Kemp v Kemp-Upton
[2024] NZHC 398
•1 March 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1753
[2024] NZHC 398
UNDER the Contract and Commercial Law Act 2017 BETWEEN
JANET KEMP
Appellant
AND
ANDRE KEMP-UPTON
Respondent
Hearing: 23 February 2023 Appearances:
M Phillipps for the appellant J Donkin for the respondent
Judgment:
1 March 2024
JUDGMENT OF ROBINSON J
This judgment was delivered by me on 1 March 2024 at 10:00 am pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Solicitors/counsel:
VA Trust Law, Auckland GM Legal, Auckland
J Donkin, Auckland
KEMP v KEMP-UPTON [2024] NZHC 398 [1 March 2024]
Introduction and Procedural Background
[1] In September 2014 the parties separated after 32 years of marriage. On 6 March 2015 they entered into an agreement pursuant to s 21 of the Property (Relationships) Act 1976 (PRA) which they called a “Relationship Property Trust Property and Related Agreement” (Agreement). They entered the Agreement in their personal capacities and also as trustees of Andre Kemp-Upton and Janet Christine Kemp-Upton Family Trust (Trust).
[2] The Agreement expressly set out how the parties would share the assets they owned and the liabilities they owed personally. And it expressly set out how they would distribute the assets they held as trustees of the Trust. But the Agreement did not expressly set out how they would deal with the Trust’s liabilities. These Trust liabilities included, most significantly, a secured debt to Westpac of “approximately
$1.7 million”.
[3] On 3 March 2021 Mr Kemp-Upton issued proceedings against Ms Kemp in the District Court at Waitakere. He alleged it was a term of the Agreement the parties would each be liable to pay half the liabilities, including the debt to Westpac. Mr Kemp-Upton claims that he has paid more then half of those liabilities and that Ms Kemp is obliged to pay him $136,136.20 in order to equalise the payment of liabilities as required under the Agreement.
[4] In her Statement of Defence dated 27 April 2021 Ms Kemp denied it was a term of the Agreement that the parties would each be liable to pay half the Trust’s liabilities. She referred to correspondence from Mr Kemp-Upton’s solicitor noting that the Agreement “appears to be silent on the division of liabilities owed by the Trust”. On 8 July 2021 Ms Kemp filed an Amended Statement of Defence alleging further that the Agreement failed to include an essential term relating to the division of Trust liabilities and that the terms of the Agreement are otherwise too uncertain to be enforceable. At the same time Ms Kemp applied for summary judgment against the plaintiff.1
1 Pursuant to the District Court Rules 2014, r 12.2(2) and 12.4(4).
[5] Not to be deterred, on 6 August 2021 Mr Kemp-Upton filed an amended statement of claim alleging that it was an implied term of the Agreement that they would each be responsible for a half-share of the Trust liabilities.2 Mr Kemp-Upton alleges that he and Ms Kemp had a common intention to divide their shared assets “approximately equally” and that they would each be responsible for half of any shared liabilities, so that no cash payment was required to equalise the division of the shared assets and liabilities.3 At the same time Mr Kemp-Upton opposed Ms Kemp’s summary judgment application.
[6] On 23 August 2022 Judge Bergseng dismissed Ms Kemp’s application.4 Judge Bergseng found “it is clearly arguable that there should be implied into the contract a term that there was to be an equal sharing of the Trust liabilities, including the Westpac debt”.5 As such the Judge held that Ms Kemp had failed to meet the onus of satisfying the court that Mr Kemp-Upton’s cause of action could not succeed.6
[7]Ms Kemp appeals. The appeal proceeds by way of rehearing.7
Background
The meeting with Mr O’Neill and his file note
[8] Stephen O’Neill, a chartered accountant, swore an affidavit in support of Mr Kemp-Upton’s opposition to Ms Kemp’s summary judgment application.
[9] Mr O’Neill’s evidence is that between 2010 and 2016 he advised both Mr Kemp-Upton and Ms Kemp on general accountancy and tax matters relating to their personal affairs, including the Trust which they had used to hold various properties purchased during their relationship. Mr O’Neill explains that together with the parties’ then solicitor he helped them determine how to divide their shared assets and liabilities on separation.
