Becker v Anderson
[2014] NZHC 2037
•26 August 2014
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2010-488-000420 [2014] NZHC 2037
BETWEEN WILFRIED BECKER and SILVIA
BECKER Plaintiffs
AND
MAURICE CHARLES ANDERSON First Defendant
AND
ROGER BELL, ANDREW GOLIGHTLY, WAYNE MCKEAN, STUART SPICER and STEVE WONG partners in the firm of Webb Ross Johnson
Second Defendants (Discontinued)
AND
CAROL ANN ANDERSON Third Defendant
Hearing: 26 May 2014 to 29 May 2014 Appearances:
Michael Phillipps for the Plaintiffs
Vicki Ammundsen and Bianca Saldanha for the DefendantsJudgment:
26 August 2014
RESERVED JUDGMENT OF MOORE J
This judgment was delivered by on 26 August 2014 at 4:00pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
BECKER & ANOR v ANDERSON & ANOR [2014] NZHC 2037 [26 August 2014]
Contents
Introduction ................................................................................................................[1] Background ................................................................................................................[9] Did a fiduciary relationship exist? ...........................................................................[50] Was the purpose of the loans to purchase 4 Beaumont St? ......................................[63] Grooming .............................................................................................................[69] First loan related to purchase of motor scraper ..................................................[72] The BMW and other purchases ............................................................................[81] Timing of the loans ...............................................................................................[89] Structure of the loans ...........................................................................................[92] Conclusion ...............................................................................................................[96] Was there a fraudulent breach of trustee obligations?............................................[107] Result .....................................................................................................................[109]
Introduction
[1] In 1996 Wilfried and Silvia Becker moved to New Zealand with their teenage daughter and settled in Whangarei. They knew no one in their newly adopted home. Maurice and Carol Anderson lived across the road in rented accommodation. They introduced themselves to their new neighbours and within a short time the families became very close friends.
[2] The Beckers had funds invested in New Zealand and Germany. They agreed to lend the Andersons some of their funds.
[3] Over the space of nearly a year the Beckers made three unsecured advances to the Andersons totalling $280,000. The loan documents were described as Personal Financial Agreements. Only Mrs Anderson was the borrower because Mr Anderson was an undischarged bankrupt.
[4] The Beckers say the loans were for the sole and exclusive purpose of allowing the Andersons to buy their home. The Andersons say there was no such tag and they were free to spend the money as they wished.
[5] The Andersons spent the money on a range of items. Only the third advance was, in fact, directly applied towards the purchase of the house. Mrs Anderson defaulted on the loans. Just a portion of the capital has been repaid.
[6] The Beckers claim that the Andersons owed them a fiduciary duty to ensure the funds were applied for the purpose of buying the house and that they fraudulently breached the obligation they owed to the Beckers and deliberately concealed their actions from the Beckers.
[7] They also claim Mrs Anderson received the funds as a trustee to ensure the money would be applied to buy the property and would be repaid by borrowing against the property and that, with Mr Anderson knowingly assisting, she breached her obligations as a trustee to the Beckers.
[8] The Beckers claim the balance of the principal owing together with interest, general damages and exemplary damages.
Background
[9] In 1997, the year following their immigration to New Zealand, the Beckers purchased their home at 3 Beaumont Court, Whangarei. In January 1998 they moved in.
[10] The Andersons lived across the road at 4 Beaumont Court. They were tenants. Shortly after the Beckers moved in, Mr Anderson introduced himself as their neighbour. It was a thoughtful and generous gesture given that the Beckers were new immigrants with limited proficiency in spoken English and unfamiliar with the customs and culture of New Zealand society. As a consequence of this introduction, a close friendship quickly developed between the Beckers and the Andersons. The two families spent considerable time together. They socialised together. They went to church together. They spent Christmas together. Such was the closeness of the relationship that the Beckers entrusted them with the key to their home when they toured the South Island and later when they went to Germany for a holiday.
[11] At that time in 1998 Mr Anderson was working part-time for a local car dealer during the winter months. In the summer he was employed as a motor scraper driver. Mr Becker and Mr Anderson shared an interest in heavy machinery.
[12] In mid-1998, the Beckers found a block of land in Ngunguru which they were keen to purchase for the purpose of developing a bed and breakfast business. Before they purchased it the Beckers took the Andersons to view it. In July they bought the property.
[13] The shared interest in heavy machinery led Mr Becker to visit a site at Ruakaka where Mr Anderson was operating a motor scraper owned by his employer, Ian Sceats. Mr Becker became alarmed that the motor scraper was unsafe because it was not fitted with a safety frame. He discussed lending Mr Anderson funds to add a safety frame. Mr Becker said the conversation developed to the point that they
discussed purchasing a digger or motor scraper together and charging it out. Mr Anderson, while acknowledging a conversation of that sort occurred, said he did not discuss going into business with Mr Becker but did tell Mr Becker that the only way to avoid the OSH requirement to fit a safety frame would be if he owned the motor scraper personally and was not a driver/employee. It was about this time Mr Anderson told Mr Becker he was a bankrupt and could not borrow money. Mr Becker generally understood what bankruptcy meant.
