Hansard v Hansard

[2014] NZCA 562

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA512/2013 [2014] NZCA 562

BETWEEN

SHARON GRACE HANSARD as a

trustee of the D & S Hansard Family Trust
Appellant

AND

GERALD GUY HANSARD and DIANA HANSARD as trustees of the GG Hansard Family Trust No 2

Respondents

Hearing:

20 May 2014 (further submissions received on 11 November

2014)

Court:

Randerson, Winkelmann and Lang JJ

Counsel:

D E Smyth and P J Kennelly for Appellant
D J Chisholm QC and S J Davys-Brown for Respondent

Judgment:

22 December 2014 at 10:00 am

FINAL JUDGMENT OF THE COURT

A     The appeal is dismissed in all respects.

BThe respondents are entitled to costs on a Band A basis for a standard appeal together with usual disbursements.

REASONS OF THE COURT

(Given by Lang J)

[1]      The respondents in this proceeding are the trustees of the GG Hansard Family

Trust No 2 (GG Trust).  They obtained judgment in the High Court against their son

David Hansard (David) and his estranged wife Sharon Hansard (Sharon) for the sum

HANSARD v HANSARD CA512/2013 [2014] NZCA 562 [22 December 2014]

of $1,222,658.1   That sum represented two debts that the trial Judge found David and Sharon were liable  to  pay to  the  GG Trust  in  their capacity as  trustees  of the D & S Trust.  David has always admitted liability for the two debts, but Sharon has always maintained that she is not liable to pay them.

[2]      In an interim judgment delivered on 4 September 2014, we dismissed an appeal by Sharon to the extent that it related to one of the debts, namely a debt in the sum of $509,863.2   We concluded, however, that the GG Trust had failed to establish that Sharon was liable in respect of the second debt.  This was a debt in the sum of

$712,795 that had originally been owed to the GG Trust by David and Sharon’s company, MH Publications Ltd (MHP).  The trustees of the GG Trust contended that the trustees of the D & S Trust had assumed liability for this debt when the D & S Trust acquired certain business assets from MHP.  We held that the GG Trust had failed to prove that Sharon had ratified David’s decision to assume liability for this

debt.3

[3]      Notwithstanding this conclusion, we considered that the GG Trust might be entitled to rely on their claim for relief based on estoppel.  The trial Judge did not find it necessary to consider this issue, because she held that Sharon had ratified David’s decision to assume liability for the loan of $712,795.   We therefore set a timetable for counsel to file further submissions dealing with the issue.   We have now  received  those  submissions,  and  are  in  a  position  to  finally determine  the appeal.

The issue

[4]      The  sole  issue  we  are  now  required  to  determine  is  whether  Sharon  is estopped by her conduct from denying that the D & S Trust is liable to the trustees of

the GG Trust in respect of the debt of $712,795.

1      Hansard v Hansard [2013] NZHC 1692 at [69].

2      Hansard v Hansard [2014] NZCA 433 [Interim Judgment].

3 At [60].

Relevant principles

[5]      The relevant principles are not in dispute.  As this Court confirmed recently in Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, a party seeking to rely upon a claim based on estoppel must establish four elements.4  These are:

(a)      The party against whom the estoppel is alleged has acted in a clear and unequivocal manner that has caused the claimant to have a certain belief or expectation.

(b)      The claimant has reasonably relied upon that belief or expectation.

(c)      The claimant has suffered detriment by relying on the belief or expectation.

(d)It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.

Did Sharon act in a manner that created or encouraged a belief or expectation by  the  trustees  of  the  GG Trust  that  she  had  agreed  to  the  D  &  S Trust assuming liability for the loan?

[6]      The trustees of the GG Trust contend that between 2005 and 2009 both Sharon and David acted in a manner that led the GG Trust to believe and expect that the D & S Trust had assumed liability for the loan.

[7]      As we have already observed, David has always accepted that the D & S Trust assumed liability for the loan.  The trustees of the GG Trust rely on several aspects of Sharon’s conduct to establish this element of their claim for relief based on estoppel.

[8]      First,  they  point  out  that  Sharon  permitted  the  D  &  S  Trust  to  acquire business assets worth approximately $308,000 from MHP. This occurred at the same

4      Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44], applying Burbery Mortgage Finance and Savings Ltd (in rec) v Hindsbank Holdings Ltd [1989] 1 NZLR 356 (CA) at 361 and Gold Star Insurance Ltd v Gaunt [1998] 3 NZLR 80 (CA) at 86.

time as the journal entries by which the D & S Trust purportedly became liable for the loan to the GG Trust.  Thereafter the D & S Trust charged MHP rental in respect of the use of the equipment it had acquired from MHP.

[9]      The trustees of the GG Trust also rely upon the fact that between 2005 and

2009 Sharon joined with David in signing several sets of financial statements and resolutions.  She did so in her capacities as a director of MHP and a trustee of the D & S Trust.  The financial statements recorded that the D & S Trust owed the sum of $712,795 to the GG Trust.   The financial statements for the D & S Trust also showed the equipment that the D & S Trust had acquired from MHP as assets of the trust.

