Corporate Securities Limited v Macken
[2017] NZHC 2700
•30 October 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-8 [2017] NZHC 2700
BETWEEN CORPORATE SECURITIES LIMITED
First Plaintiff
CATHERINE ANN AʼCLAIRE MACKEN Second Plaintiff
AND
SUSAN CARREL MACKEN AND NICHOLAS NORMAN KEARNEY Defendants
Hearing: 30 October 2017 Appearances:
A F Grant for the Plaintiffs
K T Glover for the DefendantsJudgment:
30 October 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Alan Jones Law Ltd (A R Jones), Auckland, for the Plaintiffs
Morris Legal (S R Morris), Auckland, for the Defendants
Copy for:
Anthony F Grant, Auckland, for the PlaintiffsKevin T Glover, Auckland, for the Defendants
CORPORATE SECURITIES LIMITED v MACKEN AND KEARNEY [2017] NZHC 2700 [30 October 2017]
[1] This proceeding arises out of differences between the trustees of the Macken Family Trust and Catherine Macken, a beneficiary. The defendants are the current trustees. Corporate Sureties Ltd is the corporate trustee of the Taku Turangawaewae Trust, a trust associated with Catherine Macken.
[2] Corporate Sureties Ltd and Catherine say that the trustees agreed to sell the trust property at Taurikura, Whangarei Heads, for $500,000 plus GST. In support of that claim they rely on correspondence between the parties’ lawyers from October 2016 to February
2017. They sue for specific performance and apply for summary judgment. The trustees, on the other hand, deny that they entered into a binding agreement with the plaintiffs to sell the property.
[3] The main issue is whether this is a category one or a category three case. For that, counsel have referred to an analysis by Dr McMorland in his text Sale of Land1 of cases where parties complete their negotiations and there is a question whether a formal agreement is required. Dr McMorland’s three classifications derive from a decision of the High Court of Australia in Masters v Cameron where the Court said:2
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or implied, but nevertheless it made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
In each of the first two cases there is a binding contract: …
And further on:3
1 DW McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [3.12].
2 Masters v Cameron [1954] HCA 72, 91 CLR 353 at 360.
3 Masters v Cameron [1954] HCA 72, 91 CLR 353 at 361-362.
Cases of the third class are fundamentally different. They are cases in which the terms of the agreement are not intended to have, and therefore do not have, any binding effect of their own. … The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document. … or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. …
…
The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape.
That sets the legal context for this case.
[4] I give some of the background before I deal with the correspondence between the parties.
[5] Catherine Macken (the second plaintiff) and Susan Macken (the first defendant) are sisters. Susan Macken and Nicholas Kearney are the trustees of the Macken Family Trust. Susan Macken is a professional company director. Mr Kearney is a lawyer in the firm that acts for the trustees. Catherine and Susan are final beneficiaries of the trust.
[6] I was provided with a copy of the trust deed even though it was not put in evidence. The trust deed is dated 6 May 1975. Their father, Mr Clifford Gordon Carrel Macken is the settlor. The three original trustees were the father, Mr Cato and Mr Jones, all of Whakatane. The discretionary beneficiaries are the settlor’s wife, any future wife of his, his children and his grandchildren in substitution for children. There is an 80 year perpetuity period. Upon the date of distribution, the capital and income of the trust is to be held for the children of the settlor then living as tenants in common in equal shares but with substitution for their children. There are powers of advancement. The trust deed contains no provisions as to the trustees’ indemnity. The usual position at equity and under s 38(2) of the Trustee Act 1956 applies. There were changes in the trusteeship. Mr Cato and Mr Jones retired. A family friend, Mr Chambers, became a trustee. The mother was also appointed a trustee. On the death of the father, Susan was appointed in his place. The mother lost capacity in 2014 and retired. The family friend, Graham Chambers, retired in 2015 and Mr Kearney was later appointed in his place. Catherine
has never been a trustee. She lived for many years in the United States and returned to
New Zealand in 2014.
[7] At the time the late Mr Macken died, the trust owned properties in Tauranga, Whaktane and Whangarei Heads. Catherine says that in 2005 the trustees, the mother, Mr Chambers and Susan resolved to distribute the properties among the beneficiaries, Catherine and Susan.
