Booth v Poplar Road Farms Ltd

[2019] NZHC 807

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2018-454-065

[2019] NZHC 807

BETWEEN

RAY CHARLES BOOTH

First Plaintiff

RAY CHARLES BOOTH AND ANN BOOTH

Second Plaintiffs

AND

POPLAR ROAD FARMS LIMITED

First Defendant

JASON BOOTH

Second Defendant

TANIA BOOTH

Third Defendant

Hearing:	26 February 2019
Appearances:	A N Isac QC and G M Richards for First Plaintiff
Judgment:	12 April 2019

JUDGMENT OF CLARK J

Introduction

[1]    The first plaintiff, Ray Booth, seeks judgment on his first cause of action in this proceeding. The first cause of action is against the first defendant only and seeks rectification of a deed of debt. The effect of rectification would be to increase by approximately $428,000 the amount which the first defendant, Poplar Road Farms Ltd, owes to Ray Booth.

BOOTH v BOOTH [2019] NZHC 807 [12 April 2019]

[2]    Poplar Farms Ltd has not filed a statement of defence. The matter therefore proceeded by way of formal proof.

Background

[3]    Ray Booth is the second generation to live and work on the family farm at Poplar Road, Opiki, near Palmerston North. His son, Jason Booth, is the third generation.

[4]    In early 1998 Ray and Jason formed Booths Farming Ltd which bought and sold farmland. In 2001 Ray formed an operational company through which to run the farming business. This company became Booth Agriculture Ltd.1 A further asset of the wider Booth enterprise was farmland at Poplar Road, Opiki, owned by Ray personally.

[5]    Ray and his wife, Ann Booth, decided in 2011 to retire to Taupo. They settled on a restructuring plan by which Jason and Tania (Jason’s wife at that time) would take over the Booth family farming enterprise. Peter Savage, an accountant at Palmerston North, proposed a reorganisation of the corporate entities and the transfer of ownership of the family farming enterprise to Jason and Tania. The reorganisation was implemented by Mr Savage and Wadham Partners, solicitors. Mr Savage acted for all parties in the reorganisation: Ray, Ann, Jason and Tania and the corporate entities BFL, BAL and PRF.

[6]    Within Wadham Partners, Mark Wadham acted for Ray and Ann and another partner, Melanie Sargent, acted for Jason and Tania.

[7]    The restructure was settled on 1 November 2011. The transactions proceeded on the basis there would be an exchange of true value between the parties. Ray and Ann did not intend, for example, to transfer economic value from their partnership to either Jason or Tania by means of gift. It is not necessary that I set out the detailed evidence of the composition of the consideration for Jason and Tania’s acquisitions from Ray and Ann but one component was a debt from PRF to Ray for the balance of

1      In the remainder of this judgment the following abbreviations are used: “PRF” for Poplar Road Farms Ltd; “BFL” for Booths Farming Ltd; and “BAL” for Booth Agriculture Ltd.

the land purchase price. The debt was recorded in a deed of acknowledgement of debt dated 1 November 2011  as $1,150,251.99.   The settlement, occurring as it did on    1 November 2011, was midway through the financial year for BAL and BFL. At the time of settlement, indicative figures were used on the basis that ultimately the final balance of any amount owing by Jason and Tania would be captured in the debt when the accounts as at 31 October 2011 for BFL and BAL were finalised.

[8]    Mr Savage prepared settlement statements for BFL, BAL and Ray and Ann Booth and emailed the statements to Mr Wadham on 25 October 2011. The debt PRF owed Ray was recorded as $1,627,593 but was to reduce post-settlement following a payment from BAL to Ray. The payment to which Mr Savage referred occurred in December 2011 when BAL paid to Ray $263,739.51.

[9]    In March 2012 Mr Savage reconciled the movement in assets and liabilities and accounted for the cash payments Ray and Ann received following settlement. He prepared a final statement of position which was used to calculate the value of the debt. Mr Savage recorded in an email to Mr Wadham on 8 March 2012 that the “final difference of $1,150,251.99 [could] be confirmed as a debt owing between the parties” and that he had met with Ray, Jason and Tania who agreed on the figure and that it would be a “loan … between Poplar Road Farms Limited and R C Booth”.

