GEOFFREY MIRKIN, DIANE HELEN CHITTOCK and PAMELA ANN McCALL as Executors of the Estate of WILLIAM ARTHUR FRAME s AND ALLAN WILLIAM FRAME and W & G TRUSTEE LIMITED s
[2024] NZHC 2791
•27 September 2024
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
CIV-2024-412-056
[2024] NZHC 2791
BETWEEN GEOFFREY MIRKIN, DIANE HELEN CHITTOCK and PAMELA ANN McCALL
as Executors of the Estate of WILLIAM ARTHUR FRAMEPlaintiffs
AND
ALLAN WILLIAM FRAME and W & G TRUSTEE LIMITED
Defendants
Hearing: 11 September 2024 Appearances:
B A J Taylor for Plaintiffs
J I Grant and K E Tohill for Defendants
Judgment:
27 September 2024
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 27 September 2024 at 11.45 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
MIRKIN v FRAME [2024] NZHC 2791 [27 September 2024]
[1] The plaintiffs (the executors) are the executors and trustees of the estate of William Arthur Frame (William). William was married to Gwenda Frame. They farmed a property at Roxburgh for many years and had one son (Allan) and four daughters.
[2] The defendants (the trustees) are the current trustees of the Burnbank Trust (the Trust). Allan is one of the trustees and a beneficiary, and effectively the Trust is under his control.
[3]The executors apply for summary judgment to recover debts as follows:
(a)$800,000, being the balance of an advance made by William to the trustees; and
(b)$371,308, being the credit balance of William’s beneficiary current account with the trustees.
[4]The trustees oppose summary judgment on the grounds:
(a)the executors are prevented from demanding payment of the advance and the current account by the terms of William’s will; and
(b)they have an equitable set-off in respect of a debt owed to the trustees by the W A Frame & Son Partnership (the Partnership), being the farming partnership of William and Allan; and
(c)there are material disputes of fact that make this case unsuitable for summary judgment.1
[5]The issues that arise are as follows:
(a)Are the advance and current account due and payable?
1 A further defence that the current account of Gwenda with the trustees was not capable of being transferred to William upon her death and was not payable was not pursued.
(b)Do the trustees have a defence of equitable set-off in respect of amounts owing by the Partnership to the trustees?
(c)Are there material disputes of fact that make this case unsuitable for summary judgment?
Background
[6] As noted above, William and Gwenda had a farm at Roxburgh. In or around 1 July 1991 William and Allan entered into the Partnership to undertake the farming operations.
[7] On 28 August 2006 William, Gwenda and Allan settled the Trust. They were all original trustees and beneficiaries of the Trust. By an agreement of the same date, the Partnership sold its assets to the Trust for $2,160,000 plus GST. The agreement for sale and purchase noted that of the purchase price $1,440,000 plus GST was owed to William and $720,000 was owed to Allan. These sums were left owing and repayable on demand with interest as specified from time to time. William and Allan continued to conduct the farming operations through the Partnership and undertook a gifting programme in respect to the amounts owed to them.
[8] On 21 January 2023 William and the then trustees signed a deed of partial release of debt, and recorded that the balance then owing to William by the trustees was $800,000. There was no further gifting by William prior to his death.
[9] Gwenda died on 22 November 2021. Probate of Gwenda’s last will dated 18 November 2016 was granted on 19 January 2022. By the terms of her will, Gwenda bequeathed to William any monies owed to her by the Trust. There was a sum owed to her in her beneficiary current account of $231,509.
[10] On 24 May 2023 William signed his last will. He died on 10 July 2023. The terms of the will contained the following relevant clauses:
9At the date of this my Will, my Family Trust owes to me an unsecured interest free loan repayable upon demand of the sum of $800,000.00, together with beneficiary accounts as per the financial accounts for
the Trust totalling approximately $331,800.00 including the beneficiary account inherited from my late wife GWENDA BARR FRAME (“the Loan”).
10At the date of this my Will my Family Trust also owes me approximately $100,298.00 (which will fluctuate from time to time) in a Beneficiary Current Account (“my current account”).
