Francis v Francis
[2018] NZHC 1753
•27 July 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-571
[2018] NZHC 1753
BETWEEN JOHN STUART FRANCIS
First Plaintiff
JAMES STANLEY FRANCIS
Second PlaintiffFBL PROPERTIES LTD
Third PlaintiffAND
ROBERT WARWICK FRANCIS and DEBORAH MARGARET FRANCIS
Defendants
Hearing: 12 July 2018 Appearances:
J B Murray for the Plaintiffs
G J Kohler QC for the Defendants
Judgment:
27 July 2018
Reissued:
31 July 2018
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 27 July 2018 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules.
This judgment was re-issued by me on 31 July 2018 at 11:00am
…………………………………
Deputy Registrar
Solicitors:
Vallant Hooker (J Bruce Murray), Auckland, for the Plaintiffs Jespersen & Associates, Henderson, for the Defendants
Copy for:
G J Kohler QC, Auckland, for the defendants
FRANCIS v FRANCIS and FRANCIS [2018] NZHC 1753 [27 July 2018]
[1] The Francis Brothers Partnership has been in solvent dissolution since 2012. Two of the brothers, John and Jim, have brought this proceeding to speed up the in specie distribution of some of the partnership assets. They sue the other partners, Bob and his wife, Debbie, for specific performance of parts of three agreements:
[a]an agreement dated 6 September 2016 for division of partnership on dissolution, which in part allocates properties at Waimauku among the partners;
[b]an agreement of 4 May 2017 for the sale of a garden centre property in Huapai; and
[c]an agreement of October 2017 for the sale of a bach property at Waihi Beach.
They have applied for summary judgment. They want the garden centre at Huapai to be transferred to them and their nominee, FBL Properties Ltd, a bach at Waihi Beach to be transferred to Bob and Debbie, and properties at Waimauku in all their names to be transferred under an agreed allocation. They also claim interest for late settlement.
[2] In opposition, Bob and Debbie say that they do not oppose the transfer of the garden centre, so long as the ANZ Bank mortgage over the property is not discharged, without the debt to the bank being repaid. Underlying their opposition is their concern at the way the other partners want to run the dissolution. Bob and Debbie want debt to the ANZ Bank cleared as part of the dissolution. They are worried that John and Jim are not addressing this aspect. Their notice of opposition does not address other relief sought by John and Jim.
Background
[3]The three brothers are Jim aged 71, Bob aged 70, and John aged 68. Bob is
married to Debbie. John is married to Heather. The brothers’ market gardening
partnership goes back to 1979.1 They had equal one-third shares. In 1980, Debbie became involved, with Bob and Debbie holding a one-third share jointly. They made a written partnership agreement on 3 September 1980. The firm’s business is “nurserymen and horticulturists”. Under cl 16 the partnership may be terminated at any time by any partner giving the other partners not less than one month’s notice in writing of his intention to terminate the partnership. Clause 18 says:
18. In the event of the partnership being terminated in any manner hereinafter provided, and neither of the partners desiring to purchase the other partner’s share, the partnership business shall be wound up either by collecting and getting in outstanding debts, selling and realising the partnership assets and effects capable of sale or by a sale as a going concern, and, in either case, by public auction or private contract with liberty of either partner to bid for or purchase the same or any part thereof AND the moneys which shall arise by the means aforesaid and all other money of the partnership shall so far as they extend be applied in manner following, that is to say:
(a)Firstly, in payment of all costs and expenses of or incidental to such winding up of the partnership.
(b)Secondly, in payment and discharge in due order of legal priority and security of all debts and liabilities of the partnership.
(c)Thirdly, in payment to either partner of such sum as may be
necessary to legalise the partners’ capital accounts.
(d)Fourthly, in payment of any balance equally between the partners.
[4] The market gardening business was on 38 hectares of land at Waimauku in titles, which the brothers refer to as Packing Shed (4 hectares), Homestead (4 hectares), Wong (3.4 hectares), Acacia (2.8 hectares), 17 acre block (7.1 hectares) and Mahana/Dick Young (16 hectares). The partnership also bought land at Huapai, which is used as a garden centre,2 and a bach at Waihi Beach. The partners also carried out a residential subdivision at Waimauku and still hold a 2.6 hectare property from that subdivision called Freshfields. The brothers are registered proprietors of all these properties. There were other business ventures by the partnership, but they came to an end some time ago and are not relevant for this case.
1 Before that, they were in partnership with their father.
2 It is also described as being at Kumeu.
[5] Bob and Jim each have houses on partnership land at Waimauku. John, on the other hand, has a house owned by a family trust on land he bought from the partnership. John and Heather have not yet paid the purchase price for that property, which is recorded as an asset in the books of the partnership.
[6] John says that over time he and Jim focused on market gardening, primarily growing celery and parsley and operating a small wholesale nursery, while Bob focused on growing flowers and foliage. These became separate business units. In 2010 John and Jim formed a company, Francis Brothers Ltd, which leased some of the partnership land for its business.
[7] On 12 January 2012, John gave written notice of dissolution of the partnership to Bob and Jim. Since 1 April 2012 John and Jim have run their market gardening business under Francis Brothers Ltd. Bob has run the flowers and foliage business under Francisfresh Ltd, which he and Debbie set up on 29 March 2012.