[10]   The solicitors provided the deed of debt for execution to Ray, and to Jason and Tania as directors of PRF. The deed of debt, dated 1 November 2011, records the sum of $1,150,251.99 advanced to PRF by Ray Booth is payable on demand. Jason and Tania signed the deed in their capacities as directors of PRF. Ray executed the deed, returned it to Mr Wadham and it was placed in his firm’s deeds file on 16 March 2012.

[11]   It transpires that Mr Savage’s calculation of the debt owing to Ray was inaccurate. Before turning to the evidence of the error it is necessary to say something about the affidavits that were relied on in the formal proof hearing.

Evidence

[12]   An issue arose about the evidence able to be relied upon in this, the rectification proceeding. The contention arose because although Tania Booth, the third defendant,

has not sought to be heard and does not defend the claim against PRF she raised an objection to the first and second plaintiffs relying on affidavits filed in a separate proceeding between the second and third defendants.

[13]   The relationship of the two proceedings to each other was helpfully set out in a detailed minute of Associate Judge Johnston following case management conferences for the two proceedings on 31 October 2018 and 4 December 2018.2

[14]   In 2016 Jason and Tania separated and Jason commenced proceedings in the Family Court for the division of the relationship property under the Property (Relationships) Act 1976 (the PRA proceeding). The PRA proceeding was transferred to the High Court when an impediment to its resolution became apparent. The impediment was the dispute about the value of the debt PRF owed to Ray Booth. Until that issue is resolved it is not possible to identify with accuracy the relationship property in dispute.

[15]   And so, this rectification proceeding was commenced. The essential assertion in the rectification proceeding is that the debt PRF owes Ray Booth was recorded wrongly in the restructuring documentation as $1,150,251.99. Rectification of the deed of debt is accordingly sought so that the deed records the correct value of the debt said to be $1,579,134.94.

[16]   On 18 March 2019, following the hearing, the plaintiff filed an interlocutory application seeking orders that selected evidence from affidavits filed in the PRA proceeding be read in the rectification proceeding. For the following reasons the application is granted.

[17]   As the Associate Judge observed the link between the two proceedings is obvious enough:3

The value of the shares in Poplar Road Farms will be reduced to the mutual disadvantage of Mr Jason and Mrs Tania Booth by the orders sought, but in practical terms the impact is likely to be less on the former than the latter.

2      Booth v Booth HC Wellington CIV-2018-454-65, 1 November 2018; and Booth v Booth HC Wellington CIV-2018-454, 12 December 2018.

3      Booth v Booth HC Wellington CIV-2018-454-65, 1 November 2018 at [4].

There is general agreement between counsel that the issue in the rectification proceeding needs to be prioritised and resolved quickly.

[18]   The Associate Judge made a number of directions intended to progress matters. One of the directions addressed the involvement of PRF in the rectification proceeding. Due to the deadlock within the company PRF was unable to respond to the claim against it and had not filed a statement of defence nor taken any other step. Counsel for Tania Booth raised the concern because “the company’s impotence [was] likely detrimentally to affect his client”. Associate Judge Johnston observed the most obvious application available to the company was a derivative action pursuant to s 165 of the Companies Act 1993 but left it to the parties to make any application in relation to the status of, and representation for, PRF by 14 November 2018.

[19]   In the Associate Judge’s further minute dated 12 December 2018 he identified difficulties with the proposal that the PRA proceeding and rectification proceeding be heard at the same time. While “closely linked” they were distinct and the rectification proceeding was to be heard first.

[20]   Mr Isac QC recalled that, to avoid unnecessary duplication, all parties agreed the evidence filed in the PRA proceeding would be admissible in the rectification proceeding. Mr Isac said the parties had operated on this basis until the third defendant’s objection on 22 February 2019. Mr Isac further  submitted  the  Associate Judge’s direction that evidence-in-chief in both proceedings would be by affidavit “was a reflection of that part of the discussion at the conference about the evidence to be filed (in both proceedings)”. Mr Isac accepted, however, that the minute did not explicitly record the acceptance by counsel that affidavits would be “cross-admissible”.