11The Loan is the balance amount owing to me by my Family Trust as a consequence of me selling to my Family Trust in the year 2006 my interest in the Farm Land and Buildings as recorded in a Deed of Acknowledgment of Debt dated 28 August 2006, an unsecured interest free loan repayable upon demand of the sum of $800,000.00, together with beneficiary accounts as per the financial accounts for the Trust totalling approximately $331,800.00 including the beneficiary account inherited from my late wife GWENDA BARR FRAME (“the Loan”).
12At the date of this my Will, my Family Trust owns all of the Farm Land and Buildings in its own right upon which the Partnership farms.
13In the event the Farm Land and Buildings have been sold during my lifetime, the Loan and my current account (or the balance owing at such date), together with any accrued interest thereon, on my death shall form part of the residue of my estate in Clause 15.
14In the event the Farm Land and Buildings have not been sold prior to the date of my death then the following provisions shall apply, namely:
(a)I do not wish the Loan and my current account to be repaid until such time as the Farm Land and Buildings are sold by my Family Trust or upon the expiry of six (6) months from the date of my death provided that the loan and my current account shall be upon demand in the event that my Family Trust does not agree to repay the loan and current account upon the expiry of six (6) months from the date of my death together with an inflation adjustment (CPI) on such sum from the date of my death until the date of repayment;
(b)Pending the sale, I direct my Trustees to continue to lend the Loan and my current account to the trustees of my Family Trust from my estate on an unsecured interest free loan basis;
(c)On the sale of the Farm Land and Buildings the Loan and my current account shall be repaid to my estate in full and shall form part of the residue of my estate in Clause 15;
(d)In the event that Allan is farming at the date of my death and subsequently dies, my Trustees shall continue the Loan and my current account to the trustees of my Family Trust from my estate for a period of six (6) months from the date of my death, prior to calling up the Loan and my current account so long as Alan [sic] or any member of my family is farming on the Farm Land and Buildings. This will either provide the
trustees of Allan’s estate sufficient time to arrange for the trustees of my Family Trust to sell the farm and for the Partnership to sell the stock and plant or, if Alan [sic] is still farming, time for him to either refinance or arrange with the trustees of my Family Trust to sell the farm and the Partnership assets provided that the loan and my current account shall be upon demand in the event that my Family Trust does not agree to repay the loan and current account upon the expiry of six (6) months from the date of my death together with an inflation adjustment (CPI) on such sum from the date of my death until the date of repayment.
[11] The financial reports for the Trust to 30 June 2023 show William’s $800,000 advance remained owing and there was a credit balance in his current account of
$371,308. The financial accounts also show as an asset of the Trust an amount owing by the Partnership of $667,931.
[12] On 3 August 2023 the lawyers acting for the executors, Wilkinson Rodgers, wrote to Allan, providing him with a copy of William’s will and summarising the terms of the Will as follows:
...
6Effectively your father has chosen under the terms of his Will to leave all of his assets that remain outside of the Family Trust to your four sisters. Please note the following:
…
(b)Under clause 9 there is still a debt owing by the Family Trust to your father (now his estate) of $800,000.00 together with beneficiary accounts as per the financial accounts referred to in Clauses 9 and 10 of the Will. These amounts are required to be paid under the terms of the Will to the executors of the estate on the expiry of 6 months from the date of your father’s death.
(c)Please also note that if the Trust does not agree to repay the loan and current accounts upon the expiry of 6 months from the date of your father’s death then the amount outstanding is to be inflation adjusted until the date of repayment.
7.Also, please note that under the terms of the Will under clause 15, after payment of debts and funeral expenses the residue of the estate is divided equally between your four sisters.
...
The trustees acknowledge that it may not be a simple option for you to pay to the estate approximately $1.2 million within six months. The trustees
therefore anticipate having discussions with you with regard to timing of either the sale of the farm property or part of the farm property and, what arrangements would need to be put in place regarding the operation of the farm bearing in mind that we understand you are not currently able to drive nor actively work on the farm property due to your own health issues. Those are discussions that would be had in the future and perhaps David as advisory trustees [sic] could assist in that process.
...
