Harper v Beamish HC Napier CIV-2009-441-000636
[2011] NZHC 1774
•8 December 2011
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2009-441-000636
BETWEEN MELANIE JOY HARPER First Plaintiff
ANDCLAIR FIONA MACINTYRE Second Plaintiff
ANDCLAIR FIONA MACINTYRE AND ARTHUR JACK SMITHWICK HARPER AS TRUSTEES OF THE C F ENGELS TRUST
Third Plaintiffs
ANDDOROTHY JOY BEAMISH, SIMON NOEL BEAMISH AND GRAHAM CAMERON EDWARDS AS TRUSTEES OF THE AWAPAI TRUST
Defendants
Hearing: 28-30 November 2011
Counsel: P S J Withnall for Plaintiffs
J O Upton QC for Defendants
Judgment: 8 December 2011
In accordance with r 11.5 I direct the Registrar to endorse this judgment with the delivery time of 11.00am on the 8th day of December 2011.
RESERVED JUDGMENT OF GENDALL J
Table of Contents
Background Evidence..................................................................................................... [4] The 2001 Deed and Awapai Sales Adjustments.......................................................... [25] “Restructuring” proposal ............................................................................................ [30] The 2004 Deed covenant............................................................................................... [38]
The signing of the 2004 Deed ....................................................................................... [41]
HARPER V BEAMISH HC NAP CIV-2009-441-000636 8 December 2011
Subsequent events......................................................................................................... [50] Submissions of the plaintiffs ........................................................................................ [60] Defendants’ contentions ............................................................................................... [68]
Discussion ...................................................................................................................... [77]
Did the 2004 transaction trigger the Awapai Sales Adjustment contained in cl 2 of the
2001 Deed? .......................................................................................................................
The plaintiffs’ “consent” .............................................................................................. [90]
Did the plaintiffs’ consent to the 2004 “sale and disposition”? .......................................
As to the defence of “rectification” ........................................................................... [102] Defences of mistake under s 6(1)(a)(i) and 6(1)(a)(ii) Contractual Mistakes Act 1977
...................................................................................................................................... [105]
Conclusion ................................................................................................................... [106] Costs............................................................................................................................. [108]
[1] This claim is brought by two daughters against the trustees of their late father’s family Trust, they being their mother, brother and family accountant. It concerns the family farm operated by their father and by his predecessors for over
100 years.
[2] The plaintiffs’ entitlement to capital distributions from the Trust was finally settled by agreement on 20 December 2001. That agreement contained a provision that if the trustees sold or disposed of the family farm before 30 June 2015 for a gross sale price in excess of $2,107,500, further capital payments would be made to the plaintiffs. They contend that such event has occurred.
[3] If their claim is successful the effect would be that each plaintiff could be entitled to sums in excess of $970,000 – and (according to the defendants) as high as
$1.3 million each.
Background Evidence
[4] Members of the Beamish family, a long-established Hawkes’ Bay family,
owned and farmed substantial properties west of Hastings. The farm was known as
Awapai Farm the subject of these proceedings. This was settled in a Trust called “the Awapai Trust” by the descendant daughters of the original farmer, who had farmed the property from the late 19th century. That Trust was for the benefit of Ralph Charles Beamish (Ralph) and Dorothy Joy Beamish (Joy). Ralph and Joy are the parents of the plaintiffs (Melanie and Clair) and of Simon Noel Beamish (Simon).
[5] Joy and Ralph were income beneficiaries, and the capital was to be held on Trust for the three children, grandchildren, and remoter issue of Ralph, as he by Deed or will appointed. The date of distribution was to be 80 years or earlier as the trustees appointed but there could be no appointment during the lifetime of Ralph without his consent, or, after his death during the lifetime of Joy without her consent. The statutory power appointing new trustees vested in Ralph. The defendants are the trustees, Joy, Simon and Graham Cameron Edwards, accountant and advisor to Ralph and the family.
[6] Melanie, Clair and Simon grew up with their parents on what was called Awapai Station. Ralph farmed Awapai and part of his operation involved a nearby property known as “Ballyva”. As was common in Hawkes’ Bay farming families at that time, it was hoped that Simon would take over farming of both Awapai and Ballyva from his father, as had been the family tradition for five generations. This occurred in the mid 1980s. The aim (or hope) of the family was that the farm would remain within the Beamish family indefinitely. Ralph had determined initially that each daughter should receive one-sixth of the value of the assets and Simon received four-sixths. Whilst it was well understood by Simon’s sisters that he should continue to farm the property at Awapai, they felt that the proportions of distribution were not equitable.
[7] Interim distributions or appointments were made from time to time. In 1987, an appointment of $100,000 was made to Melanie out of capital of the Trust (having now a present value of $219,000). In 1994 further appointments were made to the children as follows:
To Simon:
47 B shares in Ballva Farm Ltd bringing his total shareholding to
100 per cent;
a one-quarter interest as a tenant in common in the Awapai land
(subject to him taking over one-quarter of the existing mortgage);
and
capital of $179,000.
The value of the appointments was said to total about $1 million.
To Melanie:
capital $31,000 (so as to make up a total appointment of $250,000
from the 1987 and 1994 advancements).
To Clair:
capital of $105,000; and
land described as “the old Cottage” situated on the Awapai land, so as to represent $250,000.
[8] Ralph, Joy and the three children accepted that in fairness to the daughters as well as to Simon, a final distribution of the Trust should occur. But Melanie and Clair, not unnaturally, felt their father’s proposed 1/6th each : 4/6th division was unfair. On 2 June 2000 Ralph, Joy, the three children and Mr Edwards had a meeting at Melanie’s home. The capital of the Trust was then estimated to be a little over
$1.5 million. The minutes of that meeting records:
The terms of distribution of the Trust provide for capital to be distributed in such manner as Ralph may determine in his will. The present provision of his will (and this is clearly understood by all family members) is that the capital will be distributed 4/6th to Simon, and 1/6th to each of Melanie and
Clair. The distribution date for the trust is 2052, or such earlier date as the
trustees may determine (and subject to Ralph’s consent).
...
Equity
Melanie and Clair raised the question of unequal distribution of Trust capital. Whilst it was recognised that the distribution was intended to retain the farming asset intact and within the family, they were concerned that, should Simon die or decide to sell the farm in the future, an inequitable outcome would arise.
Simon’s life could be insured, in order to provide Melanie and Clair with protection in the event of his death.
Simon agreed to enter into an undertaking that, in the event that the farm is sold within ten years of distribution, the proceeds of sale would be applied to equalise the net distribution between himself, Melanie and Clair.
[9] Thereafter, on 24 August 2000, a solicitor for Clair and Melanie submitted a proposal on their behalf “for an early distribution to them from the Awapai Trust”. The proposal referred to the previous distributions made to the three children and records that the shares in Ballyva Farm Ltd (earlier transferred to Simon) increased substantially in value due to potential uses available. The solicitor states:
... It has to be acknowledged that that is good luck on the part of Simon and that that is something that cannot be planned for. Nonetheless it is good luck that would not have been enjoyed had the shares not been transferred to him in the first place. It is also luck that he has enjoyed that was not made available to his sisters in the same way although the resultant stronger position could be utilised to allow a more reasonable distribution to his sisters.
[10] The proposal, in the form of a submission, stated:
One ongoing effect which should be pointed out is the opportunity of Simon’s children to be able to carry on farming because of the farming asset remaining intact and moving over to the ownership of Simon. When considering both Awapai and Ballyva in the stage of their present development the operation should be able to support more than one person so that Simon’s children are likely to be in a fortunate position.
Melanie and Clair confirm their commitment to the farming asset remaining intact providing a reciprocal concern can be perceived for their situation. They wish also to present a proposal for early distribution to them from the Awapai Trust but to include in that some safe guards toward the future.
...
There is a clear inequality existing by reason of the proposed one sixth, one sixth, four sixth distribution. It is accepted that it is seen as appropriate by the trustees in order to achieve the main aim and that is to retain the farming asset in one entity.
[11] The proposal then set out is said by the solicitors to provide clear advantages to all parties and:
A distribution of trust assets will enable the control and ownership of the farming asset to be held by Simon with a distribution to Melanie and Clair enabling them to proceed with their own lives. A distribution would appear to be as beneficial to Simon as it is to Melanie and Clair.