[21]   Ultimately, I agree with Mr Isac that it would be a triumph of form over substance to disallow the parties in the rectification proceeding from relying on evidence filed in the related PRA proceeding.

(a)The two proceedings are closely linked. Until the rectification proceeding is determined it is not possible to know precisely the property in dispute in the PRA proceeding.

(b)In the rectification proceeding the plaintiff does not invite the Court to review irrelevant evidence. Rather, the plaintiff relies on specific evidence and documentation from the PRA proceeding, a related proceeding which, in a case management sense, was intended to travel together with the rectification proceeding. Evidence about the genesis of the deed of debt, the transactions which resulted in the need for the deed of debt and the correctness of the value of the debt, including expert evidence on the debt value, is plainly relevant to the rectification proceeding.

(c)There can be no tenable claim of prejudice as PRF, the only party who opposes the use of selected evidence from affidavits filed in the PRA proceeding, does not defend the rectification proceeding.

(d)It would have been open to the Court to require the first plaintiff to re- swear the evidence in the PRA proceeding sought to be relied on in the rectification matter. Beyond a change in the cover sheet and a change of the date on which the evidence was sworn, the content would remain the same. The first plaintiff would be prejudiced by being put to such expense and delay, when to proceed as I have elected prejudices no party.

(e)As Master Kennedy-Grant observed in Osborne v Wells, a summary judgment application in which the Court permitted reference to affidavits filed in an earlier proceeding between the two defendants, “commonsense and the just, speedy and inexpensive determination of the issues” are served by an order permitting the reading of evidence from an earlier proceeding.4 His Honour observed that in the particular circumstances of that case the Court should exercise the inherent jurisdiction which it had to make such an order.5

4      Osborne v Wells HC New Plymouth CP 6/00, 11 July 2000 at [10].

5      At [12] and [16].

[22]   Accordingly, the following evidence from affidavits filed in the PRA proceeding is to be read in the rectification proceeding:

(i)Ray Booth dated 15 February 2018 paragraphs [1] to [25].

(ii)Jason Booth dated 3 July 2017 paragraphs [1] to [9]; [11] to [16].

(iii)Jason Booth dated 16 February 2018 paragraphs [11] to [17].

(iv)Jason Booth dated 25 October 2018 paragraphs [7], [21], [25].

(v)Peter Savage dated 16 February 2018 paragraphs [1] to [3]; [15] to [25]; [31].

(vi)Peter Savage dated 26 October 2018 paragraphs [1]; [5] to [14].

(vii)Mark Wadham dated 15 February 2018 paragraphs [1] to [13].

(viii)Keith Wedlock dated 16 February 2018 paragraphs [1] to [22].

[23]   In addition, the documents comprising the “bundle of exhibits referred to in the affidavits of Mark Wadham, Keith Wedlock, Peter Savage and Jason Booth” is to be read. For completeness I record that the following three affidavits were filed in this proceeding:

(i)Ray Booth dated 18 February 2019,

(ii)Keith Wedlock dated 18 February 2019,

(iii)Douglas Jones dated 14 December 2018.

The errors in the calculation of the debt sum

[24]   Mr Savage deposes to  reviewing  the  reconciliations  he  prepared  in  March 20126 and seeing errors in his calculations. Mr Savage has seen final figures calculated by Mr Wedlock and agrees with them.

[25]   Mr Wedlock has been practicing as an accountant since 1984. He has particular experience in acting for parties in the context of relationship property disputes. Mr Wedlock is a former president of the New Zealand Institute of Chartered Accountants and a former Chair of the National Public Practice Committee. His first two affidavits filed in the Family Court in the PRA proceeding constitute expert evidence.

[26]   Mr Wedlock’s affidavit filed in this proceeding refers to his two previous affidavits but also steps through the analysis he undertook of the 2011 restructuring, gives his opinion as to where errors occurred and his conclusion as to the value of the debt that should have been recorded as owing to Ray Booth.