[13] On 15 September 2023 the lawyer acting for Allan, Kieran Tohill, responded to the letter of 3 August 2023. He appeared to challenge the date for repayment of the advance and the current account and the ability to charge interest and suggested that the amount owing by the Partnership to the trustees could be set off against William’s current account. Mr Tohill concluded:
We therefore suggest that we need to wait for the 2023 financial statements for the Trust and Partnership to be completed by the farm Accountant before we can progress the matter further especially in regard to what is owed by the Trust and Partnership to the late WA Frame’s estate.
[14] The next correspondence in evidence is a letter from Wilkinson Rodgers to Allan of 6 December 2023, which enclosed demands by the executors upon the trustees for payment of the $800,000 advance and an amount of $300,000 of William’s current account:
...
3Please find attached demand for repayment of the loan from the Estate to the Burnbank Trust in the sum of $800,000.00 and demand for repayment of $300,000.00 of the Estate’s current account in the Trust.
4.The attached demand for repayment of the loan by Burnbank Trust has also been provided to the shareholder of the trust company, WR Shareholder Limited for the purposes of this demand. We have already stated in previous communications with you and your lawyer that there is an alternative to finding the $1.1 million by 10 January 2024. You could agree to pay interest as specified by your dad in his will. Failing that, the executors of the estate will have no choice if you do not enter into an arrangement regarding the $1.1 million nor agree to pay interest but to then proceed to obtain a judgment against the Burnbank Trust which could then result in the sale of the farm.
...
[15] On 22 December 2023 Wilkinson Rodgers sent another letter to Allan, referring to a meeting between Allan and his sisters where Allan was said to have requested an extension of time to obtain funding to repay “advances owing by the Trust to your father’s estate as per the notices of demand”. Wilkinson Rodgers advised that the executors were prepared to agree to a three-month extension for payment provided the trustees signed a Deed of Acknowledgment of Debt and agreed to pay interest. The letter said:
If you do not sign the Deed of Acknowledgement of Debt the Trustees propose to file an application in the Court to seek a judgment against the Trust under the demand notices issued to you and that a continued failure to pay will result in the Court being requested to order the sale of the farm to satisfy the debt.
[16] On 26 January 2024 Mr Tohill wrote to Wilkinson Rodgers acknowledging that the advance of $800,000 was not in dispute, but disputing payment of the current account on the basis there was an amount owing by the Partnership to the trustees. He also raised issues concerning the value of assets of the Partnership. In conclusion, Mr Tohill wrote:
5In terms of a way forward to settle the debt owed to the Trust and Estate, our client has two main options:
1.Obtain lending from the bank; or
2 Sell part of a substantial hill country block.
6Either option takes some months to progress, so we propose to come back to you by end of March 2024.
[17] Wilkinson Rodgers responded by email on 21 February 2024, which included advice that if there was not a formal proposal for settlement of monies owing to the estate within 10 working days they would need to pursue recovery “through usual means”.
[18]By a subsequent undated letter, Mr Tohill replied:
...
5.We have set out our client’s proposal in our earlier correspondence. One option is to obtain finance from a Trading Bank which is being investigated at the moment. Subdivision of a substantial block is also being investigated. We therefore ask that matters rest until those proposals are finalised.
[19]On 14 May 2024 the executors issued this proceeding.
[20] Allan says, as he would not be able to obtain a loan from the bank sufficient to pay the executors, he listed the farm for sale on 30 May 2024 with PGG Wrightson Real Estate. He also says:
At no point during correspondence with the plaintiffs did I advise that the Trust did not agree in principle to repay the loan and current-account within the six months following the date of my father’s death. I simply had questioned the quantum of the current-account given the debts owed between the various entities including the Partnership, the Trust and the estate of both my mother and the plaintiff were inconsistent and not defined.
(emphasis added)
[21] Although there is no evidence before the Court about it, Ms Grant advised me at the hearing there has been a sale of some part of the farm but that to complete the sale a subdivision is to be undertaken by July 2025.
Summary judgment principles
[22]The relevant rule is r 12.2 of the High Court Rules 2016 which reads as follows:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[23] The principles that apply to a plaintiff’s summary judgment application were summarised by Associate Judge Osborne in Mount Grey Downs Ltd v Pinot Properties Ltd as follows:2
(a)Commonsense, flexibility and a sense of justice are required.