[8] In 2016, John and Jim began a proceeding in this court to have a receiver appointed to carry out the winding up of the partnership. The proceeding did not have to be heard, because on 6 September 2016 the partners entered into a written agreement for division of partnership upon dissolution. It provided that:
[a]boundary adjustments were to be made to the Waimauku properties. A survey plan showing the boundary adjustments was attached to the agreement.
[b]John was to take the Packing Shed,
[c]Jim was to take the Homestead and Acacia,
[d]Jim and John were to take 13 hectares out of the Mahana/Dick Young block, and
[e]Bob and Debbie were to take the Wong block and an enlargement of the 17 acre block (10.8 hectares).
[f]The lots were to be valued as at the date of dissolution.
[g]Jim would lease the Acacia block to Bob for five years.
[h]Where any partner was using the land that was to be taken by another, there was to be a lease for up to two years,
[i]Plant and equipment was divided.
[j]The Freshfields property was to be sold.
[k]The garden centre at Huapai and the bach at Waihi Beach were also to be sold. The partners had the right to bid or tender on the open market for any of these three properties.
[9]Clause 6 said as to the division of the Waimauku properties:
They consider this division gives each an equal (or, if not precisely equal, an acceptable) share of titles, water sources, total land area and arable land area, and also reflects current occupancy and current business usage, thus complying with clause 18 of the partnership agreement that the assets be divided equally.
The agreement included these clauses:
15 Subject only to clause 21 below, all partnership liabilities shall be met from partnership assets before the final division. In particular, any proceeds of sale must be applied to partnership liabilities, or retained for the purpose of payment of partnership liabilities.
21 The proceeds of sale of the properties in clauses 18 and 19 of this agreement (Freshfields, garden centre and Waihi bach) shall be first applied to the direct costs of sale (any land agent commission, marketing fees, reasonable legal fees and disbursements) and any bank lending to the partnership. Any surplus shall be held in the partnership bank account pending settlement of all liabilities before being distributed in equal shares to the partners.
23 All aspects of this Agreement are subject to accounting and taxation advice to the partners, from their own private accounting and legal advisers.
24The parties will sign all such documents and do all such acts or things as may be reasonably required in order to give effect to the terms of this agreement.
There were ancillary terms as to upgrading some parts of the Wong Block and a credit adjustment to Bob and Debbie's capital account, and as to the supply of celery seed.
[10] The statement of claim at paragraph 7.2 pleads that the partnership liabilities are:
[a]ANZ Bank (which includes a term loan);
[b]loans to the partnership from John's wife, Heather, from Jim and from Debbie;
[c]trade creditors, taxation and a debt to Francisfresh Limited;
[d]amounts owing to the partners' family trusts; and
[e]the partners' capital accounts.
[11] Jim and John say that on current values for the land, there is balance sheet solvency. Financial statements for the year ending 31 March 2017 do not reflect this, but one explanation is that land is shown at cost rather than current market value.
[12] For the partnership to carry out the dissolution under the agreement, it engaged a lawyer. Each partner has their own lawyer and John and Jim have engaged yet another law firm for this proceeding. To carry out the agreement for division of the Waimauku properties a survey plan was prepared, lodged with the Auckland Council and approved, and lodged with LINZ to enable the issue of new certificates of title. John says that in July 2017, each of the partners signed a consent form for the deposit of the approved new survey plan. That will allow the issue of new titles showing each of the partners as owners as tenants in common in equal one-third shares. The ANZ Bank, which has a mortgage registered against the Packing shed, Homestead and Wong blocks (but not other blocks at Waimauku), has consented to the issue of the new titles on the basis that it will remain registered as mortgagee. The bank has a
mortgage over the garden centre as part of its securities for its loans to the partnership. It does not have a mortgage over the Waihi bach.
[13] In October 2017, the partnerships' lawyer sent Bob's lawyer A&I forms and land transfer tax statements (required under Part 9 of the Land Transfer Act 1952) to be signed to complete the subdivision. Bob had not signed these documents at the start of this proceeding. As part of their relief in this proceeding, John and Jim are seeking orders for Bob to sign these documents. I was advised that they have now been signed and John and Jim no longer pursue that head of relief. Counsel were not however aware whether titles for the new boundary-adjusted lots had issued yet.
[14] There will be more conveyancing. The Waimauku blocks, with their boundaries adjusted, will be transferred to the partners individually under the dissolution agreement. There will be leases of certain parts of the land as provided in the dissolution agreement and they will need to be signed. John says that Bob has signed two of the leases but has not signed the lease of the Acacia block from Jim to Bob. John says that he and Jim are prevented from properly financing any development of their businesses in the land because they do not have titles in their names. Mr Kohler QC explained that there were some aspects of the lease of the Acacia block Bob was not happy with. Notwithstanding that there is no formal lease, Bob has been using the Acacia block and paying rent.
