Ellison v Scott HC Tauranga CIV 2009-470-1153

[2010] NZHC 1590

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2009-470-1153

UNDER  Section 72 of the District Courts Act 1947

BETWEEN  LINDY JANE ELLISON Appellant

ANDRAEWYN MARIE SCOTT Respondent

Hearing:         3 June 2010 (Heard at Rotorua) Counsel.:       J S McHerron for the appellant

G Brittain for the respondent

Judgment:      19 August 2010 at 3 p.m.

JUDGMENT OF POTTER J

In accordance with r 11.5 High Court Rules

I direct the Registrar to endorse this judgment

with a delivery time of 3.15 p.m. on 19 August 2010.

Solicitors:           Chris Rejthar & Associates, P O Box 13033, Tauranga 3141

Copy to:            G Brittain, P O Box 13-473, Tauranga 3141

J S McHerron, P O Box 5494, Wellington 6145

ELLISON V SCOTT HC TAU CIV-2009-470-1153  19 August 2010

Table of Contents

Introduction  [1] The agreement for sale and purchase  [5] Pleadings     [9] The judgment appealed  [10] Appellant’s position  [15] Respondent’s position  [16] The nature of a trust  [17] Recent authorities  [23]

Regal Castings Ltd v Lightbody  [24] Byron Avenue  [29] Lee v North Shore City Council & Rundstrom          [37]

With whom did the purchaser intend to contract?                [42] Result  [51] Costs  [52] Next Steps  [54] Note  [55]

Introduction

[1]      The  respondent  Ms  Scott  and  her  then  partner  Mr  Irvine,  purchased  a residential property at 2 Maruia Place, Tauranga in 1998.  They carried out extensive building works to the property, converting a single storey dwelling on poles into a two storey dwelling by enclosing and developing the ground floor area.  The work was carried out in the late 1980s, early 1990s.   The requisite building permit for these works was not obtained and no code compliance certificate was issued in respect of the work.

[2]      In August 1997 the property was transferred from Ms Scott and Mr Irvine to Ms Scott as sole owner.   In 2001 Ms Scott formed a trust and in March 2001 the property was transferred to the trustees, Ms Scott and JSB Trustees Limited.

[3]     The appellant, Ms Ellison, purchased the property in July 2004.   She subsequently found that the construction of the lower storey was significantly defective and had been carried out without a permit.  She issued proceedings against Ms Scott to recover the estimated cost of repairs, being $170,604.32.

[4]      The respondent filed an application for summary judgment in the District Court.  Judge Ingram granted leave to file the summary judgment application out of time and granted summary judgment for the respondent.[1]   He held that the plaintiff’s claim could never succeed.  From that determination Ms Ellison appeals.

The agreement for sale and purchase

[1] Ellison v Scott DC Tauranga CIV-2008-070-001310, 4 December 2009.

[5]      The agreement for sale and purchase dated 26 July 2004 (“the agreement”) by which the appellant acquired the property, is on the standard form of agreement for sale and purchase of real estate approved by the Real Estate Institute of New Zealand and by the Auckland District Law Society, Seventh Edition (2) July 1999. The vendor is named as: RM SCOTT FAMILY TRUST (Raewyn Marie Scott &

JSB Trustees Limited as Trustees).  The purchaser is named as Lindy Jane Ellison and/or her nominee.  (Ms Ellison nominated herself and the co-trustees of a trust she formed, to complete the purchase.)   The agreement was signed by Ms Scott as vendor and Ms Ellison as purchaser.  The purchase price is stated as $441,000.

[6]      Clause 1.3(1) provides:

If there is more than one purchaser or vendor, the liability of the purchasers or of the vendors, as the case may be, is joint and several.