[8] In 2009, Susan took title to the Tauranga property valued at $870,000. In 2010 the Whakatane property valued at $500,000, was transferred to the Taku Turangawaewae Trust. That left the Whangarei Heads property. After some time that was subdivided into two lots.
[9] In 2013, lot 2 was transferred to the Taku Turangawaewae Trust under an agreement for sale and purchase, with the trustees distributing funds to Catherine to enable her to make the purchase. The purchase price was $350,000. With that, there was a discrepancy of $20,000 between what had been transferred to Susan and what had been transferred to Catherine. The other lot in the Whangarei Heads subdivision is a
1.7 hectare property, Lot 1 DP443582 in identifier 554869 at Ody Road, Taurikura.
[10] The background to the subdivision is contentious. Quite some years earlier – at least as far back as 2007 – Susan had done work on the property involving earthworks and vegetation clearance. That was apparently in breach of rules under the District Plan of the Whangarei District Council. It required resource consent, but Susan had not obtained any resource consent. There is no evidence that Mr Chambers or Susan’s mother were involved in this work. The District Council issued an infringement notice to Susan, requiring her to pay $300 for breach of the Resource Management Act, and she was apparently required to obtain a retrospective resource consent to legitimise the vegetation clearance and earthworks. There is also evidence suggesting that when the subdivision was completed the title was subject to a conservation covenant (I take that to be a conservation covenant under the Conservation Act 1987) and a bond (presumably under ss 108A and 109 of the Resource Management Act) requiring revegetation. Catherine complains that the requirements of the resource consent and the bond have not all been satisfied.
[11] The transfer of the land to Corporate Sureties Ltd in 2013 was under an agreement for sale and purchase of February 2012. The parties used an Auckland District Law Society form for the agreement for sale and purchase. Corporate Sureties Ltd was shown as purchaser. Catherine signed the agreement and was covenantor and guarantee for payment. The plaintiffs’ solicitors have invoked that agreement as a model for the contract which they allege the parties entered into for lot 1.
[12] Catherine alleges breach of trust by Susan for undertaking the unauthorised earthworks and vegetation clearance. These allegations of breach of contract and appear to me to come to a question whether Susan has improperly incurred expenses as trustee, for which she is not entitled to exonerate herself or seek reimbursement from trust assets. As to the test for the right of a trustee to exonerate themselves from trust assets, in Re O’Donoghue, Hammond J said:4
There is a respectable volume of case law authority around in the British Commonwealth as to what may be regarded as “not improperly incurred expenses”. Necessarily given the principle these cases all appear to be determinations on the factual position arising in a particular case. But the principle that expenses must be properly incurred necessarily requires a trustee, if called upon, to demonstrate that the expenses arose out of an act falling within the scope of his trusteeship; whether it was something that his or her obligations required the trustee to undertake; and whether the expense incurred was, in the all circumstances, “reasonable”.
Catherine has continued to assert her claim for breach of trust. She says that her claim is for more than $200,000 but she has not said how she reaches that sum.
[13] On their side, the trustees say that they are covered by an indemnity. That was given in a 2011 deed when it was proposed that there would be a direct distribution of trust assets by the trustees to Catherine personally. That deed is contentious. One copy has been put in evidence. Catherine has signed it but not anybody else. Catherine has an argument that the indemnity provision in that deed does not apply because that deed was not in fact used when it came to the trust disposing of the land in lot 2. Instead of a distribution to her there was the sale to Corporate Sureties Ltd for which the proposed
indemnity was not required.
4 Re O’Donoghue [1998] 1 NZLR 116 (HC) at 121.
[14] I note that at this stage the allegations of breach of trust and the trustees’ indemnity claim are contentious. I have not been provided with sufficient evidence to make any findings about them. I record them simply because they form part of the background to the negotiations between the parties at the end of 2016 and the beginning of 2017.
[15] There is also an allegation that Susan acted in breach of trust on the transfer of the Tauranga property. There is evidence suggesting that she made that transfer unilaterally and that amounted to unauthorised self-dealing as a trustee. While that complaint was made, it seems to be historic in the sense that Catherine appears to accept the fact of the transfer and is not asking for the Tauranga property to be transferred back into the trust. Her concern is more to ensure that there is an appropriate distribution of trust assets, taking into account any challenge to expenses incurred by Susan as trustee with regard to the subdivision of the Whangarei Heads property, the discrepancy of $20,000 and interest the period of the $20,000 discrepancy. Again, I record those matters simply as background to the correspondence.
