Gallagher v Graham HC Hamilton CIV 2007-419-175

[2007] NZHC 2083

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV 2007-419-175

BETWEEN  WILLIAM MURRAY GALLAGHER, JUDITH ELSIE GALLAGHER AND

JOHN FERGUSON WEIR AS TRUSTEES

OF THE WM GALLAGHER NO 1

FAMILY TRUST

First Plaintiffs

AND  WILLIAM MURRAY GALLAGHER, JUDITH ELSIE GALLAGHER AND JOHN FERGUSON WEIR, AS TRUSTEES OF THE MARAWA WHANAU TRUST, FORMERLY CALLED THE WM GALLAGHER NO 4

FAMILY TRUST Second Plaintiffs

AND  WILLIAM MURRAY GALLAGHER AND JUDITH ELSIE GALLAGHER Third Plaintiffs

AND  JUDITH ELSIE GALLAGHER Fourth Plaintiff

AND  WILLIAM MURRAY GALLAGHER Fifth Plaintiff

AND  CHRISTOPHER JAMES GRAHAM AND SARAH ELIZABETH TOWL

Defendants

Hearing:         29 August 2007

Counsel:        N Gedye for plaintiffs

P Morgan QC for second-named defendant

Judgment:      31 August 2007 at 1630

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]

Solicitors:           Kevin McDonald, PO Box 331 065, Takapuna for plaintiffs

Family Law Centre, PO Box 19 212, Hamilton for second-named defendant

GALLAGHER & ORS V GRAHAM & ANOR HC HAM CIV 2007-419-175  31 August 2007

[1]      The plaintiffs sue the defendants and claim they are entitled to be repaid loans allegedly made by either Mrs Gallagher or Mr Gallagher or both or their family trusts. They allege that the loans were made to the defendants jointly.

[2]      The  first-named  defendant,  Christopher  James  Graham,  is  the  son  of Mrs Gallagher and step-son of Mr Gallagher.    The defendants were,  at  material times, married.  They separated on 3 March 2006.

[3]      There are eight causes of action pleaded against the defendants.

[4]      Judgment by admission on all causes of action was entered against the first- named defendant on 6 June 2007.

The summary judgment application against the second-named defendant

[5]      The  summary  judgment  application  is  limited  to  four  specific  causes  of action.  They are the following:

a)        The  first  plaintiffs’  claim  for  $120,000  plus  interest  pleaded  in paragraphs 6 to 12 of the statement of claim;

b)       The second  plaintiffs’ claim  for  $125,000 plus  interest  pleaded  in paragraphs 13 to 15 of the statement of claim;

c)        The  third  plaintiffs’  claim  for  $21,000  plus  interest  pleaded  in paragraphs 16 to 22 of the statement of claim; and

d)The  fourth  plaintiff’s  claim  for  $125,000  plus  interest  pleaded  in paragraphs 30 to 39 of the statement of claim.

[6]      The causes of action on which summary judgment is sought differ from the remaining causes of action.   They are all based on loans which are referred to in signed Deeds of Acknowledge of Debt or a debenture given by Graham’s Liquor Limited which also contained covenants on the part of the defendants guaranteeing

the company’s debt and also making the defendants principal borrowers.   The remaining causes of action are not so supported and the plaintiffs acknowledge must proceed in the ordinary way.

[7]      I  will  refer  specifically,  in  this  judgment,  to  the  grounds  advanced  in opposition when each cause of action is examined.

The Court’s approach to summary judgment applications

[8]      I set out a short summary of the general approach which the Court takes in relation to an application for summary judgment by the plaintiff.   Rule 136 of the High Court Rules requires that the plaintiff satisfy the Court that the defendant has no defence.  That was explained by the Court of Appeal in Pemberton v Chappell [1987] 1 NZLR 1 at 3 as follows:

In this context the words "no defence" have reference to the absence of any real question to be tried.  That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence.

[9]      The Court added at 4:

Satisfaction   here   indicates   that   the   Court   is   confident,   sure, convinced, is persuaded to the point of belief, is left without any real doubt or uncertainty. ...

[10]     And further at 4:

Where the only arguable defence is a question of law which is clear cut   and   does   not   require   findings   of   disputed   facts   or   the ascertainment of further facts, the Court should normally decide it on the application of summary judgment, just as it will do on an application to strike out a claim or defence before trial on the ground that it raises no cause of action or no defence.

[11]     The Court also commented on the position where a defence is not evident on a plaintiff’s pleading and said at 3:

If a defence is not evident on the plaintiff's pleading I am of opinion that if the defendant wishes to resist summary judgment he must file

an affidavit raising an issue of fact or law and give reasonable particulars of the matters which he claims ought to be put in issue. In this way a fair and just balance will be struck between a plaintiff's right to have his case proceed to judgment without tendentious delay and a defendant's right to put forward a real defence.

