Cooke v Butler

[2021] NZHC 2014

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-409-124

[2021] NZHC 2014

IN THE MATTER

of a claim in debt

BETWEEN

JANET MARIE COOKE, SHARON MARIE COOKE and STANLEY CHARLES

BARKER as trustees of the Cooke Family Trust

Plaintiffs

AND

PENNY LEE-ANN BUTLER

First Defendant

AND

CHARLES ANDREW AXELSEN BUTLER

Second Defendant

Hearing:

30 July 2021

Counsel:

R A Hearn for Plaintiffs/Applicant

S M Grieve and C Mo for Defendants

Judgment:

5 August 2021

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 5 August 2021 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

……

COOKE v BUTLER [2021] NZHC 2014 [5 August 2021]

[1] The plaintiffs are trustees of the Cooke Family Trust (the Trust). They seek summary judgment for $100,000 against the first defendant (Penny) in relation to what is documented as a loan made to Penny on 12 June 2015.

[1]    Penny acknowledges signing the Deed of Acknowledgment  of Debt  dated 12 June 2015 relied on by the plaintiffs and acknowledges she received the $100,000 referred to in the Deed. Penny’s position is that, when seen in the wider context of dealings between her and the Trust over a number of years, the acknowledgment of debt is not what it seems to be.

[2]    Penny is the daughter of the first named plaintiff, Janet Cooke (Janet) and is  a beneficiary of the Trust. The Trust was settled in December 2005. Janet’s husband, Clive, died in 2008 leaving his Estate to the Trust. Janet says Clive’s Estate was limited because his and Janet’s assets were either held jointly or in the Trust.

Original purchase of 91A Memorial Avenue, Christchurch

[3]    In late 2008/early 2009, Penny had separated from her then partner and needed to find a home for herself and her children. Penny says she identified 91A Memorial Avenue, Christchurch (Memorial Ave) as a suitable property and produces an Agreement for Sale and Purchase of the property dated 7 January 2009 from the vendors to her. The purchase was completed by the Trust, with the then trustees taking title and their solicitor acting on the purchase. The purchase price was $306,000. A deposit of $30,000 was paid, it seems by Penny. According to the solicitor’s statement, the balance was funded by a sum of $100,000 advanced to the Trust by Janet, a further sum of $20,000 from Penny, and bank finance. The $100,000 advance came from what had been a joint account of Clive and Janet’s. Penny took possession and lived in the home as if it were her own, making the mortgage payments and other outgoings for some years. Penny was single at the time of the purchase but subsequently married the second defendant, Charles. The couple lived at Memorial Ave until they moved out at the end of 2011, after which they let Memorial Ave.

[4]    In 2015, the Trust sold Memorial Avenue to Penny and Charles at the then government valuation of $440,000. Penny received a credit for the principal she had paid off the mortgage, which was treated as a debt owed by the Trust to her. It seems

Penny thought the credit available to her was in the region of $88,000 and she and Charles arranged bank finance based on that assumption. It turned out the credit for the reduction in principal was about $35,000 less than the expected sum. The purchase price was met as follows:

Principal:        $440,000.00

Less:                 $52,576.47 (principal reduced by Penny)
 Less:               $352,000.00 (bank finance)
Shortall:            $35,423.53

[5]The shortfall was cleared by the Trust making a capital distribution to Penny.

[6]    Penny and Charles settled their purchase of Memorial Ave on 12 June 2015. Following settlement, the Trust  –  upon  clearing  the  remaining  bank  debt  –  had a surplus of $132,619.47. That sum was paid direct from the Trust’s solicitors to Penny’s  nominated  bank  account  on  12  June  2015.   The  documentation records

$100,000  (the sum  subject  to  this  application)  as  an  advance and  the  balance of

$32,619.47 as a further capital distribution.

[7]    The effect of the two capital distributions described above was that the capital gain in the property benefitted Penny. Janet, who had advanced $100,000 to the Trust at the time of the original purchase, was still owed that sum, and the Trust was owed

$100,000 by Penny as recorded in the Deed of Acknowledgment of Debt.

[8]    The plaintiffs’ case is that the Deed of Acknowledgment of Debt for $100,000 is binding. As noted, Penny accepts signing the Deed of Acknowledgment (albeit she says she does not remember doing so) and receiving the funds. The plaintiffs’ case is that simple.

Penny’s response

[9]    Penny’s defence starts with an assurance she says her late father made to her that she and her brother (also a beneficiary of the Trust) would be treated equally. It seems from Penny’s evidence that this assurance related to the Trust, but that is not clear.

