Gardner v Gardner

[2015] NZHC 2018

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2015-409-000280 [2015] NZHC 2018

UNDER	the Partnership Act 1908
IN THE MATTER OF	an Order for dissolution of the ICT & AI Gardner Partnership and disposition of Partnership assets
BETWEEN	IAN COLIN THOMAS GARDNER Plaintiff
AND	ANDREW IAN GARDNER Defendant

Hearing:	24 August 2015
Appearances:	K L Maclean for Plaintiff S M Dwight for Defendant
Judgment:	25 August 2015

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

as to summary judgment application

Introduction

[1]      Ian Gardner sues his son, Andrew.  He says he has dissolved their farming partnership.  He seeks summary judgment.

Background: a farming family

[2]      The Gardners have for four generations farmed at Waiau on a farm which was originally known as Emu Plains.

[3]      This is a dispute between the third generation (in the person of Ian) and the fourth generation (in the person of Andrew).

GARDNER v GARDNER [2015] NZHC 2018 [25 August 2015]

[4]      Ian’s  great-grandfather,  George,  acquired  Emu  Plains  during  the  Great

Depression.

[5]      In the third generation, Ian came to own part of the farm, naming his farm

“Avonvale”.

[6]      Ian farmed Avonvale with his wife, Cynthia.  They raised three children.  Ian is now in his 70s and the three children either in their 40s or approaching their 40s. Of the children, only Andrew is a farmer.

[7]      Andrew grew up on the farm, working on the farm when not at school. After secondary school he gained experience on a North Island sheep station for 18 months before returning to work full-time at Avonvale from 1995.

[8]      The title to the Avonvale land is owned by Avonvale Farms Limited.  There is limited evidence before the Court as to the land-owning company.  It appears that it was formed in 2002, acquiring Avonvale from Ian and Cynthia.  Its shares are held by family trusts.  The family trust of Ian and Cynthia holds 75 per cent of the shares. The family trust of Andrew and his wife hold 25 per cent of the shares.  Andrew’s trust has a debt back to the company in relation to the purchase price.  The evidence filed does not indicate whether any part of that debt has been extinguished whether by gift or otherwise.

[9]      The farming operation at Avonvale was conducted by Ian and Cynthia in an informal  equal  partnership.   At  present,  it  is owned  by the  ICT & AI Gardner Partnership (the partnership).   In 1996, Andrew purchased a one-third share of the partnership, with Ian and Cynthia retaining a one-third share each.  (The purchase price was gifted back by Ian and Cynthia over time).

[10]     For three or four years, Andrew received modest income although he was acting as managing partner of the partnership.   In 1999, a contract of service was signed between the partnership and Andrew whereby he was to receive a salary of

$10,000 per annum.  It is Andrew’s evidence (which has not been disputed) that in the end he never actually received any payment under the contract of service.  The

financial statements of the partnership for the year ended 30 June 2014 show both Ian and Andrew having drawings debited against the partnership surplus for the year. The statement of partners’ current accounts shows Andrew building up a substantial current account credit while Ian’s current account is moving further into debit.

[11]     In February 2000, Andrew married Nicky, who then came to live and work

(part-time) on the farm, having studied horticulture at Lincoln University.

[12]     Ian, Cynthia and Andrew worked through succession discussions and plans from 2000.   Andrew has produced evidence of numerous discussions and correspondence over the following years which secured some progress but not a complete succession plan.   Gifting of the debt relating to the farming partnership continued.   In 2000, Ian and Cynthia (then 58 and 49 years of age respectively) appreciated that they had not tackled farm succession planning with their advisers. They commissioned advice on how successfully to achieve farm succession.

[13]     In 2009, Andrew purchased Cynthia’s interest in the partnership, with the

result that Ian now holds a one-third interest and Andrew a two-thirds interest.

[14]     For reasons not explained in any detail in the evidence, it appears that there is now a significant rupture in the relationship between Ian and Andrew.

Ian’s case

[15]     Ian’s  case  is  that  through  the  (unwritten)  partnership,  he  is  a  partner  of

Andrew in a farming operation at “Avonvale”.  In particular, he asserts:

·    The  provisions  of  the  Partnership  Act  1908  (the  Act)  apply  to  the partnership.

·    The partnership was terminable at will.

·    The partnership assets include a resource consent to take and use water at

Avonvale.

·    Ian gave notice to Andrew of termination of the partnership on 21 July

2014.

·    The partners have not since reached agreement as to the detail of the partnership winding up.