[12]     That  position  was  further  reinforced  in  AGC  (New  Zealand)  Limited  v

McBeth [1992] 3 NZLR 54 at 59 where the Court said:

Although the onus is upon the plaintiff there is upon the defendant a need to provide some evidential foundation for the defences which are raised.  If  not,  the  plaintiff's  verification  stands  unchallenged  and ought to be accepted unless it is patently wrong

“No  defence  means  ‘no  bona  fide  defence,  no  reasonable ground for defence and no fairly arguable defence’.”

[13]     Hypothetical  possibilities  in  vague  terms,  unsupported  by  any  positive assertion or corroborative documents advanced by defendants will not frustrate the obligation  on  a  plaintiff  to  discharge  the  onus  of  proof:  SH  Lock  (NZ)  Ltd  v Oremland HC AKL CP641/89 9 August 1986.

[14]     The Court of Appeal in Tilialo v Contractors Bonding Limited CA 50-93 15

April 1994 at 7 raised a caution and said:

The Courts must of course be alert to the possibility of injustice in cases in which some material facts to  establish a defence are not capable of proof without interlocutory procedures such as discovery and interrogatories.   That does not mean that defendants are to be allowed to speculate on possible defences which might emerge but for which no realistic evidential basis is put forward.

[15]     A Court is not required to accept uncritically any or every disputed fact: Eng Mee Yong v Letchumanan  [1980] AC 331 at 341. However the Court will not reject even dubious affidavit evidence, even though there must be suspicion of good faith of the deponent if there is an essential core of complaint that support a defence. In essence, the inquiry is whether or not the assertion made passes the threshold of credibility: Pemberton v Chappell, Orrell v Midas Interior Designs (1991) 4 PRNZ

601 at 613.

[16]     In Tilialo v Contractors Bonding Limited the Court of Appeal at 8 observed:

Drawing the line between mere assertions of possible defences and material which sufficiently raises an  arguable  defence  so  that  the defendant   should   not   be   denied   the   opportunity   to   employ interlocutory procedures and have a trial is a  matter of judgment. Views may well differ.

[17]     Rule 136 creates a residual discretion although, as expressed by Casey J in

Pemberton v Chappell at 5, it is difficult:

to  conceive  of  circumstances  where  the  Court  should  not  give judgment for the plaintiff . . . it can only be a discretion of the most residual kind.

The discretion was the subject of comment in Waipa District Council v Electricity

Corporation of New Zealand [1992] 3 NZLR 298 at 308.

[18]     Rule 136  permits the  Court  to  give  judgment  against  a  defendant  if the plaintiff satisfies the Court that the defendant  has no  defence to  a claim  in the statement of claim or to a particular part of any statement of claim.   In Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 at 59 the Court of Appeal said of rr 136 and 137 they:

would seem to permit the giving of judgment on a particular part of a claim both as to liability and as to quantum.

Observing that:

the word "claim" is to be distinguished from the phrase "cause of action"

[19]     I shall now examine each cause of action and the opposition to entry of summary judgment in respect of same.

First plaintiff’s claim for $120,000

[20]     The first plaintiff, the WM Gallagher No 1 Family Trust, alleges that it made advances  to  Graham’s  Liquor  Limited  pursuant  to  a  debenture  executed  on

23 September 1993.

[21]     It is further alleged that the defendants are principal borrowers and guarantors of the company’s liability by virtue of Part C of the debenture.

[22]     Graham’s Liquor Limited was a company incorporated on 23 March 1993 to operate a liquor retail outlet at Clyde Street in Hamilton.   Its directors were the defendants and the fourth plaintiff, Mrs Gallagher.  At the time of incorporation the major shareholding was held by the defendants with the smaller shareholding held by Mrs Gallagher.

[23]     The company did not trade profitably.   Its business was sold in 1996.   A resolution of shareholders, dated 22 July 1997, records that the company be wound up.    The  resolution  did  not  go  on  to  appoint  a  liquidator  in  accordance  with s 241(2)(a) of the Companies Act 1993.  No evidence is before me as to what debts precisely were proved at the time of winding up.

[24]     At a shareholders’ meeting held on 31 August 1995, at a time apparently when the company was not performing well, the shareholders agreed to transfer the majority of the shares to Mrs Gallagher.   The defendants retained 50 shares only each.

[25]     Ms Towl says at the time the company was formed and the business was acquired she and her husband were aged 22 and 25 respectively.  They had a young daughter.  They had no money.  Her recollection is that they applied for a mortgage from the National Bank.   She says that the fourth plaintiff also arranged for the WM Gallagher No 1 Family Trust to provide a line of credit up to $130,000.  She confirms  that  a  resolution  of the  directors on  23 September  1993  approved  the execution of a second charge debenture in favour of the WM Gallagher No 1 Family Trust securing loans advances made by it to the company.

[26]     Ms Towl, in her affidavit in opposition, refers to a number of documents. She says that, as a result, she does not accept that she owes the WM Gallagher No 1

Family Trust money relating to the company which, to use her words:

As it is clear from the documents that I have annexed to this affidavit, that the debts were cleared, at least on sale, if not before.