...
The main proposal from Clair and Melanie is that an early distribution be carried out on the basis of a 25%, 25%, 50% share so that 50% is attributable to Simon and the other 50% is split evenly between Clair and Melanie. That will entitle Clair and Melanie to approximately $750,000.00 between them. This is still an unequal split but it goes a little way towards evening up the imbalance. Although apparently a significant sum it is not a land asset generating an income which Simon is able to retain.
[12] There are other provisions contained in the proposal, but they need not be discussed for the purpose of this judgment. However, the proposal records that one of the “essential matters” to be included in any settlement was:
That in the event of the sale of Ballyva or Awapai Farms within the next twenty years and part of those net proceed[s] should be shared by Clair and Melanie as that would bring an end to the basis for their agreement for unequal sharing (namely retaining the farming assets).
[13] I interpolate at that stage that Ballyva was not an asset of the Trust as it was owned to the extent of 100 per cent by Simon as a result of the earlier distributions.
[14] Subsequent discussions within the family occurred and Mr Edwards summarised these in a memorandum dated 14 December 2000. He recorded that there was agreement in principal there should be early distribution; there was clear advantage to Simon with the liability to Clair and Melanie being crystallised; and Simon was “able to deal with the assets as if they were his own for estate planning and inheritance purposes”.
[15] Further, it is recorded at paragraph 8 of the summary of discussion of the trustees that:
It is the combined wish of the family that Beamish interests continue farming within the district. In the event that Simon and Josie [Simon’s wife] wish to sell their interest in the Awapai farm, there should be some reallocation of assets to take a more even handed approach to the distribution. Such contingency arrangement would need to be subject to a time limit, in order to ensure that Simon will ultimately obtain unconditional ownership of the property.
[16] So a “Distribution Proposal” dated April 2001 was prepared by Mr Edwards. It accurately records the history of other distributions and the family’s desire to make a further and final distribution because of the need for change. It sets out the issues among which is:
4.4Melanie and Clair accept that an unequal distribution of capital to Simon is justified on the basis that it is the family’s wish to ensure that the farming operations remain within the Beamish family. However, in the event that Simon was to change that intention, and sell out of the farming interests, the justification for unequal distribution is lost. Contingency arrangements will need to be included in the distribution provisions.
[17] The proposal went on to deal with how the income positions of both Ralph and Joy could be protected and proposed that the agreed 25 per cent distributions for each of Melanie and Clair were to be made to them as their final entitlement. The proposal document was to be provided to Simon as a trustee and to Melanie and Clair as beneficiaries for their final consultation.
[18] Mr Edwards as trustee met with the solicitor for Melanie and Clair on
18 June 2001, provided further information and confirmed that it was:
a desire by all family members to have the Awapai property continue under Beamish ownership. The parties have agreed that, should Simon elect to sell Awapai, the reason for the favourable treatment will be lost, and there should be some adjustment to provide a more even-handed distribution.
[19] In a letter of 9 July 2001 from Mr Edwards to Ralph and Joy, he referred to the basis for the contingent adjustment proposal was that the daughters would receive a further distribution of:
... 1/3rd of the sale value of the Trust’s property if Simon elected to sell the property within 15 years of the effective date of the distribution. From any such further distribution would be deducted the value of Melanie and Clair’s interests in the land at the date of distribution (i.e. 25% of $2,107,500).
In order to ensure fairness to Simon, it is proposed that, should the farm be sold in circumstances which might be regarded as financial hardship, no adjustment would be required. It is agreed that no adjustment should be made in the event that the Trust’s interest in the land at Awapai is sold for less than $2.0 million.
[20] There was some negotiation over the “run out period” (during which the “sale contingency” might occur) which was extended to 15 years.
[21] Drafts of the agreement were exchanged between solicitors for Simon and Clair and Melanie. Mr Scannell on behalf of Simon, wrote on 26 September 2001 that it was always understood that further distribution would occur:
in the event of voluntary sale called for by Simon within the 15 year period, and only if that sale resulted in Simon ceasing to farm. It was understood it would not apply if the property was sold and a substitute property purchased, nor would it apply if health, family circumstances, death, bankruptcy, or financial reasons resulted in the property having to be sold.
and further:
If Simon chose to reorganise his affairs and assigned his interest or request the trustees to sell land to another trust or company or other entity, would that constitute a sale by the Trustees.
[22] Mr Nash, solicitors for the trustees, replied:
The appointment and advancement is driven by the wish of Simon’s parents and his sisters to see him personally farm Awapai with that property (specifically) continuing in Beamish Family ownership. The trustees’ view is that Simon’s death is the only circumstance of those listed by you which would intervene to prevent the clause applying. There is no contemplation that Simon would be similarly preferred over his sisters if he were to [acquire] a substituted property.
[23] In response to the second question posed in Mr Scannell’s letter, Mr Nash
replied:
That the trustees would have a sympathetic view of any financial restructuring which Simon may feel necessary. They wish to reserve however to themselves the right to view whatever proposition Simon puts forward against the purposes of this deed and, obviously, to have a hand in the structuring. Their intention then would be to ensure that any new trading body was subject to the same property retention requirements as premise this deed. They point out that Simon is free to sell his own one quarter share in the property without reference to them.
[24] In later correspondence there was a suggestion or proposal by Mr Scannell on behalf of Simon, that the trustees give an undertaking that they not sell their interest in Awapai land without the consent of Simon or his issue. But Mr Nash correctly pointed out that as Simon was a trustee he had control over that.
The 2001 Deed and Awapai Sales Adjustments
[25] Clair elected to have her advancement divided equally between herself and her family Trust (the C F Engels Trust) now the third plaintiff. After agreement was reached as to the formula for calculation of the adjustment should the Awapai trustees sell the property before 2015, the terms of the Deed of Appointment and Advancement were completed and signed on 20 December 2001. The parties were Ralph; Joy, Simon and Mr Edwards, as the trustees of Awapai Trust; Melanie; Clair; and the trustees of the C F Engels Trust. In the recital “Background” paragraph J states:
Simon has affirmed his intention to carry on farming Awapai Station indefinitely and all of the parties are joined in their wish to see that property retained within the Appointor’s family. Melanie and Clair have accepted that to maintain Awapai Station as a viable entity within the Appointor’s family their individual interests in the Trust Capital will be less than Simon’s.
[26] Melanie and Clair acknowledged that the appointments and advancements to them of $420,890 each plus an interest in certain life policies satisfied their expectations as nominated beneficiaries under the Trust for themselves and their issue and “surrender all benefit which might accrue to them”, subject of course to what was known as the “Awapai Sales Adjustment”. That is contained in cls 2 – 4 of the deed which provides:
2.If the date of distribution under the Awapai Trust Deed shall arrive earlier than the 30th June 2015 or if, prior to that date, the Awapai Trustees shall sell or otherwise dispose of the land interests owned by them at this date as included in the Distribution Proposal then the Appointor appoints to Melanie a sum equivalent to an Awapai Sale Adjustment and to Clair and the Trustees of the C F Engels Trust respectively, a one half share of an Awapai Sales Adjustment. An “Awapai Sales Adjustment” shall be calculated by applying the following:
(A – B – C) – 562,204.00
3
Where:
A. is the gross price (excluding GST) of the Awapai Trustees’
land interests
B. is “Direct Selling Costs”: namely real estate commission on the land sale, pre-sale marketing, legal fees and disbursements incidental to the sale, and any other costs usually incurred in a willing buyer/willing seller transaction (all GST exclusive)
C. is the then value of Qualifying Capital Improvements to the land arising after the date of this deed. “Qualifying Capital Improvements” shall mean works which permanently and significantly increase the capital value of the Awapai Trustees’ land interests and which prior to commencement of the work are acknowledged in writing by the Awapai Trustees to be works which are to be brought into account under this clause.
There shall be no “Awapai Sale Adjustment” if the gross sale price of the Awapai Trustees’ land interests is less than $2,107,500.00.
3.The provisions of the preceding clause shall further take effect if a sale or disposition of a substantial portion of the land interests occurs. For the purposes of this clause “substantial” shall be defined by the Awapai Trustees other than Simon ...