[16]     As a consequence, Ian asserts that the Court must make the following orders: (a)     pursuant to s 38 of the Act, an order dissolving the partnership;

(b)an  order  declaring  that  the  resource  consent  is  an  asset  of  the partnership;

(c)       an order declaring that the assets of the partnership be valued by an independent valuer;

(d)      an order that the partnership’s assets be realised;

(e)       an order that the liabilities, loans and partners’ capital be repaid from

realisation proceeds; and

(f)       an order that the balance of realisation proceeds be distributed pro- rata to the partners.

Andrew’s defence

[17]     Andrew accepts the existence of the unwritten partnership agreement and the application of the Act to the partnership.  But he says that they do so subject to the equities which arise in relation to the partnership.  In particular, he asserts that he has rights which preclude Ian’s termination of the partnership and which arise as a result of:

(a)       an    estoppel    arising     from    Ian    and    Cynthia’s    conduct    and

representations from 1995 to 2014;

(b)an agreement that the partnership would not be terminated or its assets sold until Andrew had been able to acquire Ian’s share in the partnership’s  part  of  a  wider  succession  plan  involving Avonvale Farms Ltd; and

(c)      a constructive trust in favour of Andrew arising from contributions he has  made  to  the  farming  business  of  Avonvale  pursuant  to  a reasonable expectation of an interest in Ian’s share of the partnership.

[18]     In a draft statement of defence and counterclaim, Andrew has identified these defences and has provided particulars of the estoppel and of the constructive trust (although not of the pleaded “agreement”).   In the draft, Andrew foreshadows a counterclaim for declarations arising from the estoppel and/or the constructive trust. Having regard to a lack of evidential foundation to support the (second) defence of “agreement”, I indicated to Ms Dwight that the lack of substantiation counted against the consideration of that defence.  Ms Dwight responsibly did not seek to support the “agreement” defence by further submissions, placing relevance instead on the equitable defences.

Plaintiff ’s summary judgment – the principles

[19]     The starting point for a plaintiff’s summary judgment application is r 12.2(1) High  Court  Rules,  which  requires  that  the  plaintiff  satisfy  the  Court  that  the defendant has no defence to any cause of action in the statement of claim or to a particular cause of action.

[20]     I  summarise  the  general  principles  which  I  adopt  in  relation  to  this application:

(a)       Commonsense, flexibility and a sense of justice are required.1

(b)The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence.  The Court must be left without any real

doubt or uncertainty on the matter.2

1      Haines v Carter [2001] 2 NZLR 167 (CA) at [97].

(c)      The  Court  will  not  hesitate  to  decide  questions  of  law  where appropriate.3

(d)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements and affidavits.4

(e)      In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts.   It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or

other statements, or inherently improbable.5

(f)      In assessing a defence the Court will look for appropriate particulars and a reasonable level of detailed substantiation – the defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the Notice of Opposition.6

(g)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court.7

(h)The need for judicial caution in summary judgment applications has to be balanced with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case.  Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required

for the protection of the integrity of the summary judgment process.8

2      Pemberton v Chappell [1987] 1 NZLR 1 (CA).

3      European Asian Bank AG v Punjab & Sind Bank [1983] 2 All ER 508 (CA) at 516.

4      Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21.

5      Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC).

6      Middleditch v NZ Hotel Investments Ltd (1992) 5 PRNZ 392 (CA).

7      Jowada Holdings Ltd v Cullen Investments Ltd CA 248/02, 5 June 2003 at [28].

8      Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA).

(i)Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.9

Rights in relation to dissolution of the partnership

[21]     Ms Dwight, for Andrew, has appropriately conceded that s 35 of the Act would govern dissolution of the partnership in the absence of a contrary agreement or an equity arising which precludes dissolution.10

An arguable estoppel and/or constructive trust?

[22]     Ms Dwight referred me to a number of New Zealand and foreign authorities in which the Courts have applied equitable principles (in relation to estoppel and/or constructive trust) to farming operations conducted in a family context.11  There is no need for me to set out here the particular circumstances of those cases.  Each case turns on its own facts.   But what such cases underscore is the ability of equity to intervene   when   expectations   or   understandings   have   been   created   between

generations of a farming family, particularly where the parties have not recorded in writing the detailed basis of their partnership, other agreements or understandings.