[27]   Mr Isac was meticulous and painstaking in his approach to the evidence. I was further assisted by an appendix to his written submissions consisting of a schedule setting out Mr Savage’s March 2011 calculations alongside Mr Wedlock’s calculations from his February 2019 affidavit. A final column contains a line by line explanation, by reference to Mr Wedlock’s evidence, of each of the errors made by Mr Savage.

[28]In summary:

(a)Mr Savage proceeded on the basis that Ray and Ann were receiving Jason’s shares in BAL, when in fact, the opposite was occurring as Jason was receiving Ray and Ann’s shares in BAL.

(b)Mr Savage miscalculated the value of BAL.

(c)Mr Savage miscalculated the value of BFL.

6 See above at [9].

(d)Mr Savage did not account for tax loss benefits that Jason was passing to Ray and Ann by selling his BFL shares.

(e)Mr Savage failed to account for the fact that:

(i)Ray and Ann were receiving the benefit of Jason’s shareholder current account in BFL.

(ii)Jason and Tania were taking on a liability of Ray and Ann’s shareholder current account in BAL.

[29]   The overall result of Mr Savage’s errors, Mr Wedlock concludes, is that the residual purchase price due to Ray Booth by PRF was $1,579,134.94. This is an increase of $428,882.95 over the sum provided by Mr Savage to the parties  in March 2012 for inclusion in the deed of debt executed by PRF and Ray Booth.

Should deed of debt be rectified?

[30]   Although this claim proceeded by way of an undefended formal proof hearing “the level at which a Judge is required to satisfy herself regarding the plaintiff’s evidence is much the same as it would be if the proceeding had gone to trial”.7 In this case the plaintiff is required to prove his cause of action so far as the burden of proof lies on him. He is not required to engage with any matters of affirmative defence, set- off or counterclaims.8

[31]   The principles governing rectification are commonly sourced to Swainland Builders Ltd v Freehold Properties Ltd.9 I refer to them as the Swainland principles. The Swainland principles were approved by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd.10 More recently, in New Zealand, the Court of Appeal in

7      Ferreira v Stockinger [2015] NZHC 2916 at [35].

8      At [36] citing BBC Technologies Ltd v Sociedad Agricola Topagri Ltda [2014] NZHC 2386 at [5].

9      Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560, [2002] 2 EGLR 71.

10     Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [48].

Hanover Group Holdings Ltd v AIG Insurance New Zealand Ltd11 and Davey v Baker12 has applied the Swainland principles.

[32]In summary, the party seeking rectification is required to show:

(a)The parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter and the agreement sought to be rectified.

(b)There was an outward expression of their accord.

(c)The intention continued at the time of execution of the agreement sought to be rectified.

(d)By mistake, the agreement did not reflect that common intention.

[33]   Thus, it is necessary to show that “the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly”.13

[34]   In Watson v Whitehead the Court regarded as fatal to any claim for rectification situations where the terms of an agreement are negotiated by the parties’ legal advisers.14 I do not view Watson v Whitehead as an impediment to the plaintiff’s claim for rectification. First, what occurred in this case was not the inclusion of a debt arrived at as a result of negotiation between the parties’ legal representatives. Rather, an accountant, acting for all relevant parties, incorrectly calculated a debt sum which has been quite simply transferred to and recorded in the deed of debt by the lawyers.

[35]   Second, the decision upon which the Judge relied for the proposition in Whitehead does not support such an unequivocal statement of principle. Wylie J cited the decision of the Court of Appeal in Krukziener v Hanover Finance Ltd in support of the proposition that if terms of an agreement were negotiated by the parties’ legal

11     Hanover Group Holdings Ltd v AIG Insurance New Zealand Ltd [2013] NZCA 442 at [30].

12     Davey v Baker [2016] NZCA 313, [2016] NZLR 776 (CA) at [37].

13     Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450, [1953] 3 WLR 497 (CA) at 461.

14     Watson v Whitehead [2014] NZHC 2992 at [140].

advisers that would be fatal to a claim for rectification.15 I do not read the Court of Appeal decision in Krukziener in that way. In the passages dealing with a rectification defence the Court of Appeal said:

[32]      Where the terms of an agreement do not accurately reflect the mutual intention and agreement of the parties, equity may rectify the record of the agreement so that it reflects the parties’ true intention, and not that imperfectly recorded by the contract. The common intention must persist right up until the contract is signed: Realty Services Holdings Ltd v Slater (2005) 6 NZCPR 657. Proof of it may be established by reference to pre-contractual negotiations between the parties, and by other surrounding circumstances (Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA) at [55]), but if the proof put forward is inconclusive, then there is not sufficient material from which to find a common intention with which to rectify the contract.