[16] The trustees had legal representation, at least since 2015. Mr Kearney has acted as lawyer for the trustees even before he was appointed a trustee. Catherine has also had legal representation in recent years. The plaintiffs rely on correspondence between the parties’ lawyers and say that that correspondence resulted in a final agreement under which the trustees were to sell the Taurikura property to Corporate Sureties Ltd. That was to be funded in part by Corporate Sureties Ltd raising finance and by the trustees making a distribution to Catherine of $260,000. The purchase price of the property was
$500,000 plus GST (if any). Corporate Sureties Ltd was the purchaser. The trustees would issue a GST invoice to Corporate Sureties Ltd. The transaction would be compulsory zero-rated for GST. Settlement would take place 10 working days after the agreement was signed.
[17] For their case, the plaintiffs rely on the following:
[a] A letter from the trustees’ solicitors (Schnauer & Co Ltd) to Catherine’s
lawyer (Alan Jones Law Ltd) dated 21 December 2016;
[b] a letter from Alan Jones Law Ltd to Schnauer & Co Ltd dated 12 January
2017;
[c] a letter from Schnauer & Co Ltd to Alan Jones Law Ltd dated 24 January
2017;
[d] a letter from Alan Jones Law Ltd to Schnauer & Co Ltd dated 16 February
2017; and
[e] a letter from Schnauer & Co Ltd to Alan Jones Law Ltd dated 22 February
2017.
[18] There had been earlier correspondence between the lawyers, trying to resolve what was to happen to lot 1. There had been a proposal that outstanding issues should be the subject of mediation but that did not go ahead. Mr Jones raised the matter of Catherine acquiring the property for $550,000 in a letter of 12 May 2016. There was a tussle between the parties as to her using a valuer who had already acted for the trustees. Eventually she went to another valuation practice and says that she had the property valued at $475,000. In October 2016 Mr Kearney said in a letter that Susan was interested in buying the Taurikura property for $500,000. Mr Kearney also referred to the indemnity alleged to have been given in the deed in 2011. He provided some financial statements and advised the costs of subdivision. Apparently not all the costs were for the retrospective resource consent and remedial works.
[19] On 21 October 2016 Mr Jones wrote explaining that the indemnity provision in the deed did not apply.
[20] On 31 October, Mr Jones replied that Corporate Sureties Ltd had obtained finance to buy the property for $500,000 and noted that the transaction would be zero-rated. He proposed that Catherine receive a distribution of half the sale price from the Macken Family Trust, which could be used to fund the purchase.
[21] On 3 November 2016 Mr Kearney advised that in principle the trustees accepted what Mr Jones had proposed in his letter of 31 October, and that there would be a
distribution of half the sale price from the trust. In addition, there would be payments to clear up any inequality in distributions up till then, which would include an interest component.
[22] On 25 November 2016 Mr Jones advised that Catherine’s trust was able to purchase the balance of the land as discussed in previous correspondence. He asked Mr Kearney to draft an agreement setting out the purchase price for consideration by Catherine’s trustee, and suggested a settlement date of 10 working days after execution, and that would follow the same protocol as the first purchase.
[23] On 21 December 2016 (this is the first of the letters that the plaintiffs rely on as going towards formation of the contract) Mr Kearney wrote to Mr Jones. He said that the trustees wished to commit to the matter by signing a trustee resolution which they wanted Catherine to approve. A draft resolution was enclosed. Mr Kearney said that once Catherine’s written approval had been given he would draft a sale and purchase agreement and send it through for signing.
[24] Mr Jones replied on 12 January 2017. His letter notes “positives” and “negatives”. He recorded, on the positive side, that the parties had reached agreement concerning the sale of lot 1 at Taurikura, noted the terms agreed and the identity of the purchaser, the purchase price, with a GST invoice, would be compulsory zero-rated, with settlement 10 working days after the signing of the agreement, and payment of $250,000 to Catherine by the trustees on the day of settlement. The letter noted on the negative side, that the trustees were not paying Catherine $20,000 that they had admitted years ago was payable, and that the trustees were not willing to compensate her for any of the other breaches of trust she had committed, and that the trustees’ reliance on the deed of indemnity was misplaced. As to the proposed resolution, Mr Jones queried the trustee retaining funds for accountants, legal and general wash-up expenses. The letter recorded disappointment that the trustees declined to discuss Catherine’s grievances regarding the earlier sale of the Ody Road property.