(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 Mount Grey Downs Ltd v Pinot Properties Ltd [2018] NZHC 3094 at [12].
(c)The Court will not hesitate to decide questions of law where appropriate.
(d)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements in affidavits.
(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.
(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.
(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.
(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.
(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.
(footnotes omitted)
Are the advance and current account due and payable?
[24] The executors’ case is that both the advance and the current account are assets of the estate and under cl 14(a) of William’s will they are repayable upon the expiry of six months of William’s death. On 5 December 2023 they made a demand requiring payment of the advance and $300,000 of the current account on or before 10 January 2024 (being six months of William’s death) but no payment was made. They also plead that while the balance of the current account amounting to $71,308 was not demanded at that time, it is also sought as part of this proceeding.
[25] The trustees’ position is that the executors cannot require repayment of the advance and current account because:
(a)under cl 14(a) of the will, those amounts were only to be demanded in the event that the trustees did not agree to repay them within six months of William’s death and at no time did the trustees “deny or not agree to repay” the advance and current account; and
(b)under cl 14(b) of the will, as part of the farm has now been sold the executors must leave the advance and current account owing on an unsecured interest-free basis.
[26] The trustees’ defence raises issues concerning the interpretation of the will. The traditional approach to the interpretation of wills was summarised in Re Jensen as follows:3
... The overriding objective is to give effect to the intentions of the testator. All canons of construction must be subservient to that end. The testator’s intentions are to be gleaned from an objective appraisal of the testamentary documents viewed as a whole but in cases of doubt the wording is to be interpreted in the context of those facts which must have been in the contemplation of the testator.
[27] Where the wording of a will is not meaningless, ambiguous or uncertain the Court will give effect to the plain meaning, even if the will-maker may have had a different subjective intention.4 Where there is ambiguity or uncertainty, or the words of a will are meaningless the Court may now have regard to s 32 of the Wills Act, which provides:
32 External evidence
(1)This section applies when words used in a will make the will, or part of it,—
(a)meaningless; or
(b)ambiguous on its face; or
(c)uncertain on its face; or
3 Re Jensen [1992] 2 NZLR 506 (HC) at 510.
4 Re Andrews [2021] NZHC 3179 at [11].
(d)ambiguous in the light of the surrounding circumstances; or
(e)uncertain in the light of the surrounding circumstances.
(2)The High Court may use external evidence to interpret the words in the will that make the will or part meaningless, ambiguous, or uncertain.
(3)External evidence includes evidence of the will-maker’s testamentary intentions.
(4)The court may not use the will-maker’s testamentary intentions as surrounding circumstances under subsection (1)(d) or (e).
[28] The approach to s 32 was discussed by the Court of Appeal in Wilson v Davidson as follows:5
[18] ... Under s 32 external evidence of background circumstances can be used to interpret words in the will that make the will or part of it meaningless, ambiguous or uncertain. But s 32 goes further than the rules applying to the interpretation of contracts. The ordinary principles of contractual construction prohibit the admission of evidence as to a contracting party’s actual intentions, and prior to the Act, this was also the approach to wills. Section 32(3) explicitly goes further in permitting evidence of the will-maker’s testamentary intentions to be considered. However, evidence of a will-maker’s wish to benefit a person is not evidence of surrounding circumstances for the purposes of identifying uncertainty or ambiguity under s 32(1)(d) and (e). It is admissible, rather, as evidence to assist in interpreting a will already found to be uncertain or ambiguous.
(footnotes omitted)
[29] Prior to his death William could have required repayment of the advance and current account at any time. He could also have specified that the advance was to incur interest. However, by the terms of his will he directed his executors as to the circumstances under which repayment of the advance and current account would be required.6
[30] Clause 14 of the will applied to the circumstances where the “Farm Land and Buildings” had not been sold at the date of William’s death. That is what occurred. The term “Farm Land and Buildings” refers to “the land and buildings owned by [the Trust] situated at Langlea Road, Roxburgh”.7
5 Wilson v Davidson [2017] NZCA 468.
6 No submissions were made that cl 14 was not binding on the executors or did not have testamentary effect.
7 Clause 7 of William’s will.
[31] Clause 14 is made up of four subclauses. Most relevant for present purposes are cls 14(a) and (b).