[7]      Clause  6  covers  vendor’s  warranties  and  undertakings.     Clause  6.2(5)

provides:

6.2      The vendor warrants and undertakes that at the giving and taking of possession:

(5)Where the vendor has done or caused or permitted to be done on the property any works  for  which a  permit  or  building consent was required by law:

(a)      The required permit or consent was obtained; and

(b)      The works were completed in compliance with that permit or consent; and

(c)Where appropriate, a code compliance certificate was issued for those works; and

(d)All obligations imposed under the Building Act 1991 were complied with.

[8]      Clause 14 makes the agreement conditional on the purchaser being satisfied with a builder’s report she was to obtain.   Ms Ellison obtained such a report and declared the contract unconditional.  Settlement duly followed.

Pleadings

[9]      Ms  Ellison  filed  proceedings  against  Ms  Scott  claiming  damages  of

$170,604.32 and interest.  The statement of claim pleads that the building works on the   property   were   carried   out   without   the   required   building   permit,   and incompetently and negligently.   Ms Ellison claims against Ms Scott breach of the warranty and undertaking in clause 6.2(5) of the agreement and that she has suffered

the losses claimed as the result of Ms Scott’s failure to obtain and comply with a permit for the building works.

The judgment appealed

[10]     Judge Ingram defined the central question as follows:[2]

The  central  question  upon  which  the  defendant’s  application  is  to  be resolved is whether the defendant is the “vendor” of the property as specified in the agreement for sale and purchase.  That is a question of the identity of the contracting party.  It has nothing to do with whether a trust over land can be registered; it has a great deal to do with the intended ambit of operation of clause 6.2(5), and in particular whether a trustee explicitly identifying their status as trustee in a contract can be liable under such a provision for actions undertaken prior to the creation of a trust and appointment as trustee.

[2] At [15].

[11]     After considering counsels’ submissions he said: At [30], [31] and [32].[3]

[3] At [30], [31] and [32].

I have come to the view that there is a simple answer to the core issue in this case.   That answer is to be found in the contemplation of the contracting parties as to who they respectively intended to deal with.  Here the plaintiff can only have intended to contract with the named trust, acting through its specified trustees, because the plaintiff signed an agreement for sale and purchase which imposed liability on a specified vendor, a named trust and its trustees.    The  parties  must  have  intended  clause  6.2(5)  to  apply  to  the trustees actions as trustees, and not to extend to the individual trustees acts which preceded the creation  of the trust.   If  the  parties had  a different intention, it is not discoverable from the document they signed, nor the evidence available to me.

In signing an agreement identifying the vendor as “RM Scott Family Trust (Raewyn Marie Scott and JSB Trustees Ltd as trustees)”, both plaintiff and defendant  defined  the  scope  of  the  obligations  attaching  to  the  named trustees.  Their status as trustees is explicit, and their unitary title is imposed by law.  In my view the plaintiff cannot now deny that she entered into the agreement for sale and purchase with the defendant who was explicitly contracting in her capacity as a trustee, and in my view the plaintiff cannot now claim that the defendant’s contractual liability was intended to extend to actions preceding in time the creation of the trust and the defendant’s appointment as trustee.

It is common ground that no building work was done on the property after the creation of the trust and the appointment of the trustees.  It necessarily follows that there was no “work done or caused or permitted to be done” by

the trustees in terms of clause 6.2(5) of the agreement, and the defendant cannot be liable to the plaintiff under the agreement for sale and purchase.

[12]     He concluded:[4]

... the provisions of clause 6.2(5) can have no operation in respect of any period preceding the creation of the RM Scott Family Trust and the defendant’s appointment as trustee, because that clause does not contemplate a warranty extending back in time to a period preceding the creation of the trust and the defendant’s appointment as trustee.   This conclusion arises from the construction of the contract document.

[4] At [33].

[13] The Judge said he was persuaded that the defence advanced to the plaintiff’s claim was valid and complete; he was satisfied that “the plaintiff’s case is hopeless”,[5] and accordingly he gave summary judgment for the defendant.

[5] At [35].