Agreements to sell the garden centre and Waihi bach
[15] John says that the garden centre was listed for sale, marketed by two real estate agents. Tenders were invited. Jim and John bid for the property. The result was an agreement of 4 May 2017 under which the three brothers as vendors sold the property to John, Jim and Francis Bros Limited as purchasers for $4 million. They used the ADLS/REINZ form. The following further term was added:
19.Satisfaction of Purchase Price
The purchase price shall be satisfied as follows:
19.1John Stuart Francis agrees to his capital account in the Francis Brothers Partnership being debited by $2 million and James Stanley Francis agrees to his capital account in the Francis Bros Partnership
being debited by $2 million, and the Francis Brothers Partnership account being credited by $4 million. The Francis Brothers Partnership accountants will subsequently reflect the property sale, capital gain (loss) and depreciation recovered (if any) by clearing the suspense account. The vendors acknowledge and agree that the purchase price shall be satisfied as set out above.
19.2Satisfaction of the purchase price by way of the debiting of the purchasers' capital accounts in the Francis Bros partnership and the crediting of the Francis Bros partnership account shall take place 14 days from the date of this agreement.
[16] There has been no transfer of ownership. Bob says however that John and Jim’s capital accounts have been debited with their shares of the purchase price. In September 2017, FBL Properties Limited was incorporated by Jim, Heather and John as their nominee to complete the purchase of the garden centre. In anticipation of settlement the partnership’s lawyer wrote to the ANZ Bank asking for the garden centre to be released from the mortgage. While the bank is willing to discharge the mortgage, Bob objects and will not co-operate in the transfer of title if the mortgage is to be removed without the debt to the bank being repaid.
[17] In October 2017 John, Jim and Bob entered into an agreement in the REINZ- ADLS form to sell Bob and Debbie the Waihi bach for $1,350,000. It has these further terms:
19.Satisfaction of Purchase Price
The purchase price shall be satisfied as follows:
19.1The purchaser agrees to his capital account the Francis Brothers Partnership being debited by $1,350,000 and the Francis Brothers Partnership account being credited by $1,350,000. The Francis Brothers Partnership accountants will subsequently reflect the property sale, capital gain (loss) and depreciation recovered (if any) by clearing the suspense account. The partners acknowledge and agree that the purchase price shall be satisfied as set out above.
19.2Satisfaction of the purchase price by way of the debiting of the purchaser’s capital accounts in the Francis Brothers Partnership and the crediting of the Francis Brothers Partnership account shall take place 14 days from the date of this Agreement.
20.Collateral contract
20.1This agreement is collateral with a contract of even date between the Francis Brothers Partnership and John Stuart Francis and James
Stanley Francis for the sale of the partnership property at 249-299 Main Road, Kumeu, Auckland ("Collateral Contract").
20.2Settlement of this Agreement and settlement of the Collateral Contract must take place at the same time.
20.3Any default under the Collateral Contract which delays settlement of the Collateral Contract will be a default under this agreement by the defaulting party.
[18] Again there has been no transfer of title. John and Jim are willing to transfer the bach to Bob and Debbie, but they are not willing to take title, lest they be accused of inconsistency by co-operating on this sale but not on the garden centre.
[19] The Freshfields property is not on the market for sale. Mr Murray advised that John and Jim believe that it is worth more than enough to clear all partnership liabilities. Bob is not willing to sell, as he does not believe that now is the right time.
[20] The partnership’s accountants prepared draft accounts for the seven months ending 31 October 2017. They show entries in the partners’ capital accounts for deductions under the agreements for the garden centre and the Waihi bach. Bob and Debbie have instructed an independent accountant who has identified dissolution accounting matters to be addressed. Bob and Debbie say that John and Jim should ask the partnership’s accountants to engage with those issues as part of the dissolution.
The claims in this proceeding
[21] The plaintiffs seek specific performance: orders directing Bob and Debbie to sign A&I forms and land transfer tax statements for the Waimauku properties, the garden centre and the Waihi bach for:
[a]the issue of the new titles (now satisfied),
[b]the transfer of the new titles under the agreed land division to the respective partners or their nominees, and
[c]the transfer of the garden centre and Waihi bach,
with all signed documents to be made available to the partnership lawyer to allow him to register or otherwise act on the documentation.
They also seek an ancillary order that if Bob and Debbie default for 10 days the plaintiffs or the Registrar or a Deputy Registrar be appointed to sign the documentation and provide them to the partnership lawyer. They also seek judgment for late settlement interest on the transfers of the garden centre and Waihi bach.
[22] Bob and Debbie’s notice of opposition says that they are opposed to the intended discharge of the ANZ Bank mortgage over the garden centre property. They say, however, that they are willing to complete all steps necessary for the transfer of the garden centre and Waihi bach property, provided that the ANZ mortgage is not discharged for no or nominal repayment. They do not offer any opposition to the orders seeking transfer of the Waimauku properties amongst the partners. As well as a statement of defence, they have filed a counterclaim in which they seek directions for John and Jim to do what they see as required to complete the dissolution.
A procedural point
[23] Mr Kohler raised a procedural objection that Jim and John appeared to be suing as purchasers of the garden centre, while they were two of the vendors and should have been shown as such, being named separately as defendants. Mr Murray’s response was that all the required parties were before the court.