[27]     An added ground to that position arises, however.  In the amended notice of opposition which Ms Towl has  filed  and  served,  the opposition  is expressed  in different terms.  In particular, it is alleged:

In  respect  of  the  first  cause  of  action  no  funds  were  advanced  to  the company by the first  plaintiffs  and,  as such,  the defendants’  obligations under the guarantee did not arise.

[28]     There are conflicting accounts given by deponents as to what happened at the time of the advances.  Perhaps that is not surprising because it is now fourteen or so years since those events occurred, namely in 1993.  In addition, the advances were made out of a desire to give assistance in a family situation.   It is not surprising, therefore, that the parties would not have turned their minds, specifically, to the unfortunate dispute which now involves the parties.

[29]     In ascertaining whether the plaintiffs have satisfied the onus of proof that the second-named defendant has no defence to this cause of action I consider the following:

a)       Mrs Gallagher, in her reply affidavit, refers to discovering documents following the second-named defendant moving out of the property at Fullerton Road on 11 June 2007.  There may be a contest as to that date because Ms Towl refers to it as 4 March 2006.  The documents are:

i)        Graham  Liquor  Limited’s  copy  National  Bank  statements which disclose deposits as follows:

4 October 1993  $75,000.00

18 October 1993                  $25,050.15

26 October 1993                  $10,000.00

23 November 1993              $10,000.00

ii)       an unsigned set  of financial accounts  for  Graham’s  Liquor Limited for the period ended 31 January 1994.  That shows a loan of $120,000 due to the first plaintiffs in the balance sheet.

The financial accounts have provision for signature by a director of the company but are not signed.   These accounts appear as the work of Finn and Partners, chartered accountants of Te Awamutu;

iii)      a draft copy of Graham’s Liquor Limited’s account  for the year ended 31 March 1994.  These accounts also are the work of  Finn  and  Partners.    The  front  page  has  a  line  through marked being redone.   The balance sheet page dealing with liabilities and shareholders’ funds and loan accounts shows the loan of $120,000 to the first plaintiffs crossed out with a line and arrow leading down to an entry for the shareholders’ loan accounts with the notation 54,000 x 2; and

iv)       Graham’s  Liquor  Limited’s  accounts  for  the  year  ended

31 March 1994.   This also is the work of Finn and Partners. The document has a place for signature by a director but is unsigned.    Under  current  liabilities there appears the entry second debenture WM Gallagher No 1 Family Trust $20,000. The shareholders’ loan accounts show credits of $44,243 for CJ Graham and the same for SE Graham the second-named defendant.  The two entries that I have referred to evidence a change  in  treatment  of $100,000  from the  current  liability column  where  the  figure  is  reduced  to  an  increase  in  the position of the shareholders after take account of the previous debit position;

b)       As  I  have  already  mentioned,  the  directors  of  Graham’s  Liquor Limited  signed  a  resolution  on  23 September  1993  approving  the execution of a second charge debenture in favour of the first plaintiffs securing loans advances made by the plaintiffs to the company up to

$130,000;

c)       Also, previously mentioned, is the fact that the debenture containing covenants guaranteeing Graham’s Liquor Limited’s debt and undertaking liability as principal borrower was executed by the defendants on 23 September 1993.  The plaintiff, WM Gallagher, says that the debenture has only recently been located by his solicitors and apparently after he swore an affidavit in family proceedings between the first-named and second-named defendants.   The debenture does not itself evidence any particular advance.   It is a standard security document;

d)Mr  WM Gallagher  says that  in an affidavit  in  family  proceedings between the first-named defendant and the second-named defendant he identified the fact that, in the first plaintiffs’ books, the advances in respect of Graham’s Liquor Limited were shown as advances to his wife, the fourth plaintiff.  He said she is a beneficiary of the trust.  He says the advances were made so that his wife could on-lend money to the defendants.   He said that he recorded in his affidavit his belief that, as the defendants were not beneficiaries of the trust, there could not be a direct loan to them from the trust;

e)       Mrs Gallagher says that she swore an affidavit in the same Family Court proceedings between the defendants.    She says those proceedings are now stayed by agreement.  She says her affidavit set out full details of the moneys lent to the defendants, including the advances covered by the debenture.  She said that, when making that affidavit, she was unaware, or had forgotten, that the debenture had recorded any of the advances in relation to the liquor business.   She stated that, between July and November 2003, four advances totalling