[23]     Ms Dwight referred me to a paper by Robyn Honey and Michelle Evans in which the authors identified the need for caution by farmers when making arrangements for their family members.  The authors captured the point succinctly when they introduced their article in this way:12

This article alerts farmers and those who advise them of the need for caution when making arrangements or agreements with family members regarding the future ownership and succession of the family farm.  Such arrangements are frequently oral and informal.  Promises are made and revised, and often

9      Pemberton v Chappell, above n 2.

10     Partnership Act 1908, s 35(1) (specifically making the right of termination “subject to any agreement”).

11     Harris v Harris (1989) 6 FRNZ 1 (HC); Hess v Hospenthal [2014] NZHC 895; Thomas v

Thomas HC Christchurch CIV-2011-409-2514, 24 April 2012; Giumelli v Giumelli (1999) 196
CLR 101; Thorner v Major [2009] UKHL 18, [2009] 1 WLR 776; Gillett v Holt [2000] EWCA

45, [2000] 3 WLR 815.

12     Robyn Honey and Michelle Evans “Great Expectations: Inheritance, Equity and the Family

Farm” (2007) 9 The Agricultural Industry 47 at 47.

unspoken ‘understandings’ are arrived at.  This lack of legal formality gives rise  to  a  propensity  for  matters  to  go  badly  and  bitterly  ‘wrong’. Furthermore, the article draws attention to the fact that, even where formal arrangements are made, they are vulnerable to challenge and the nature of the legal and equitable doctrines applicable in such cases means the outcome of such challenges cannot be confidently predicted.

Submissions for Ian

[24]     For Ian, Ms Maclean focused on a proposition that Andrew was defending the proceeding upon the basis of representations and understandings relating to the farm as a whole.   Ms Maclean said, for instance, that the affidavit evidence filed in support of Andrew’s notice of opposition seeks to establish that Ian made representations that Andrew would take over the farm at a time in the future.  Putting Andrew’s case in this way risked having the competing cases pass as ships in the night.   In fact, Andrew’s notice of opposition makes it clear that Andrew invokes principles of estoppel and constructive trust in relation to the dissolution of the partnership specifically.

[25]     To the extent that Andrew’s extensive evidence covered matters relating to both the farming operation (through the partnership) and the land itself, such was inevitable if Andrew was to deal comprehensively with the discussions which had occurred over the years and the succession plans which had been discussed and partly implemented.   Unsurprisingly the evidence, including the documentary evidence,  indicates  that  the family members  were not  dealing with  the farming operation and the land in separate boxes.   The successful succession planning in relation to the farm was clearly seen by all involved as requiring a comprehensive approach.

[26]     It is clear that, by such a comprehensive approach, Ian and Cynthia were pursuing plans which would enable them to have Andrew succeed to ownership of both the farm property and the farming operation while providing for their own retirement  and  preserving  funds  which  would  enable  them  to  treat  their  two daughters “fairly” (but probably not equally with Andrew).

[27]     Having characterised Andrew’s defence as resting upon an expectation that he would “take over the farm at a time in the future”, Ms Maclean submitted that that

did not  constitute an  arguable defence to  Ian’s  claim  which  relates  only to  the partnership.   Ms Maclean’s approach would ignore the way in which Andrew’s opposition  has  been  stated and  also  the history of dealings between  the parties whereby matters of succession were dealt with comprehensively and not in isolation.

[28]   Ms Maclean in her oral submissions developed a further, three-pronged explanation in order to demonstrate that Andrew’s grounds of opposition are unarguable. The three points Ms Maclean developed were that:

(a)      the records of discussions and planning consistently indicated that Andrew would be a purchaser (so as to provide funds needed by his parents);

(b)for that reason, any purchase by Andrew was likely to be on the basis of market value; and

(c)      all succession plans were expressly dependent on farm profitability increasing.

Submissions for Andrew

[29]     The  central  premise  of  Andrew’s  case,  as  identified  in  his  notice  of opposition, is that he has a share in Ian’s interest in the partnership by virtue of a constructive trust arising out of an equitable estoppel or otherwise inequity.

[30]     Put in that way, it is clear that Andrew does not assert for the purposes of his opposition to the summary judgment application a right to purchase the remaining share of the partnership at a discount or otherwise.   Rather, what he asserts is an entitlement to a share which the Court, sitting in its equitable jurisdiction, will be invited to determine in the light of the historical arrangements and expectations between the parties.  It is Andrew’s case – clearly arguable on the evidence – that he has this right in the light of the planning and discussions which have occurred, followed by Andrew’s dedication to the farming operation and the farm itself and his foregoing of reasonable income and other expectations.   He says that Ian holds at least some part of his partnership assets in trust for Andrew.  It is unnecessary and

inappropriate in a summary judgment context that I reach any conclusion as to whether the entitlement which Andrew may be found to have might equate to the full value of Ian’s share.  It is sufficient in a summary judgment context that Andrew has an arguable claim to some interest in Ian’s asset.