[24]The plaintiffs have combined three causes of action into one pleading:
[a]They sue as purchasers of the garden centre for Bob’s refusal to carry
out the transfer;
[b]John and Jim as two of the vendors sue Bob and Debbie as purchasers and Bob as the other vendor for the transfer of the Waihi bach; and
[c]John and Jim as two of the partners sue Bob and Debbie as the other (joint) partner to allocate the Waimauku properties.
Strictly, the causes of action should have been pleaded distinctly, each with their own prayer for relief.3 I am not sure that Jim and John had to be named separately as defendants. While they were on opposite sides of the garden centre and Waihi bach contracts, they sought the same relief and did not need to be separately represented or to take different positions according to whether they were purchasers or vendors. While the pleading could have been better, no-one has been prejudiced. Bob and Debbie have not been embarrassed in dealing with the different claims.
The ANZ Bank’s position
[25] As a secured creditor of the partnership the ANZ Bank has mortgages registered against the Packing Shed, Homestead, Wong blocks and the garden centre, but not against Acacia, the 17 acre block, Mahana/Dick Young, Freshfields or the Waihi bach. As mentioned above in paragraph [16], in anticipation of settlement of the sale of the garden centre property, the partnership lawyers requested the ANZ Bank to release its security. The bank gave its consent on 15 September 2017. The bank's letter made it clear that only the garden centre property was to be released from the mortgage and no repayment was required. In a separate letter, it sought a variation of the mortgage to increase the priority under s 92 of the Property Law Act 2007 to
$1,500,000 plus interest. Since then each side has contacted the bank about discharge of the mortgage.
[26] The bank’s present position, as set out in a letter of 31 May 2018, is that it will discharge the mortgage over the garden centre property if John, Jim and Francis Brothers Ltd sign a guarantee for the bank's lending to the Francis Brothers partnership. It notes that it has mortgages registered over partnership land. The letter records that the bank is aware that there are other properties which are not mortgaged to the bank but is comfortable with its security position and the overall ability of the partnership to meet its obligations. The bank does not require repayment of any existing ANZ facilities.
[27] The position of the bank can be understood in the light of an affidavit by John exhibiting recent valuations of the Packing Shed block, the Acacia block and the Wong
3 High Court Rules 2016, rr 5.17 and 5.27.
block. He points out that there is adequate security for the bank's lending over these Waimauku properties. He says that he, Jim and Francis Brothers Ltd are prepared to give the guarantees required by the bank and to sign documents for an increase in priority.
Dissolution – general
[28] In a partnership all partners own partnership property, which must be held and applied exclusively for the purpose of the partnership.4 All partners are jointly and severally liable for debts incurred by the firm.5 Dissolution of a partnership is a process which begins with a triggering event (in this case, notice by one of the partners).6 It ends when all the debts have been paid and the assets of the partnership have been distributed. Under s 42 of the Partnership Act 1908:
42 Rights of partners as to application of partnership property
On the dissolution of a partnership every partner is entitled as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners of the firm; and for that purpose any partner or his or her representatives may, on the termination of the partnership, apply to the court to wind up the business and affairs of the firm.
Under s 47 there is an order of priority:
47 Rule for distribution of assets on final settlement of accounts
In settling accounts between the partners after a dissolution of partnership the following rules shall, subject to any agreement, be observed:
(a)losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits:
(b)the assets of the firm, including the sums (if any) contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order:
4 Partnership Act 1908, s 23.
5 Section 12.
6 Sections 35–38.
(i)in paying the debts and liabilities of the firm to persons who are not partners therein:
(ii)in paying to each partner rateably what is due from the firm to him or her for advances as distinguished from capital:
(iii)in paying to each partner rateably what is due from the firm to him or her in respect of capital:
(iv)the ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible.
[29] There is however no prescribed process for carrying out the dissolution, although there may be standard steps taken in many dissolutions. The partners may agree how the dissolution should be carried out. Agreements to carry out a partnership dissolution may of course be enforced. If partners cannot agree, they may apply to the court which may order the winding up under its supervision. Partners may agree to interim distributions before the dissolution is complete. They may agree to in specie distributions of partnership property to the partners. On any such distribution the asset ceases to be partnership property but becomes the property of the partner receiving it. Partnership liabilities need to be addressed. It is in the interests of partners to clear all liabilities – to bring an end to their joint and several liability. Again it is up to the partners how they manage the settlement of the liabilities – subject of course to the creditors’ rights of enforcement on default.
[30] The agreement of 6 September 2016 is such an agreement for carrying out the dissolution of the partnership. It provides in part for in specie distribution of some of the partnership assets (plant and equipment and the Waimauku blocks) and for sale of others (garden centre, Waihi Beach and Freshfields). It also envisaged that partners might buy assets put up for sale. An agreement for a partner to acquire a partnership asset may be enforced in its own right – it need not be tied to the other aspects of the dissolution. The agreement of 6 September 2016 addressed payment of debts – cls 15 and 21. It envisaged funds coming available from the proceeds of sale of Freshfields, the garden centre and the Waihi Beach bach.
Can Bob and Debbie insist on the plaintiffs taking title to the garden centre property subject to the ANZ mortgage?