[14] Towards the end of 1998, Mrs Becker said she was at home when Mrs Anderson arrived hysterical and in tears. According to Mrs Becker, Mrs Anderson told her they needed $300,000 to buy their house and without the Beckers’ help, they would be homeless. Following this incident, Mrs Becker said that she and her husband were placed under considerable pressure by the Andersons to lend them money to purchase 4 Beaumont Court. According to Mrs Becker, her husband wanted security over the house but was told by the Andersons that the owners would deal only with them. The Andersons denied such a conversation took place.
[15] According to the Beckers, they decided to lend the Andersons $280,000 which was less than the sum initially indicated by Mrs Anderson. The Beckers insisted that the agreement to advance the funds was for the sole purpose of enabling their friends to purchase 4 Beaumont Court and that once Mr Anderson was discharged as a bankrupt he would mortgage the property and repay the Beckers in full.
[16] In contrast, the Andersons claimed the funds advanced were never specifically tagged for the purpose of purchasing 4 Beaumont Court. According to them an offer to lend money was made but due to Mr Anderson’s bankruptcy, the discussions were primarily between Mr Becker and Mrs Anderson. Mrs Anderson, although accepting her recollection of the circumstances was vague, said she believed the loan offer arose from a proposal designed to assist Mr Anderson to purchase a motor scraper so they could go into business together. However, due to Mr Anderson’s bankruptcy, Mrs Anderson decided to purchase a share of the motor
scraper herself as a business investment. This would allow her husband to continue to work.
[17] There then followed discussions between Mrs Anderson and the Beckers as to the terms of the loan and, in particular, the interest rate. The monies to be advanced by the Beckers were derived from the proceeds of sale of their home in Germany. Funds of between $90,000 to $100,000 had been deposited in New Zealand. The balance remained on investment in Germany and would be advanced as it came available.
[18] It was decided by the Beckers that an initial advance of $80,000 would be made. The Beckers insisted the sole purpose of the advance was to assist the Andersons in purchasing 4 Beaumont Court. Mr Becker said his impression was the first advance was for a deposit. Conversely, the Andersons insisted that the purpose of the loan was never stipulated although there were some discussions between the parties about purchasing an interest in a motor scraper.
[19] On 10 December 1998, the Beckers attended the Andersons’ home for the purpose of signing the loan agreement. Mrs Anderson prepared the agreement. It is duplicated below in full.
PERSONAL FINANCE AGREEMENT
10 December 1998
Lender: Mr Wilfrid & Mrs Silvia Becker
3 Beaumont Court
Maunu WHANGAREI
Borrower: Mrs Carol Anderson
4 Beaumont Court
Maunu WHANGAREI
The above parties agree to enter a financial arrangement on a personal basis under the following terms and conditions.
Amount $80,000.00
Term Two years
Interest Rate 8.50% fixed 2 years
Interest Payable Monthly by way of direct credit to an account of the lenders choice or by self payment.
Principle (sic) Repayable on or before two years from the date of agreement.
The loan will be on an interest only basis with the borrower having the option of making principle repayment throughout the term. Interest will be calculated daily.
I/We accept this offer.
Signed Wilfried Becker Signed Silvia Becker
Signed Carol Anderson
[20] Following the drawdown of the funds, Mrs Anderson bought a half share in a motor scraper from Mr Anderson’s employer, Mr Sceats for $25,000. Mr Sceats retained his half share. In addition to the motor scraper, Mrs Anderson purchased a near new BMW car. She also purchased a caravan for approximately $25,000 so that Mr Anderson would be able to stay on site when working away from home. Other sundry items were also purchased. Approximately $25,000 was advanced to the Andersons’ adult son, Daniel.
[21] No funds were applied to the purchase of 4 Beaumont Court. This is unsurprising. At that time the house was not on the market. In fact, the purchase of the property would not take place for another year.
[22] In April 1999 further funds became available to the Beckers and arrangements were made to make a second payment of $75,000 to Mrs Anderson. The Beckers insist that the purpose of this payment was also for the purchase of
4 Beaumont Court.
[23] The second agreement, signed on 21 April 1999, was all but identical to the first except for the principal amount and the reduced interest rate. The second loan was for $75,000 with the interest rate fixed at 7.5% for two years.
[24] The evidence was unclear as to how this second advance was spent by the Andersons. Mrs Anderson said she believed the money was used to purchase a second hand boat and renovate the Beaumount Court property. In contrast, Mr Becker said he noticed significant renovation work being undertaken only after the third advance.
[25] On 18 October 1999 the Beckers and Mrs Anderson signed the third and final loan. This was for $125,000 at 7.5% for two years. The Beckers said this was the final payment to make up the $280,000 they advanced to the Andersons to buy the house. The proceeds of the last loan were applied directly to the purchase of
4 Beaumont Court which took place some five weeks later.
[26] The Beckers said it was very shortly after the third loan agreement was signed that the friendship between the parties rapidly soured.