[31]     In  these  circumstances,  Ms  Maclean  did  not  press  her  submission  that Andrew’s arguable rights are in some way affected by the profitability or otherwise of the farming partnership.   There is no evidence before the Court which would justify a conclusion that Andrew and the farming partnership had failed to achieve any relevant benchmarks of profitability.   There is in fact evidence to suggest a degree  of  profitability,  the  exact  significance  of  which  would  require  expert evidence.

Conclusion as to dissolution of partnership

[32]     Upon the evidence filed, it is arguable that Andrew has an equitable interest in Ian’s share of the partnership and that such interest is sufficient to preclude Ian from unilaterally terminating the partnership.

The resource consent

[33]     In addition to pursuing the dissolution of partnership, Ian by his summary judgment application sought a declaration that a particular resource consent is an asset of the partnership and is held on trust by Andrew for the partnership.

[34]     Through  the  helpful  approach  adopted  by  both  counsel,  I  am  able  to summarise the factual circumstances relatively briefly and reach my conclusion on this aspect of the application.

[35]     Resource consent CRC144206, essentially for irrigation water, was issued in

Andrew’s name.

[36]     Ian deposes that the consent was obtained using partnership funds, and this was accepted by Ms Dwight.  The consent is recorded by the partners in the financial statements of the partnership as a leasehold improvement with a depreciated value.

[37]     Ian asserts that the resource consent is a partnership asset, held by Andrew on trust for the partnership.

[38]     Andrew, by his notice of opposition, stated simply that he is entitled to the consent.  In his affidavit, he explains the way in which he pursued this (and another) consent.   He says the consent was granted in his name because he had made the application and done all the work.  Later in his evidence he says that he pursued the other consent “having relied on the long-term strategy for my eventual control of the Avonvale property”.

[39]     In the way the resource consent was paid for and recorded in the partnership accounts, it is clear beyond argument that this was an asset pursued by Andrew for the benefit of the farming operation and not his personal benefit. That he devoted his personal efforts and time to obtaining the consent is explained by what he maintains is  his  reasonable  expectation  of  succeeding  to  the  farm  and  the  full  farming operation.    He  will  have the opportunity to  have  his  efforts  and  any  sacrifices brought into account when there is a substantive determination of the rights which he says (and I find arguably) arise in equity.

[40]     Ms Dwight’s primary submission at the hearing came down to a proposition that any finding of the Court in relation to the resource consent would be best dealt with when all matters relating to the partnership are resolved.

[41]     While the Court has a residual discretion to decline an otherwise justified summary  judgment,  I do  not  find  anything  in  the  present  circumstances  which suggests that refusing summary judgment in relation to the resource consent would facilitate the just, speedy, and inexpensive determination of this proceeding.13    The resource consent is effectively a stand-alone issue.  Given that it has been established that the resource consent is beyond argument an asset of the partnership, it is appropriate that at least that issue be finally resolved now.

Conclusion as to resource consent

[42]     Ian is entitled to the declaration he seeks in relation to ownership of the resource consent.

Costs

[43]     The predominant issue on this summary judgment application was that in which Ian has not succeeded.  In accordance with the principles established by the Court of Appeal in NZI Bank Ltd v Philpott, the appropriate course in that regard is to reserve costs.14

[44]     Ian has succeeded in relation to the resource consent issue but that was very much a subsidiary issue and accounted for little of the evidence or the submissions. It  is  appropriate  in  the  circumstances  that  costs  be  reserved  in  relation  to  the summary judgment application as a whole so that the Court, when ultimately determining all substantive issues, may take the full range of outcomes into account.

Orders

[45]     I order:

(a)       The    plaintiff’s    summary    judgment    application    in    relation    to

dissolution of the ICT & AI Gardner Partnership is dismissed.

(b)There is a declaration that resource consent CRC 144206 is an asset of the ICT & AI Gardner Partnership and is being held on trust by the defendant for that partnership.

(c)      The  costs  of  the  plaintiff’s  summary  judgment  application  are reserved.

Future case management

[46]     Having regard to the above findings, I adjourn the proceeding to an initial case management conference at 4.00 pm, 17 September 2015 (Associate Judge Osborne) (one hour allocated).  I direct:

(a)       The defendant is not required to plead to paragraphs [10], [11], [12] or

[13] of the statement of claim.

(b)The defendant shall file and serve his statement of defence within 10 working days.

(c)      To the extent (if any) that the defendant’s evidence to date has not exhibited documents which would be required to be disclosed by way of initial disclosure, the defendant shall complete his obligation of initial disclosure when filing and serving his statement of defence.

Associate Judge Osborne

Solicitors:

Tavendale and Partners, Christchurch

Cavell Leitch, Christchurch