[14]     In discussing the relevant legal principles the Judge said:

a)       Unless  there  is  an  express  limitation  of  liability  in  a  contractual document, a trustee is personally liable for obligations entered into as trustee.[6]

[6] At [17]: Lally v Edgecumbe (1883) NZLR 364 (SC).

b)Liability is not limited to the assets of the trust by bare reference to the existence of the trust and reference to the signatory’s status as trustee.[7]

[7] At [17]: NZHB Holdings Ltd v Bartells (2005) 5 NZCPR 506 (HC) at [41].

c)       There is a presumption that trustees accept personal liability in respect of  contractual  obligations  which  may displaced  by  an  appropriate disclaimer of liability by a trustee.[8]

[8] At [18]: Lally v Edgecumbe (1883) NZLR 364.

d)In  this  case  the  specified  vendor  is  a  trust  and  its  trustees.    The trustees were making it as clear as it could be made that they were acting as trustees by specifying that the vendor was the “RM SCOTT

FAMILY  TRUST  (Raewyn  Marie  Scott  and  JSB  Trustees  Ltd  as trustees)”.[9]

[9] At [19].

e)        The purpose of so specifying the vendor:

... must have been to define the persons or legal entities who entered into the obligations specified in the agreement for sale and purchase; the contracting parties must accordingly be the trust, acting through its trustees, and the plaintiff personally.  Both parties must have intended to contract only with the other specified in the agreement for sale and purchase; the agreement says so.[10]

[10] At [20].

f)        The  intended  scope  of  clause  6.2(5)  does  not  extend  beyond  the vendor’s acts or omissions.  There is nothing in the clause to indicate that it was intended to cover any period prior to the creation of the trust and the defendant’s assumption of office as trustee.[11]

[11] At [21].

g)       The warranty in clause 6.2(5) is limited to work “done or caused or permitted to be done” by the vendor.   This is clearly intended to exclude predecessors in title.[12]

[12] At [22].

h)        The parties cannot have intended the liability for the risk that clause

6.2(5)  controls  would  extend  backward  to  a  time  prior  to  the assumption of trustee status.[13]

[13] At [24].

i)No authority has been cited for the proposition that a trustee will be held liable in contract for actions done in her private capacity prior to creation  of the  trust  and prior  to  the  assumption of  the office of trustee, in circumstances where the contracting party is specified as

the trust and its trustees.[14]

[14] At [25].

j)If one trustee is liable then all trustees are liable: Regal Castings Ltd v Lightbody.[15]   As a result of that principle JSB Trustees Ltd would be liable both under clause 1.3(1) of the agreement and by operation of law.  That would cause a trustee to be personally liable for actions of another trustee acting in her personal capacity prior to the creation of the trust and prior to both trustees’ assumption of office as trustees. No authority was cited for such an outcome.[16]

[15] Regal Castings Ltd v Lightbody [2009] 2 NZLR 433 (SC).

[16] At [27].

k)There seems to be no valid policy reason why contractual obligations should be enforceable against trustees when the claimed obligation arises from action undertaken in a personal capacity by an individual trustee prior to the existence of the trust.[17]

[17] At [28].

l)Good policy reasons exist to limit the contractual liability of trustees to their actions as trustee, whilst holding office as trustee.[18]

Appellant’s position

[18] At [29].

[15]     The appellant’s essential submission is that the Judge erred in treating the vendor under the agreement as the trust because: a trust is not an entity; the vendors were the appellant and JSB Trustees Limited; they are jointly and severally liable under the agreement as joint tenants and pursuant to clause 3.1; the naming of the trust as vendor is merely descriptive.  Mr McHerron submitted that the appellant has properly claimed against the respondent for damages arising from breach of clause

6.2(5) of the agreement.  Ms Scott is personally liable on the contract.  She has not limited her liability in any way and she is liable to the appellant.