[27] A month after the last funds were advanced, Mrs Anderson, on the advice of her accountant, settled the Andervich Family Trust, appointing herself and her accountant as trustees. The primary beneficiaries were Mrs Anderson and her three children.
[28] On 29 November 1999 the Andervich Family Trust settled the purchase of
4 Beaumont Court. The purchase price was $233,000 of which $123,514 was paid in cash and the balance of $110,000 by way of an AMP mortgage. The cash component came from the funds advanced under the third loan.
[29] It is common ground that neither the existence of the Andervich Family Trust as the new registered proprietor of 4 Beaumont Court nor the existence of the AMP mortgage was disclosed to the Beckers. Mrs Anderson continued to meet the interest payments as they fell due.
[30] In March 2000 Mr Anderson was discharged from bankruptcy. Mr Becker said that not long afterwards he approached Mr Anderson and asked him when they might expect the loans to be repaid. The Beckers say this was on the basis of an agreement that once Mr Anderson was discharged he would arrange to refinance the
property in order to repay the Beckers. Mr Anderson accepted Mr Becker approached him after his discharge asking about when the loans would be repaid. He said he told Mr Becker he owed him nothing. Mr Becker said that on various occasions over the next couple of years he asked Mr Anderson about repaying the loan. He described Mr Anderson as becoming unpleasant when confronted in this way; abusing and threatening him. The Andersons deny this. They assert the friendship and trust between the parties continued for at least another four years.
[31] In the latter part of 2000 the Andervich Family Trust brought two more properties in Whangarei. The first was West End Avenue which was purchased for
$135,000 and shortly afterwards Kahiwi Street which was purchased for $123,000. Also at about this time the first loan fell due for repayment.
[32] On 21 April 2001 the second loan fell due and in October the third loan fell due. Mrs Anderson continued to meet the interest payments.
[33] In December 2002 the Andervich Family Trust re-mortgaged the West End
Avenue and Kahiwi Street properties.
[34] In November 2003 the Beckers left New Zealand for an extended holiday in Germany. They were away for a little over two months. In their absence they entrusted the key to their home to the Andersons. While the Beckers were in Germany they asked the Andersons to keep an eye on their home which had been rented out. They also wanted the Andersons to keep a look out for their daughter Loreen who remained in New Zealand.
[35] Whatever the position, it is common ground that Mr Anderson picked the Beckers up from Auckland airport. He returned the Beckers to Whangarei. Indeed, it seems from Mr Becker’s evidence that there was something of a contest between Mr Anderson and Loreen. Both wanted to pick the Beckers up. Mr Anderson asserted his friendship prevailed. It is a telling insight into the nature of the relationship between these two families that Mr Anderson was prepared to drive hundreds of kilometres in the service of friendship to pick his friends up and return
them home. Plainly, as late as February 2004, the relationship between the parties remained positive.
[36] Mrs Anderson explained the reasons behind selling Beaumont Court. She suffered from a heart condition. She was forced to reduce her working hours. She was struggling to service the Beaumont Court mortgage. Beaumont Court was sold and settled on 5 February 2004.
[37] There is dispute as to when the Beckers were told that the house had been sold. Whichever account is correct, by early February 2004 the Beckers knew Beaumont Court had been sold. They also knew their prospects of being repaid had changed.
[38] Some payments were made by the Andersons in reduction of principal. On
26 February 2004 $10,000 was paid by a cheque drawn on Daniel Anderson’s account. On 18 May 2004 another $4,000 was paid. This cheque was left at the Beckers’ home with a note addressed to Mr Becker which read “[a]s promised some money for May.”
[39] In July 2004 Kahiwi Street was sold by the Andervich Family Trust. $5,000 was paid to the Beckers the following month.
[40] In early 2005 the Beckers met with their solicitors to instruct them to commence proceedings to recover the monies owed. In preparing for the meeting Mrs Becker made some handwritten notes covering the Beckers’ dealings with the Andersons. Mrs Becker said she and her husband considered what information the document should contain. The following day they met with their lawyer, Mr Grindle, who also took notes.
[41] Shortly afterwards, the Beckers’ solicitors sent a letter of demand to
Mrs Anderson for the immediate repayment of $254,000.
[42] On 3 June 2005 the West End Avenue property was sold by the Andervich
Family Trust for $260,000.
[43] On 12 October 2005 Mrs Anderson entered into a Deed of Acknowledgement of Debt with the Beckers in which she acknowledged her indebtedness to them for
$251,830.55. The same day she paid the Beckers $80,000 in accordance with the terms of the deed. The deed recorded that the balance of the principal was to be paid to the Beckers in one lump sum on or before 1 June 2010. Interest on the principal was to be paid monthly.
[44] A year later Mrs Anderson defaulted and the Beckers approached their lawyers again.
[45] On 29 November 2006 Mrs Anderson was bankrupted on her own petition. The Official Assignee was appointed to administer her bankrupt estate. The Beckers filed a proof of debt totalling just under $1 million.
[46] Understandably, the Beckers were deeply distressed by the loss of this money. They had hoped to develop their Ngunguru property as a bed and breakfast business. Because of Mrs Anderson’s defaults they no longer had the funds to realise this dream.