[33]      We agree with Mr Carruthers that rectification is not arguable. Far from demonstrating a common continuing intention that under no circumstances could the loan be called up before the development was completed, the evidence establishes that the default provisions were insisted on by Hanover and accepted by Mr Krukziener. In the circumstances, the defence is not arguable.

[36]   Certainly [32] of Krukziener reflects the orthodox approach to rectification and there is no hint in that paragraph of the principles or the approach being displaced if the underlying legal document has been negotiated by the parties’ legal advisers.

[37]   As well, it seems plain from [33] of Krukziener that rectification was not arguable in that case because the evidence did not support the assertion of a common continuing intention of the kind Mr Krukziener had posited. Further, legal advisers were involved in the negotiations of the underlying agreement in Krukziener yet the Court of Appeal did not suggest this was a reason, or potential reason, for rectification not being available.

[38]   Nor, as Mr Isac submitted, do leading texts refer to any prohibition on rectification where legal representatives have negotiated the underlying document.16

15     Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.

16     Referring to H G Beale (ed) Chitty on Contracts (32nd ed, Sweet & Maxwell, London, 2015); and Edwin Peel (ed) Treitel – The Law of Contract (14th ed, Sweet & Maxwell, London, 2015).

Nor the chapter on rectification in Equity and Trusts in New Zealand17 nor Spry on Equitable Remedies.18

[39]   Ultimately, I think Mr Isac must be correct. The involvement of legal representatives in the negotiation of a document which a party seeks to rectify may very well be a factor for the court to consider when determining whether or not to grant rectification. That is because the involvement of legal advisers may tend to suggest the agreement correctly records what the parties intended, that no mistake was made or that there was no common intention on the part of the parties to the agreement.

[40]   In terms of the expression of the parties’ common intention in this case, the evidence of Ray Booth, Mr Wadham and Mr Savage is that the debt sum in the deed of debt was to be the balance of what Ray was owed by PRF accounting for the cash payments Ray and Ann received following settlement.

[41]   The evidence demonstrates PRF was of the same view. The directors of PRF acknowledged in their 27 October 2011 resolution authorising the directors to execute the deed of debt for “residuary purchase price due to [Ray]”.

[42]   The parties therefore intended the deed to record as a debt the amount which PRF owed Ray for the purchase of Poplar Road farmland (after other transfers to Ray were accounted for) and Ray would therefore receive full compensation for the sale of his farmlands to PRF. There is no evidence to suggest there was any intention, held by any party, that the deed of debt should undervalue the debt so as to effectively constitute a gift from Ray to PRF. The outward expression of the agreement between the parties — their intention — is evidenced in Mr Savage’s description of the transactions in August 2011, the draft settlement statements produced prior  to  March 2012, the PRF directors’ resolution and the settlement statement produced in October 2011. The common intention evidenced in the ways I have just described continued throughout the implementation of the three transactions. And, importantly, I accept this common intention continued through to the execution of the deed of debt

17     Terry Sissons ‘Rectification’ in Butler (ed) Equity and Trusts in New Zealand (Thomson Reuters, Wellington, 2009) at 869 onwards.

18     Spry The Principles of Equitable Remedies (Lawbook Co, Sydney, 2014) at 630 onwards.

in March 2012. This important thread is evidenced by the fact the parties waited until Mr Savage was in a position to calculate what the debt sum should be. The deed of debt was not executed until the parties received this calculation from Mr Savage.

[43]   I accept also that the parties relied on Mr Savage to provide the correct debt sum. Mr Savage’s evidence is that he made mistakes in calculating the debt sum. These accounting errors are confirmed by the independent expert, Mr Wedlock. Consequently, both Ray and PRF were under the common mistaken understanding that the debt sum should be $1,150,251.99 and the deed of debt included this erroneous debt sum, whereas the common intention was that the debt sum should be what was owed to Ray after the other transfers were taken into account.