Respondent’s position

[16]     The respondent’s argument, which succeeded before Judge Ingram, is that the issue is one of contractual interpretation.  The appellant as purchaser contracted with the trust as vendor.  This is clear from the provisions of the agreement and the Judge was correct so to find.  Accordingly it is the trust which is liable on the warranty in clause 6.2(5).   The proper interpretation of the warranty is that it only applies to works done or caused or permitted to be done on the property while it was owned by the trust as vendor.  While clause 3 makes multiple parties to the agreement jointly and severally liable, they are liable only to the extent of the obligations they contract to perform.

The nature of a trust

[17]     The starting point in any discussion must be a clear understanding of the nature of a trust.  Ford and Lee[19] defines a trust as:

... an obligation enforceable in equity which rests on a person (the trustee) as owner  of  some  specific  property  (the  trust  property)  to  deal  with  that property for the benefit of a certain person (the beneficiary) or persons, or for the advancement of certain purposes.

[19] HAJ Ford and WA Lee (eds) Principles of the Law of Trusts (looseleaf ed, Thomson Reuters) at [1.010]. 

[18]     Underhill and Hayton[20] similarly defines a trust:

[20] DJ Hayton, PB Matthews and CCJ Mitchell Underhill and Hayton: Law of Trusts and Trustees

(17th ed, LexisNexis Butterworths, United Kingdom, 2007) at [1.1].

A trust is an equitable obligation, binding a person, called a trustee, to deal with property (called trust property), owned by him as a separate fund, distinct from his own private property, for the benefit of persons (called beneficiaries or, in old cases, cestuis que trust) ...

It is the trustee who sues third parties or is sued by third parties in relation to the trust property, the trust, unlike a company, having no legal personality.

[19]     Garrow and Kelly[21] states:

... the correct legal categorisation is that a trust is a “fiduciary relationship” – not an entity in its own right.  In other words the trustees hold property in their own names but subject to the rights of the beneficiaries ...

[21] NC  Kelly,  C  Kelly  and  G  Kelly  Garrow  and  Kelly:  Law  of  Trusts  and  Trustees  (6th   ed, LexisNexis, Wellington 2005) at [1.4.3].

[20]     In NZHB Holdings Ltd v Bartells Baragwanath J said:[22]

Recent experience in more than one case suggests that the concept of trust is used more often than it is understood.   Unlike a company or incorporated society a “trust” is not a legal person recognised as distinct from the humans who direct their affairs.  On the contrary, trustees can contract only in their own right; either they do so and are personally liable to the extent provided by  the  ordinary  law  which  the  agreement  may  modify  or  there  is  no agreement at all.

[22] NZHB Holdings Ltd v Bartells (2005) 5 NZCPR 506 (HC) at [34].

[21]     In  Macalister  Dodd  Phillips  Bodkins  v  AMP  General  Insurance  Ltd[23]

[23] Macalister Todd Phillips Bodkin v AMP General Insurance Ltd [2007] 1 NZLR 485 (SC) at [42].

Anderson J (dissenting, but not on this point) said:

In imposing personal liability the tax statutes do not more than recognise the general principle that liabilities incurred by a trustee in relation to a trust are always the personal liabilities of the trustee.  This is an aspect of the nature of a trust, which is not a person but an equitable obligation to deal with property for the benefit of beneficiaries.

[22]     A number of consequences flow from the nature of a trust, some of which were referred to in the District Court judgment:

•A  trustee  is  personally  liable  on  his  or  her  contract  unless  the  contract expressly provides otherwise.[24]

[24] Lally v Edgecumbe (1883) NZLR 364.

•Knowledge by those who deal with a trustee that he is contracting in his capacity as a trustee is immaterial.[25]

[25] Halsbury’s Laws of England (4th ed, 2007) vol 48 Trusts at [1080].

•The trustee has personal liability and a description of the capacity in which he or she contracts does not change that.[26]

[26] Ibid.

•An express statement that liability is limited is needed to avoid exposure to personal risk.[27]

[27] Lally v Edgecumbe (1883) NZLR 364; NZHB Holdings Ltd v Bartells (2005) 5 NZCPR 506 (HC).