$145,000 were made to Graham’s Liquor Limited from the first plaintiffs to cover on-going set up costs.   She further says that her affidavit stated that, as neither of the defendants were beneficiaries of that trust, it was necessary for the trust to account for the advances as advances or a distribution to herself.  As she was a beneficiary of the trust she could then on-lend the money to the defendants.   She now

says  that  she  has  seen  further  information,  which  includes  the debenture document and material I will shortly refer to, from the first plaintiffs accountants, Staples Rodway.   She confirms the first plaintiffs’ accountants treated the advances in relation to Graham’s Liquor Limited as loans/distributions to herself in the first plaintiffs’ accounts.  She says that her recollection in the Family Court affidavit was incorrect.  She explains that by saying that she was not a trustee then of the first plaintiff, trust, and, further, she may not even have been aware of the debenture agreement;

f)        The copy debenture produced does not bear Mrs Gallagher’s signature on it.   The  resolution  authorising  the  execution  of the  debenture, however,  does  contain  a  signature  which  appears  to  be  that  of Mrs Gallagher;

g)The notes of the first  plaintiffs’ accountants,  Staples Rodway,  are undated.  The notes record four payment said to be made to Graham’s Liquor Limited totalling $145,000 between July 1993 and November

1993.  They also record the receipt from Graham’s Liquor Limited in October of $25,000.   Mr Morgan drew attention to the fact that this document,   on   its   face,   does   not   appear   to   have   been   a contemporaneous document because it refers to certain adjustments made in 1994 and in 1995.  Mr Gallagher interprets the note.  He says that Collin Francis, of Finn and Partners, Graham’s Liquor Limited accountant, advised Staples Rodway that Graham’s Liquor Limited had treated the $120,000 loan as $100,000 funds introduced by the defendants and $20,000 as accounts payable.  He further records that the note records that, in the first  plaintiffs’ books of account, the

$120,000 advance was shown as to $100,000 as a trustee distribution and as to $20,000 a distribution to the fourth plaintiff, his wife against her  current.   He says that  the balance of the file  note sets out  a reconciliation  of his  wife’s  current  account  drawings  in  the  1994 financial year;

h)       The first plaintiffs’ financial statements for the year ended 31 March

1994 were produced by Mr Gallagher in part.  The balance sheet for the first plaintiff trust, shows an asset of $2,000 being a debt owed by Graham’s Liquor  Limited.    There  are  also  entries,  being  trustees’ distribution  of  $100,000.     Mr Gallagher  advises  that,  following discussions with the accounting and legal advisers to the first plaintiff about  how  the  advance  should  be  treated  in  the  accounts  of  the plaintiff, the first plaintiff re-classified the treatment of $100,000 in its accounts from a trustee distribution to an advance to the fourth plaintiff.   The first plaintiffs’ accounts for 31 March 1995 were produced and reflect that position.  The advance to the fourth plaintiff was taken out of the trust’s assets by way of a capital distribution of

$100,000 from the first plaintiffs to the fourth plaintiff in the year ended 31 March 2002.  From an accounting perspective, the advances made are no longer shown as assets of the trust in its accounts;

i)        Mr and Mrs Gallagher both confirm in their affidavits that $120,000 has not been repaid by Graham’s Liquor Limited or the defendants to the plaintiffs;

j)         Ms Towl says that she separated from her husband on Friday, 3 March

2006.  She says as a result of domestic violence she left the home on the following Saturday, 4 March.  She says that her husband and the fourth plaintiff, and the fourth plaintiff’s employees cleared out all the paper work along with other items with the result that Ms Towl was left of no documentary proof of any of the transactions that she and her husband were involved in during their sixteen years of marriage. She says that  she  has  located  some  further  documents  which  she claims call into question the allegations made by the fourth plaintiff in this proceeding.   She says that  as from the time of the resolution transferring the major portion of the shares to the fourth plaintiff, that is 31 August 1995, the fourth plaintiff had taken over the running of the company and she had nothing further to do with Graham’s Liquor Limited.   What she was able to produce, however, were books of

accounts for the company, which at 31 March 1996, showed two fixed liabilities, namely a National Bank term loan of $60,000 and a balance owing under the second debenture to the first plaintiffs of $2,000.  By the year ended 31 March 1997 the documents disclosed both debts with a nil balance against them.  She says, and has produced a letter from the National Bank showing that that debt had been paid off.  She also produced documents relating to a further National Bank advance and repayment, which she said the fourth plaintiff had arranged and which had nothing to do with her husband or herself.  She produced documents showing the payments to the National Bank, the sale of the business, the receipt and distribution of the proceeds which cleared indebtedness to the Bank.   She claims that, because of the position shown in the final accounts which were then under the control of the fourth plaintiff, the debts were in fact, to use her words cleared from the company;

k)Demand was made by letter dated 5 February 2007 addressed to both defendants.  That was the first demand that has been made in respect of this debt;

l)        This proceeding was filed on 14 February 2007.  At the time of filing the application for summary judgment  was supported by affidavits from Mr  and  Mrs Gallagher.    The  reason  for  the  proceeding  was explained in Ms Towl’s first affidavit in opposition (not included in counsel’s casebook) where at paragraph 3 she said:

Pursuant   to  directions   made  by  the  Family  Court   at Hamilton, relationship property proceedings as between myself and my former husband, Christopher James Graham, have been stayed pending the plaintiffs’ listed in this proceeding, proving that alleged debts are owed by myself and my former husband, to either the plaintiffs personally, or to one of the trusts listed;

m)      Mr Gallagher now says, in the affidavit in support of this proceeding, that the plaintiffs advanced $120,000 to Graham’s Liquor Limited in

1993.  As already recorded, he explains why he advanced a different position in an affidavit filed in the Family Court proceedings; and

n)       The first-named defendant admitted the claim leading to the entry of judgment against him.   Although Mr Gedye did not place any great weight on this aspect, he did, nevertheless, point out that two of the directors of Graham’s  Liquor  Limited,  namely  Mrs Gallagher  and Mr Graham admit to the advance from the first plaintiffs to Graham’s Liquor Limited.