[32] Clause 14(a) is in two parts. In the first part William expresses the wish that the advance and current account not be repaid until such time as the “Farm Land and Buildings” are sold or upon the expiry of six months from his death. While it is clear from this and other clauses in the will that William contemplated that the farm might be sold to repay the sums owing, he expected repayment upon the expiry of six months of his death. Any other interpretation would render the words “upon the expiry of six
(6) months from the date of my death” redundant.
[33] That interpretation is confirmed by the second part of cl 14(a) beginning with the words “provided that”. It states that if the trustees did not agree to repay the advance and current account within six months those amounts would thereafter be “upon demand” along with an inflation adjustment until repayment.8
[34] The nature of an on-demand liability was discussed by Tipping J in DFC New Zealand Ltd v McKenzie. He said:9
That simply means that in the case of a loan repayable on demand the liability to repay arises without demand unless the parties have expressly or by clear and necessary implication made it apparent that they intended the obligation not to arise unless and until a demand is made.
...
The true distinction is therefore that if the obligation to repay is express as “on demand” simpliciter there is no requirement to make demand and time starts to run from the date the monies were advanced. This is because the law has treated the words “on demand” as adding nothing to the implied promise immediately to repay. In a sense the words “on demand” simply reinforce and declare what the law takes to be implicit anyway … In the case of a loan on demand simpliciter the demand is not part of the cause of action. The position is otherwise if the demand is intended to be part of the cause of action.
8 While in correspondence the trustees’ lawyers challenged the executors’ ability to recover an inflation adjustment that is not sought in this proceeding.
9 DFC New Zealand Ltd v McKenzie [1993] 2 NZLR 576 at 582-583.
[35] The trustees’ first contention is that repayment of the advance and current account could only be required if the trustees did “not agree” to repay them within six months. They say that as they did not “deny or not agree” to repay the advance and current account the executors were unable to demand repayment; the date for repayment was effectively at large. This submission falsely conflates an agreement to repay with the absence of a refusal to repay. They are not the same. The clause requires the trustees’ agreement to repay within six months, failing which the sums owing were on demand.
[36] While accepting the advance (but not the current account which they have disputed) was owing, the trustees did not agree to repay it within six months or at all. In response to the executors’ lawyers’ correspondence seeking arrangements for, and then demanding, repayment, Mr Tohill, on behalf of Allan and the trustees, variously advised that the matter had to wait until the 2023 accounts were prepared (15 September 2023 letter), that he would come back to the executors’ lawyers by the end of March 2024 when his clients had progressed their options (26 January 2024 letter) and that the matter should “rest” until options to obtain finance or subdivide the land were investigated (undated letter).
[37] Ms Grant places some emphasis upon the letter from Wilkinson Rodgers to Allan dated 22 December 2023 referring to discussions between Allan and his sisters and enclosing the Deed of Acknowledgment of Debt, but there was nothing in the letter that recorded an agreement to repay the debts and the Deed was never signed by the trustees. The absence of the agreement to repay is confirmed by Allan’s evidence referred to at [20] above.
[38] The trustees’ next argument is that as the “Farm Land and Buildings” have now been sold the executors are obliged to leave the advance and current account owing on an unsecured interest-free basis. There is no evidence before me that the “Farm Land and Buildings” have been sold. But accepting that there has been a sale, I am told it is of part only of the “Farm Land and Buildings” and therefore not a sale contemplated by cl 14(b).
[39] In any event, I do not accept the trustees’ argument as to the effect of cl 14(b). The words “[p]ending the sale” in cl 14(b) can only refer to a sale of the farm as contemplated in the first part of cl 14(a). Such a sale was not obtained within six months of William’s death, at which point the advance and current account were payable “on demand”.
[40] While cl 14 is not well crafted, its meaning and application to the facts is clear. Neither party suggested that I should have regard to extrinsic evidence to determine its meaning. I am therefore satisfied that the advance and current account became repayable on 10 January 2024.
Do the trustees have a defence of equitable set-off in respect to amounts owing by the Partnership to the trustees?