4.Simon as co-owner of Awapai Station acknowledges the potential relevance to him and his family interests of the provisions of the preceding clauses and accepts the same.
[27] The other provisions of the deed contain itemisation of Ralph’s surrendering power of the appointment of capital as it relates to Melanie and Clair and their family, and intricate provisions relating to the implantation of the capital appointments to Melanie and Clair, which are not relevant for the purposes of these proceedings.
[28] Melanie’s and Clair’s umbrage that Simon had enjoyed the good fortune from the earlier distribution to him of all the shares in Ballyva Farm, which had substantially increased in value, remained. For various reasons he disposed of it in May 2004, it being a conditioning property and no longer necessary, he felt, for the farming needs.
[29] This irked Melanie and Clair. They felt aggrieved and resented what they saw as a substantial benefit acquired by Simon. Their concern was over Ballyva. This is apparent in the document they prepared entitled “Objectives of Meeting” on
10 August 2004, before they met with Simon. That records their dismay at the
“incredible inequality of our inheritance” and that:
Awapai is not the issue.
Ballyva is – recent sales of house and land.
They did not raise any concerns about the deed that they had earlier that year entered into which is one vital component of the present dispute. So I need to go back several months.
“Restructuring” proposal
[30] Between 2003 and June 2004 a proposal was developed by Simon, the Awapai trustees (Joy, Simon and Mr Edwards) for a “restructuring” of the affairs of the Awapai farming operation. A partnership comprising several Trusts and other entities, effectively controlled by Simon, conducted the farming operations on the property. A proposal was discussed by the trustees of the Awapai Trust. Mr Edwards met with Joy, with Simon standing apart from making trustee decisions in this matter. On 21 April 2004 Mr Edwards wrote to Mr Scannell, the solicitor for Simon stating:
The intention of the restructuring is to achieve a streamlining of the various entities, thereby reducing the compliance costs associated with the multiple entities and cross-accounting, and enabling Simon Beamish greater autonomy insofar as the farming business interests are concerned.
In principle, Joy and I (as trustees of Awapai Trust) are certainly willing to consider a restructuring.
[31] He recorded certain factors that any “restructuring proposal” had to take into
account including:
The provisions of the deed of appointment and advancement entered into with Melanie and Clair in 2001 will need to be honoured in the event that Simon ceases farming activity and invokes the specific terms of the “Awapai Sales Adjustment”.
[32] Mr Scannell, on behalf of Simon responded on 7 May 2004, and amongst other matters sought verification and clarification that:
The agreement of Clair and Melanie that the operation of the Awapai sales adjustment will not come into play on the transfer of the Awapai land to the new Trust and that will be on the basis that again the trustees of the new Trust will covenant with Melanie and Clair in the same manner as the Awapai trustees have covenant in the Deed of Appointment and Advancement ...
[33] On 9 June Mr Edwards advised his other trustee, and the income beneficiary, Joy, of the “restructuring proposal” and said to her:
1.Ballyva Farm Ltd [Simon] will become the farmer, and will own the livestock, plant + equipment and farming assets.
2.A new trust [Simon’s Family Trust] will be formed, which will own the Awapai and Waitata farm properties. This trust will also own the shares in Ballyva Farm Ltd.
3. You will be included as a beneficiary under the new trust.
4.Awapai Trust will have sold its share of Awapai to the new Trust, and will therefore be owed an amount equal to the value of the land. I would expect the value of this debt to be at least $1M.
5. The loan will be secured by way of mortgage over one of Simon’s
properties – Lane Rd and/or Taupo.
6.All going well, the farming profits will fund your ongoing living expenses (as they do now).
7. Your needs would be expected to be met by the new trust.
8.The Awapai Trust would act as a safety net. If your needs are not met by the new trust, the Awapai Trustees would be able to call on the debt owed by the new trust.
9.I believe the new structure will achieve the benefits of streamlining the business structure, whilst at the same time providing ongoing protection for you.
10. The life insurance policies would continue to be owned by Awapai
Trust. Melanie + Clair’s interests would be protected.
[34] On 11 June Mr Scannell on behalf of Simon, forwarded to Mr Edwards a draft of the formal Deed of Covenant which would bind the trustees of the new Trust, which was to take title to the property, “to the obligation imposed on the Awapai Trust under the Deed of Appointment and Advancement”. Mr Edwards was
asked to confirm that he obtained the consent of Melanie, Clair and Clair’s Trust. A draft “agreement for sale and purchase” (in standard form) contained as one of its conditions:
This agreement is conditional upon the vendor procuring the consent of Melanie Joy Harper, Clair Fiona Engels and Clair Fiona Engels, Dieter Andreas Engels and Arthur Jack Smithwick Harper to the sale. The Purchaser undertakes, if called upon to do so, to enter into a Deed of Covenant with the Trustees of the Awapai Trust to make payment to them of the Awapai sales adjustment as defined in a certain Deed of Appointment and Advancement of the Awapai Trust bearing date the 20th December 2001 such deed being made between the late Ralph Charles Beamish as Appointor, the Trustees of the Awapai Trust as the Trustees and the said Melanie Joy Harper, Clair Fiona Engels, Clair Fiona Engels, Dieter Andreas Engels and Arthur Jack Smithwick Harper and Simon Noel Beamish.
[35] Mr Edwards was overseas for a short time but responded that the trustees were in agreement that the proposal was sound and should achieve the desired efficiencies. He said that he would be meeting with Joy, Melanie and Clair on his return to New Zealand during the week commencing 21 June 2004. He said:
I do not envisage any difficulties in that regard, and I will be assuring them that the restructuring proposal protects their residual interest in the Awapai Trust.
[36] On Tuesday 22 June 2004 Mr Scannell delivered to Mr Edwards the documents required to be signed by the Awapai trustees, which included the agreement for sale and purchase to be signed as vendors (the trustees) selling the Awapai land to Simon, his wife Josie and his accountant, they being trustees of the Beamish Family Trust; the formal transfer of the Awapai land to the Beamish Family Trust (although in truth it had to be named transferees) and the:
Deed of Covenant to be signed by Joy Beamish and yourself, Melanie, Clair and Clair’s trustees ...
[37] Mr Edwards was asked as a matter of urgency to:
obtain the signature of Joy and yourself, the trustees of Clair’s trust, Clair and Melanie to the documents where appropriate and return them to us.
[38] The parties are the Awapai trustees, Melanie, Clair, Simon, the C F Engels trustees (Clair’s Family Trust) and the Beamish trustees. In its recitals it refers to the original Trust, the exercise by Ralph of his power of appointment in 2001 and the recital described as “Background” proceeds:
C. In the said Deed of Appointment the Awapai Trustees undertook with Melanie, Clair and the C F Engels Trustees inter alia that if the Awapai Trustees were to sell or otherwise dispose of their land interests defined in the said Deed they would appoint to Melanie, Clair and the Trustees of the C F Engels Trust Awapai Sales Adjustment as defined therein.
D. The Awapai Trustees at the request of Simon have agreed to dispose of their land interests by transferring them to the Beamish Trustees being the trustees of a trust created for Simon and his family including his mother the said Dorothy Joy Beamish and being a Deed constituted by a Deed of Settlement named Beamish Family Trust (“the Beamish Trust”).
E. The Awapai Trustees have obtained the consent and approval to the said disposition of their land interest from Melanie, Clair and the C F Engels Trustees as is evidenced by them entering into and executing this Deed in consideration of Simon and the Beamish Trustees entering into this covenant.
[39] The Deed then records:
1.The Beamish Trustees and Simon in consideration of the Awapai Trustees agreeing to dispose of their land interest to the Beamish Trustees HEREBY COVENANT with the Awapai Trustees and Melanie, Clair and the C F Engels Trustees as follows:
If the date of distribution under the Awapai Trust Deed or the Beamish Trust shall arrive earlier than the 30th June 2015 or if prior to that date the New Trustees shall sell or otherwise dispose of the land interests acquired by them from the Awapai Trustees (“Awapai land interests”) then they will pay to the Awapai Trustees a sum equivalent to two (2) Awapai Sales Adjustments. An Awapai Sales Adjustment shall be calculated by applying the following formula:
(A – B – C) – 562,204.00
3
Where:
Ais the gross sale price (excluding GST) of the Awapai land interests
Bis “Direct Selling costs” namely real estate commission on the land sale, pre-sale marketing, legal fees and disbursements incidental to the sale, and any other costs usually incurred in a willing buyer/willing seller transaction (all GST exclusive)
C is the then value of Qualifying Capital
Improvements to the land arising after the
20th December 2001. “Qualifying Capital
Improvements” shall mean works which
permanently and significantly increase the capital value of the Awapai land interests and which prior to commencement of the work are acknowledged in writing by the Awapai Trustees to be works which are to be brought to account under this clause.