•    Since a trust is not a person the trust itself cannot hold property. [28]

[28] NC Kelly, C Kelly Garrow and Kelly: Law of Trustees (6th ed, LexisNexis, Wellington, 2005) at [1.4.3]. 

•The trustees hold the trust property in their own names subject to the rights of the beneficiaries.[29]

[29] Ibid.

•A  person  signing  a  contract  “as  trustee”  is  personally  liable  under  the contract.

•The presumption can only be displaced by express words in the contract which limit the trustee’s liability to the other contracting party.[30]

Recent Authorities

[30] Lally v Edgecumbe (1883) NZLR 364; Helvetic Investment Corp Pty Ltd v Knight (1984) 9 ACLR 773.

[23]     Three recent cases were the subject of submission by counsel in relation to the application of these basic principles. The two more recent judgments have issued since the District Court hearing.

Regal Castings Limited v Lightbody[31]

[31] Regal Castings Ltd v Lightbody [2009] 2 NZLR 433 (SC).

[24]     Mr and Mrs Lightbody transferred their home into the ownership of a family trust, of which they were trustees, together with their solicitor.  At the time of the transfer Mr Lightbody was personally responsible for debts owed by his jewellery business to Regal Castings Limited.  Regal Castings was not told of the transfer of the house property which was Mr Lightbody’s only significant asset.  Regal Castings was unable to recover the outstanding debts either in the liquidation of the jewellery

business or on Mr Lightbody’s bankruptcy.   It brought a claim under s 60 of the Property Law Act 1952 seeking an order to set aside the transfer of the house property to the family trust as having been made with intent to defraud.   It was argued that the trustees, other than Mr Lightbody, received the house property in good faith and did not have knowledge of his intention to defraud creditors.

[25]     The Supreme Court held in favour of Regal Castings, allowing its appeal. Blanchard J, delivering the reasons of himself and Wilson J, said:[32]

[32] At [70].

Mr Lightbody’s knowledge taints the receipt by the trustees of the property. They received as a unity.  They did not have separate interests in it.  Taking as joint tenants, they must be treated as one purchaser who has knowledge of the fraudulent intent.

And:[33]

... we consider that Regal has an in personam claim in respect of the interest which Mr Lightbody transferred to himself and his co-trustees.   He acted unconscionably towards Regal in transferring the property with the intention of putting it beyond Regal’s reach.  Through his participation as a trustee, all the trustees must be treated as having acted unconscionably.  Clearly, Regal has a cause of action against them, namely the right to pursue its s 60 application.

[33] At [78].

[26]     The respondent sought to place reliance on the decision in Regal Castings, submitting that the Court’s general statement of the principle of trustees as a unity is applicable in this case.  The argument developed was that because trustees must be treated as a unity, the trustees as vendor under the agreement are a unity, and the reference in clause 6.2(5) to “vendor” must refer to the trustees, Ms Scott and JSB Trustees Ltd, as a unity.   Accordingly, the proper construction of the warranty in clause 6.2(5) is that it only applies to work carried out while the trustees were the registered proprietors because it is the trustees as a unity that gave the warranty.

[27]     I do not consider Regal Castings assists the respondent.  It was decided in a quite different context, namely whether the fraudulent knowledge of one trustee tainted the knowledge of the other trustees.

[28]     Unity of interest, which is inherent in a joint tenancy along with unity of possession, unity of title and unity of time,[34]  means that an innocent trustee who purchases property as a joint tenant with a fraudulent person is tainted with the knowledge of the fraudulent person as regards the rights of a defrauded third party. That point is simply not at issue in this case.  It is not, for example, contended that the knowledge of Ms Scott in relation to the building works on the property is imputed to JSB Trustees Limited.

Byron Avenue[35]

[34] Hinde McMorland & Sim Land Law in New Zealand (looseleaf ed, LexisNexis) at [13.006].