[31]Bob gives as his reasons for opposing any discharge without repayment:
It is not fair. We have never agreed to it. It is not necessary. We are anxious to get everything completed and discharging the mortgage over the Huapai property would remove an incentive to resolve matters for John and Jim. In the event that I was called on to pay the full ANZ debt I understand I would be entitled, by subrogation, to enforce the ANZ mortgage as a security against the Huapai property. It appears that John and Jim may be going to contend that if the ANZ mortgage is released from the Huapai property that should effect a debt apportionment in the accounts.
[32] The plaintiffs rely on the agreement of 5 May 2017 for the sale of the garden centre to say that they are entitled to a transfer of the title free of the ANZ Bank mortgage. While the dissolution agreement is relevant background, they do not rely on it for this part of their case. Nor do they seek the court’s directions how the dissolution should be carried out. They say that the garden centre agreement is enforceable in its own right and is not tied to carrying out other parts of the dissolution agreement. Their case is that on settlement of the sale of the garden centre the partners are required under the agreement to pass title to them free of the bank mortgage. They cite Mr D W McMorland in "Sale of Land":7
The purchaser has the right to a transfer of the title free of the vendor's mortgages which are not, in terms of the contract, to be taken over by the purchaser. The contract is not for the sale of the land subject to the vendor's mortgages, so the vendor's mortgages, being matters which the vendor has an absolute right to remove from the title, are matters of conveyance and not title. The purchaser has the right to their removal on or before settlement ... Without any need for express mention, the discharges of the vendor's mortgages are within the instruments in registrable form which the vendor must provide under clause 3.7(2)(b) of the REI-ADLS form to the purchaser on settlement.
The agreement does not specify that the purchasers take title subject to the ANZ Bank mortgage. Clauses 3.7 and 3.8 in the general terms of sale say:
3.7The vendor's lawyer shall: ...
(1)within a reasonable time prior to the settlement date prepare in that workspace all other electronic instruments required to confer title on the purchaser in terms of the vendor's obligations under this agreement; and
(2)prior to settlement date:
(a)lodge in that workspace the tax information contained in the transferor's tax statements; and
7 D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at 9.01(a).
(b)have those instruments and the transfer instruments certified, signed and, where possible, pre-validated.
3.8On the settlement date:
...
(2)The vendor's lawyer shall immediately thereafter:
(a)release or procure the release of the transfer instrument and the other instruments mentioned in subclause 3.7(1) so that the purchaser's lawyer can then submit them for registration.
...
(c)deliver to the purchaser's lawyer any other documents that the vendor must provide to the purchaser on settlement in terms of this agreement.
The plaintiffs submit that on any sale to a non-partner under these terms the partners would be required to have the bank mortgage discharged. As they are in the same position, they are also entitled to a discharge of the bank mortgage from the garden centre title.
[33] Bob accepts that on a sale to a non-partner using the REI-ADLS form where there is not an express term that the purchaser is to take subject to a current mortgage, the vendor is required to remove the mortgage to give good title on settlement. He says however that this agreement is different. His argument for keeping the mortgage on the title notwithstanding the change of ownership is:
[a]No money changed hands under the agreement, whereas in the standard case proceeds of sale are available to repay the loan secured by the mortgage;
[b]The agreement had to address the mortgage. Any lawyer asked to draw the agreement would provide for it. In the absence of any provision for it to be removed or for the agreement to be conditional on its removal, it can be inferred that the mortgage was to remain on the title, until the bank’s debt was repaid:
[c]A discharge of the ANZ Bank mortgage was accordingly not an instrument required to confer title on the purchasers in terms of the vendors’ obligations under the agreement.
[1] A starting point for interpreting the agreement is that the parties used the REI- ADLS form, the most frequently used agreement for sales of real estate. As a standard form contract it is interpreted objectively and consistently so that its terms are applied uniformly on all occasions. In A/S Awilco of Oslo v Fulvia S.p.A. di Navigazione of Cagliari (The Chikuma) Lord Bridge stated the approach when construing standard form contracts:8
The ideal at which the courts should aim, in construing such clauses, is to produce a result, such that in any given situation both parties seeking legal advice as to their rights and obligations can expect the same clear and confident answer from their advisers and neither will be tempted to embark on long and expensive litigation in the belief that victory depends on winning the sympathy of the court. This ideal may never be fully attainable, but we shall certainly never even approximate to it unless we strive to follow clear and consistent principles and steadfastly refuse to be blown off course by the supposed merits of individual cases.
That is reinforced by Cooke J’s dictum in in Hunt v Wilson:9
In the everyday subject of vendor and purchaser it is especially important that the law be as simple as possible.
That goal can be promoted with consistent interpretations applied uniformly. This means that when interpreting the general terms of sale the circumstances of the particular case will count for little. If parties want to depart from the standard general terms to allow for their circumstances, they may do so by adding further terms of sale. Clause 1.4 recognises the priority to be given to added terms:
1.4(3) If any inserted term (including any Further Terms of Sale) conflicts with the General Terms of Sale the inserted term shall prevail.
[34] For his interpretation to apply instead of the standard one, Bob needs to show that the inserted term, cl 19, makes a difference. The clause does not expressly say
8 A/S Awilco of Oslo v Fulvia SpA di Navigazione of Cagliari [1981] 1 WLR 314 (HL) [The Chikuma]. See also Fiona Trust & Holding Corporation v Privalov [2007] 4 All ER 951 (HL) at [5]–[8] and [25].
