  undertaken  by business  and  other people.  These generally relate to a property often jointly owned by a couple who first execute and register a lease for life to themselves.   This is then immediately followed by a sale of the property subject to the lease for life to a family trust which becomes the owner of the fee simple.

[10]     The transferors of the fee simple and lessees under the lease for life, the couple, often then remain in occupation of the property.

[11]     There is nothing before the Court to indicate that this common arrangement was not the arrangement which was entered into here by Mr and Mrs Morrison and the Trust.

[12]     That said, there can be little doubt in my mind that when the Havelock North property was originally transferred by Mr and Mrs Morrison both to the Trust, this was completed at a consideration, no doubt reduced from the then market value of the property, to take into account the value of the lease for life.

[13]     It must follow that, the lease for life obviously would continue to have a value as it was a registered interest in the property recording the rights of the lessees.

[14]     Accordingly, on the sale of the property by the Trust, the surrender of the lease, in my view, should clearly have attracted some consideration.  Before me, Mr Ross counsel for Mr Morrison endeavoured to suggest that there was nothing before the Court to show whether indeed any financial consideration had been provided or

alternatively that this might have been a situation where some non-monetary consideration was made available.

[15]     With respect, in my view, this suggestion is rather far-fetched.

[16]     What is before the Court and appears to be undisputed is the fact that the property was sold for some $700,000.00 and, after part repayment of existing mortgages totalling some $500,000.00, $190,000.00 represents the total available equity from this sale.

[17]     In my view, this equity represents in part the interest of the Trust in the fee simple of the property but also in part the value of the leasehold interest surrendered by Mr and Mrs Morrison.

[18]     This lease was for what was likely to be a lengthy period ending upon the death of the second of either Mr or Mrs Morrison and it provided for an annual rental of $1.00.   This relates to a property ultimately sold for around $700,000.00.   To suggest that the remaining unexpired portion of this lease, surrendered a short time ago, had no monetary value is unsupportable.

[19]     I find therefore that the Charging Order Nisi in so far as it relates to the portion of the proceeds of sale of the Havelock North property must remain.  The application to rescind this aspect of the Charging Order is rejected.

[20]     Finally, so far as these proceeds of sale are concerned, before me Mr Krebs indicated  that  his  understanding is  that,  from  the  plaintiff’s  perspective,  around

$90,000.00 of the sale proceeds should be charged with this order.  I simply note that at this point.

Defendant’s interest in property described as CT HBL2/1255.

[21]     Before me Mr Krebs for the plaintiff acknowledged that this aspect of the Charging Order which related to a property at Waimarama could now be rescinded. He said the plaintiff now accepts it can no longer be maintained in the light of fresh evidence which was received from the plaintiff in his affidavit filed only today.

[22]     An order is therefore made rescinding the Charging Order Nisi in so far as it affects the item noted as Item B being “The Defendant’s interest in the property described in Certificate of Title HBL2/1255.”

The Defendant’s interest in His Share Portfolio

[23]     The third item of property charged in the Order is the defendant’s interest in a share  portfolio  (“the  Share  Portfolio”)  as  particularised  in  Exhibit  “G”  to  the affidavit of Mr Hamilton sworn 23 July 2008.   Details of the Share Portfolio are annexed to the Charging Order Nisi of Justice MacKenzie.

[24]     On this aspect Mr Morrison in his affidavit filed and sworn today 24 July

2008 deals with the Share Portfolio in the following words:

“14.It is true that I obtained funds from the Australian share portfolio to make the capital reduction last year.  I persuaded the trustees to make available those funds but I am not a beneficiary of the Trust.   The funds were advanced by way of personal loan to me.

15.The Share Portfolio is owned by the trustees of the CW Morrison Family Trust as is the property at Waimarama.  Reference to page 10 of the Trust’s accounts show an entry for the shares.   The quoted value  is  a  bookkeeping  entry  at  cost,  thus  is  bears  (sic)  no relationship with the actual market value, which fluctuates with the state of the market.

16.Again, as assets belonging to trustees, this property could not be the subject of a charging order against me.”