[47] After consulting their lawyers and receiving advice that the Andersons may have committed a criminal fraud the Beckers wrote to the local Police enclosing an
11 page typed document setting out their version of their dealings with the
Andersons. They also met with the Deputy Official Assignee, Mr Seufatu.
[48] On 21 February 2008 Mrs Anderson attended a creditors’ meeting chaired by Mr Seufatu. She was examined on oath. The Beckers’ accountant and solicitor attended. Mr Seufatu reported back to the Beckers that all the sums advanced by them to Mrs Anderson appeared to be accounted for. The assets had been realised and in Mr Seufatu’s view there was no real prospect of recovering any funds from the estate.
[49] In 2003 the Beckers filed the current proceedings claiming a fiduciary relationship existed between the Beckers and the Andersons and that the Andersons breached this duty.
Did a fiduciary relationship exist?
[50] A fiduciary relationship is a relationship of trust and confidence in which one person, the beneficiary or principal, is entitled to rely on another, the fiduciary.
[51] Tipping J in Estate Realties Ltd v Wignall observed:1
The word ‘fiduciary’ derives from the Latin word ‘fiducia’ the primary meaning of which is trust. Important secondary meanings are confidence and reliance. The cases demonstrate that a fiduciary relationship will arise where one party is reasonably entitled to repose and does repose trust and confidence in the other, either generally or in the particular transaction: see per Casey, J in Day v Mead where His Honour said that the relationship in question in that case ‘generated that degree of confidence and trust which in my view justifies the intervention of equity’.
[52] This approach to fiduciary identification was more or less2 affirmed by
Blanchard and Tipping JJ in Chirnside v Fay:3
It is clear from the authorities that relationships which are inherently fiduciary all possess the feature which justifies the imposition of fiduciary duties in a case which falls outside the traditional categories; all fiduciary relationships, whether inherent or particular, are marked by the entitlement (rendered in Arklow as a legitimate expectation) of one party to place trust and confidence in the other. That party is entitled to rely on the other party not to act in a way which is contrary to the first party’s interests.
[53] In summary, in New Zealand at least, fiduciary liability will arise when one party has a legitimate entitlement to rely on another in a manner which demands the single-minded loyalty of that person. It is an open-ended approach which does not specify the exact factors relevant to identifying the existence of a fiduciary relationship, but requires a contextual inquiry necessarily involving a close examination of the facts.
[54] One factor relevant to that examination is the degree of interpersonal trust between the principal and the fiduciary.4 That factor is relevant to identifying
1 Estates Realties Ltd v Wignall [1991] 3 NZLR 482 at 492.
2 The comment in Estate Realities Ltd that the beneficiary is required to actually repose trust and confidence in the fiduciary appears to be relevant as material evidence of a legitimate entitlement,
rather than a requirement of the fiduciary relationship per se.
3 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80].
4 Norberg v Wynrib [1992] 2 SCR 226 at 274,“The fiduciary has trust, not self-interest, at its core”; Day v Mead [1987] 2 NZLR 443 (CA) at 458, “[t]he foundation of the obligation lies in the trust or confidence reposed by one and accepted by the other…”
fiduciary relationships in novel scenarios despite the fact that actual trust and confidence is not required for fiduciary relationships in the inherent category and that trust and confidence is not unique to fiduciary relationships in a general sense.5
Often trust and confidence will derive from an undertaking by the fiduciary but as recognised by Blanchard and Tipping JJ in Chirnside v Fay, an undertaking is “no more than a frequent manifestation” of when one party will be entitled to trust another.6
[55] Other relevant factors include the degree of vulnerability of the beneficiary and the nature of the power held by the fiduciary. In Liggett v Kensington Gault J stated that in a fiduciary relationship there are:7
… elements of reliance, confidence or trust between them often arising out of an imbalance in strength or vulnerability in relation to the exercise of rights, powers or the use of information affecting their interests. Telling indications may be that persons having taken, or been entrusted with, opportunity to protect or benefit others stand in a position also to prefer their own interests. Assistance is to be gained by way of analogy from relationships generally regarded as giving rise to fiduciary obligations such as those of trustees, partners, solicitors, investment advisers, stockbrokers and the like.
[56] Fisher J in Cook v Evatt (No 2) framed the essence of such a fiduciary relationship as:8
…an inequality of bargaining power brought about by the trust or confidence reposed in, and accepted by, the fiduciary to perform some function for another’s benefit in circumstances where the beneficiary lacks the power adequately to control or supervise the exercise of that function.
[57] Fisher J’s approach echoes the well-known Canadian test for fiduciary identification stated by Wilson J in Frame v Smith:9
1. The fiduciary has scope for the exercise of some discretion or power.
2. The fiduciary can unilaterally exercise that power or discretion so as
to affect the beneficiary’s legal or practical interests.