[41] The trustees argue they have a set-off to the executors’ claim because it would be unjust to allow the executors to have judgment without acknowledging the debt owed by the Partnership to the trustees. Counsel confirmed that the trustees are asserting an equitable set-off.
[42]In his affidavit, Allan says as follows:
39.As set out in the financial statements of the Partnership, the Partnership owed the Trust $667,931. On or about 26 January 2024, in the same correspondence that advised I would have to be looking at selling the Farm Land and Buildings, I called in the $667,931 debt and advised the plaintiffs to that effect.
40.The plaintiffs (my father’s estate) are liable for half that debt to the amount of $333,965.50.
41.The plaintiffs have not joined the Partnership as a party to these proceedings, the debt referred to above which is certain and was pointed out to the plaintiffs is still owing. This debt should be taken into account in order to set off any money that the Trust may owe the plaintiffs, although in absence of further evidence confirming the ability of my mother’s current-account to be transferred to the plaintiffs, it is still unclear as to what is actually owing by the Trust to the plaintiffs.
[43] A set-off is a right of a defendant facing a money claim to use their own money claim against the plaintiff to absolve themselves wholly or partially from their
obligations to the plaintiff.10 A set-off is distinguishable from a counterclaim. A counterclaim gives a defendant the right to judgment against a plaintiff which is independent of the plaintiff’s claim against the defendant. The distinction is important in a summary judgment context, because a set-off is a defence to a plaintiff’s action which a counterclaim is not.11
[44] The circumstances under which an equitable set-off may be claimed have been summarised in Grant v NZMC Ltd and Hamilton Ice Arena Ltd v Perry Developments Ltd.12 In Grant, the Court of Appeal said:13
… The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.
[45] In Equity and Trusts in New Zealand, the authors note that the principle underlying equitable set-off is that the plaintiff’s claim is impeached by the defendant’s claim, rendering the plaintiff’s claim against the defendant unconscionable or inequitable.14 To establish an equitable set-off the link between the two claims must be such that they are, in effect, interdependent to a degree that judgment on one cannot fairly be given without regard to the other. Two cases with factual similarities to the present helpfully illustrate these principles.
[46] In Herring v Herring, Mr and Mrs Herring had established businesses together, including a company called Web Power Ltd.15 They were also settlors and trustees of the R J and B M Herring Trust which had shares in Web Power Ltd. To acquire property Mr and Mrs Herring separately made advances to the trustees and these advances were payable on demand. Mr and Mrs Herrings’ marriage broke down. Mr Herring made demand upon the trustees for repayment of his advances. Web
10 Andrew Butler (ed) Equity and Trusts in New Zealand (3rd ed, Thomson Reuters, Wellington, 2009) at [38.4(1)].
11 Roberts Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15 (HC).
12 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA); Hamilton Ice Arena Ltd v Perry Developments Ltd
[2002] 1 NZLR 309 (CA).
13 At 12-13.
14 Andrew Butler (ed) Equity and Trusts in New Zealand, above n 10, at [38.4(1)].
15 Herring v Herring [2010] 2 NZLR 549.
Power Ltd and Mrs Herring (who was the sole director of Web Power Ltd) entered into a deed of assignment of debt with Mrs Herring in her capacity as a trustee of the R J and B M Herring Trust of part of the undisputed debt which Mr Herring owed to Web Power Ltd for drawings as a shareholder. It was intended thereby that Mrs Herring would be able to meet Mr Herring’s demand by off-setting the sum from his overdrawn shareholder’s current account to Web Power Ltd. When Mr Herring’s demand was not paid, he brought proceedings by way of summary judgment and Mrs Herring argued that there was a defence by way of equitable set-off.
[47] In the High Court, Fogarty J accepted there was an arguable defence of equitable set-off. He considered it was formalistic for Mr Herring to call for satisfaction of the trustees’ indebtedness to him while there was a case that he had a greater indebtedness to Web Power Ltd, one of the assets held by the trustees. He said:
[30] There can be no dispute that the affairs of Webpower and its owners, the trustees, are interrelated. I do not think that too much emphasis should be placed on the selection of the word “interdependent” in the summation in Grant. On the facts of that case, coupled with the analysis of the authorities which precede it, the word “interrelated” could have been substituted without there being any significant difference in meaning. ...