[10]     We are not convinced by these arguments.   Although Sharon undoubtedly signed the financial statements and resolutions, the evidence does not establish that the trustees of the GG Trust were aware of that fact at the time.  For that reason we do not see these actions by Sharon as assisting the trustees of the GG Trust to establish that her conduct led to their belief and expectation that the D & S Trust had assumed responsibility for the debt.

[11]     Similarly, the evidence establishes that the trustees of the GG Trust were generally aware that one of the purposes for which the D & S Trust was set up was to acquire and rent to MHP the business assets then owned by MHP.   They became aware of this through meetings that Mr Gerald Hansard, one of the trustees of the GG Trust, attended with David and the office manager for MHP and the D & S Trust at the time the restructure was being formulated.  The trustees of the GG Trust would also undoubtedly have been aware of the loan in the sum of $509,863 that they made directly to the D & S Trust during 2004 in order to enable the D & S Trust to purchase further printing equipment.  However, the evidence does not establish that they knew that the D & S Trust had acquired assets directly from MHP to the value of $308,000 during the 2005 year.

[12]     We consider, however, that the process by which the financial statements of all three entities came to be prepared in respect of the 2005 year is of considerable importance.  The D & S Trust and MHP engaged an accountant, Mr Stephen Jaques,

to prepare their financial statements in respect of those years.  Mr Jaques liaised with the accountant then acting for the GG Trust, Mr Hamish Giller, regarding the information to be included in the financial statements for all three entities.  Mr Giller had also been responsible for preparing the financial statements for MHP up until

2003.

[13]     MHP’s financial statements in respect of the 2004 year disclosed that the company  owed  three  loans  totalling  $712,795  to  the  GG  Trust.     Mr  Jaques understood that the D & S Trust was to assume responsibility for these loans.  He therefore removed them as liabilities in MHP’s 2005 accounts.  He then included a loan from the GG Trust in the sum of $712,795 as a non-current liability of the D & S Trust in the same year.

[14]     Mr Jaques gave Mr Giller these figures, and Mr Giller relied upon them in preparing the financial statements for the GG Trust for the 2005 year.  He did so by removing the loans previously owing by MHP as current assets of the GG Trust.  He then included a loan in the sum of $712,795 to the D & S Trust as a current asset of that Trust.   The financial statements for the GG Trust for subsequent years were prepared on the same basis.  The trustees of the GG Trust received and signed copies of the financial statements of the trust for the 2005 year and subsequently.  These clearly showed that MHP owed nothing to the GG Trust and that the D & S Trust owed it the sum of $712,795.

[15]     There has never been any dispute that Mr Jaques was acting as the duly authorised agent of both MHP and the D & S Trust when he dealt with Mr Giller. Sharon also agreed in cross-examination that Mr Giller was entitled to rely upon the information that Mr Jaques provided to him. In her capacity as a trustee of the D & S Trust and as a director of MHP, Sharon must be imputed with the knowledge of her

duly authorised agent acting within the scope of his authority.5

[16]     Sharon  also  clearly  knew  that  the  loan  existed,  because  she  signed  the financial statements for the D & S Trust in respect of the 2005 year and also those

5      Hickman v Turn and Wave Ltd [2011] NZCA] 100, [2011] 3 NZLR 318 at [192]–[197] (CA) and

Jessett Properties Ltd v UDC Finance Ltd [1992] 1 NZLR 138 (CA) at 143.

for the 2007 and 2009 years.  She did not raise any issue about the loan until after she and David separated, and the GG Trust called the loan up.

[17]     We consider that Mr Jaques’ initial actions, of which Sharon must be imputed to have knowledge, were sufficient to create a belief and expectation on the part of the trustees of the GG Trust that the D & S Trust had assumed responsibility for the loan.   Sharon’s failure to take any steps to challenge the loan in subsequent years allowed that belief and expectation to be perpetuated.

[18]     We are therefore satisfied that the trustees of the GG Trust have established the first element of estoppel.

Did the trustees of the GG Trust rely reasonably on their belief and expectation that the D & S Trust had assumed responsibility for the loan?

[19]     After 2005 the financial statements for the GG Trust continued to show that the loan was owed by the D & S Trust and not by MHP.   As we have already recorded, neither David nor Sharon raised any objection about the loan in subsequent years.  This is sufficient to show that the trustees of the GG Trust relied reasonably on their belief and expectation that the D & S Trust had assumed responsibility for the loan after 2005.

Have the trustees of the GG Trust acted to their detriment in reliance on their belief or expectation that the D & S Trust had assumed responsibility for the loan?

[20]     The trustees of the GG Trust permitted MHP to be relieved of liability in respect of the loan in the belief and expectation that the D & S Trust would thereafter be responsible for it.  From 2005 the GG Trust structured its affairs on the basis that MHP had been relieved of any liability to repay the loan.  Once that occurred, the GG Trust lost the ability to charge MHP interest in respect of the loan, and to demand that it be repaid.  The D & S Trust, on the other hand, took advantage of its ability to charge MHP substantial sums in respect of rental on the business assets and interest on the balance of the loan.   We consider that this constitutes detrimental reliance on the part of the GG Trust.