5 JC Shephard “Towards a Unified Concept of Fiduciary Relationships” (1981) 97 LQR 51 at 59.
6 Chirnside v Fay, above n 3, at [85].
7 Liggett v Kensington [1993] 1 NZLR 257 at 281-282.
8 Cook v Evatt (No 2) [1992] 1 NZLR 676 at 685.9 Frame v Smith [1987] 2 SCR 99 at [60]. Wilson J’s test has been recently revisited by the Canadian Supreme Court in Alberta v Elder Advocates of Alberta Society 2011 SCC 24, [2011] 2 SCR 261 at [29]-[36].
3.The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.
[58] If a fiduciary relationship is established:10
The principal is entitled to the single-minded loyalty of his fiduciary. This liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.
[59] It is clear from the above that for a fiduciary relationship to exist there must have been a situation in which the Beckers, as beneficiaries, were entitled to place trust in the Andersons, as fiduciaries, to act in their interests. This is the ‘opportunity’ referred to by Gault J, and the ‘performance of a function for another’s benefit’ discussed by Fisher J. Fisher J usefully poses the question “[i]t will be seen that the defendants’ undertaking to the plaintiff is the key. What did the defendants expressly
or impliedly undertake to do for the plaintiff and in what manner?”11
[60] Although it has been acknowledged in Chirnside v Fay that an express undertaking is not a requirement of a fiduciary relationship, and that in reality an undertaking is merely a manifestation of the circumstances of one party reposing trust and confidence in the other, the question remains useful in order to clarify the nature of the relationship between the parties.
[61] Whether there was an undertaking in the present circumstances, is inherently tied into the question of the purpose of the loans. Mr Phillipps submits that the Andersons undertook to apply the loan monies to the purchase of 4 Beaumont Court; that Mr Anderson would refinance the house when he was discharged from bankruptcy and that that the house would not be sold without repayment. The first two undertakings were express; the third was implied. Mr Phillipps submits the benefit to the Beckers in respect of these undertaking was twofold. First, there was the emotional satisfaction of helping a friend. Secondly the house would be an asset
for repayment thereby providing security for the loan.
10 Mothew v Bristol & West Building Society [1998] Ch 1 at 18 per Lord Millett; cited in Stevens v
Premium Real Estate Ltd [2009] NZSC 15; [2007] NZLR 384 at [67].
11 Cook v Evatt (No 2), above n 8.
[62] It is thus necessary to consider the purpose of the loan.
Was the purpose of the loans to purchase 4 Beaumont St?
[63] The Beckers claim the sole and exclusive purpose of the loans was to enable the Andersons to buy Beaumont Court. Mr Phillipps argues that the Andersons applied pressure on the Beckers to lend them the money after the initial visit when Mrs Anderson came to the Beckers house crying. The Beckers wanted the house in their name in order to protect any advance. The Andersons told them this would not be possible because the owners would deal only with them. These, Mr Phillipps claims, are the circumstances which lead to the drawing of the first loan.
[64] Mr Phillipps submits the approach by the Andersons was cynical and manipulative. He describes it as “grooming”. He suggests that the Andersons, early in their relationship with the Beckers, became aware of the latters’ means and cynically exploited the Beckers’ vulnerability as new immigrants for their own purposes, particularly with a view to persuading them to part with their funds claiming it was for the purchase of 4 Beaumont St.
[65] Mr Phillipps also submits that elements of this grooming involved the Andersons, particularly Mr Anderson, engaging in domineering and manipulative conduct. Mr Phillipps submits examples of this conduct included an assault by Mr Anderson on Mrs Becker, threats to kill Buddy the Andersons’ family dog, Mrs Anderson’s dishonesty about her loans and her failure to disclose the existence of the Andervich Family Trust and its dealings.
[66] In further support of the claim the loans were for the specific and sole purpose of purchasing the property, Mr Phillipps points to evidence from the Beckers, Loreen, Mr Seufatu and the Andersons themselves. He relies on statements made by the Andersons in briefs filed in May 2013 where, in the context of other phases of this litigation, they both said the purpose of the 1998 loan was to buy Beaumont Court. In cross-examination at trial they resiled from this. They agreed that there had been conversations about borrowing money to buy the house but these did not take place until the following year when the house was actually purchased.
[67] Mr Phillipps also points out that in a file note written by Mr Seufatu following an interview with Mr and Mrs Anderson in May 2007 they said they did not have enough money to buy Beaumont Court and so borrowed from the Beckers.
[68] On balance, I am not satisfied the evidence proves the loans were for the sole purpose of purchasing Beaumont Court. My reasons follow.
Grooming
[69] I am not satisfied that the Andersons ‘groomed’ the Beckers in the fashion suggested. Mr Phillipps submits that the evidence of a domineering friendship, together with other features, demonstrates the selfishness of the Andersons; their self absorption and their lack of intention to repay the Beckers.
[70] I refer to three examples Mr Phillipps advanced in support of this claim. (a) Dishonesty
Mr Phillipps submits that Mrs Anderson was dishonest when she applied for two institutional loans without disclosing the Beckers’ debt. In my view the relevance of this is marginal.