[44]   In summary, the evidence establishes the following key events, intentions and conduct:

(a)Ray Booth and PRF shared the common intention that the deed of debt would provide for a debt  sum equal  to the debt  owed by PRF to   Ray Booth for the Poplar Road farmland PRL was purchasing after other transfers of value to Ray had been taken into account. The directors of PRF recognised the purpose of this debt to Ray in a directors’ resolution dated 27 October 2011 which records at [7]:

That in addition to the documentation referred to above, the directors of the Company¹⁹ be authorised to execute in the Company’s name, in favour of Ray Charles Booth an acknowledgement of debt in respect of the residuary purchase price due to him under the agreement for sale and purchase being an advance to be made by Ray Charles Booth to the company interest free and repayable upon demand and to be recorded without security. (emphasis added)

(b)The common intention that the deed record the correct debt continued through to the execution of the deed. Although the deed bears the date 1 November 2011  it was not executed until March 2012 following  Mr Savage’s calculation of the figure on 8 March 2012. The deed of debt was provided by Ms Sargent to Mr Wadham on 9 March 2012 with

19     That is, Poplar Road Farms Ltd.

a request that Mr Booth sign it and Mr Wadham retain on his behalf. Mr Wadham’s evidence is that he received the deed of debt and sent it to Mr Booth to sign under cover  of  a  letter  dated  9 March  2012. Mr Wadham confirmed to Ray Booth that the sum of $1,150,251.99 had been calculated by the accountant.

(c)Mr Savage was responsible for calculating for the parties’ (Ray Booth and PRF) debt sum.

(d)Mr Savage’s final calculation in March 2012 produced a figure of

$1,150,251.99.

(e)The parties simply adopted that figure. Ray Booth and PRF used that figure and recorded it as the debt sum in the deed of debt.

(f)Mr Wedlock’s evidence identifies significant mistakes in Mr Savage’s calculation of the debt sum and establishes the debt sum owing to  Ray Booth by PRF is $1,579,134.94.

(g)As a  result  of  the  erroneous  calculation  of  the  debt  sum  and  Ray Booth’s and PRF’s use of the erroneous calculation, the deed of debt does not reflect those parties’ common intention that the debt sum recorded in the deed of debt would be the sum owed by PRF to     Ray Booth for the Poplar Road farmland.

[45]   Accordingly, the first plaintiff has established his claim against PRF for rectification of the deed of debt dated 1 November 2011 so that the sum of

$1,579,134.94 is recorded as the sum which Ray Booth advanced to PRF and which PRF must repay upon demand.

[46]   The first plaintiff has also established, to my satisfaction, his entitlement to a declaration that PRF owes the first plaintiff the sum of $1,579,134.94 on the terms in the deed of debt. Ray Booth seeks the declaration because he and his wife need certainty as to the debt obligation so they may order their financial and estate affairs

accordingly. Ray is concerned that mere rectification may prove fruitless because there might be continuing argument that the debt is not owed. The deed is valid and enforceable against PRF. I see no basis for withholding the declaration claimed.

Result

[47]   The deed of debt dated 1 November 2011 is rectified so that the amount owing is recorded as $1,579,134.94.

[48]A declaration is made that PRF owes the first plaintiff the sum of

$1,579,134.94 on the terms in the deed of debt.

[49]   As the successful party the first plaintiff is entitled to costs. The plaintiffs also seek costs in respect of an interlocutory application for leave to file a derivative action which the third defendant commenced but abandoned. Those costs are reserved pending receipt of an application for costs and memoranda. The plaintiffs should file and serve their memorandum seeking costs within 15 working days of receipt of this decision. The third defendant  should  file  any  memorandum  in  response  within 10 working days of service of the plaintiffs’ memorandum.

[50]   If the parties are unable to agree costs following the first plaintiff’s success in the rectification proceeding they should address those costs in their memoranda. All memoranda are to be limited in length to ten pages.

Karen Clark J

Solicitors:

Louise Foley Le Pine & Co, Taupo for First Plaintiff