There shall be no “Awapai Sales Adjustment” if the gross sale price of the Awapai land interests is less than $2,107,500.00.
The provisions of the preceding clause shall further take effect if a sale or disposition of a substantial portion of the Awapai land interests occurs. For the purposes of this clause “substantial” shall be defined by the Awapai Trustees other than Simon and shall not include a boundary adjustment or disposal of an area not significantly bearing upon the parties intentions in entering into this deed. In the event of such a partial disposal the Awapai Sales Adjustment shall be such sum as the Awapai Trustees other than Simon consider equitable having in mind the matters referred to herein.
2.The Beamish Trustees and Simon hereby jointly and severally indemnify the Awapai Trustees from and against all actions, costs, claims, suits and liability that they may incur or suffer or may arise out of any breach of the obligations undertaken and imposed upon them under this Deed.
3.The liability of the Beamish Trustees under this Deed of Covenant shall be limited to the capital assets and income of the Beamish Trust which are, or, but for any breach of trust would be, in the hands or under the control of the trustees of the trust.
[40] There is an obvious typographical mistake in recording the formula in the deed to the extent that the dividing line in the equation is mistakenly extended too far to the right. But that, if necessary, can be rectified.
[41] Obviously, all the signatures to the documents were not then obtained by Mr Edwards because the parties accept that this took place later in the offices and presence of Mr Scannell. That is obvious from the Deed of Covenant because he is the witness to each of the signatures of Joy, Simon, Mr Edwards, Melanie, Clair and the two trustees of the C F Engels Trust, Clair and her brother-in-law Arthur Harper (the husband of Melanie) only two signatures being necessary.
[42] There is a dispute in the evidence as to who was present when each person signed that deed.
[43] The evidence of Melanie, Clair and Mr Harper is to the effect that they were asked by Simon to go to the office of Mr Scannell, to sign a document which they were told or understood was said to relate to taxation or formal matters. They say they went separately and later in that week in all likelihood Friday 25 June 2004, where each signed the deed in the presence of Mr Scannell but did not have it explained to them. Nor did they read it. They say they did not understand what it contained. Their evidence was to the effect that they did not realise or know that they were waiving their rights under the Awapai Sales Adjustment formula (if in fact they actually were).
[44] The evidence of Mr Scannell and Mr Edwards is that Melanie, Clair, Mr Harper and Joy all attended at the same time on 25 June 2004 over a period of up to two hours when the position was further explained to them and they signed the deed. The evidence of Mr Scannell is that the agreement for sale and purchase and the transfer were not signed by the transferor trustees (Joy, Simon and Mr Edwards) until the day before settlement, on 1 July 2004.
[45] The conflict relates to the circumstances of the signing of the deed. Melanie, Joy and Jack are adamant that they attended alone and produced a handwritten note made by Joy stating that she recalled attending meetings at Mr Scannell’s office, but neither Melanie or Clair were present when she signed the transfer of Awapai land at that office. The evidence was that, in fact, the transfer was signed later on 30 June
2004, the day before settlement, when Melanie and Claire were not present, and if that is correct then of course Joy is correct. Mr Upton objected to the admission in evidence of the handwritten note of Joy on the basis that it is hearsay, which it clearly is. Under the hearsay rule in s 17 of the Evidence Act 2006 it would not be admissible, but could if the conditions in s 18 prevail. I did not hear evidence as to the circumstances in which the statement was made and I doubt whether it is admissible. But in the end it is of no moment because it does not assist in resolving any conflict.
[46] Whilst on the question of admissibility of hearsay evidence, Mr Upton sought to produce what is a defence Exhibit “B” being a handwritten note made by Joy to her co-trustee Mr Edwards, essentially saying that her understanding was also that the transfer of the land into the ownership of the trustees of the Beamish Trust did not activate the Sales Adjustment clause. That too is inadmissible hearsay, but likewise is of no moment given that Joy signed the Deed of Covenant which speaks for itself. It is not contended that she did not know what she was signing as a trustee.
[47] In the end, the outcome of this case is not dependent upon resolving the conflict as to who was present in Mr Scannell’s office when the Deed of Covenant was signed. It is abundantly clear that there was a meeting there on 25 June 2004 which, according to Mr Scannell’s diary, was initially sought to be with Mr Edwards and Joy. That meeting lasted at least one and a half hours if the time records and diary note of Mr Scannell are accurate. I do not accept that if only Mr Edwards and Joy were present (Simon had already signed the deed and was not there) a meeting of such length was required. They had already accepted the proposed rearrangement and did not need further lengthy explanations. It might just possibly be the case that Melanie, Clair and Jack Harper individually went to Mr Scannell’s offices that day (if the general tenor of their evidence is accepted) so as to not to be all present together with the others when they signed the deed. But I accept, on the balance of probabilities, the evidence of Mr Edwards that the circumstances of the signing of the deed at that one and a half hour meeting involved discussing, with each plaintiff, the essential features of the restructuring – i.e. matters of formal adjustments for taxation, accounting and farming efficiency purposes, with their rights remaining.
[48] In the end what matters is that all parties, together with the Awapai trustees, signed the deed. Melanie’s, Clair’s and Mr Harper’s evidence was that they did not read it, and understood that it was simply to tidy up “farming tax positions” being a document that needed to be signed for a “routine purpose” it being, according to Melanie’s evidence “for accounting and tax purposes”. Leaving aside legal “form”, was its substance simply restructuring legal ownership with the Beamish family
beneficiaries remaining the same? 1
[49] I have already set out almost the entire provisions of the deed. The clause as to the Sales Adjustment is calculated on the identical formula to the 2001 Deed. The deed specifically provides for the same adjustment as the Awapai Sales Adjustment if the events occur as contained in the original deed that being an obligation assumed by the new trustees, the transferees. But the plaintiffs’ position is that a sale had then occurred and adjustment in their favour with substantial payments having to be made now to them and they did not waive their entitlement to that under the original deed.
Subsequent events
[50] I return to the later meeting on 10 August 2004 where Melanie and Clair presented their objectives and concerns to Simon. These were not about Awapai but about Ballyva and obviously nothing was said at that meeting about the transfer or “restructuring” because either Melanie and Clair said they did not understand that it involved a sale or disposal (if it did) or knowing what it did involve they did not regard it as activating any adjustment. None of that matters in determining the ultimate outcome.
[51] In 2005 Melanie and her husband (Jack Harper) formed a partnership with Simon in relation to a commercial building in Havelock North. It appears to have proceeded amicably and in the course of that partnership Simon was required, through his Trust, to provide a guarantee to the bank for advances made to the
partnership. His position is the bank were fully aware that the Beamish trustees were
1 And if the discretionary beneficiary described in paragraph 1(g)(viii) as “any other persons, corporations or trusts or other entities as determined by the Trustees” should ever, before 2015, obtain a vested ownership of the farm (not being part of the Beamish family of Simon) then clearly the adjustment would be activated.
the registered proprietors of the farm property and, indeed, without that being a backing to the guarantee, bank accommodation would not have been made. Melanie and her husband accept that the guarantee was given but their evidence was they did not know that title to the farm was given to support the guarantee, as with the Beamish family trustees.
[52] All was quiet until February 2009 when Melanie and Clair wrote to Simon. In a letter of 18 February 2009, they said:
1.Recently we came across some papers we had signed with Dad which have raised some questions in our minds you might be able to help us with. We thought we would ask you, rather than bother Mum and Graham Edwards.
2.In 2001 we all signed a document called Deed of Appointment and Advancement. In it we got various payments and you got to keep Awapai. As we understand it also said in the Deed that we would get an “Awapai Sales Adjustment” if Awapai was sold for more than
$2,107,500 before 30 June 2015. There was a formula for working out how much this would be.