Further, it is alleged that Mrs Anderson created the trust with the intention of defeating the Beckers’ interest. While the conduct of the Andersons, particularly Mrs Anderson, might properly be described as selfish it was also commercially naïve, if not stupid. In cross- examination it became obvious that Mrs Anderson’s understanding of the operation of trusts was rudimentary. She purchased West End Avenue and Kahiwi Street through the trust. Both were investment properties which she intended to renovate and on sell. She underestimated the cost and effort involved. However I am not satisfied that Mrs Anderson created the trust with the intention and purpose of defeating the Beckers’ interest. It was created on her accountant’s advice. In cross-examination she agreed that putting the
properties in the trust would protect the assets from any claim against her personally. However, the cross-examination also served to emphasise Mrs Anderson’s dismal understanding of the operation of trusts. Her naivety and lack of any commercial sense was exposed. I am satisfied on the evidence that while Mrs Anderson was naïve, if not foolish in her dealings relative to the activities of the Andervich Family Trust, she did not act deliberately to compromise the interests of the Beckers.
Further Mr Phillipps submits that the Andersons knowingly dissipated the Becker’s money. It is correct that Mrs Anderson made no attempt to repay any of the loans when they fell due. She continued to service the loans without default. It is also correct that given the collective resources of the Andersons and Mrs Anderson’s spendthrift nature repayment of the loans was a dismal prospect even if it may have been Mrs Anderson’s sincere hope.
Mrs Anderson was living well beyond her means especially after she was obliged to reduce her working hours for health reasons. In the absence of a formal written demand, Mrs Anderson kept her payments up no doubt hoping the Beckers would not take the formal steps they ultimately did in 2005. While Mrs Anderson’s conduct reflects poorly on her and demonstrates her commercial naivety, if not sheer greed, it does not support the claim Mrs Anderson deliberately, cynically and fraudulently breached her obligations to the Beckers.
(b) Buddy the dog
Mr Phillipps submits that the circumstances in which the ownership and custody of the Andersons’ dog, Buddy, was transferred to the Beckers is further evidence tending to indicate the threatening and emotionally manipulative conduct of Mr Anderson. The Beckers said Mr Anderson threatened to shoot Buddy who was much loved by the Beckers, particularly Loreen. Mr Anderson denied this. However, he
did say the dog had begun to bite his wife and was barking. He conceded that the Beckers were very good with the dog which reciprocated their affection.
I do not give this incident the weight Mr Phillipps seeks. Whatever the factual position, the solution to give the dog to the Beckers was a sensible and logical one which suited both parties.
(c) Assault
Mrs Becker said that in March 2004 she was assaulted by Mr Anderson following comments she made to him about buying another car when money was still owed to the Beckers. She said Mr Anderson lost control, became very angry and red in the face and jumped up and grabbed her with both hands around the throat. Loreen described the incident in quite a different way, saying it was not threatening but was more of a gesture. Loreen said that Mr Anderson was angry and upset at her mother for asking the question. Mr Anderson denied such an incident ever occurred.
I am satisfied that such an incident took place although I prefer Loreen’s account. She impressed me as a mature and sincere woman who, in giving evidence in difficult circumstances, did not venture into hyperbole or unnecessary colour.
The relevance of this incident is marginal at best and I certainly do not give it the weight and significance which Mr Phillipps presses for. The context requires examination. This incident took place in March
2004 after 4 Beaumont Court had been sold and the Andersons had moved out. Only one capital repayment had been made. Tensions were rising. This incident represents the manifestation of a deteriorating relationship. It does not assist to support the inference Mr Phillipps seeks me to draw.
[71] Overall I do not accept that the Andersons were cynically manipulative and groomed the Beckers to exploit the latters’ vulnerability for their own benefit. There is no substantive evidence which supports this proposition. On the contrary, there is more than ample evidence of a consistent and enduring genuine friendship between the families which lasted until at least early 2004 more than two years after the third loan fell due for repayment. Furthermore there is undisputed evidence that the first mention of a loan advance was made by Mr Becker rather than initiated by the Andersons.
First loan related to purchase of motor scraper
[72] A strong factor against the proposition that the loans were all for the purpose of the purchase of the property are the many references to the first loan being connected to the purchase of a motor scraper. The notes made by Mrs Becker on the eve of the Beckers’ meeting with Mr Grindle make express reference to the purpose of the first loan. The note reads:
The first $80,000 at (sic) 1998 we give them for to buy the Motor scraper, that he can earn his own (sic) Money.
Like he talked us $110 per/h rather than $20 per/h, so he is able to pay quickly the lent Money back.
[73] Mr Becker assisted his wife in the compilation of the notes although he said he did not read them until sometime later. When he did, he made no comment to Mrs Becker they were wrong in any respect.
[74] Mr Phillipps submits that little or no weight should be given to Mrs Becker’s notes because she was under pressure, was confused and made a mistake. While conceding this note is superficially consistent with the evidence of the Andersons that the purpose of the first loan was to buy a half interest in a motor scraper, he submits this does not explain why $80,000 was borrowed when only $25,000 was required to secure the half interest in the motor scraper and the balance appears to have been applied to other purchases.
[75] While that may be so, Mrs Becker’s note is entirely inconsistent with the claim the Beckers believed the first loan was for the sole and exclusive purpose of purchasing the house.