[21]     The GG Trust also permitted MHP to be relieved of liability at a time when it was operating profitably.  That ceased to be the case from about 2008, when David and Sharon first separated and the global financial crisis struck.   MHP currently owes the D & S Trust more than $1.2 million, and the evidence suggests that it will have considerable difficulty repaying that sum.  It follows that the GG Trust cannot be restored to the position it was in when it agreed to release MHP from liability in relation to the debt.  It has been placed in that position because it relied on the belief and expectation that the D & S Trust had assumed responsibility for repaying the loan.

Would it be unconscionable to permit the D & S Trust to depart from that belief and expectation?

[22]     The factors to which we have already referred are obviously also relevant to the issue of whether it would be unconscionable to now permit the D & S Trust to deny liability in respect of the debt.

[23]     We put to one side, however, the fact that the G & D Trust transferred the Orewa property to the D & S Trust at about the same time as the other transactions took place.6     Gerald’s evidence makes it clear that he viewed the transfer of the Orewa property as being entirely separate from the other transactions involving the GG Trust, the D & S Trust and MHP.  We therefore do not view the fact that the D & S Trust received the property from the G & D Trust as being relevant to the issue of whether it would now be unconscionable to permit the D & S Trust to deny liability in respect of the loan owing to the GG Trust.

[24]     Other factors may, however,  also be taken  into  account under this head. These include the fact that the D & S Trust has had the benefit since 2005 of the business assets worth $308,000 that it acquired from MHP.  It has derived income from those assets since 2005 by charging MHP rental for using them.

[25]     Mr Chisholm QC, counsel for the GG Trust, has also directed our attention to a matter that we did not appreciate when we delivered our interim judgment.  This is

6      As set out in our Interim Judgment, above n 2, at [13]–[16], the respondents transferred a property in Orewa from the G & D Trust to the D & S Trust by way of capital distribution in December 2003.

that, although the D & S Trust only received business assets worth $308,000 in return for assuming liability for the debt of $712,795, it also acquired a debt from MHP in the sum of $404,795.

[26]     MHP’s financial statements for the 2005 year show for the first time a current liability owing to the D & S Trust in that amount.  The financial statements for the D & S Trust in respect of the same year also include this debt as a current asset for the first time.  MHP has also paid interest to the D & S Trust on the debt since 2005. MHP’s financial statements in respect of the 2006 and 2007 years show the debt reducing to $225,946, before increasing to $271,135 in 2008 and $815,297 in 2009.

[27]     We therefore accept that the D & S Trust received consideration from MHP that was equal in value to the debt that it assumed to the GG Trust.  This comprised the business assets to the value of $308,000 and the debt owing by MHP in the sum of $404,795.  The D & S Trust then obtained benefits from both assets by charging MHP rental for using the business assets and interest on the debt.  It also received capital repayments totalling $178,849 during 2006 and 2007.

[28]     It is immaterial for present purposes that MHP may not have been able to pay all of the rental or interest that the D & S Trust charged.   The D & S Trust has certainly received sufficient funds from MHP since 2005 to enable it to make several distributions to Sharon and her family for their personal benefit.

[29]    Viewing these factors collectively, we have concluded it would now be unconscionable for the trustees of the D & S Trust to be permitted to deny liability to repay the debt of $712,795.  The trust has obtained benefits from the assets that it acquired from MHP and must now meet the obligation to the GG Trust that it incurred in return.

Remedy

[30]     This Court considered the issue of the appropriate remedy for a claim based on estoppel in considerable detail in Wilson Parking.7    The appropriate remedy in

7      Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, above n 4, at [72]–[137].

such cases will depend on the nature of the equity created by the conduct giving rise to the estoppel.  A flexible yet principled approach is required.8    The broad choice will generally be between a reliance-based remedy and expectation-based relief.9

The former is designed to put the plaintiff in the position he or she would have been in if the representation had not been made and relied upon.  The latter aims to fulfil the expectation upon which the plaintiff relies.

[31]   In the present case we consider that expectation-based relief is clearly appropriate.  The trustees of the GG Trust relied on the fact that the D & S Trust would assume responsibility for the debt of $712,795, and they had the same expectation.  It would now be impracticable to grant relief that took into account any ability by MHP to repay the debt.  Furthermore, there is no justification for reducing the amount that the trustees of the D & S Trust should be required to repay given the fact that they received assets to the value of the debt. As a result, we have concluded that Sharon should be liable with David to repay the debt in full.

Result

[32]     The appeal is dismissed in all respects.

Costs

[33]     The respondents are entitled to costs on a Band A basis for a standard appeal together with usual disbursements.

Solicitors:

Kennelly Law, Orewa for Appellant

LeeSalmonLong, Auckland for Respondents

8 At [75].

9 At [77].