[35] Byron Avenue [2010] NZCA 65.

[29]     Ms Clark purchased unit 8 in the Byron development in 1999.  In 2002 she expended money on repairs to the unit because of problems with leaking that had developed.  In 2002 she transferred the unit to a family trust of which she and her solicitor were trustees.

[30]     Ms Clark issued proceedings in tort against, inter alia, the North Shore City Council.  The Court of Appeal held that Ms Clark’s standing to sue in tort did not alter when she transferred the unit from herself to herself and her solicitor as trustees of the family trust.  The Court rejected the Council’s argument that the transfer to the family trust was made after Ms Clark had knowledge of the problems associated

with the unit.  In explaining the Court’s reasons Baragwanath J said:[36]

But the Council’s argument fails for a further reason.   Unlike a company, which is a different legal person from its shareholders, Ms Clark’s legal status as owner of the unit did not alter when she transferred it to herself and her co-trustee.

[36] At [49].

[31]     The Judge continued:[37]

The fruit must accompany the rind.  Just as a trustee is presumptively liable on contracts, because there is no difference in legal status between the individual as trustee and in his or her own right, so also for the purpose of the law of tort that status does not alter when the person transfers an asset to him or herself as trustee.  Both liability for tort and entitlement to sue in tort remain unaltered.

[37] At [52].

[32]     Baragwanath J referred to the statement in NZHB Holdings Ltd v Bartells cited at [20].   He also referred to the statement of the Court of Appeal in In re Graham Pitt & Bennett, Ex parte Nolan & Skeet:[38]

There  is  no  such  thing  recognised  as  that  the  trustees  have  an  identity different  from themselves  individually,  and  that  they  themselves  do  not become liable when acting for the trust estate, unless there is an express contract to that effect.

[38] In re Graham Pitt & Bennett, ex parte Nolan & Skeet (1891) 9 NZLR 617 (CA) at 621.

[33]     The appellant contends that just as Ms Clark in Byron Avenue retained her right to sue (in tort), so in the present case Ms Scott’s legal status and her liability for her actions regarding the building work to the property remained when the property was transferred to the trust.

[34]     The respondent submits that the statement that Ms Clark’s legal status did not alter when she transferred the unit to herself and her co-trustee cannot be correct, and that it is inconsistent with the decision in Regal Castings. It was submitted that the Court was dealing only with Ms Clark’s standing to sue in tort, that the reference to contracts at [52] was only incidental, and that the decision is distinguishable from the facts of this case.

[35]     While I accept that the obligations of trustees in contract will always be subject to the terms of the contract, Byron Avenue is authority for application of the general principle that a trust is not a separate legal entity from the trustees.  It is not inconsistent with Regal Castings.  Both apply basic principles derived from the very nature of a trust.  In this case, the legal owners are the trustees as joint tenants.  Thus, there is unity of interest.  But the status of Ms Scott as legal owner did not change when the property was transferred to herself and JSB Trustees Ltd as legal owners. With the formation of the family trust she became, along with her co-trustee, subject to the equitable obligations in favour of the beneficiaries of the trust.  But her status

as  legal  owner  did  not  change  in  relation  to  third  parties.    As  Baragwanath J

observed:[39]

... there is no difference in legal status between the individual as trustee and in his or her own right ...

[39] Byron Avenue [2010] NZCA at [52].

[36]     That principle applies in relation to a trustee’s contractual liabilities for which the trustee has personal liability, just as he or she had prior to the transfer to the trustees.

Lee v North Shore City Council & Rundstrom[40]

[40] Lee v North Shore City Council & Rundstrom HC Auckland CIV-2009-404-002091, 12 April 2010. 

[37]     Finally, reference was made to the recent judgment of Associate Judge Bell. This case is of interest.  The second defendants, Mr and Mrs Rundstrom, produced in summary judgment proceedings a document purporting to evidence the sale of a property from Mr and Mrs Rundstrom as tenants in common to themselves as joint tenants, as trustees of the D E Rundstrom family trust.  Their counsel accepted that there was no change in the ownership of the legal estates in the property whatever the position might have been regarding beneficial interests.

