Hess v Hospenthal

[2014] NZHC 895

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV-2013-443-315 [2014] NZHC 895

BETWEEN

MARTIN HESS

Plaintiff

AND

JOSEPH ZENO HOSPENTHAL Defendant

Hearing:	2 March 2014
Counsel:	A R H Laurenson for Plaintiff R T Wilson for Defendant
Judgment:	2 May 2014

JUDGMENT OF GODDARD J

This judgment was delivered by me on 2 May 2014

at 3.30 pm, pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Govett Quilliam, New Plymouth for Plaintiff

Welsh McCarthy, Hawera for Defendant

HESS v HOSPENTHAL [2014] NZHC 895 [2 May 2014]

Introduction

[1]      This hearing was concerned with two matters.   The first is the plaintiff’s application  for  an  interim  injunction  seeking  to  prevent  the  defendant  from proceeding on a Property Law Act notice purporting to call up a mortgage held by the defendant over a farm owned by a family trust.  The second is that, in response, the defendant opposes that application and in turn seeks summary judgment for the balance said to be owing to him and secured by the mortgage.

Background

[2]      The facts need to be set out in some detail.  The defendant owned what has been his family’s dairy farm at Kaponga in Taranaki .  He is unmarried and childless; he had several siblings including a sister named Antoinette.   In 1995 Antoinette married the plaintiff in Switzerland, where they lived and made their family home.

[3]      It later became clear that the defendant was not in good health and in 2006, after discussion with him, the plaintiff and his family decided to move to New Zealand and to make a new life on the farm.  This they did.  In 2007 it was decided that the arrangements in regard to the farm were to be formalised, and a solicitor was consulted by both parties on possible courses of action.

[4]      The outcome was that the defendant agreed to sell the farm to a family trust, styled  the  Roses  Family Trust  (the Trust).    The  trustees  were  the  plaintiff,  the defendant and Antoinette.  The beneficiaries are the plaintiff and Antoinette and their children, but not the defendant.  The purchase price was $1,820,564.72, funded by a loan from the defendant of $63,460 at 10% for a  10 year term, secured by a second mortgage and an interest-free loan of $1,757,104.72 from the defendant, repayable on demand and secured by a third mortgage.    The Trust also raised $250,000 by external borrowing on a first mortgage.  The defendant signed a will forgiving the amounts outstanding at his death under all loans to the Trust and bequeathing his stock, (which had been bailed to the trust), to the trust.

[5]      So much is apparent on the face of the documentation; I will revert later in this judgment to the respective expectations.

[6]      The plaintiff and his family lived in the farm homestead; part of the available cash was used to construct a cottage on the farm into which the defendant moved.

[7]      The defendant made four gifts to the trust, each of $27,000 (at that time the maximum amount possible free of gift duty), the latest on 3 December 2010.  On 12

January 2011 there was a car accident in which the defendant was seriously injured and Antoinette lost her life.

[8]      Whatever the state of the family relations at that time, and there is much said in the respective affidavits on that issue which is of little assistance in resolving this case, there is no doubt that by November 2013 relations had deteriorated to the point that on the 14th  of that month the defendant signed a Property Law Act notice purporting to call up the balance of $1,649,104.72, being the amount owing after the gifting.  I use the term purporting advisedly, because the required remedy is said to

be payment of ONE MILLION SIX HUNDRED AND FORTY NINE THOUSAND ONE HUNDRED AND FOUR DOLLARS AND SEVENTY TWO CENTS ($1,757,104.72 (sic)).

[9]      As  set  out  above,  the  plaintiff’s  reaction  was  to  apply  for  an  interim

injunction to which the defendant has counterclaimed for summary judgment.

[10]     The essential ground on which the injunction is claimed is an allegation that calling up the debt is a breach of a contract between the defendant and the Trust. The defendant replies that there is no serious issue to be tried, and asks for summary judgment.

Discussion

[11]     It is necessary to return to the events at the time of the sale of the farm to the trust.  The present sources of evidence are affidavits from the plaintiff and defendant and one from the solicitor.  Because of the outcome ordered below, I do not need to make detailed findings, indeed, to attempt to do so would be counter-productive to the eventual resolution of this family dispute.

[12]     What is clear is that the arrangement, whereby the balance of the purchase price was to be repayable on demand and that gifts of $27,000 per annum with a gift over pursuant to the will of the vendor/mortgagee, was largely but incompletely documented.    The scheme was, however, in accordance with established conveyancing practice of the time. There would have been anticipation on both sides that the gifting and eventual legacy would be put into effect; at the time of gifting, no one  contemplated  the  practical  consequences  of  the  falling  out  that  has  since occurred.  The current situation is that the defendant deposes to an understanding on his part (not shared by the plaintiff) that the debt could be called up at any time, albeit  he did  in  fact  proceed  at  the time  of setting up  the scheme  and  for the succeeding three years with making the contemplated annual gifts of $27,000, and he did make his will as expected.

[13]     The plaintiff seeks to establish that the arrangement amounted to a contract, and if that argument fails that the defendant is in any event estopped in equity from calling up the loan.  It is unnecessary to traverse the arguments of counsel in more detail as that encapsulates the essence of the matter for present purposes.

[14]     The plaintiff faces obvious hurdles in establishing a binding contract between the defendant and the trust.  He may be on stronger ground in equity, on the basis of his claim that he entered into the arrangement in reliance on intended gifting and the legacy; given the obligations he undertook any change to the arrangements as originally understood is to his detriment.

[15]     The case most in point is Harris v Harris (1989) 6 FRNZ 1 (HC, Fraser J). In that case, the plaintiff parents sold a 2/3 interest in their farm to their son and daughter-in-law under an arrangement whereby the parents made wills writing off the resulting indebtedness.  The indebtedness was recorded by the borrowers signing an acknowledgment of debt.  The parties subsequently fell out and the parents then sought to recover the amount owing under the acknowledgment.  They had changed their wills and contended they were at liberty to do so and to call up the debt at any time.   The son and daughter-in-law pleaded a contract by way of a family arrangement, under which the debt would not be demanded in the parent’s lifetimes and the parents were not free to change their wills.

[16]     Fraser J found there was no one overall contractual arrangement.  No formal document was ever completed and at most there was a series of discussions not amounting to a formal contractual arrangement.

[17]     However, an equitable estoppel arose in respect of the demand for payment of the capital sum.  There had been an assurance that the indebtedness would be written off under the wills of the parents and that carried with it the understanding that the debt would not be called up and the parents would not change their wills.   As a result, the parents were held not to be entitled to judgment for payment of the debt.

[18]     There are differences in that case to the present set of facts, including the existence in this case of a trust which made the purchase, rather than the sister and brother-in-law, and the extent of the documentation, but the considerations which there moved the Court are to my mind persuasive in the present issue of whether there is an arguable defence to the claim for summary judgment.

Result

[19]     Summary  judgment  is  declined  on  the  basis  that  the  equitable  and/or contractual issues give rise to an arguable defence, to be determined at trial.  Thus there is  a serious  question  to  be tried and  an interim  injunction preventing the defendant from taking any action in respect of the claimed debt until further order of the Court must issue.

One further matter

[20]     Thought  should  be  given  as  to  whether  Mr  Hospenthal  should  remove himself as a trustee of the Roses Family Trust, given he is seeking to sell the Trust’s property as mortgagee.

Costs

[21]     As each party has had some measure of success there will be no order as to costs.

Goddard J