[48] On appeal, the Court of Appeal rejected the defence of set-off.16 It did so on the basis that the lack of interdependence was fatal to the assertion that there was an arguable set-off. The Court did not accept Fogarty J’s view that the words “interdependent” and “interrelated” could be substituted one for the other. The Court did not consider that the required interdependence between the claims was such that the existence of the debt assigned by Web Power Ltd should be regarded as impeaching the debt owed to Mr Herring and identified a number of factors supporting that, namely:
(a)Mr Herring’s claim arose from an advance made to the trustees to acquire assets of the trust, whereas the proposed set-off arose out of Web Power Ltd’s business and advances made to Mr Herring as a shareholder.
16 Herring v Herring [2010] NZCA 500, [2011] 2 NZLR 433.
(b)The link between the affairs of the trust and those of Web Power Ltd was limited to the fact the trustees were shareholders of Web Power Ltd.
(c)The trustees’ shareholding did not create any beneficial interest in Mr Herring’s debt to Web Power Ltd.
(d)The parties could have provided that the debt owing by the trust would be extinguished by way of Web Power Ltd drawings but did not do so. The only reductions in trust debt were by way of gifting.
[49] Shailer v Shailer has even closer parallels to this case.17 Mr and Mrs Shailer were a married couple who established and ran a family dairy farm and contracting business. They established several trusts and a partnership to operate one or more of their businesses. Mr and Mrs Shailer transferred certain land owned by them to a trust, which the trust acquired by way of loans made to it by Mr and Mrs Shailer intending that over subsequent years they would reduce the debt by way of gifts. Mr and Mrs Shailer separated, and Mrs Shailer made demand upon the trustees for payment of advances still owing. The debt was not paid and Mrs Shailer sought summary judgment. Mr Shailer did not dispute that the trust owed money to Mrs Shailer but raised several grounds in defence, including equitable set-off. This was on the basis that their partnership owed $594,704 to the trust, and it would be inequitable for Mrs Shailer to claim advances owed to her by the trust while at the same time disregarding the debt owed by the partnership to the trust.
[50] Mrs Shailer’s counsel argued that Mr Shailer faced an insuperable problem in that equitable set-off requires the parties to be the same in both the claim and crossclaim, and that was not the case as the claim which the trust sought to set-off against Mrs Shailer’s claim was not a debt owed to the trust by Mrs Shailer alone but a debt owed to the trust by the partnership. He argued that equity did not permit a
17 Shailer v Shailer [2015] NZHC 250.
debtor to set-off against a debt owed to an individual an amount which was owed to the debtor by a partnership of which the individual is a member.18
[51] Associate Judge Smith rejected the defence of equitable set-off. He held that Mr Shailer had not provided adequate particulars of the basis for the equitable set-off sufficient to show that the defence was at least reasonably arguable. The following considerations led to that conclusion:
(a)The parties’ intention appeared to have been to keep the various debts separate as there was no evidence a merger of accounts was intended.
(b)No evidence was provided as to how the debt owed by the partnership to the trust was constituted.
(c)It was not sufficient for Mr Shailer to refer broadly to the marriage, the common business enterprise and the fact that assets and debts had generally been used for common purposes. That approach was insufficient to show unconscionability or interdependence in the face of the separate structures which had been deliberately created to run the businesses, hold their assets and the complete absence of evidence establishing that the claims could properly be regarded as interdependent.
[52]Relevantly, Associate Judge Smith said:
[56] Quite apart from the identity of parties issue, what Mr Shailer needed to do was provide evidence showing that there is at least a reasonable argument that some or all of the debt owing by the partnership to the Trust was incurred for purposes which in some way are so closely linked to the borrowing from Mrs Shailer for the acquisition of the farm land that the partnership debt undermines, impeaches, or extinguishes the debt owed by the
18 Shailer v Shailer, above n 17, at n 12 citing Re Pennington & Owen Ltd [1925] Ch 825 and Laws of New Zealand Set-Off and Counterclaim at [68]:
“Debts owed by and to a firm. A defendant sued for a debt due from himself alone may not set off a debt owing to a firm of which he is a member. Similarly, a debt owed by a firm may not be set off against a claim by an individual partner.