[38]     The  plaintiffs,  purchasers  of  the  property,  issued  proceedings  claiming damages  for  breach  of  general  condition  6.2(5)  in  the  agreement  for  sale  and purchase  (the  same  warranty  as  is  at  issue  in  this  case)  arising  from  leaking problems.  Mr and Mrs Rundstrom claimed they had no liability for breach of the warranty because the plaintiffs purchased the property from the trustees of the D E Rundstrom family trust and not from them personally, and that the trustees did not hold the property at the time of the building work.

[39]     Judge Bell said:[41]

[41] At [28].

The pleading of the plaintiffs’ cause of action for breach of vendor warranty is that the second defendants are personally liable for the breaches of warranty.  That is the position in law.  A trustee who enters into a contract is

personally liable under the contract, unless the contract contains a provision that the trustee will not be personally liable ...

And:[42] 

Paragraph 3 of the amended statement of claim, refers to the second defendants’ trusteeship. Notwithstanding these references to the trusteeship, the pleading seeks judgment against the second defendants as being personally liable under the vendors’ warranty. That is a competent pleading.

And:[43]

…Common to both statements of claim and to the plaintiffs’ position in this proceeding is that the second defendants are personally liable to them.

[42] At [30].

[43] At [31].

[40]     As Mr Brittain noted, this was a judgment on interlocutory applications and resulted in the application for summary judgment brought by Mr and Mrs Rundstrom being dismissed because the plaintiffs’ cause of action in contract for breach of vendor warranty was not statute barred.   Further, in the Lee case the agreement appears not to have made it clear that the defendants were trustees of the property.

[41]     I accept that the decision in Lee is of limited authority.   But it provides another example of the application of the general principle that there is no change in legal status when registered owners transfer to themselves as trustees.  They remain personally liable for their contractual obligations.

With whom did the purchaser intend to contract?

[42]     I consider the fundamental flaw in the Judge’s reasoning is his finding that:[44]

... the plaintiff can only have intended to contract with the named trust, acting  through  its  specified  trustees,  because  the  plaintiff  signed  an agreement  for  sale  and  purchase  which  imposed  liability on  a  specified vendor, a named trust and its trustees.

[44] Ellison v Scott DC Tauranga CIV-2008-070-001310, 4 December 2009 at [30].

[43]     There is no separate legal entity which can be identified as “the named trust”. Further, a trust does not act “through its specified trustees”.   The trustees are the legal entities who are competent to enter into the contract.  The trust is not an entity

which has this competency.  Either Ms Ellison intended to contract with the trustees personally or there is no agreement at all.  However, as Baragwanath J observed in NZHB Holdings v Bartells:[45]

Where parties have gone to the trouble of entering into a documented transaction the Courts are reluctant to reach the conclusion that there is no agreement at all.

[45] At [34].

[44]     It would defy reality and commercial common sense to suggest that in the circumstances of this case there is no agreement at all because Ms Ellison intended to contract with a non-existent entity, the trust.  The reality is, and the agreement so provides, that she contracted with Ms Scott and JSB Trustees Ltd personally.  They are the legal owners of the property as is evidenced by the certificate of title to the property (CT27B/590, South Auckland Land Registration District).  The description of the vendors as “Trustees” and the reference to “RM SCOTT FAMILY TRUST” adds nothing except by way of description, any more than a description such as “husband and wife” added to the names of vendor joint tenants would define their legal status.

[45]     The vendors under the agreement are Raewyn Marie Scott and JSB Trustees Ltd.  They are jointly and severally liable in respect of the contractual obligations of the  vendor  under  the  agreement  because  as  trustees  they  are  joint  tenants  and because clause 3.1 of the agreement so provides.  If they had intended that there be any limit on their contractual liability then they had to provide for it, but they did not.  The agreement provides no limitation on the personal liability of the trustees as vendor.  (I note that JSB Trustees Ltd resigned as a trustee in November 2003 but it remained as a registered proprietor on the certificate of title and entered into the agreement.  Nothing turns on this).