3.We are not familiar with the details obviously, but we believe Awapai has been sold and for more than $2,107,500. That would mean an “Awapai Sales Adjustment” is owing to us according to the formula.
4.Can you please let us know when Awapai was sold and for what price and show us the supporting documents.
[53] What is not said in that letter is that they had already, on 10 October 2008, obtained a search of the Certificate of Title of the property showing the registration of the transfer of the three-quarters share on 13 July 2007 and that they had obtained from Quotable Value New Zealand particulars of “sales history” being:
Date of Agreement Date of Settlement Gross sale price
01/07/2004 01/07/2004 $4,650,000
[54] A meeting followed between Melanie and Clair and Simon. In short, they said that they expected payment to be made to them under the adjustment because a sale had taken place. Simon was surprised and greatly troubled. He did not know what it meant, with a response “what the hell is going on?” He consulted Mr Scannell who told him that:
(1)the sale and purchase agreement was conditional upon the Awapai trustees obtaining the consent of Melanie, Clair and Clair’s Trust and enclosed the relevant page of the agreement for sale and purchase; and
(2)sent to Simon a copy of the Deed of Covenant that was entered into between the parties.
[55] His advice was in summary:
the consent to the sale without invoking the Awapai sales adjustment was obtained from Mel, Clair and Clair’s trust and the Beamish Family Trust trustees entered into a covenant to adopt the obligations that the Awapai Trustees had entered into with Mel, Clair and Clair’s trust in the event of the Beamish Family Trust selling the land.
[56] Simon sent this to Melanie and Clair. They replied to the effect that they were puzzled by the background “E” in the recital of the 2004 Deed, which was to the effect that the Awapai trustees had obtained their consent and approval from Melanie, Clair and the C F Engels trustees to the disposition of their land interest. The plaintiffs said in that letter to Simon:
We are unaware of any meeting at which the 2004 Covenant was explained to us and our consent to it obtained. Nor was any advice from the Trustees to seek an independent opinion on it given to us. Nobody explained it to us and we believe we did not consent in these circumstances.
Furthermore, the 2004 Covenant does not actually state that we are giving up our right to the Awapai Sales Adjustment. It states:
“The Beamish Trustees and Simon in consideration of the Awapai Trustees agreeing to dispose of their land interest to the Beamish Trustees HEREBY COVENANT with the Awapai Trustees and Melanie, Clair and the C F Engels Trustees as follows:”
It then goes on to repeat the Awapai Sales Adjustment clause from the 2001
Deed of Appointment and Advancement, indemnify the Awapai Trustees from actions, costs, claims and suits etc and limits the extent of this liability.
It does not however actually say we give up our right to the Awapai Sales
Adjustment as it applies to the 2004 transfer of Awapai from the Awapai
Trust to the Beamish Trust.
We therefore believe the Awapai Sales Adjustment is owing to us according to the formula in the 2001 Deed of Appointment and Advancement.
[57] Mr Edwards then wrote to Clair and Melanie on 11 May 2009 stating that their letter addressed to Simon had been discussed. He said:
The transfer of the Awapai Trust interest to the Beamish Trust in 2004 was undertaken as part of a restructuring of Simon’s business affairs. As you will have seen from the Deed of Covenant, that transfer was subject to the consent of yourselves, specifically for the purpose of ensuring that the restructuring did not result in the invocation of the Awapai Sales Adjustment. There was no other reason for you to be parties to the agreement.
The Awapai Trustees are satisfied that the position is clear, and there is no valid claim for the Awapai Sales Adjustment arising from the transfer of the land to the Beamish Trust. By way of background, it is useful to refer to the original Deed of Appointment and Advancement dated 20 December 2001. J on page 2 states: “Simon has affirmed his intention to carry on farming on Awapai Station indefinitely and all of the parties are joined in their wish to see that property retained within the Appointor’s family. Melanie and Clair have accepted that to maintain Awapai Station as a viable entity within the Appointor’s family their individual interests in the Trust’s capital will be less than Simon’s.”
It is clear that the intention was for the farming operations to continue within the Beamish family, and that is exactly what has happened.
We, as Trustees, are satisfied that the arrangements have been honoured as originally intended. I would be happy to discuss this with you further, and invite you to contact me in that regard. I am concerned that relationships within the family are preserved and for that reason encourage you to avoid inflaming the situation. The arrangements were made in accordance with your father’s wishes, and I know that the current claims are a cause of some distress to your mother.
[58] Mr Edwards in a briefing paper for himself, Joy and Simon, as trustees of the Awapai Trust, recorded the claims by Melanie and Clair, that they were seeking “more equitable treatment”, and their contentions as to the effect of the 2004 Deed. He records that legal action was being considered by them and, sensitively, observes “the retention of harmonious family relationships is paramount”.
[59] Thereafter Wellington solicitors wrote, on 12 June 2009, stating that they acted for Melanie and Clair and said that an Awapai Sales Adjustment was owing to Melanie and Clair. The letter said that if the matter was not resolved then the clients would not be deterred from pursuing their entitlement. Battle lines were being drawn. Because there had been no reply, the solicitors wrote again to Mr Edwards – although in fact there had been a response to the effect that Simon was overseas and a response could not be properly made until mid-August at the earliest. The
plaintiffs’ solicitor said that proceedings would be issued being the only way their clients could resolve “their entitlement to an Awapai Sales Adjustment”. They issued these proceedings on 24 September 2009.
Submissions of the plaintiffs
[60] The plaintiffs contend that on a proper interpretation, cl 2 of the 2001 Deed was activated by the transaction transferring the property by the defendant trustees to the three transferee proprietors. They contend this was a sale and comes within the plain meaning of the words “sell or otherwise dispose of” the property. They say this is clear, both on the face of, and in the context of, the 2001 Deed. It was the relinquishment of ownership and control by the Awapai trustees as registered proprietors, to the Beamish trustees, described as a sale, and enshrined in the agreement for sale and purchase, which was completed by a transfer for express monetary consideration.
[61] Counsel referred to the well-established principle that the starting point is the words of the parties, which are taken to be an expression of their mutual intention with the natural and ordinary meaning recording that common intention. Reference to extrinsic material can only be for the purpose of considering whether the wider context requires the words used to be meaning other than the claimed unambiguous meaning, and that such meaning is clearly and unambiguously expressed.
[62] Counsel said that what occurred was clearly a sale evidenced by the formal agreement for sale and purchase. It contained a purchase price, a subsequent transfer, with the reality being that after the transaction the defendant trustees no longer were registered proprietors.2 Counsel submitted that if it had been the common intention of the parties that changed ownership and control would not lead to the Awapai Sales Adjustment being activated in certain situations, then that had to be expressly defined. Counsel says the 2001 Deed was negotiated over a lengthy
period, and the parties being represented by lawyers which told against there being
2 Two of the registered proprietors transferred their legal interests to two new proprietors, Simon remaining the common joint proprietor.
any common intention that qualified the words of the deed beyond their plain meaning.
[63] The defendants claimed that the plaintiffs consented to the transaction by executing the 2004 Deed, but the plaintiffs submitted that that deed was ineffective as a surrender by them of their earlier entitlement to an Awapai Sales Adjustment. Plaintiffs’ counsel submits the 2004 Deed was primarily between Awapai trustees and the trustees of the Beamish Family Trust, the parties involved in the transfer of the remaining three-quarters interest in the land, so the plaintiffs’ consent was not required to that transaction, in the sense that there was no legal requirement for them to do so. To that extent it was said that the plaintiffs were incidental parties to the deed. Counsel submits there is no operative provision in the deed that leads to require the plaintiffs’ apparent consent and if the plaintiffs were giving up the entitlement they had under the Awapai Sales Adjustment, then an express unambiguous operative provision was required.
[64] Counsel relies upon the authority of Bank of Credit and Commerce International SA (in liquidation) v Ali to the effect that a release clause will be carefully construed, so as to make it sure that it does not lead or expand to concessions that were not contemplated, unless made abundantly clear.3
[65] Counsel submits that, not only was there no unambiguous release and surrender, in fact there was none at all. He argues that full knowledge of the choice between asserting the right to the entitlement, or accepting an alternative right, was required and the plaintiffs did not have such full knowledge because giving up of any right required informed consent or waiver and that did not happen. Counsel submitted that the defendant trustees ought to have ensured the plaintiffs take independent advice, given that Mr Scannell was acting for Simon, the defendant trustees and the Beamish Family Trust, and the plaintiffs should have had their own representation and advice in concluding the 2001 Deed.