[10]   Penny says her father’s Estate included cash of some $400,000 together with real estate. Penny says she intended to purchase the Memorial Ave property in her own name and she had $127,000 in cash available to her from a relationship property settlement, which would have been a sufficient deposit. In her affidavit, Penny says that at the time she signed up to purchase the Memorial Ave property:

My mother had pulled me aside and told me that I ought to protect the inheritance gift from a potential property relationship claim should I be in a relationship in the future.

[11]   This is the first mention in the affidavit of the “inheritance gift”. Penny says her mother told her that before the settlement date, to reduce the risk of a relationship property claim, Janet “could document the inheritance gift as a ‘loan’ from the Trust and for the Trust to be named the purchaser of the property”. Penny says her mother placed “significant pressure on [her] to agree to record the inheritance gift as a ‘loan’.” The $100,000 is in fact documented as an advance from Janet to the Trust with the funds being used for the purchase.

[12]As to what Penny means by the $100,000 “inheritance gift”, she then says:

This was offered from an account my mother had described as my father’s bank account and she told me this was money of my father’s she was happy for me to have. After I accepted this offer then came the conditions that Memorial Ave must be placed into the Trust name and so I needed to change the contract documents.

[13]   Penny then says: “I happily accepted the $100,000 from the Trust as I was under the belief that I was entitled to this given it was a gift from my dad (my inheritance).”

[14]Ms Grieve, counsel for Penny and Charles, said her client was not asserting the

$100,000 was gifted to her in 2009 but that at that time a common understanding was reached that the $100,000 was to be Penny’s. Ms Grieve submitted this background – that is, the agreement that the $100,000 was intended to be beneficially owned by Penny – is important context to what occurred around the time the Deed of Acknowledgement of Debt relied on by the plaintiffs was signed.

Charles and Penny buy 91A Memorial Avenue, Christchurch

[15]   As to Penny and Charles’ purchase of the Memorial Ave property in 2015, Penny says in 2015 they became aware their assets needed to be in their own names to allow them to raise capital against those assets in order to build a new family home. That home was to be built on a property at Birchs Road, Lincoln, owned by the Trust.

[16]   Penny says in order for Memorial Ave to be available for borrowing, it had to be transferred into her name. She says that she did not wish to purchase the property, but just wanted it transferred back into her name. Of course the property had never been in her name in the first place. Penny says in her affidavit:

The rateable valuation was used as the purchase price to ensure we maximised the capital in my home to use on the first stages of our family home build at 555 Birchs Rd.

[17]   However, this does not make sense to me. On Penny’s version of events, the only money she had to pay or, perhaps more accurately, the only obligation she had to accept was the existing bank debt on Memorial Ave. On Penny’s case, the original purchase price of Memorial Ave was met with $50,000 she contributed, the $100,000 inheritance, and the bank mortgage. Once the property was in Penny and Charles’ name they would simply have it revalued for borrowing purposes.

The 2015 purchase in more detail

[18]   There is no evidence from the solicitors who acted on the 2015 sale and purchase of Memorial Ave. A number of emails from the Trust’s solicitor are produced. The first is dated 11 June 2015 at 10.49 am to Penny’s solicitor. At that stage the total Trust distribution to Penny was referred to as being $178,430. This figure represented the difference between the purchase price of $440,000 and the Trust debt both to the bank and to Penny for her reductions in the principal of the bank debt. The email goes on to refer to discussions that had occurred between the solicitors previously as to the value of the debt owed by the Trust to Penny for the reduction of principal.   The email  refers to  the amount  owing to  Penny being $52,808 as at    31 March 2014 but acknowledged that figure would need to be updated. That figure was less than the $88,000 previously discussed between the solicitors. The email

continued that if Penny and Charles did not have enough to settle the conveyance the next day because Penny thought the Trust owed her $88,000 rather than the actual amount, an additional appointment of capital to make up the shortfall could be prepared. The email concluded:

Please note that our clients, both trustees, are yet to approve all attached documents. As stated, we are not meeting with them until 9.30 am tomorrow. I can only advise required amendments after that time but I do not anticipate that they will require amendments.

[19]   The significance of this email is that the Trust’s solicitors contemplated a distribution for the difference between the sale price and the amount owed to the bank and to Penny. Alternative deeds of appointment were attached to the email – one where the appointment of capital was completed outside the settlement of the sale, the other where it was treated as a credit against the sale price.