[25] Mr Kearney replied on 24 January 2017. He proposed that to allow the $20,000 payment to Catherine to be made, Catherine should take $260,000 on settlement, with the remaining $240,000 to be paid to Susan. That $20,000 would take care of the inequality
issue and the trustees were going to pay interest to Catherine on the $20,000. The letter further advised that the trustees would not be taking any money to pay for expenses. Regarding Mr Jones’ request for a sale and purchase agreement, Mr Kearney said that he would send that, later that week, signed by the trustees.
[26] The letter added this:
The trustees want to record the above matter in a resolution and accordingly would you please confirm that the above arrangements are suitable and agreed to by your client.
I note an evidential matter here. Mr Kearney’s affidavit had originally attached a resolution to the letter of 24 January 2017. Counsel agreed that that the resolution had not been sent with the letter of 24 January 2017 and it does not form part of the evidence.
[27] On 16 February 2017 Mr Jones wrote to Mr Kearney. He asked about the cash assets of the trust, noting that financial statements for 31 March 2016 showed cash assets of $163,000. The letter recorded Catherine’s concern that the trustees may intend to retain cash resources in ways other than 50 per cent to each of the sisters. She was concerned that there had been a proposal to distribute trust funds to her mother, and that there had been a proposal to make a distribution to Susan’s son, David.5
[28] Mr Jones had also noted that Catherine’s claims against the trustees have yet to be resolved. The letter claimed that the trustees would not be able to pay any legal fees they might incur in responding to Catherine’s claims from the trust’s resources unless they obtained a Beddoe order. He asserted that no Beddoe order could be obtained because this would be hostile litigation. The letter warned that if the trustees made any distribution to Susan, that might leave the trustees without sufficient resources to meet Catherine’s claims for breach of trust. A sum was given for the calculation of interest. Confirmation was sought that no distributions had been made to David apart from $10,000 recorded in the 2011 financial statements, the distribution alleged to be made to the mother had not in fact been made, and that the trustees would not be making any distributions to the mother or to David. The letter concluded with a request to forward the agreement for
sale and purchase shortly.
5 The trustee deed provides a power of advancement to certain beneficiaries, namely children and grandchildren. There is no power of advancement in favour of the mother.
[29] Mr Kearney responded to that letter on 22 February 2017. For the plaintiffs’ case, that letter can be taken as agreeing to those matters which they rely on as constituting the matters to be agreed for the sale of the land. The letter advised that the trustees had used some of the cash resources in upgrading the right-of-way at the Whangarei Heads property, a requirement of the resource consent, and they had spent further money on meeting accounting and other council fees. There was a denial of any breach of trust. There was confirmation that there would be no further distributions to David or to the mother and that the trustees had not made any decisions about any distributions to the mother or David at the present date. The letter advised that Mr Kearney would send the agreement for sale and purchase by the end of the week.
[30] Mr Kearney did not send an agreement as he indicated that he would. Instead on
7 March 2017, he wrote to Mr Jones, saying that the trustees had reconsidered their position in terms of the value of the property in the light of recent information received and, for that reason, a sale and purchase agreement would not be immediately forthcoming. The trustees were obtaining a valuation, and once that was complete, the trustees would be in touch further.
[31] Mr Jones replied in his letter of 22 March 2017, remonstrating with this change of position. He pointed out that the correspondence between them showed that everything was required for a concluded agreement for the sale and purchase of the land, namely, there was agreement as to the identity of the vendors, the identity of the purchaser, the identity of the land, the price to be paid, the GST status on the sale, and the date for settlement. Any missing terms would be supplemented by those set out in the Auckland District Law Society’s standard agreement for sale and purchase.