[66] I turn to the defence/counterclaim of rectification. Mr Withnall for the plaintiffs accepts the principles are well settled. There has to be convincing proof of
3 Bank of Credit and Commerce International SA (in liquidation) v Ali [2002] 1 AC 251 (HL).
a joint intention formed by all parties and continuing throughout up to the moment of execution of the document which does not in fact accurately record that intention. He submits that the defendants have not met this onus of proof, which falls upon them. He makes the point that the exact manner in which cl 2 could be rectified in any event is not clear. He said that the plaintiffs did not agree, in negotiations leading up to the 2001 Deed, that there should be any exception to “sell or otherwise dispose of the land interests” clause and that as a matter of fact the defendants accepted that refusal. So, counsel submits there was no common intention reached that the Awapai Sales Adjustment would not apply in the case of an internal family arrangement.
[67] Counsel for the plaintiffs’ position in relation to the alternative defence pleaded pursuant to the Contractual Mistakes Act, is intricate and subtle and I defer discussion of it until I come to deal later with that defence.
Defendants’ contentions
[68] Mr Upton QC contended that in the context in which the 2001 Deed was concluded the Sales Adjustment provision relates only to a sale or disposition outside the Beamish family. He says it does not relate to any reconstruction within the family, or a Trust for those beneficiaries. Mr Upton says references, such as deductions for direct selling costs, land agent’s commission and the like are a pointer towards the parties’ intention that it envisaged an “outside” sale. He says correspondence between the parties shows there is a clear distinction between third party sales and internal reconstructions. The conduct and evidence of the trustees and the Appointer (Ralph) makes clear the meaning that all the parties wished the clause to carry. He says that the plaintiffs’ argument is flawed and the claimed interpretation means the clause is not workable. Counsel submitted Melanie said that she and her sister were entitled to share with Simon and “any gains”, but now claims other benefits. The transfer did not involve the passing of money but simply was a restructuring where no gain arose so as to require sharing.
[69] Mr Upton relies upon the Supreme Court decision in Vector Gas Ltd v Bay of
Plenty Energy Ltd, and in particular the passages in the judgment of Tipping J.4
Mr Upton said that the evidence of Simon should be accepted, namely that if the Sales Adjustment clause was triggered by the transaction in 2004 he would have to sell the farm in order to raise $2.6 million to pay out the plaintiffs. So Awapai Farm would not only be at risk of removal from the family, but the plaintiffs’ and Simon’s mother, Joy, would have no home (as she at present resides on the property of the farm). And she would have to look to the Awapai trustees (and remaining assets) for day to day income as the farm income, now supporting her, would have ended.
[70] The second defence advanced on behalf of the defendants was a counterclaim for rectification of the 2001 Deed. That is sought to reflect the common intention that was objectively apparent, from all the evidence, so as to provide in cl 2 the words “to a third party” or “outside the family of Simon Beamish” in cl 2 following upon the words in cl 2, line 3 “shall sell or otherwise dispose”.
[71] The third defence advanced was that by the 2004 Deed the plaintiffs consented to the transaction and to the transfer of the Sales Adjustment obligations from the defendants to Simon and his two new trustees. The defendants’ counsel submits that the recitals make it clear what was being consented to and the plaintiffs are estopped from asserting otherwise. Mr Upton argued that the original adjustment clause remains intact but does not apply, because the obligations pursuant to it have now been transferred, with the consent of the plaintiffs to Simon and his trustees.
[72] Much was made in the course of evidence, and in both counsels’ argument, about credibility issues surrounding the signing of the 2004 Deed. Mr Upton submitted that the timing of the order of signing is not critical, but rather that all parties signed the 2004 Deed. In any event counsel contended that the evidence of the witnesses that he says are independent, namely Mr Edwards, the accountant, and
Mr Scannell, the solicitor, is to be preferred.
4 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 (SC) at [21] –
[22]; [24] and [27] – [29].
[73] The last defence advanced on behalf of the defendants relate to the pleadings under the Contractual Mistakes Act 1977. First, Mr Upton argued that s 6(1)(a)(i)
applies, because:
the defendant trustees understood the plaintiffs had consented to the transfer of the land on the basis that the Sales Adjustment would not be
triggered;
such consent was evidenced by the plaintiffs signing the deed;
the defendants’ mistake was in the belief that the consent had been given;
and
the plaintiffs knew that that the Awapai trustees were mistaken, having
that knowledge by signing the deed.
[74] Counsel says that the mistake resulted in a substantial unequal exchange of values because the plaintiffs, if correct, would be entitled to $2.6 million from the Awapai trustees. In turn they would gain no advantage from the 2004 Deed, and would be bound to seek the indemnification from the three Simon Beamish trustees leading, it is said, to a sale of the farm. Mr Upton says that the discretion under s 7 should be exercised if necessary, so as to make it just to cancel the contract. It was not explicitly dealt with in submissions, but if the 2004 Deed or contract, which involved the transfer of the defendants’ obligation to Beamish trustees, was cancelled the question arises what, if any, right of indemnification pursuant to that deed as against the Beamish trustees would remain.
[75] The second mistake pleaded rested on counsel’s argument that s 6(1)(a)(iii) of the Contractual Mistakes Act applied. He submitted that the parties to the 2004 contract or deed, namely the defendant trustees and the Beamish trustees, entered into it by reason of two different mistakes about the same matter or fact. First, the defendant trustees were mistaken in their belief that the plaintiffs consented and approved the transaction, and the resulting transfer of the Sales Adjustment obligation to the Beamish trustees. Separately, the Beamish trustees themselves
were mistaken in entering into the 2004 Deed by understanding that no liability arose on the part of the Awapai trustees (defendants) to make payment to the plaintiffs.
[76] Mr Upton submitted that on that basis of mistake the 2004 Deed, or contract as identified in the deed, required to be cancelled.
Discussion
Did the 2004 transaction trigger the Awapai Sales Adjustment contained in cl 2 of the 2001 Deed?
[77] This requires a consideration in two areas, which to a large extent overlap. That is because whether or not the Adjustment operated depended upon an assessment of what the subsequent transaction was, and whether it fell within the description:
If [prior to 30 June 2015] the Awapai Trustees shall sell or otherwise dispose of the land interests owned by them ...
[78] On the one hand, as the plaintiffs contend, the 2004 transaction is expressed as a sale and purchase with a transfer of land from one set of registered proprietors to another set, for an expressed consideration secured by mortgage back, being a common form of sale. They argue that, even if not a sale in the accepted understanding of such a transaction, it nevertheless was a disposition of all the interests of the registered proprietors and the land in question and by vesting it in the Beamish trustees they had disposed of it.
[79] In my view, whilst the parties chose to express the transaction in the form of a “sale and purchase” with a mortgage back, objectively viewed it was clearly not a sale between a willing buyer and seller. There is no yielding up of possession because the existing lease between the registered proprietor trustees and Ballyva Farm Ltd, that is Simon Beamish’s interest, continues. This is obvious from the agreement itself, which does not provide a possession date, but the agreement specifically refers to the property being “bought and sold” subject to the existing
lease to Ballyva Farm Ltd. Of course a sale can still occur despite a property being subject to a continuing lease.
[80] I am clear that the reality of the transaction was that Joy, Simon and Mr Edwards transferred their legal interest to Simon, his wife and his accountant. The registered proprietors changed. The agreement may speak of them being “trustees of the Beamish Family Trust” and that is because that was the intent and the requirement that the beneficiaries of that Trust were (as final beneficiaries) the children of Simon and his wife, and the discretionary beneficiaries being Simon, or remoter issues, Ballyva Farm Ltd (100 per cent owned by Simon) any Trust or superannuation scheme of the beneficiaries and any other entities that might be determined by the trustees to be discretionary beneficiaries.
[81] Apart from the possibility (although remote) of other entities being determined as discretionary beneficiaries in the Beamish Family Trust, (apart from Simon’s wife) the beneficiaries are the same as those provided in the original Trust Deed of 15 March 1973. It has to be the case that Ballyva Farm Ltd is seen as the alter ego of Simon.