However, a joint debt due from two partners on an account may be set-off against a debt due to one of the partners on another account, when from the conduct of the parties it may be inferred that they intended the accounts to be amalgamated: Ell v Harper & Anor (1886) 4 NZLR (SC) 307.”
Trust to Mrs Shailer. In my view, Mr Shailer has failed to produce evidence sufficient to meet the “arguable case” threshold on that issue.
[53] Applied to this case, the trustees have not established an arguable case to an equitable set-off. They have failed to show that the debts owing by the trustees to William and the debt owing by the Partnership to the trustees are interdependent, such that it would be unconscionable to allow judgment in favour of the executors without acknowledging the Partnership debt for the following reasons:
(a)The trustees have provided no evidence as to how the debt owed by the Partnership to the trustees was incurred.
(b)The debts do not arise out of the same transactions. The debts owed to the executors arise from advances made to trustees to acquire assets of the Trust, whereas I can only infer the debt owed by the Partnership has arisen from the operation of the Partnership business.
(c)The parties to the claims are not the same. The executors seek to recover a debt owed by the trustees to William alone. The trustees attempt to set up a debt owed by the partners to the Partnership.
(d)Such evidence as there is would suggest that the intention of the parties was to keep the various debts separate, and there is no evidence that any setting-off or merger of accounts was undertaken or intended.
(e)The fact that both claims arose broadly in connection with the family farm and its operation does not of itself establish the required interdependence of the claims when the parties have deliberately established separate structures to own the assets and operate the farming operations.
Are there material disputes of fact that make this case unsuitable for summary judgment?
[54] The disputes of fact relied upon concern the value of assets of the Partnership and whether they are sufficient to pay any debt owing by the Partnership to the Trust.
These matters are not relevant to the claim before me, except to the extent it may have a bearing on whether to exercise a discretion not to enter summary judgment.
Discretion
[55] The Court has a residual discretion not to enter summary judgment despite being satisfied that a defendant has no defence to the claim, but it is a discretion that will be rarely exercised and then only to avoid oppression or injustice to a defendant.19 Here, no submissions were made that I should exercise the discretion in favour of the trustees, nor do I think any such submissions could be advanced.
[56] William and Allan organised their affairs utilising trust and partnership structures and enjoyed the advantages that provided. To the extent the outcome of this claim is a result of the manner in which they organised their affairs, the trustees must accept those consequences.
[57] The trustees have the ability to pay the debt owed to the executors. They could do so from the sale of Trust assets, and I am told a sale of part of the farm has been entered into. The executors indicated a willingness to give further time for payment provided the trustees agreed to pay interest. That was an entirely reasonable position.
[58] Ms Grant submits the executors are wrong to suggest that the trustees could sell the Partnership assets to pay the sums owed to the Trust by the Partnership. They also say there is a dispute as to the value of those assets. However, the Partnership assets are in Allan’s possession and under his control and their value closely approximates the amount owing to the trustees. It is within Allan’s power to sell or acquire the estate’s interest in the Partnership assets to satisfy the Partnership’s debt.
Result
[59]The executors are entitled to summary judgment in the amount of $1,171,308.
[60]As regards interest, it is awarded as sought by the executors as follows:
19 Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205(CA) at 209; Berg v Anglo Pacific International (1988) Ltd (1989) 1 PRNZ 713 at 717; and Dominion Breweries Ltd v Countrywide Banking Corporation Ltd CA314/91, 18 August 1992.
(a)Interest is payable on the amount of $1,100,000 under s 10 of the Interest on Money Claims Act 2016 from 10 January 2024 to the date of payment.
(b)Interest is payable on the amount of $71,308 under s 10 of the Interest on Money Claims Act 2016 from the date of judgment to the date of payment.
[61] The plaintiffs are entitled to 2B costs. I trust counsel will cooperate and reach agreement on the quantum of costs, but in the event they do not agree they may file memoranda within 14 days and I will deal with the matter on the papers. Memoranda should not be longer than six pages.
O G Paulsen Associate Judge
Solicitors:
Wilkinson Rodgers Lawyers, Dunedin Kieran Tohill Law Ltd, Alexandra
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