[32] To make good on that, Mr Jones has attached to his affidavit as an exhibit, a proposed agreement for sale and purchase showing the trustees as vendors, Corporate Sureties Ltd as purchaser, Catherine as a guarantor. None of the standard terms of the ADLS agreement are deleted. Schedule 2 has the standard information required for compulsory zero-rating under s 15(1)(m) and (mb) of the Goods and Services Tax Act. It records that both parties are registered for GST, and that the property will not be used as a principal place of residence by the purchaser or an associated person. One area where that agreement might be seen as departing from the terms set out by Mr Jones in his letter
of 22 March 2017 is for Catherine to guarantee the agreement for sale and purchase. I accept Mr Grant’s submission that that is only a matter of further assurance and does not mark any departure from the terms contended for.
[33] Further terms of the agreement for sale and purchase provide a warranty that the vendors will distribute $260,000 to Catherine on possession date, and will pay this out to her in cash to allow her to fund the purchase. That provision is inter-dependent with the completion of the sale. There is an acknowledgment by Catherine that the transaction, including the beneficiary distribution of $260,000, is appropriate. There is no provision in that agreement that addresses Catherine’s claims against the trustees (Susan in particular) for breaches of trust and for the allegedly improperly incurred expenditure going back to 2007.
[34] The statement of claim has two causes of action. The first, by Corporate Sureties Ltd, seeks performance of the agreements for sale and purchase of lot 1 at Taurikura. The second, by Catherine, seeks specific performance against the trustees of the distribution of $260,000 to her to enable the purchase by the trustee of the Taku Turangawaewae Trust to go ahead. There is no dispute between the parties as to the principles the courts apply in cases for summary judgment.6
[35] I now return to the categories identified by the High Court of Australia in Masters v Cameron.7 The plaintiffs say that this is a case within the first category, that is, a contract was entered into as a result of the correspondence culminating in the letters of
24 January 2017 and 16 February 2017. The plaintiffs seek an order that the trustees sign a formal agreement for sale and purchase. That is consistent with their case that this is a category one case under Masters v Cameron, because that category contemplates that, while an agreement may become immediately binding, a further agreement, which records what has already been agreed, will later be entered into. That promise to sign a further formal agreement may be specifically enforceable.
[36] The defendants, on the other hand, say that this is a category three case. Whereas the parties have corresponded and there is seeming agreement, it was implicit that there
6 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
7 Masters v Cameron [1954] HCA 72, 91 CLR 353.
would be no binding agreement until a formal agreement was be signed. Mr Glover cites a line of cases beginning with Carruthers v Whitaker. Those are Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd, Shell Oil New Zealand Ltd v Wordcom Investments Ltd, Smada Group v Miro Farms and FBN Holdings Ltd v Kim.8 Carruthers v Whittaker Ltd sets the pattern. Coincidentally, that case involved the sale and purchase of rural land on the coast near Whangarei. Richmond J said this:9
It is established by the evidence to which I have earlier referred that at the time when the parties instructed their respective solicitors they all had in mind only one form of contract which would govern the sale and purchase of the farm, namely, a formal agreement in writing to be prepared and approved by the solicitors. When parties in negotiation for the sale and purchase of property act in this way then the ordinary inference from their conduct is that they have in mind and intend to contract by a document which each will be required to sign. It is unreasonable to suppose that either party would contemplate that anything short of the signing of the document by both parties would bring finality to their negotiations. Furthermore both parties would expect their solicitors to handle the transaction in a way which would give them proper protection from the legal point of view.
And, after referring to certain findings of the trial Judge, he went on:
With respect, I would prefer to put it that the parties intended to contract in accordance with common practice, which in New Zealand is to obtain the signatures of both vendor and purchaser to both copies of the agreement, one copy being of course for the vendor and the other for the purchaser.
[37] In Concord Enterprises Ltd v Anthony Motors (Hutt) Ltd, the Court of Appeal cited these passages in Carruthers v Whitaker and said:10
Unless that inference is displaced the result is that, even although all the terms to be included in the document have been agreed, there is no contract and each party has a locus poenitentiae until at least execution on both sides. It may be that exchange or delivery of executed documents is also necessary, but that need not now be decided.
[38] The defendants rely on Carruthers v Whitaker, Concorde Enterprises and other cases to say that there is a consistent practice showing that for agreements for sale and
purchase of land in New Zealand, and in some cases some commercial contracts, the
8 Carruthers v Whitaker [1975] 2 NZLR 667 (CA); Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385 (CA); Shell Oil New Zealand Ltd v Wordcom Investments Ltd [1992] 1 NZLR 129; Smada Group v Miro Farms [2007] NZCA 568 (2008) 6 NZ ConvC
194,588;F B N Holdings Ltd v Kim (2010) 11 NZCPR 296 (HC) at [40].