[30]     The  facts  which  I  have  just  listed  do  not  provide  a  foundation  for  the proposition that $120,000 has been paid by Graham’s Liquor Limited or by the defendants  to  the  first  plaintiffs.    There  is  no  evidence  suggesting  any  source available to Graham’s Liquor Limited from which such payments could have been made.    I  do  not  overlook  the  fact  that  Mr Morgan  submitted  that  there  was  a possibility of the company having received the funds, then having paid it back and it being readvanced to the defendants.  There is, however, no evidential support at all for that proposition.   It is not specifically suggested as a possibility by any of the deponents.  The documentary material does not suggest it.  At the very least, if that was what was intended one would have expected to have seen some movements in the  bank  accounts  by cheques  being  exchanged.    There  is  no  evidence  on  the statement that was placed before me of that.  I do not overlook the recorded debt of

$2,000 in the company’s account up until just before the winding up resolution. Putting that to one side, the basic conclusion that I have recorded here disposes of the basis for opposing summary judgment set out in Ms Towl’s principal affidavit in opposition which I should record was the affidavit filed in support of the amended notice of opposition.  However, for reasons now considered, this conclusion is not necessary for the determination of this application.

[31]     That leaves the issue identified in [27] of this judgment.   Were the funds advanced by the first plaintiffs to Graham’s Liquor Limited?  Alternatively, was a distribution made by the first plaintiffs to the fourth plaintiff who on-lent it to the defendants, who, in turn introduced it to Graham’s Liquor Limited by way of shareholders’ advances?

[32]     Mr Gedye drew attention to three specific pieces of evidence, namely:

a)        The resolution of directors;

b)       The debenture; and

c)        The draft balance sheet of Graham’s Liquor Limited as at 31 January

1994.

[33]     Mr Gedye also drew attention to the fact that there is no contest that money, which was sourced  from the first  plaintiffs, was ultimately banked  in Graham’s Liquor Limited’s bank account, as I have recorded in [29](a)(i) of this judgment.  He observed that no limitation issue turns on the fact that demand was not made until

5 February 2007: DFC New Zealand Ltd v McKenzie [1993] 2 NZLR 576. That is because, until demand is made, no default in terms of the debenture arises. Demand is an essential ingredient of the cause of action in this case.

[34]     Mr Morgan submitted that when one considers the background circumstances of this case, any analysis of the specific transactions are not  suited to summary judgment.   He noted specifically that there is evidence of considerable generosity shown to the fourth plaintiff’s son, as is evidenced from the considerable sums of money that have been made available to him and his wife and family.  He submitted that the documents that are referred to in this proceeding were signed in domestic circumstances very different from those which occur now.   He noted that the separation of the two defendants has resulted in acrimonious Family Court proceedings which, as I have already commented, have led to this proceeding.  He submitted that this was a situation where the plaintiffs and the fourth plaintiff’s son were, to use his words:

essentially colluding with each other to harm the defendant, Ms Towl.

He submitted that the Court should exercise caution in determining the matter on a summary judgment application and based on affidavits where one party’s resources are necessarily limited and, particularly, where there has, as yet been, no full access to all the relevant documents.   His submission in this respect simply adopts the

caution given by the Court of Appeal in Tilialo v Contractors Bonding Limited to which I have made reference in [14].

[35]     With respect to the first cause of action specifically Mr Morgan identified the following matters:

a)       Was the sum claimed by the first plaintiffs was an advance pursuant to the debenture to the company or was it money advanced or given to the defendants personally?  If the latter, the pleaded cause of action is not proven and it matters not that the money could or might be owed to one of the plaintiffs on some other basis;

b)       The plaintiffs’ position has changed in their sworn evidence.  He was critical of any reliance on later accounting documents and submitted that  they  had  the  hallmarks  of post-event  reconstruction.    In  that respect, the documents might be seen as equivocal and, in fact, might even support Ms Towl’s position;

c)        The first  plaintiff trust  no  longer  shows the advance to  Graham’s

Liquor Limited as its asset in its books of account;

d)Mrs Gallagher’s position in her statement that she had only recently found the debenture and had been unaware of, or forgotten about, it should be tested in a trial setting.   As I have recorded in the factual summary, she was not a signatory to the debenture but she was a signatory to the resolution authorising its execution by the company;

e)       The treatment of the advances in the books of account of Graham’s Liquor Limited needs further inquiry to see why the documents were prepared in the form they were.  Whether that will assist over all, on the resolution of this matter, I hesitate to say in this judgment.   My initial reaction is that it does not.  How a debtor records a debt in its books of account cannot, without other circumstances, be binding on the creditor.   Mr Morgan submitted that a possible explanation was

that the loan was advanced to the company and then repaid and then advanced again to the defendants.   That position, on the evidence before me, has no foundation, although one can understand that there is not much difference from that explanation from the other possibility which arises in this case, and that is, right from the outset the advance was   an   advance   made   through   Mrs Gallagher   directly   to   the defendants in person.