9 Hunt v Wilson [1978] 2 NZLR 261 (CA) at 273.
that the bank mortgage must stay on the title after transfer until the bank debt is repaid. Instead the question is whether that meaning can be taken from the clause by implication. The clause can be construed in the light of the surrounding circumstances. In this case those included that the dissolution agreement had provided for cash becoming available from the sale to meet partnership liabilities and all partners were selling to two as part of the partnership dissolution. Because of cl 19, no cash was payable on settlement. That distinguished this from a sale to a non-partner. The price would be satisfied by debiting John and Jim’s capital accounts. After settlement the partners would still owe the ANZ Bank what they owed before.
[35]There are two ways of looking at the effects of Bob’s contention:
[a]On the transfer of the garden centre to Jim and John, the mortgage stays on the title until the debt to the bank is ultimately repaid. Jim and John are not required to repay the debt immediately. But leaving the mortgage on the title will get in the way of their use of the property, for example, using it as security to finance further development of the property. The continuing fetter runs against the purpose of the agreement – that they take the property in their own right and that the garden centre ceases to be partnership property.
[b]The requirement to leave the mortgage on the title on transfer is a lever to force Jim and John to repay the partnership’s liabilities to the ANZ Bank. If they are to have use of the title free of the bank’s mortgage, they will have to repay the debt themselves. But in doing so, they will be injecting funds to repay partnership debt. In that case their capital accounts will be credited. That does not sit well with their capital accounts each being debited with $2 million on the purchase.
[36]These effects do not square with the requirements for an implied term:10
10 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 (PC) at 376; applied in Devonport Borough Council v Robbins [1979] 1 NZLR 1 (CA) at 23; Prudential Assurance v Rodrigues [1982] 2 NZLR 54 (CA) at 61; Dovey v Bank of New Zealand [2000] 3 NZLR 641 (CA) at 654 and many others.
[a]it must be reasonable and equitable;
[b]it must be necessary to give business efficacy to the contract (no term will be implied if the contract is effective without it);
[c]it must be so obvious that it goes without saying;
[d]it must be capable of clear expression; and
[e]it must not contradict any express term of the contract.
In Attorney-General of Belize v Belize Telecom Ltd the Privy Council suggested a gloss on this test, treating implication as no more than interpretation:11
…in every case in which it is said that some provision ought to be implied in an instrument the question for the Court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean…this question can be reformulated in various ways which a Court may find helpful in providing an answer – the implied term must “go without saying”, it must be “necessary to give business efficacy to the contract” and so on – but these are not in the Board’s opinion to be treated as different of additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background would reasonably be understood to mean?
For this case it does not matter which approach is applied, BP Refinery or Belize. The answer is the same. The agreement is effective without inserting any requirement to leave the bank mortgage on the title until the bank debt is repaid. Business efficacy does not require it and it is not obvious. The partners would remain jointly and severally liable to the bank. The bank was satisfied that it had adequate security. It was open to the partners to agree to an interim distribution of partnership property by a sale of the garden centre with adjustments to the capital accounts, even though the bank debt had not been repaid. If the court were to insert a term along the lines proposed by Bob, it would not be applying the terms of the agreement, but adding to them.
11 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10 at [21].
[37] As for the bank, not a party to the agreement, it was entitled to consent to the discharge of the mortgage or not, as it chose. It could not be compelled to give a discharge in the absence of repayment of the debt. But equally no partner could compel the bank to leave the mortgage on the title, if it was willing to let it go. If the mortgage were removed from the garden centre title, the bank would keep all its other remedies, including its mortgages over some other partnership properties at Waimauku as well as suing the partners on their personal covenants. Bob would remain liable to the bank to the same extent as he was before. John and Jim would also remain liable to the bank. The adjustments to the capital accounts meant that they would have to contribute more to debt repayment than Bob and Debbie.
[38] Accordingly, the agreement for the sale of the garden centre did not require the ANZ Bank mortgage to stay on the title after transfer.
[39] Bob made ancillary arguments: the partnership lawyers did not have authority to ask the ANZ Bank to give a discharge, and John had breached his duty of good faith in contacting the bank about discharging the mortgage and he would lose a potential right of subrogation to the bank’s security over the garden centre if he were required to repay the bank. But those arguments get nowhere once it is found that the agreement for sale and purchase of the garden centre requires the mortgage to be discharged. It gave authority to the partnership lawyers and the partners to ask the bank to consent to the discharge.
[40] The claim for transfer of the garden centre raised a single issue – whether the agreement required the ANZ Bank mortgage to be removed on settlement. That was a question of interpretation, where all the required information was available. The plaintiffs have shown that under the agreement they can require discharge of the mortgage. There are no discretionary factors that count against requiring the property to be transferred. The plaintiffs have accordingly shown to the summary judgment standard that the defendants do not have a defence to the claim for the garden centre.