[76] I do not accept Mrs Becker made a mistake through confusion. The context is clear although the excerpt quoted above does not fit within any chronology sequence because the note, itself, is not formatted in that way. However, when the Beckers met Mr Grindle the next day he obtained something of a chronology from them. In these notes the first loan is, again, linked to the purchase of the motor scraper. Given that Mr Grindle’s notes were made at a meeting with the Beckers for the purpose of obtaining details about the loans, the submission Mrs Becker was confused carries little weight.
[77] Although Mr Grindle did not give evidence, his notes also support the inference the first loan was related to the motor scraper. He took handwritten notes at the meeting. He also recorded that the first loan was for the purpose of buying a motor scraper.
[78] Unlike Mrs Becker’s note, Mr Grindle’s file note follows a chronological sequence. Rather than simply reproducing the contents of Mrs Becker’s note the reference to the motor scraper must have come from a conversation Mr Grindle had with the Beckers because it refers to working while not being paid.
[79] In April 2005 the Beckers’ solicitor instructed a local barrister, Mr Muston, to act for them to recover the monies. Mr Muston prepared a statement of claim for a summary judgment application. He also drafted a supporting affidavit for Mr Becker. Although Mr Muston did not give evidence, the draft affidavit was produced. It would appear it was never sworn. It is, however, reasonably detailed and covers the dealings the Beckers had with the Andersons between 1998 and 2005. Again it indicates the purpose of the first loan was to purchase a motor scraper. It would appear this draft affidavit was compiled from additional information made available to Mr Muston because it contains detail which is not contained in either of the previous documents.
[80] In combination this means that on three separate occasions the Beckers cited the purchase of a motor scraper as the purpose of the first loan. I do not ignore that the Andersons, too, have contradicted themselves on this issue, but it is impossible to overlook the constant thread of consistency supportive of the fact that the parties contemplated that the funds for the first loan would be applied, either in full or in part, towards the purchase of an interest in a motor scraper.
The BMW and other purchases
[81] In addition to the above there are also other factors inconsistent with the
Beckers’ claim all three loans were for the purchase of the property.
[82] The Beckers became aware, shortly after the first loan was made, that the
Andersons had made a number of significant purchases.
[83] Both said they were aware in January 1999 that Mrs Anderson had bought a late model BMW.12 They were also aware the Andersons had bought a caravan. It was parked at their property in plain view. Mr Becker said he went with Mr Anderson to inspect it before it was bought. He said it was for sale for $24,000 but described it as “rubbish” commenting he would not have spent even a dollar on it. Mr Becker also mentioned the Andersons had bought expensive outdoor furniture.
[84] Further, it is common ground that renovations were undertaken by the Andersons at Beaumont Court sometime after the first loan was advanced. Mrs Anderson said the renovations were carried out both before and after the property was purchased by the Andervich Family Trust, in other words both before and after the third loan. She remembered showing the Beckers the renovations.
[85] Mr Becker said the Andersons spoke about renovations. He did, however,
comment that he was “ashamed” the Andersons were using the money they had
given them “for pleasure”. When Mr Becker was asked whether he was aware what
12 In their complaint to the Police in April 2007 they described this recording it concerned them.
the money was being spent on he agreed that he did “… a little bit …” but, despite this, still made the last loan advance so as “not to let the Andersons down”.
[86] The Beckers knew Mr Anderson was bankrupt. They knew that Mrs Anderson’s financial means were limited. They must have known that the only conceivable source of funds available to purchase these various items was the first loan and possibly, in relation to the renovations, the second. It was obvious the funds they advanced were not being applied towards the purchase of the house.
[87] Yet despite knowing their first loan was being spent on a variety of purchases other than the house the Beckers continued to make further advances. This is plainly inconsistent with their claim all advances were for the exclusive purpose of buying Beaumont Court.
[88] Furthermore, Mrs Anderson’s evidence was that although there had been discussions between herself and Mr Becker about applying the money towards the purchase of the property this was not stipulated anywhere and it was her belief that the Beckers were lending her the money to do as she wished. Her desire to purchase Beaumont Court was something she discussed with the Beckers who offered the money when she told them the house was going to come onto the market. But there was no tagging of the funds for that specific purpose.
Timing of the loans
[89] The Beckers claim the first loan was made after Mrs Anderson approached them in tears about having to move out of the house. Even if this is correct it does not explain why the first advance was made when it was.
[90] In December 1999 4 Beaumont Court was not on the market. There was no immediate threat to the Andersons’ domestic security. In fact the house would not be purchased by the Andersons for another year. Mr Becker made some reference in his evidence to the first loan being a deposit. But this could not possibly have been the case.
[91] The question is that if the first loan was to buy Beaumont Court why was the first tranche of funds advanced to the Andersons in December 1998 when the prospect of purchasing the house was, at that time, so remote and uncertain?
Structure of the loans
[92] Further, the evidence indicates that the first advance of $80,000 made in December 1998 was drawn from funds which the Beckers already had available in New Zealand.