[36]     When  I  apply  the  principles  that  I  have  summarised  in  [8]-[17]  of  this judgment, I am not satisfied that this is an appropriate case for summary judgment. In summary my reasons are as follows:

a)       The initial recollection of Mr Gallagher was not one of an advance pursuant to a debenture given by his stepson and daughter-in-law’s company, Graham’s Liquor Limited but was, in fact, one of distributions to his wife which were then provided to his stepson and daughter-in-law for the company’s benefit;

b)       The trusts’ accounts do not, and apparently have not at any material time, recorded the alleged advance to Graham’s Liquor Limited as its asset.  Whether that was because of a mistake or a misunderstanding is something that should be properly canvassed at trial and after full and proper interlocutory procedures have been completed;

c)       There are numerous potential documentary sources that would assist the Court in resolving this issue, but are not before me.   I do not intend to provide an exhaustive list but it is perhaps helpful to record some of the matters that might assist the actual inquiry:

i)        The first plaintiff trust’s minute book;

ii)       Any document recording instructions given to the accountants for the trust at the time its financial report, directly following the payment of these moneys;

iii)      The trust deed itself to see whether an advance by way of loan to a company, was an authorised investment by the trustees and  whether  that  might  provide  some  foundation  for  the concern as to the method by which the money could be made available to Mrs Gallagher’s son and daughter-in-law exists;

iv)      Any documentation relating to the finalisation of Graham’s Liquor Limited – was a liquidator actually appointed?  Were proofs of debt called for?   Has the company formally been wound up under the Companies Act or perhaps has it simply been removed from the Registrar of Companies because of a lack of activity?

v)       Are there any bank records and, in particular,  cheques and cheque butts that coincide with the payments I referred to in [29](a)(i) of this judgment?   There are handwritten notes on the bank statements that were produced to me indicating accounting codes.   Whether that can be further explained by documentary evidence or by interrogatory inquiry no  doubt will explain precisely the route by which the money ended up in Graham’s Liquor Limited.

Second cause of action on which summary judgment is claimed

[37]     The second, third and fourth causes of action on which summary judgment is sought have a common feature.    Each pleads the existence of deeds of acknowledgement of debt. The defences raised to each are undue influence, estoppel by misrepresentation as to either the deed’s purpose or as to whether demand would ever be made in respect of the debt recorded in the deed, and non est factum.

[38]     Because  the  circumstances  surrounding  each  are  different,  although  the general issues are the same, there is a need to deal with each separately.

[39]     The  second  cause  of  action  on  which  summary  judgment  is  sought  is contained in paragraphs 13 to 15 of the statement of claim.   It pleads that during

2003 the second plaintiffs, a trust, loaned the defendants $125,000 towards building renovations at the defendant’s property at Fullerton Road, Rotokauri.  The cause of action seeks to enforce specifically a deed of acknowledgement of debt dated December 2003 in the sum of $125,000.   The deed records that it  is for a loan towards  building  renovations  at  Fullerton  Road,  Rotokauri,  Hamilton.     The borrowers, who are the defendants, admit and acknowledge the debt and covenant to repay the  principal on demand  within  the  meaning  of those  words  in  the  Fifth Schedule of the Chattels Transfer Act 1924.  The deed further records that all debts are forgiven upon the death of the principal lender, WM Gallagher.

[40]     Ms Towl, in her amended notice of opposition pleads:

a)       That she signed the deed of acknowledgement of debt by reason of false or misleading misrepresentations made by her husband and her mother-in-law,  Mrs Gallagher  in  her  capacity  here  as  one  of  the second plaintiffs.   It is further claimed that she executed under the undue influence of both her husband and Mrs Gallagher.  It is claimed that the second plaintiffs are estopped from enforcing the deed by reason of the representations of Mrs Gallagher and the first-named defendant;

b)       Ms Towl contends that she was persuaded by representations made by her mother-in-law, Mrs Gallagher, to spend money on the home at Fullerton Road.   She claims they would not have spent the amount that they did if there was a likelihood of their being required to repay them  because  they  simply  did  not  have  the  resources  to  do  so. Ms Towl says that her mother-in-law represented that she wanted to help the family.   That it was only equitable because of similar arrangements   that   had   been   made   by   way   of   payments   to Mr Gallagher’s children.   She also referred to the fact that she was asked to sign the deed because it was needed for IRD purposes.  This last point is not denied by Mrs Gallagher;

c)       Mrs Gallagher  acknowledges  that  consideration  had  been  given  to gifting various sums at various times.  But, she says, there had been no promise of gifting any amount claimed in this proceeding.