[46]     I am not persuaded by the respondent’s contention that clause 1.3(1) means only that either one of the trustees can be held severally liable for a breach of their joint obligations, but does not make them jointly and severally liable on their contractual promises.   While it may be possible to contend for such a constrained literal interpretation of clause 1.3(1), I consider the meaning that best conforms with

the principle of joint and several liability of joint tenants and with the intent of clause

1.3(1) and the agreement as a whole, is that the vendors are jointly and severally liable in relation to their contractual promises under the agreement and for breach of any contractual obligations.

[47]     Such an interpretation is necessary for, and consistent with, a meaningful interpretation of the other warranties and undertakings of the vendor in clause 6.1; for example, that the vendor has not received any notice or demand and has no knowledge of any requisition or outstanding requirement imposed by any local or government authority.

[48]     I   turn   to   consider   the   Judge’s   concern[46]   about   the   assumption   of “retrospective contractual liability attaching to contracting trustees in respect of acts preceding the trustee’s assumption of office”.[47]    The warranties and undertakings given in clause 6.2(5)  were undertaken by the trustees upon the signing of the agreement.   Their liability arises prospectively “at the giving and taking of possession”.  If either of the trustees had concerns about liability under clause 6.2(5), or for that matter any other vendor warranty in the agreement, it was open to either or both of them to limit the extent of warranty in question, e.g. to building works

completed during the period of their joint ownership, or delete or modify the warranty, or to limit the liability of the trustees or either of them to the assets of the trust.   In the case of contracting trustees it is, of course, entirely commonplace to limit personal liability which would otherwise attach.  And as Mr McHerron pointed out, there is an express warning printed on the cover sheet of the agreement under the heading “Before Signing the Agreement”, that the vendor should ensure the warranties and undertakings in clauses 6 and 7 are able to be complied with, and if not, the applicable warranty is deleted  from the agreement  and any appropriate disclosure is made to the purchaser.  By law trustees carry personal liability.  It is for a trustee, if he or she thinks fit, to limit or exclude personal liability in any particular case.

[46] At [24]-[26].

[47] At [26].

[49]     Nor does the interpretation of the agreement, and in particular clause 6.2(5), which I consider is the correct interpretation, offend the “draftsman’s design objective”[48] (as the Judge described it) that clause 6.2(5) should impose liability for work  done  under  the  control  of  the  vendor,  with  the  concomitant  limitation  of liability for work not done under the control of the vendor.  Ms Scott is jointly and severally liable as vendor, and the building work was ostensibly carried out under her control.

[48] At [23].

[50]     Ms Scott has been the owner of the property continuously (either as a joint tenant or as sole owner) since January 1988.   She was a legal owner when the allegedly defective building work was carried out.  She, together with JSB Trustees Ltd, jointly and severally gave the warranty in clause 6.2(5) of the agreement that, having done or caused or permitted to be done works on the property, the requirements specified in the clause in relation to a permit or building consent and otherwise  were  met.    The  appellant  is  entitled  to  have  her  claim  against  the respondent duly determined.

Result

[51]     For these reasons the appeal will be allowed.   The summary judgment in favour of the respondent is set aside.

Costs

[52]     The appellant is entitled to costs on the appeal which I award on a 2B basis together with usual disbursements.  The sum paid for security for costs should now be released to the appellant.

[53]     The issue of costs in the District Court is remitted for reconsideration in light of this judgment.

Next steps

[54]     The District Court Registry in Tauranga is to allocate a case management conference so that appropriate directions can be made to progress the substantive proceeding to hearing.

Note

[55]     I was greatly assisted by the well researched and focused submissions of both counsel.  I commend them.