[20]   The next communication is an email at 2.40 pm on 11 June from the Trust’s solicitor to Penny’s solicitors. A repayment figure had been received from the bank which was higher than expected. The email set out the figures that would have to be included in the capital distribution on the basis of the bank’s advice and concluded:

If the transaction proceeds in this way, the full $220,656.76 would become relationship property rather than Penny Butler’s separate property. I will need to check with the trustees tomorrow when we meet whether they instruct us to proceed on this basis.

[21]   The next document is a file note of the Trust’s solicitors recording the meeting that took place on the morning of 12 June 2015. The meeting was attended by the trustees and Penny. The file note records that Penny would be repaid, (that is, she would get a credit against the purchase price of $52,576.47 for her reduction of the mortgage debt) and there would be a capital distribution from the Trust of $35,423.53 to make up the difference between the debt repayment figure and Penny’s understanding that the credit would be in the region of $88,000. In addition, there would be a loan to Penny and Charles of $100,000.

[22]   In an email dated 12 June at 12.56 pm to Penny’s solicitor, the Trust’s solicitors recorded the agreement said to have been reached at the meeting that morning. It recorded that Penny attended the meeting and that “[w]e have a much better

understanding of what both of our clients seek to achieve and our instructions have changed slightly, to accurately record past and present transactions.” The email records that Penny agreed to sign a number of documents including the Deed of Acknowledgement of Debt relied on in this application. The email continued that Penny had asked that the documents be emailed to her directly and she would assist the trustees who did not have printing access to print the documents and to arrange for the parties to sign them.

[23]   Shortly thereafter, at 1.18 pm, the Trust’s solicitor sent an email to Penny copied to Penny’s solicitor attaching the various Trust documents, including the Deed of Acknowledgement of Debt. It asked for Penny to print them and obtain the signatures of all parties and that the documents be returned “at your convenience but preferably by the end of next week at the latest”. The Trust’s solicitor then concluded, “I have included your lawyer in this correspondence to keep them informed and ensure they are comfortable with me sending you these documents directly”. The Trust’s solicitor requested Penny’s solicitor to raise any concerns directly with her.

[24]   Five documents in total were sent in the 1.18 pm email: at Trustee Resolution, a Deed of Acknowledgement of Debt (that is, from the Trust to Penny in respect of the money the Trust owed her, which was recognised as a credit on settlement), two Deeds of Appointment of Capital, and another Deed of Acknowledgement of Debt (recognising the money Penny and Charles owed the Trust).

[25]   While dated 12 June 2015, it is common ground the Deed of Acknowledgement of Debt was signed around 24 June. It is signed by two trustees and by Penny and Charles. The same solicitor witnessed all signatures. There is reference in correspondence to Charles denying that he signed the Deed and denying he ever attended on the solicitor who witnessed his signature. There is no affidavit from Charles giving that evidence. Penny says, “I do not recall whether or not I had signed the Deed of Acknowledgement of [Debt]”. She asserts that she “had not received any independent counsel.” Penny in her evidence says that her mother placed a Deed of Acknowledgement of Debt in front of her and asked her to sign it. This claim is inconsistent with the evidence that the documents were emailed to Penny for her to print and arrange signatures. Penny says, “I was asked to sign the Deed 6 years after

I received the inheritance money.” Penny asserts that her mother explained to her that the Deed would protect her from losing her $100,000 inheritance in a relationship property claim. Penny says she had no reason to mistrust her mother’s word. Penny introduces the idea that her mother had told her that the debt would only have to be repaid if Penny’s marriage to Charles dissolved. Penny says she considered that to be reasonable. Penny’s evidence introduces this idea as a verbal agreement, but she does not say when this agreement was meant to have been struck. Penny concludes her evidence in relation to the Deed of Acknowledgement of Debt by saying:

I told my mother that Charles wanted the Deed to reflect the verbal agreements regarding the $100,000 inheritance gift before he signed the Deed. The Deed was never amended to reflect the verbal arrangements that the $100,000 was an inheritance gift to me and the Trust would only call upon this advance as a “loan” only in the event that my marriage with Charles dissolved.

[26]Again, Penny does not give any detail as to when this agreement was made.

Summary

[27]   At its most basic, Penny’s position is that the $100,000 that originally went into 91A Memorial Avenue was money that her parents intended her to have and the manner in which it has been documented did not reflect their true intention that the money was Penny’s. She asserts that the loan documents originally recorded as being from Janet to the Trust and then from the Trust to Penny were loans in form only in order to safeguard the funds in the event of a relationship property claim against Penny.

[28]   Penny’s affidavit lacks specifics and is hard to follow. Penny gives the impression the money was gifted to her in 2009, which Ms Grieve said is not Penny’s case. The affidavit often gives no detail of when or where discussions took place.