[25]     Turning to the financial accounts of the CW Morrison Family Trust which

Mr Morrison annexes to his affidavit, these appear to be accounts for the year ended

31 March 2007.

[26]     On page 10 of these accounts under the heading “Share Investments” the

following appears:

“Shares
Share Investment at cost Total:	2007 - $130,018.00 $130,018.00”	2006 - $-

[27]     On this issue, before me Mr Krebs for the plaintiff pointed to the documents which were attached to the Charging Order Nisi itself.  These outlined the shares to be charged and their values.  The documents confirming the shares in question were first, on First NZ Capital letterhead and secondly, under Forsyth Barr letterhead.  In each instance the schedules of the various shares are headed, in the case of First NZ Capital, with the words “Equities or Summary – Christopher William Morrison” and in  the  case  of  Forsyth  Barr  with  the  words  “Portfolio  Valuation  –  Mr  C  W Morrison”.

[28]     Mr Krebs went on to suggest that this indicated a strong presumption that the shares in question were indeed owned by Mr Morrison and not his Family Trust.  Mr Krebs was at pains to suggest that it seemed unlikely as Mr Ross had intimated for the defendant that both first NZ Capital and Forsyth Barr may have made the same mistake in wrongly depicting these shares as being owned by Mr Morrison.

[29]     Mr Krebs went on to indicate that there is no real evidence before the Court to show that all the shares in question were owned by the Trust, other than the statement by Mr Morrison and his 24 July 2008 affidavit.  That affidavit refers to the words “Share Portfolio” and states:

“The share portfolio is owned by the trustees of C W Morrison Family Trust

…”.

[30]     Mr  Krebs  suggests  that  there  is  no  clarity as  to  whether  Mr  Morrison’s statement concerning the Share Portfolio does indeed relate to all the shares which are the subject of the Charging Order.

[31]     Mr Krebs went further and before me referred to a reply affidavit of Mr Hugh

Edwards Staples Hamilton sworn 23 July 2008 at paragraph 24 which states:

“[24]  As  recorded  in  these  notes,  the  outcome  of  that  meeting  (on  1

November 2007) was an agreement made by myself on behalf of the Plaintiff and Mr Morrison that:

•         The principal of $750,000.00 would reduce to $600,000.00 by 30

November 2007.  I distinctly recall that Mr Morrison assured me that the necessary payment of $150,000.00 would be sourced from a sale of some of his shares, which is the reason why he had brought the statement from his sharebrokers with him and had left a copy with me

…”.

[32]     In Mr Krebs’ submission this clear statement by Mr Hamilton contradicts the contention by Mr Morrison, in his 24 July 2008 affidavit, that “The share portfolio is owned by the trustees of the CW Morrison Family Trust”.  Mr Krebs suggested there may be some confusion between the parties as to what is included in the “Share Portfolio” or perhaps some misunderstanding between the parties regarding ownership.

[33]     This  places  the  Court  in  a  somewhat  invidious  position.    Whereas  Mr Morrison, in his 24 July 2008 affidavit, appears to be deposing that the “Share Portfolio” is owned exclusively by the Trust, Mr Hamilton, a solicitor and agent for the plaintiff is clear in his “distinct recollection” that the shares in question were owned by Mr Morrison and he would source a payment from their sale.

[34]     Certainly  the  provision  of  the  sharebroker’s  statements  to  Mr  Hamilton, (these statements presumably being the ones annexed to the Charging Order Nisi) would seem to provide some support to Mr Hamilton’s contention.

[35]     That said, I take the view that for the purposes of the present application before the Court to rescind the Charging Order relating to the Share Portfolio, at this

point in time, this application should be rejected and the Charging Order remain over the shares in question.

[36]     That said, in my view, it is appropriate to grant leave to the defendant, which I now do, to bring any further application he may wish to seek rescission of the Charging Order with respect to the Share Portfolio should additional evidence be available as to ownership of these shares.

Conclusion

[37]     In summary then, the application by Mr Morrison (the defendant) to rescind the Charging Order with regard to the proceeds of sale of titles HBF2/663 and HBW2/575 together with the defendant’s interest in the Share Portfolio annexed to the order is rejected.

[38]     The application to rescind the Charging Order with regard to the defendant’s interest  in  Certificate  of  Title  HBL2/1255  succeeds.    The  Charging  Order  is rescinded with regard to this interest.