Transfer of the Waihi bach
[41] Jim and John have been willing to transfer the Waihi Beach property to Bob and Debbie under the agreement made in October 2017. Whereas the garden centre agreement is not conditional on the Waihi sale going ahead (such a term in the agreement was struck out), the Waihi Beach agreement is contingent on the garden centre sale being completed. Now that the garden centre sale is to be settled, the Waihi Beach property should settle as well. Bob and Debbie have been unwilling to sign the documents for the property to be transferred into their names, lest they be accused of inconsistency in taking title to the Waihi bach while objecting to the transfer of the garden centre. They do not raise any substantive objections to taking title to the Waihi bach. In the absence of any arguable defence, John and Jim are entitled to orders for the transfer to be carried out.
Interest for late settlement
[42] John and Jim seek interest for late settlement of the sale of the garden centre property and the sale of the Waihi Beach property. For the garden centre, they claim interest from 12 November 2017 to the date of settlement at $1,315.07 per day. For the Waihi Beach they claim interest on $1,350,000 from 12 November 2017 at $443.83 per day. Both agreements set 12% as the interest rate for late settlement.
Waihi bach
[43] Under the Waihi bach agreement Bob and Debbie are the purchasers. Where a purchaser does not pay the purchase price on the date set for payment and the vendor gives evidence of its ability to carry out its side of the settlement, clause 3.12(1) provides:
the purchaser shall pay to the vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid for the period from the due date until payment…
[44] They have arguable defences to the interest claim. They refer to the draft financial statements for the seven months ending 31 October 2017 prepared by the partnership’s accountants, where their capital account is debited with $1,350,000 for
the bach purchase, as showing that they have been treated as having paid the purchase price. While those are draft accounts, it is arguable for them that the accountants would not have shown the debit to their capital account unless there had been the appropriate journal entry to record the transaction. It is not clear that they have not paid.
[45] As an additional matter, even if it is established that the purchase price has not been paid by debiting their capital account, it is not clear when interest runs from. Clause 19.2 says that settlement was to take place 14 days from the date of the agreement, but on the current evidence, that date cannot be established. The agreement appears to have been signed in the second half of October 2017 but that is not enough to work out the date when interest started to run.12
[46] Clause 20 of the agreement, which makes settlement of the Waihi purchase contingent on settlement of the garden centre sale, does not however help Bob and Debbie. As Bob is responsible for the delay in settling the garden centre sale, he cannot use his default as excusing non-payment under the Waihi back contract – clause 20.3.
Garden centre
[47] Bob is one of the vendors. The plaintiffs look to the vendors for interest for late settlement. John and Jim as co-vendors look to Bob to indemnify them as he is responsible for the delay in settlement. Clause 3.14(2) of the agreement provides for payment of interest for late settlement for delay by a vendor:
If this agreement provides for vacant possession, but the vendor is unable or unwilling to give vacant possession on the settlement date, then, provided that the purchaser provides reasonable evidence of the purchaser’s ability to perform the purchaser’s obligations under this agreement:
(a)the vendor shall pay the purchaser, at the purchaser’s election, either:
(i)compensation for any reasonable costs incurred for temporary accommodation for persons and storage of chattels during the default period; or
12 John Francis first affidavit, paragraphs [84]–[85].
(ii)an amount equivalent to interest at the interest rate for late settlement on the entire purchase price during the default period; and
(b)the purchaser shall pay the vendor an amount equivalent to the interest earned or which would be earned on overnight deposits lodged in the purchaser’s lawyer’s trust account on such portion of the purchase price (including any deposit) as is payable under this agreement on or by the settlement date but remains unpaid during the default interest period less:
(i)any withholding tax; and
(ii)any bank or legal administration fees and commission charges;
(iii)any interest payable by the purchaser to the purchaser’s lender during the default period in respect of any mortgage or loan taken out by the purchaser in relation to the purchase of the property.
[48] The purchaser’s right to interest under cl 3.14(2)(a)(ii) turns on not being given vacant possession of the premises on the due date, as opposed to taking title. That entitlement is not clear in this case. While there was no transfer of title, there is evidence of other performance. On 12 September 2017 the partnership’s lawyer emailed Bob and Debbie’s lawyer, saying among other things:
We had alluded to you previously that this sale and purchase had to be tidied up. You will recall that it was settled on the basis of book entry transactions in the partnership accounts.
What remains to be carried out is the discharge of mortgage and the transfer of the property to John and Jim.
There is no mention of the need to give John and Jim vacant possession. The draft financial statements for the seven months ending 31 October 2017 show John and Jim’s capital accounts each debited with $2 million in payment for the garden centre. The evidence does not show the dates of these book entries. The garden centre is not shown as a current asset of the partnership as at 31 October 2017. Bob and Debbie may be able to refer to these to say that John and Jim had already taken possession before 31 October, which is before the date from which they claim interest, 12 November. John and Jim’s evidence does not expressly state that they do not have possession of the garden centre or when they took possession. In short the purchasers’ claim for interest is contestable. Summary judgment cannot be given for it.
[49] Even if I had found that there was clear liability for interest under the Waihi bach and garden centre agreements and that the amounts could be calculated, I would not give judgment. That is because there will be a full taking of accounts on the dissolution of the partnership. The interest claims will be only two of the matters to be brought into account. In the context of the partnership dissolution it would not be appropriate to give a money judgment on only one item when others are to be brought into account to find the partners’ final balances.