[29]   Nor was it immediately clear to me from Penny’s notice of opposition what legal principle her defence relied on. Ms Grieve clarified that it was promissory estoppel.

Promissory estoppel

[30]   The fact that leads me to conclude the application for summary judgment should be dismissed, is the trustees’ decision to change the framing of the $100,000 advance to Penny from an outright distribution to it being a gift. The reason for that change appears to be recorded in the trustee solicitor’s email referred to above at [20], where it is said the $100,000 and other funds to be received by Penny would become relationship property if there was an outright distribution. The potential for relationship property claims against Penny had been a concern to Janet since 2009. Penny’s case is the $100,000 that in 2009 went into a home was her money, which is consistent with the trustees’ original plan to distribute that sum to Penny outright. Why would Penny then agree to convert money she considered was hers into a loan she would have to repay, if that change of status was not for some understandable purpose?

[31]   Seen in that light, an understanding between Penny and her mother that the loan would only be called up if she was subject to a relationship property claim makes sense and is a plausible explanation for what happened.

[32]   While Penny’s evidence is in overly general terms, she does provide an arguable basis for Janet having made a representation that could found an estoppel – in short, that Janet told Penny the debt would only have to be repaid if Penny was subject to a relationship property claim.

[33]   Reliance by Penny on that representation is arguably inherent in the fact she then agreed to convert what she understood to be her money into a loan. It is Arguabe Penny worsened her formal position (through apparently becoming bound by a Deed of Acknowledgment of Debt) in reliance on the claimed assurance that the only circumstances in which the debt would be repayable would be if there was a relationship property claim.

[34]   Mr Hearn, on behalf of the trustees, made the valid point that Penny does not make any claim in her evidence that Janet’s only co-trustee at the time, Mr Barker, agreed to the Deed of Acknowledgement of Debt being qualified in the way relied on by Penny. Mr Barker appears to have been an active trustee – indeed, he attended the

meeting on the morning of 12 June 2015. The Trust transactions were thoroughly documented.

[35]   Mr Hearn says this is not a case where Mr Barker, as a professional trustee, simply went along with arrangements reached by Janet.

[36]   Again, Penny’s affidavit is deficient insofar as it fails to address what happened at the meeting on the morning of 12 June 2015. Mr Barker’s evidence is that no agreement as asserted by Penny was reached at that meeting. As far as Mr Barker was concerned, the Acknowledgment of Debt is unqualified.

[37]   However, as I have said, it is arguably implicit in the conversion of the distribution to a loan for relationship property reasons that the loan would only, in truth, be a loan - that is, it would only be called-up if relationship property circumstances justified it being so treated. Mr Barker’s acceptance of the qualification to the Deed of Acknowledgement Penny can arguably be implied from the distribution being changed to a loan for relationship property reasons. That the distribution was changed to a loan for such reasons is supported by the letter of the trustees’ solicitor prior to the meeting where the change was agreed.

[38]   Accordingly, and by a narrow margin, I am satisfied that this is a case where summary judgment is not appropriate. The elements of the claimed promissory estoppel are arguably made out.

[39]   There are enough glimmers of support for Penny’s position to mean I cannot safely conclude that her sworn evidence that Janet told her the loan would only be called up if her marriage dissolved can be dismissed.

[40]   In addition to the evidence about the reason for the change from a distribution to a loan, I have regard to an email produced late in the piece dating from 23 March 2011. The email was sent by Penny to her mother and repeatedly refers to Memorial Ave as being her house. As to the $100,000, Penny says:

It is important to ensure the $100k that was put towards my house is still protected and in the trust. Charles is perfectly happy with this. I think I have suggested before that where the plan is to build on the lawn, which is roughly

1,000sqm2 we draw up an agreement for that land that states we owe the trust

$100,000 for the land. This way we will always be in debt to the trust $100k and that money that was put towards my house is protected going forward.

Does that sound all fine with you in terms of protecting what I need to? …

Costs

[41]   Ms Grieve had, in her submissions, sought an award of costs on an indemnity basis. I order that costs are reserved. I have referred to a number of deficiencies in Penny’s affidavit. The promissory estoppel defence was not clearly set out in the notice of opposition and, as I have said, the application is dismissed by a narrow margin. The plaintiffs were justified in pursuing summary judgment given the pleadings.

Associate Judge Lester

Solicitors:

Corcoran French, Christchurch Saunders & Co, Christchurch Copy to counsel:

S M Grieve, Barrister, Christchurch