[39]     At this point costs are reserved.

Additional Issues

[40]     Two additional issues have arisen for determination today.

[41]     The first is whether leave should be granted to Mr Morrison to oppose the plaintiff’s summary judgment application given that, as I understand the position, the defendant’s notice of opposition to the application and supporting affidavit were filed 1 day late.

[42]     Mr Krebs for the plaintiff indicates the plaintiff opposes the granting of leave. He notes that although the opposition was only 1 day late the essential position for the plaintiff is that there is a complete absence of any valid defence here on the part of the defendant.  As such the plaintiff contends that leave should be declined.

[43]     Further, Mr Krebs noted that the plaintiff is a solicitor’s nominee company. He endeavoured to suggest to me that the position of contributors to the loan advance which is the subject of this proceeding should be carefully taken into account and this should result in the matter being given some urgency in so far as a hearing is concerned.

[44]     The direct relevance of that issue to the question of whether leave should be granted to the defendant to oppose the present application is somewhat unclear.

[45]     What is clear to me, however, is that as I see it the Court in considering the present summary judgment application should have the benefit of hearing from the defendant in full and thus being able to consider all available evidence which may be relevant..

[46]     I see little prejudice which has been suffered by the plaintiff in this case from the 1 day default on the part of the defendant in filing its Notice of Opposition.

[47]     Certainly, subsequent to that time the plaintiff was able to obtain a Charging

Order from this Court to protect its claim against certain assets of the defendant.

[48]     That said, it is clear to me that leave should be granted here for the Court to consider the defendant’s opposition to the summary judgment application albeit an opposition that has been filed late.  Leave is granted accordingly.

[49]     The second issue for consideration relates to a request from the defendant that this summary judgment application should be adjourned today.  This is to enable counsel for the defendant to obtain full and complete instructions to defend the summary judgment application and to ensure that the Court has before it all the available material to properly consider the application.

[50]     Mr Krebs today objected to any further adjournment of this matter.  As I have indicated earlier he contended that the plaintiff solicitor’s nominee company should not be subjected to further delay in this matter.  Mr Krebs also suggested that in his

view a hearing time of some 2 hours for the summary judgment application would be required.

[51]     In response, Mr Ross for the defendant contested this time estimate provided by Mr Krebs and suggested that a 1/2 day to hear all argument on the summary judgment would be required.

[52]     Mr Ross noted also that, given the existence of the Charging Order which the plaintiff has obtained against the defendant, and which remains in force, there was little prejudice to the plaintiff if a short adjournment of the summary judgment application was granted.

[53]     In weighing up all these arguments, on balance I accept that the summary judgment application should be adjourned.

[54]     The Registrar is directed to liaise with counsel for the plaintiff and counsel for the defendant to set down the summary judgment application for hearing (1/2 day is required) at the first available date either in Napier or, after discussions with the Registrar of the High Court at Wellington, in Wellington.  If there is any difficulty in arranging a suitable hearing date for this application, then leave is reserved to refer this matter to me and I will make a decision upon the date for this application is to be heard.  What does appear clear is that an early date for the hearing of the application is desirable.

[55]     So far as evidence for the summary judgment application is concerned, today Mr Ross for the defendant raised the possibility of further affidavit evidence being provided on behalf of Mr Morrison.

[56]     In anticipation Mr Krebs objected to this on the basis that Mr Morrison has already had ample opportunity to provide his evidence for the summary judgment application in accordance with the requirements of the High Court Rules.

[57]     I accept that this is the position.  Notwithstanding this, however, in my view it is in the interests of all parties and not least the Court to have before them and it all

proper  and   available  evidence  to  adequately  assess  the  summary  judgment application, an application which would appear at this point to be hotly contested.

[58]     That said the following directions are now made:

a)       The defendant Mr Morrison is to have until 1 August 2008 to file and serve any further affidavit evidence in support of his opposition to the summary judgment application that he may wish.

b)The plaintiff in turn shall have until 8 August 2008 to file and serve any affidavit evidence which is strictly in reply.

c)        Leave is reserved for either party in the meantime to approach the

Court on 24 hours notice if additional directions are required.

‘Associate Judge D.I. Gendall’