[82] So what was happening was that the three trustees of the Awapai Trust who held land as registered proprietors, transferred it to the three trustees (Simon being the common trustee) of another Trust which virtually had the same beneficiaries (apart from Simon’s wife). Nothing changed in respect of the operation of the farm by Simon and his family whether pursuant to the lease to Ballyva or otherwise. Nevertheless it was a legal disposition. The crucial issue is whether such a disposition fell within the meaning that the parties must have attributed to the “sale or disposition” under their contract in the 2001 Deed. The question is whether on interpretation of the deed “sale or disposition” includes a transaction within the family whereby the legal proprietors alter but the farming operations remain unchanged as do the obligations of the registered proprietors as trustees under separate Trust Deeds remain the same (although extended in respect of the transferees).
[83] The legal principles to apply in the interpretation of contracts and the admissibility of extrinsic evidence are well known. Factual surrounding circumstances can be viewed in order to ascertain what contracting parties meant – which is different from looking at what they now say was their (subjective) intent. As Gault P said, in delivering the judgment of the Court of Appeal in Ansley v
Prospectus Nominees Unlimited:5
We do not accept the proposition that the factual matrix is to be considered only where there is ambiguity in the terms of a contract. We do not understand that to be the view of Lord Hoffmann in Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at p 115
...
[84] There Lord Hoffman, in summarising principles of interpretation included:6
(4) The meaning which a document (or any other utterance) would convey to reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] 2
WLR 945.
(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. ...
[85] The authoritative position is determined by the Supreme Court in Vector Gas v Bay of Plenty Energy Ltd. The headnote of that decision records:7
It was not necessary for there to be an ambiguity in the wording of a contract before the court could resort to reading pre-contractual materials as an aid to interpretation. Reference could be made to the negotiations in order to establish the commercial context, the market in which the parties were
5 Ansley v Prospectus Nominees Unlimited [2004] 2 NZLR 590 (CA) at [36].
6 At 115.
7 At 445 per Blanchard, Tipping, McGrath and Gault JJ.
operating and the subject-matter of the contract if it showed objectively what the parties intended their words to convey. ...
[86] The extensive analysis and discussion by Tipping J is contained at [19] – [37]. There he refers to the law requiring interpretation issues to be dealt with on an objective basis the inquiry, being what a reasonable and properly informed third party would consider the contracting parties intended the words of the contract to mean and evidence as to the subjective state of mind of a party was irrelevant and that a party could not be heard to say that “never mind what I signed, this is what I
really meant”.8
[87] I think it necessary to recite at length what Tipping J went on to say, as follows:9
The objective approach is regarded as having two principal advantages. These are greater certainty and the saving of time and cost: greater certainty, because the subjective approach is apt to undermine the security of the written words by means of which the parties recorded their consensus; and saving time and cost, because a subjective approach is generally thought to require a fuller search for and examination of extrinsic evidence. A lesser, but still significant, perceived advantage is avoiding the effect a subjective approach might have on third parties who may have relied on what the words of the document appeared objectively to mean. But, despite its eschewing a subjective approach, the common law does not require the court, through the objective method, to ascribe to the parties an intention that a properly informed and reasonable person would not ascribe to them when aware of all the circumstances in which the contract was made.
Nor does the objective approach require there to be an embargo on going outside the terms of the written instrument when the words in issue appear to have a plain and unambiguous meaning. This is because a meaning that may appear to the court to be plain and unambiguous, devoid of external context, may not ultimately, in context, be what a reasonable person aware of all the relevant circumstances would consider the parties intended their words to mean. An example of that situation is when plain words, read contextually, lead to a result which does not make sense, whether commercially or otherwise: a meaning that flouts business commonsense must yield to one that accords with business commonsense. The appropriate contextual meaning, if disputed, will, almost invariably, involve consideration of facts and circumstances not apparent solely from the written contract. While displacement of an apparently plain and unambiguous meaning may well be difficult as a matter of proof, an absolute rule precluding any attempt would not be consistent either with principle or with modern authority.
...
8 At [21].
9 At [21]; [22]; [24]; [27] – [29].
In some recent cases it has been suggested that contractual context should be referred to as a “cross-check”. In practical terms this is likely to be what happens in most cases. Anyone reading a contractual document will naturally form at least a provisional view of what its words mean, simply by reading them. That view is, in a sense, then checked against the contractual context. This description of the process is valid, provided the initial view is provisional only and the reader is prepared to accept that the provisional meaning may be altered once context has been brought to account. The concept of cross-check is helpful in affirming the point made earlier that a meaning which appears plain and unambiguous on its face is always susceptible to being altered by context, albeit that outcome will usually be difficult of achievement. Those attempting the exercise unsuccessfully may well have to pay for the additional costs caused by their attempt.
...
Against that background I come to the subject of the admissibility of prior negotiations. Some of the difficulties in this area may derive from the concept of “prior negotiations” being employed in a more or less expansive way. Sometimes the concept seems to be used as if it encompassed all conduct and circumstances associated with negotiations towards the formation of a contract. It is necessary, however, to distinguish between the subjective content of negotiations; that is, how the parties were thinking, their individual intentions and the stance they were taking at different stages of the negotiating process, on the one hand, and, on the other, evidence derived from the negotiations which shows objectively the meaning the parties intended their words to convey. Such evidence includes the circumstances in which the contract was entered into, and any objectively apparent consensus as to meaning operating between the parties.
The vice in admitting subjective evidence of negotiations, is that doing so would be inconsistent with the objective basis on which interpretation issues are resolved. As already seen, evidence of a party’s subjective intention is not relevant to an objective resolution of interpretation issues. Although the common law takes the view that it is only the final written contract which records the ultimate consensus of the parties, the way that consensus is expressed may be based on an agreement as to meaning reached during negotiations.
There is no problem with objective evidence directed to the context, factual or linguistic, in which the negotiations were taking place. That kind of evidence can properly inform an objective approach to meaning. Whereas evidence of the subjective content of negotiations is inadmissible on account of its irrelevance, evidence of facts, circumstances and conduct attending the negotiations is admissible if it is capable of shedding objective light on meaning. It is often said in contract interpretation cases that evidence of surrounding circumstances is admissible. Circumstances which surround the making of the contract can operate both before and after its formation. In either case irrelevance should be the touchstone for the exclusion of evidence. I do not consider there are any sufficiently persuasive pragmatic grounds on which to exclude evidence that is relevant. Indeed to do so would require reconciliation with s 7 of the Evidence Act 2006.
[88] The law, and equity, is concerned with substance over form. I find it clear beyond any doubt, from all the correspondence and circumstances leading up to the
2001 Deed that the parties meant the Sales Adjustment provision to only apply if, subject to price and timing, there was a transfer of legal ownership, and also the beneficial entitlement of Simon and his issue, outside of that arm of the Beamish family.
[89] I consider that what happened in 2004 reinforced that conclusion.
The plaintiffs’ “consent”
Did the plaintiffs’ consent to the 2004 “sale and disposition”?
[90] How the parties acted in 2004 may be viewed in the assessment to be made as to the meaning the parties gave to their agreement. This consent issue, upon my analysis and findings of fact, simply reinforces my objective assessment of what the parties originally intended in the 2001 Deed.
[91] What the original trustees and Simon were endeavouring to do was to reconstruct the legal arrangements within which the farm was to be held and operated for the benefit of the remaining beneficiaries. They did not see the transaction as representing a sale or disposition that would fall within the Awapai Sales Adjustment in the 2001 Deed. That is why Melanie and Clair were initially advised that the transaction simply related to “tax and accounting” measures designed to make the farm’s operations more efficient and manageable. That is what in substance it was. And Melanie, Clair and Mr Harper were happy to give their consent to the reorganisation. They say they did not consent to the “sale/disposition” and that had they known that their consent to a sale was being sought they would not have done so.
[92] I do not accept that they did not have a basic understanding of what the 2004
Deed contained. Melanie and her husband were experienced in business and commercial matters. They obviously thought that the transaction did not activate the Awapai Sales Adjustment and, as the defendants assert, in any event it did not do so.