9 Carruthers v Whitaker at 671-672.
10 Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd at 389.
parties do not intend to be legally bound until both sides have signed a formal written agreement for sale and purchase.
[39] Mr Grant sought to distinguish those cases, some of them being commercial contracts, some involving commercial land, some involving substantial pieces of land. It was submitted that this case involved a family transaction. Invariably family transactions are conducted with less formality than commercial transactions and transactions between strangers who are at arm’s length. Transactions within a family context are not required to have the same degree of formality.
[40] In my view this case is one where the normal practice under Carruthers v Whitaker applies. The correspondence between the lawyers is consistent with them operating on the basis that a deal would not be done until an agreement for sale and purchase had been signed by both parties. The lawyers consistently referred to their intention to prepare an agreement for sale and purchase. Mr Kearney, as the vendors’ lawyer, was to prepare the agreement. While there was a family context to this, Catherine was dealing with the trustees through lawyers, and the correspondence between the lawyers shows that the parties were at arm’s length. The lawyers were careful to protect and to uphold their clients’ position than run the risk of not being able to resolve matters with the other side. That can be seen in correspondence about the alleged breaches of trust and the trustees’ reliance on an indemnity. As experienced property lawyers, Mr Jones and Mr Kearney would not expect their clients to become bound until an agreement for sale and purchase had been signed. Their conduct is consistent with the Carruthers v Whitaker line of cases.
[41] There is a further aspect. Mr Kearney’s correspondence refers to the trustees’ intention to approve a resolution for the sale of the property. In the December letter, Mr Kearney sent a draft resolution to Mr Jones for his approval. Understandably, the trustees would want Catherine to approve the terms of the resolution to ensure that there was an orderly winding-up of the affairs of the trust. The fact that the trustees proposed to sign a formal resolution before entering into the agreement is significant. In well-run trusts, trustees typically exercise their powers by signing resolutions which are kept with trust records. A resolution is the written expression of a proposition to which the trustees assent. Recording the resolution in writing is important to ensure that there is certainty as to what they have decided. The trustees’ assent is shown by their typically signing the
resolution. That serves as a record of the exercise of their powers as trustees. This case involved the sale of a trust asset, the exercise of a power under the trust deed. Given that Susan is a company director, and Mr Kearney is a solicitor, it would be expected that they would record by resolution the exercise of their power of sale, particularly given that Catherine viewed their conduct with suspicion. Understandably, they sent the proposed resolution to her for her consideration. That reliance on approving a resolution shows that the trustees did not intend to exercise the power of sale until they had made that resolution. That was a prerequisite to their entering into an agreement. They made that known to the plaintiffs. That, if anything, supports the defendants’ position that they could not be contractually bound until they had passed the resolution and then signed an agreement for sale and purchase.
[42] Against the Carruthers v Whitaker line of cases, Mr Grant cited France v Hight.11
That is a decision of the Court of Appeal within the first category in Masters v Cameron.12
The defendants had agreed to lease farmland to the plaintiffs. That was set out in a letter that included these words:
The terms of the lease shall be incorporated in a formal lease prepared by our solicitors.
[43] The term included an option to purchase. No formal lease was ever prepared and signed. The plaintiffs took possession of the farm property, made improvements, paid the rent and rates, and there was clear co-operation between the parties acting in accordance with the letter they had signed. Later the plaintiffs purported to exercise the option to purchase. The defendants denied that they were bound by the terms of the letter and denied that there was a binding contract. The finding by the High Court and Court of Appeal that there was a binding contract is clearly understandable once it is appreciated that there had already been part performance of the contract. Once the parties had performed the contract it was absurd for one party to deny that they had formed an intention to be bound by the terms of the letter. The circumstances of this case do not
come within France v Hight.
11 France v Hight [1990] 1 NZLR 345 (CA).
12 Masters v Cameron [1854] HCA 72, 91 CLR 353.
[44] In her reply affidavit, Catherine said that she had grazed cattle on the land but it seems that that was an informal arrangement and perhaps carried out in the hope of entering into a contract. I do not regard that as determinative in proving a binding contract between the parties.