[41]     This cause of action is based on the deeds of acknowledgement  of debt. Counsel did refer, in their submissions, to the loans which were made and which are evidenced by the deeds of acknowledge of debt.  That, however, must not confuse the precise claim that is made, namely, a claim for a sum of money based on a formal deed.  The reasons why the deed, in the case of the second cause of action, was executed and whether any statement was made indicating the demand would not be made are matters which must be tested at trial.

[42]     Mr Morgan referred me to Crabb v Arun District Council [1976] Ch 179 at

188, Burbery Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd [1989] 1

NZLR 356 and Commonwealth of Australia v Verwayen (1990) 170 CLR 394. The broad principle which he drew from these cases is that the Court will do what is required but no more to prevent a person who has relied upon an assumption as to a present, past or future state of affairs, which assumption the party estopped has induced her to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. Mr Morgan drew attention to the following factors, which he said raised a sufficient justification for this defence to be considered and therefore prevent the plaintiffs satisfying the onus of no defence. The factors are:

a)        That the statements were made in a family or domestic situation;

b)       One would expect at the time they were made there was a degree of trust between the son and the daughter-in-law and the mother and mother-in-law, respectively; and

c)        An express purpose for the execution of the deed, namely to cover

IRD issues, notably gift duty, is not denied.

[43]     To the matters I have recorded there can be added a further one which arises from the deed itself where it refers to the debt being forgiven upon the death of the principal, Mr Gallagher.   That provision does not specifically apply, but may well have been a factor in the parties’ discussions as to whether there was likely to be any demand for repayment.

[44]     Mr Gedye submitted that the promise not to repay was tantamount to  an allegation  of  gift.    He  submitted  that  there  was  no  evidence  of  gifting.    Any statement amounting to future intention was simply not enforceable.  In this respect, he referred to Halsbury’s Laws of England (4th  ed) Vol 20 “Gifts” and Laws NZ “Gifts”.  I am not prepared to hold, in this summary judgment application, that the representation which the first-named defendant said occurred is, itself, the substance

of gift.  There are many situations which can occur when arrangements are entered into between family members where, for example, the justification for the estoppel defence might no longer exist.  One such example is where the recipient of the loan guaranteed by the deed of acknowledgement of debt becomes entitled to a substantial legacy from the will of the donor which is sufficient to discharge the debt.   There would  be  no  basis  in  that  circumstance  for  continued  reliance  on  the  estoppel defence on the death of the donor and the debtor’s entitlement to the legacy.  That is just one example of why the promise not to demand repayment is not, in itself, a gift. I therefore conclude that the defences which have been set forth in the amended notice of opposition and to which I have made reference stop me from concluding that the plaintiffs have discharged the onus that there is no defence in this case in respect of the second cause of action.

Third cause of action on which summary judgment is claimed

[45]     The third cause of action on which summary judgment is sought is contained in paragraphs 16 to 22 of the statement of claim.  It is based on the execution of three separate deeds of acknowledgement of debt.  The creditors in each case are Mr and Mrs Gallagher   personally.      The   first   deed   is   dated   28 January   1999   and acknowledges a debt of $10,000.  It records Mr and Mrs Gallagher advanced to the defendants $10,000 being the capital required to set up the business of Graham’s

Liquor Limited.    It has two straightforward operative provisions, the first acknowledging the debt and the second covenanting to repay upon demand.   The second deed of acknowledge of debt is also dated 28 January 1999.  It is for the sum of $6,000 and is said to be for a deposit on a property at  Ngaruawhahia.   The evidence is that it relates to moneys apparently lent in 1990 to pay the deposit on the purchase on that property.

[46]     The third deed of acknowledge of debt in this cause of action is also dated

28 January 1999 and is for $5,000. This records that the advance was made as a loan for a deposit on the property at Divers Road, Horsham Downs.  That relates, in fact, to a deposit advanced on or about August 1996.   The total of three demands is

$21,000.   The defences raised to each deed are similar to that analysed under the second cause of action.

[47]     What is notable, again, is the claim that the documents were simply required for IRD purposes and that there was no intention to require payment.  As with the second cause of action the deeds follow significantly at a point later in time than the advancing of the funds concerned.  I conclude again, for the same reasons as I have expressed under the second cause of action, that the defences advanced lead me to the conclusion that the plaintiffs cannot satisfy the onus that there is no defence to this cause of action.

Fourth cause of action on which summary judgment is claimed

[48]     The fourth cause of action on which summary judgment is sought is pleaded in particulars 30 to 39 of the statement of claim.   It involves three deeds of acknowledge  of  debt.     The  last  two  were  signed  on  28 January  1999  and, understandably, have features common to those analysed in the third cause of action.

[49]     The creditor in each of these deeds is Mrs Gallagher and the claim is made in her capacity as fourth plaintiff in the statement of claim.