The plaintiffs’ position now is that it did activate the Adjustment because it was a sale and because they did not know that, they were not able to consent and to waive their rights. That is in my view an exercise of optimistic reconstruction. The consent was necessary not because of a waiver of their rights but because first, it was a condition that the transferor had to satisfy the new registered owners under their agreement before it could be unconditional; and second, they wished to ensure the obligation continued to fall on those owners.
[93] The 2004 Deed accurately provides in its recitals the background and that the Awapai trustees at Simon’s request agreed to transfer their land interests to Simon, his wife and mother (the Beamish trustees) pursuant to which his family are beneficiaries and in the recitals there is provided:
E. The Awapai Trustees have obtained the consent and approval to the said disposition of their land interest from Melanie, Clair and the C F Engels Trustees as is evidenced by them entering into and executing this Deed in consideration of Simon and the Beamish Trustees entering into this covenant.
[94] I accept that the plaintiffs were told rather more about the transaction than they now recollect. They would have been told that their rights were not affected because, obviously, the 2004 Deed provided that the Sales Adjustment rights remained and the obligations were assumed by Simon and the two new trustees. The rights were not being extinguished but being vested in those who were to hold the legal title. It was not a case of the plaintiffs agreeing to a sale, because that was not the substance of the transaction, nor did they see it as such. Rather they were accepting their rights would in future be vested in Simon and his new trustees which is quite apparent from cl 1 of the 2004 Deed which contains the covenant.
[95] The plaintiffs’ argument proceeded that if the transaction was not one of sale and disposition then their consent would not have been required. So that was what it was. The approach is too simplistic and not accurate. Their consent was required to ensure that their rights for a Sales Adjustment became vested in the new registered proprietors, apart from being a condition of the underlying agreement, that the registered proprietor Awapai trustees had to fulfil. Obviously, the Awapai trustees as vendors believed that to be the case because they confirmed the condition in the
contract, and they accepted that the burden of the Sales Adjustment would now be transferred to the Beamish trustees. It was their covenant that was accepted by the plaintiffs by execution of the 2004 Deed.
[96] The execution of the 2004 Deed is simply a further item of evidence which points to the fact that all parties intended and knew that the transaction or reconstruction did not activate the Sales Adjustment and that it was necessary to transfer the adjustment obligation to the new registered proprietors up to the year
2015.
[97] The claim by the plaintiffs that they should have had independent advice from solicitors and if that had occurred, the matter would not have proceeded. That claim does not withstand analysis. If the plaintiffs had been advised that the transaction did not activate the Sales Adjustment, whether or not they therefore gave consent did not matter except that by declining to do so the vendors would not have been able to confirm the condition in the agreement. So, the transaction would not have proceeded. If on the other hand the advice had been (in my view incorrectly, but that is beside the point) that the transaction did activate the Sales Adjustment, inevitably the plaintiffs would have thought it to their benefit to agree to the transaction, because they would then have had the adjustment applied. But in order to do so they had to, essentially, deceive both the Awapai trustees and Beamish trustees by signing the 2004 Deed which recorded the covenant in their favour, in effect, substituting the adjustment formula to be an obligation of the new registered proprietors and not the Awapai trustees, and then make a claim. Or if they refused to sign, the transaction would not have proceeded. Whichever way one looks at it, I cannot see how the outcome could have been favourable to the plaintiffs.
[98] But the point of this discussion is simply to highlight that it was their acceptance in the recital “E” that consent had been given, and their acceptance of the covenant that the obligation to apply the adjustment formula was to be substituted to the new registered proprietors was because they understood that the formula was to apply only if there had been the qualifying sale or disposition to an entity outside of Simon Beamish and the beneficiaries of his family, being amongst those remaining
as beneficiaries in the Awapai Trust. The recital is intended to be a statement of the
Awapai trustees and the plaintiffs and all are estopped from denying its truth.10
[99] It is not open to the plaintiffs to say that because they did not read the document they are not bound by what it contains and the recitals as to consent. The position is well established that in the absence of fraud, misrepresentation, duress or mistake, a person is bound by the contents of a contractual document which they have signed even if they have chosen to leave the contents unread.11
[100] All parties initialled a handwritten alteration in the 2004 Deed and Mr Harper and Melanie, in particular, were not inexperienced in commercial and business matters. I find it hard to accept that they were not aware of the general contents of the document, and chose to take the chance of being bound without being aware of what it meant. In the end that does not matter because I accept that they did not believe the “reconstruction” altered their position. It so happens they were correct in that view. So the intricate argument or reasoning process they have come to adopt, namely that they somehow consented to giving away rights, without knowing so, is flawed.
[101] So the “consent” defence is essentially part and parcel of the primary defence, namely the proper interpretation of the 2001 Deed. It was a consent to the transaction, whatever it is called, and a recognition that the entitlement to seek further payment from the registered proprietors was transferred to the new registered proprietors and in those circumstances the execution by the plaintiffs of the 2004
Deed could mean only that. The 2004 Deed simply was a further illustration of evidence of what all parties intended when entering into the settlement deed in 2001.
As to the defence of “rectification”
[102] It is well understood that if parties form a common intention which has continued up until the time they sign a written document, and the latter does not
conform with the common intention, then the Court may rectify the document. I do
10 Estopped by recital in a Deed as a rule of evidence, see Greer v Kettle [1938] AC 156 (HL).
11 L’Estrange v Graucob [1934] 2 KB 394 supported in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd
[2004] HCA 52, (2004) 219 CLR 165.
not need to discuss at length this defence, but I simply adopt as correct the position as outlined by Tipping J in Westland Savings Bank v Hancock.12 Namely, the Court
must be satisfied:
the parties formed and continued to hold the same corresponding
intention on the point;
that intention continued to exist in the minds of all parties up until the
moment of execution of the document;
the common intention must be objectively apparent from the words or actions of each party that they held and continued to hold that intention;
and
the document sought to be rectified does not reflect a matching intention.
[103] I do not accept the submission of counsel for the plaintiffs that there were different intentions expressed from time to time, so that a common intention did not continuously exist. It is often the case that terms of a contract are amended and developed as negotiations proceed. To a minor extent that occurred here. But the essential point which never changed and upon which there was continuing and intention was that the Awapai Farm remain within the ownership and control of the Beamish family as represented by Simon and his issue, they being the remaining capital beneficiaries of the Awapai Trust. All the correspondence and objective evidence points unerringly to that.
[104] I am not sure that rectification is necessary because of the Court’s findings in respect of the first defence on which the defendants have succeeded. Further rectification of the 2001 Deed now would achieve little purpose given that it is the
2004 Deed and covenant which governs for the future. As I have found, its proper meaning is that if the three new registered proprietors sell or otherwise dispose of the land interests outside the family of Simon Beamish and his issue before 30 June
2015, at a price beyond that stated, then the provision will come into play. So, at this
12 Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC) at 29 – 30.
stage I do not think that rectification, as a discretionary remedy, of the 2001 Deed
(only that is sought to be rectified in the pleadings) is appropriate.
Defences of mistake under s 6(1)(a)(i) and 6(1)(a)(ii) Contractual Mistakes Act
1977
[105] Given the foregoing findings in favour of the defendants and the Court’s acceptance that they have no obligation to pay the Sales Adjustment, it is not necessary for the Court to proceed further and determine the intricate and subtle arguments of counsel based upon mistake. The true factual position, as I have found on the evidence, is that all parties accepted that this transaction was a restructuring and rearrangement of the legal ownership of the land but with essentially the same family beneficiaries. It did not fall into the type of transaction that the parties had meant or intended would bring into operation the Sales Adjustment. The consent given was not given to the vendors by mistake. They, too, in acting upon that consent so as to confirm the agreement with the Beamish trustees did not act mistakenly. It is not necessary to discuss the point further.
Conclusion
[106] For the foregoing reasons the plaintiffs’ claim fails. Their rights to a Sales Adjustment remain should an event occur within the ambit of that which all parties intended, namely that Simon quits and no longer farms Awapai and his issue do not have any beneficial interest in it.
[107] There will be judgment for the defendants against each of the first, second and third plaintiffs.
Costs
[108] In accordance with the request of counsel costs are reserved and counsel are invited to submit memoranda.
J W Gendall J
Solicitors:
Macalister Mazengarb, Wellington for Plaintiffs
S J Scannell & Co, Hastings for Defendants
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