[45] At this stage the plaintiffs have not shown to the summary judgment standard that the defendants do not have any defence to the allegations in the cause of action for performance of the sale and purchase agreement. I accept Mr Glover’s submission that the second cause of action stands or falls with the first cause of action. The summary judgment application in respect of that cause of action must also fail.
[46] Mr Glover submitted that the summary judgment application must also fail because the writing and signing requirements of s 24 of the Property Law Act 2007 had not been satisfied. If an analysis of the documents shows that this is a category one case, then the writing and signing requirements have been satisfied because of the correspondence sent by Mr Kearney. He signed as trustee and as solicitor for Susan Macken and was clearly agent for both trustees in the correspondence. On the other hand, if this is a category three case, then s 24 may be a defence because that would require a formal agreement and there is no formal agreement with Susan’s signature on it. In short, s 24 does not add anything to the defence. The matter turns on whether this is a category one or category three case.
[47] There is a further matter. Mr Grant criticised Susan’s affidavit and the reasons she gave for not regarding herself as bound by the contract alleged by the plaintiffs. Paragraph 25 of her affidavit drew Mr Grant’s fire.
25.The issues of the indemnity and trustee resolutions to support distributions to David and Shirley and a transaction of the land to my sister remain outstanding to this date. From my perspective, both as a trustee and a beneficiary, they are absolutely non-negotiable prerequisites to any transaction with Catherine, particularly since Catherine was planning to use her share from the final distribution to fund her trust’s acquisition of the property.
Mr Grant skilfully showed that much of that and other aspects of the trustees’ position was specious and unsupportable. While there is much in what Mr Grant says, I do not regard that criticism of Susan as determinative of the application. The legal position is
that the plaintiffs had to show that the trustees had entered into a binding agreement as a result of the correspondence, even before there was a formal agreement for sale and purchase signed by both sides. Once the position is reached that it is arguable for the defendants that this is a category three case, then the trustees may be capricious in not entering into an agreement for sale and purchase. That is the locus poenitentiae referred to in the authorities. Short of a binding agreement being made, both sides enjoy freedom of contract. Criticising the reasons for not wishing to go ahead with the transaction does not close the gap, when there is an intention not to be contractually bound until there is a formal agreement for sale and purchase.
[48] I dismiss the summary judgment application. It is arguable for the defendants that they did not intend to be contractually bound until there had been a written agreement for sale and purchase, signed by both parties. I record that that is only an arguable defence, but the plaintiffs were required to negate that. I direct the defendants to file and serve a statement of defence within 25 working days of delivery of the written version of this judgment. The parties are then to file memoranda under r 7.3 of the High Court Rules
[49] I invite submissions from counsel on costs. I do not regard this as a case where the normal principles under Part 14 of the High Court Rules will apply. That is because the proceeding is between a beneficiary and trustees, where different costs principles apply. The parties may need to consider authorities such as the decision of Kekewich J in Re Buckton, Re Beddoe and the decision of Lightman J in Alsop Wilkinson v Neary.13
That is not intended to exclude other relevant cases from consideration. I wish to hear from the parties whether, because of this decision, the trustees are entitled to recover their legal expenses from the trust assets. They should address that question in addition to any other costs questions.
[50] I would be grateful for Mr Glover’s submissions 10 working days after he receives the written version of this decision, and Mr Grant’s submissions 5 working days
after that.
13 Re Buckton [1907] 2 Ch 406 at 414-415, Re Beddoe [1893] 1 Ch 547 (CA) 558, Alsop Wilkinson v Neary [1996] 1 WLR 1220.
[51] I add this, for the benefit of the parties. I encourage them to try to resolve the distribution of trust assets informally if possible. By that, I mean it would be desirable to resolve this matter by negotiation rather than prolonged litigation. The issues dividing the parties seem to be relatively narrow. It is not clear to me, on the evidence presented so far, that the costs incurred by the trustees, if they were improperly incurred, are all that significant. There is a real danger that the costs of arguing about those amounts may swallow up the amounts in contention. There is a real risk of this taking on Jarndyce v Jarndyce proportions. I hope that the parties with the assistance of their lawyers will avoid that.
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Associate Judge R M Bell
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