[93] The other two advances appear to have been made when the funds became available to the Beckers, possibly from maturing deposits invested with UDC, although Loreen said she believed the money came in instalments from Germany.
[94] If the sole purpose of the loans was to enable the Beckers to buy Beaumont Court it seems inconsistent with that intention that the loans were spread across three separate agreements for different amounts over the 12 months which preceded the settlement of the property. The orthodox and logical mechanism would have been to have let the funds accumulate and be advanced in a single loan; particularly having regard to the claimed singularity of purpose.
[95] The character of three separate loans, apparently advanced by the Beckers as the funds became available successively, conveys the character of non specific loans untagged in terms of purpose.
Conclusion
[96] For the reasons explained above, I am not satisfied on balance that any of the individual loans, let alone all three, was advanced by the Beckers and received by Mrs Anderson on the unequivocal understanding they were to be applied for the sole and exclusive purpose of purchasing 4 Beaumont Court.
[97] On the evidence I am satisfied that the loans were made with no specified purpose. Rather they were simply unremarkable unsecured loans of the sort made by institutional and private lenders daily.
[98] It may well be that the Beckers hoped, if not expected, the monies they advanced would be used by their friends to buy the house and in so doing, would remain as their neighbours. But a hope or expectation is very different to a requirement of the sort now claimed.
[99] The Andersons did not undertake to do anything beyond repayment of the loan amount. As there was no specific purpose for the loan the Beckers could not have reposed trust and confidence in the Andersons that the loan would be used for that specific purpose.
[100] Further, a loan agreement is contractual in nature and does not restrict the lessee’s use of the loan sum beyond that provided for by the agreement. While it is clear that a fiduciary relationship can exist alongside a contractual relationship, I do not consider that to be the case here. As stated in Maruha Corp v Amaltal Corp Limited:13
It is well settled that, even in a commercial relationship of a generally non-fiduciary kind, there may be aspects which engage fiduciary obligations of loyalty. That is because in the nature of that particular aspect of the relationship one party is entitled to rely upon the other, not just for adherence to contractual arrangements between them, but also for loyal performance of some function which the latter has agreed to perform for the other or for both or has, perhaps less formally, even by conduct, assumed.
[101] Since the money was not tagged for a specific purpose, it could not be said that the Andersons agreed to a performance or function that could give rise to a fiduciary obligation of loyalty.
[102] Additionally, while the Andersons may have been exercising a power over the Becker’s interests, the latter were not vulnerable “in the relevant sense”.14 It is likely they trusted the Andersons to pay back the loan, but no more than any lender might when entering into a contractual loan agreement. There is nothing in the present circumstances which indicates the existence of anything more than a
contractual relationship.
13 Maruha Corp v Amaltal Corp Limited [2007] 3 NZLR 192, [2007] NZSC 40 at [21].
14 Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [104].
[103] Mr Phillipps submits that the Andersons exploited their friendship with the Beckers to place themselves in a position of power over the Beckers. He claims they achieved this by telling the Beckers of their financial strife at the time when the Beckers had just purchased land to develop themselves. This was allegedly done to generate sympathy which the Andersons then exploited by manipulating a loan offer from the Beckers to advance their own interests. Mr Phillipps submits the relationship was marked by an imbalance of power.
[104] There is insufficient evidence to establish the Andersons exploited the Beckers in any significant way. While it is plain the loan arrangements arose out of the friendship between the families there were no special circumstances or imbalance of power within the relationship which meant the Beckers were “peculiarly
vulnerable” to the Andersons.15 Sympathy is a common component in any genuine
friendship. If the Beckers, through kindness, generosity and sympathy elected to help their friends in times of financial hardship that was their decision. It is not established on the evidence there was an overall plan of deception and manipulation on the part of the Andersons. Nor, necessarily, would such a plan if it existed automatically create fiduciary obligations. As already mentioned I am satisfied the relationship between the Andersons and Beckers was a simple commercial or contractual agreement between equal parties. There were no special circumstances which ‘coloured’ the relationship.
[105] On balance the evidence does not support a finding the Andersons were entrusted with, or accepted to perform a function for the Becker’s benefit beyond their contractual obligations. Although there was a high level of trust due to the closeness of the friendship, this alone does not create a fiduciary relationship in the context of a loan arrangement. It does not justify the intervention of equity.
[106] As there is no fiduciary relationship the first cause of action must fail.
15 Frame v Smith, above n 9 at 136.
Was there a fraudulent breach of trustee obligations?
[107] This claim also relies upon the existence of a fiduciary relationship between the parties and in particular proof of the assertion that the Beckers advanced the funds to Mrs Anderson with the express agreed purpose that they were to be applied in full to the purchase of the property at 4 Beaumont Court.
[108] Having regard to my findings that the evidence does not support the claim the monies were advanced for the specific purpose of purchasing the house, this claim, too, must fail.
Result
[109] The plaintiffs’ claim fails. Judgment is entered in favour of the defendants.
Costs are fixed on a 2B basis with disbursements as fixed by the Registrar.
Moore J
Solicitors:
M Phillipps, Auckland
V Ammundsen and B Saldanha, Auckland
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