Transfer of titles for Waimauku properties
[50] The plaintiffs seek orders for Bob to sign all such documents as may be required to carry out the transfer of the Waimauku properties from the partners to those allocated to own them under the agreement of 6 September 2016. Bob has signed the documents for titles to issue but the transfer to the individual partners is now required. Bob and Debbie's notice of opposition did not expressly address this part of the summary judgment application. They did not give any evidence showing why the titles should not be transferred as agreed.
[51] Discharge of the ANZ Bank mortgages does not arise. The bank has made it clear that it wishes to keep its mortgages over the Waimauku properties in place until its debt is repaid. No-one contests that.
[52] In discussion however one matter emerged – the lease of the Acacia block. Jim is to take the Acacia block – his homestead is there, but he is to lease part of it to Bob and Debbie. So far no written lease has been signed. Bob and Debbie have been paying rent, but they do not agree with the amount. There may be other matters to be resolved before a lease can be signed. Bob and Debbie have an argument that Jim should not take title unless he also grants them a lease under clause 10 of the dissolution agreement. The basis for that is that he who seeks equity must do equity. It would be inequitable for Jim to take title to the Acacia block while not recognising Bob and Debbie’s lease. Accordingly an order for transfer of the Acacia block may arguably be subject to Jim granting a written lease to Bob and Debbie at the same time. Subject to that, there will be orders for the transfer of the Waimauku properties.
Bob and Debbie’s counterclaim
[53] The orders made on the plaintiffs’ summary judgment application will not resolve all the outstanding matters under the dissolution of the partnership. Creditors have still to be paid, especially the ANZ Bank. Freshfields has still to be sold. Accountants have still to work out the final division of funds. Bob and Debbie’s counterclaim is directed at advancing some of these matters. They allege (but Jim and John deny) that there has not been co-operation in resolving accounting issues. They seek directions requiring Jim and John to instruct the partnership accountants to address the matters raised by their accountant, to attend to repayment of partnership debts and to co-operate in completing the dissolution. Those are matters for case management directions later. Their counterclaim may be amended later to allow for other issues to be raised, for example, sale of Freshfields.
[54] While recourse to the court is available to resolve differences, the parties should be encouraged to complete the dissolution co-operatively. It is now more than six years since John gave his notice of dissolution. All partners will surely appreciate the benefits of bringing it to an end.
Outcome
[55] The plaintiffs have shown to the summary judgment standard that Bob and Debbie do not have any defence to their claims for orders that they sign the documents required to transfer:
[a]the garden centre to the plaintiffs with the ANZ Bank mortgage discharged,
[b]the Waihi bach to themselves, and
[c]the Waimauku properties (except the Acacia block) to the individual partners under the dissolution agreement, once titles issue.
The transfers of the garden centre and the Waihi bach should take place at the same time in light of clause 20 of the Waihi bach agreement. The Waimauku properties cannot be transferred until new titles issue.
[56] There is an arguable defence to the claim for transfer of the Acacia block that the lease to Bob and Debbie should be signed at the same time. If the John and Jim say that that defence does not apply, the issue will go to a hearing. On the other hand, they are free to accept that condition and in that case an order to transfer the block can be made. The plaintiffs have not shown that Bob and Debbie do not have defences to the claims for late settlement interest.
[57] The plaintiffs sought an order that if the defendants did not comply with orders, the Registrar or they be appointed to sign documents in their place. I do not regard that as necessary at present. Bob and Debbie have not said or shown that they will not obey the court’s orders. It is sufficient to reserve leave to apply for further orders.
[58] As the plaintiffs have succeeded for most, but not all of the relief they sought, they are entitled to costs.
[59]I make these orders:
[a]By 10 August 2018 Bob and Debbie shall sign and deliver to the partnership’s lawyer A & I forms and land transfer tax statements for the transfer of the garden centre to the plaintiffs and for the transfer of the Waihi bach to themselves.
[b]Within ten working days of the partnership’s lawyer advising that new titles have issued for the Waimauku properties, Bob and Debbie shall sign and deliver to the partnership’s lawyer A & I forms and land transfer tax statements to transfer:
[i]the Wong block and the 17 acre block (subject to boundary adjustments made under the dissolution agreement) to Bob and Debbie,
[ii]the Packing Shed block to John,
[iii]the Dick Young/Mahana block and 22m2 of the 17 Acre Block (as provided in the dissolution agreement) to Jim and John.
[c]If Jim accepts the condition that he should grant a written lease to Bob and Debbie and they agree to the terms of the lease, upon signing the lease Bob and Debbie shall sign and deliver to the partnership’s lawyer A & I forms and land transfer tax statements to transfer the Acacia block to Jim.
[d]The application for summary judgment for interest for late settlement is dismissed.
[e]Bob and Debbie shall pay the plaintiffs costs on the summary judgment application. If the parties cannot agree costs, memoranda may be filed.
[f]The Registrar is to allocate a case management conference for further directions on those matters on which the plaintiffs have not been successful and on the defendants’ counterclaim.
[g]Leave is reserved to apply for further directions.
……………………………
Associate Judge R M Bell