[50]     The  first  deed is dated 1 November 1996.   It records an advance to the defendants of $50,000 by Mrs Gallagher.   The factual history is that $50,000 was

advanced  in October  1993  towards the  purchase  of  a  property  at  Tawa  Street, Hamilton.   That was sold in 1995.   The defendants purchased another property in Nixon Street, Hamilton.    The  $50,000  was then  available  to  apply towards the purchase of the Nixon Street property.  That was then sold in November 1996 when the deed of acknowledgement of debt was signed.  Ms Towl says that when she was asked to go to the solicitors to sign the deed, she was told it was required for IRD purposes only.    She  produced  a filenote from an  author  in  the  solicitors’  firm instructed  by  the  fourth  plaintiff.    It  records  an  instruction  and  discussion  on

17 October 1996 wherein in the author of the note records:

However Judy [Mrs Gallagher] advised that $50,000 was in effect a gift to Chris and Sarah and that she did not see that it needed to be secured by way of mortgage over the new property ….

I have told Judy I will speak to John about what type of documentation would be best used to secure the loan as I have explained to her if there is nothing it may construed as a gift by IRD.

[51]     Mrs Gallagher’s   response   to   that   material   is   that   she   accepts   that consideration had been given to gifting various sums at various times.   However, there has been, she said, no gifting or forgiveness of the money claimed in the deed of acknowledgement of debt.

[52]     Ms Towl says that her husband had told her of private discussions with the fourth plaintiff, his mother, in which he said that he had been told by his mother that the defendants would never have to repay the amount.  Further, that it was necessary to sign the papers at the lawyers so that the money could be gifted.   Mr Morgan invited me to approach this statement on the basis that Mr Christopher Graham was communicating a position really on behalf of his mother and as his mother’s agent. The  evidence  surrounding  the  execution  of  this  deed  of  acknowledgement  did trouble me.  However, again I bear in mind the submissions of Mr Morgan which I have recorded in the analysis of the second cause of action.  Certainly, the ground of opposition pleaded in paragraph 6 of the amended notice of opposition does not fit squarely with the defence to the execution of this deed of acknowledgement.  That is because  the  dates  recorded  of 28 January 1999  do  not  apply  in  respect  of  this particular deed of acknowledgement of debt which was signed on 1 November 1996. However, I reach the view that the matter should proceed to trial so that evidence of

the precise discussions surrounding the execution of the deed of acknowledgement of debt are before the Court and analysed.   There is sufficient in the surrounding circumstances to indicate that there is at least a basis that requires investigation as to whether a representation was made by the fourth plaintiff as to whether demand would be made for repayment of the debt and, further, that when the deed was signed its purpose was simply to satisfy a revenue requirement and did not affect understandings that then existed between the parties.

[53]     The next two deeds of acknowledgement of gift in this cause of action, as I have mentioned, were executed on 28 January 1999 and are subject to precisely the same defences as were raised and analysed when the third cause of action was considered.  The deeds follow the same format.   The first is in respect of $45,000 and refers to a loan

To build an extension at the property at 301 Divers Road, Horsham Downs.

The second is for a sum of $30,000 for plumbing and drainage costs at the property at 301 Divers Road, Horsham Downs.

[54]     The $45,000 loan was allegedly made in 1997 and the $30,000 loan was allegedly made in 1998.

[55]     As I have said, the reasons for the execution of the documents on 28 January

1999 have already been analysed and, it seems to me, that no further investigation of these matters is required in this judgment.  The second-named defendant should be given the opportunity of advancing these defences at trial.

Conclusions

[56]     I am satisfied that the plaintiffs have not discharged the onus that there is no defence to the four causes of action in respect of which the summary judgment is sought.  It is therefore appropriate that this proceeding be prepared for trial, not only in respect of the causes of action just analysed but in respect of the other matters which are the subject of the statement of claim.

[57]     I took the opportunity of considering with counsel appropriate directions should I reach the conclusion I have.  What I now direct is a result of that discussion.

Orders

[58]     I order as follows:

a)        The application for summary judgment is dismissed;

b)       A statement of defence to the statement of claim shall be filed and served by 21 September 2007;

c)        Affidavits of documents by all parties shall be filed and served by

26 October 2007;

d)       Inspection shall be completed by 23 November 2007;

e)        A case management conference shall be held at 9am on 5 December

2007 by telephone.   The following matters will be addressed at that time:

i)         Any further interlocutory order or direction required;

ii)        the issues requiring resolution at trial;

iii)       trial duration, the fixing of a trial date and the making of any special trial directions that are required;

iv)       settlement and whether a mediation or a Judicial settlement conference should be ordered.

Counsel shall file and serve memoranda dealing with these items two working days before the conference.

Costs

[59]     Counsel were in agreement with the approach that I should adopt on costs. The application for summary judgment has had considerable benefit in analysing the positions of the parties and the interlocutory steps to be taken.  Costs are accordingly reserved in line with the approach approved by the Court of Appeal in NZI Bank Ltd

v Philpott [1990] 2 NZLR 403

JA Faire

Associate Judge