2 Amended Statement of Claim dated 6 August 2021, para 10; Notice of Opposition, para 3.b, 3.e and 3.i.
3 Amended Statement of Claim dated 6 August 2021, para 6.
4 Kemp-Upton v Kemp [2022] NZDC 16079 (Judgment).
5 Judgment at [64].
6 Judgment at [65] – [66].
7 District Court Act 2016, s 127.
[10] Mr O’Neill attaches to his affidavit a file note of a meeting that he held with Mr Kemp-Upton and Ms Kemp sometime in or around late 2014. Mr O’Neill deposes that the parties “were both keen for there to be an even division of both their assets and liabilities at the end of their relationship” so as to avoid one having to make a cash payment to the other.
[11] Judge Bergseng set out in full Mr O’Neill’s file note of his meeting with the parties.8 Key points noted included the following:
(a)The Trust owned five properties valued between $200,000 and
$760,000.
(b)Under a heading “Intention” it was recorded that Mr Kemp-Upton would retain two of those properties with a combined value of
$1,135,000 while Ms Kemp would retain three of the properties with a total value of $1,360,000, resulting in a difference of $225,000.
(c)Additional assets included a property in Fiji valued at approximately
$60,000, personal items and effects, household chattels, motor vehicles and tools of trade.
(d)The file note recorded:
(i)Intention is to achieve equalisation of assets to be retained by [Mr Kemp-Upton] and [Ms Kemp] so that no payment is to be made by either party to the other.
(ii)Proposal for achieving this end is that [Mr Kemp-Upton] will retain [two of the five properties] and the property in Fiji together with tools of trade and motor vehicles.
(e)Mr Kemp-Upton would provide a “basic assessment as to the “value” of [Our Space Architecture Limited] which is deemed to be a
8 Judgment at [14].
relationship asset”, together with information needed to prepare Financial Accounts for that company. In the meantime he would transfer $15,000 to the Trust to enable Ms Kemp to pay outstanding expenses related to properties owned by the Trust.
[12]In terms of indebtedness, Mr O’Neill’s file note recorded:
·Mortgages of $1.7 million to Westpac
·Credit cards of $21,000 and $17,000
·Total approximate debt $1,508,000.00, which allocated equally is
$750,000.00 per spouse.
[13] The file note also recorded that each of the parties would take financial advice to ascertain whether they were in a position to refinance loans against the properties they were each taking following implementation of the settlement proposal. Upon receiving confirmation of each party’s ability to service their independent loan obligations the parties’ then solicitor would prepare the following documentation:
1) Separation and Relationship Property Agreement incorporating the provisions contained herein and may be modified by further negotiation and discussion [sic]
2) Discretionary family trust for [Mr Kemp-Upton] which will retain by way of resettlement ownership of [two properties held by the Trust]
3) A discretionary family trust for [Ms Kemp] which will retain by way of resettlement [three of the Trust’s properties]
4) [The parties] will then obtain independent legal advice with reference to the formalization of the Separation and Relationship Property Agreement with a view to ensuring a clean break from each other both with reference to the ownership of assets and financial independence.
The Agreement
[14]Relevant provisions of the Agreement include:9
(a)Recital G: Which states: “Andre and Jan [Mr Kemp-Upton and Ms Kemp] have reached an agreement on how to divide all of their relationship property, trust property and other issues and now wish to
9 Judgment at [15].
record the global agreement, in writing, and in terms of Part 6 of the Property (Relationships) Act 1976 (the “Act”). In addition, the terms of this agreement have been agreed to by [Mr Kemp-Upton and Ms Kemp] in their capacity as the Trustees [of the Trust]. The Trustees have consented to the Agreement being mindful of the provisions of Sections 44 and 44C of the Act and section 182 of the Family Proceedings Act 1980.”
(b)Para 4: This lists the assets that are relationship property, including the property in which Mr Kemp-Upton’s mother was residing, cars registered in each of their names, funds held in bank accounts in their joint names and each of their separate names, Kiwisaver accounts, insurance policies, shares in the company in which Mr Kemp-Upton worked and some forestry assets.
(c)Para 5: Sets out the liabilities of the relationship, being two credit cards in Ms Kemp’s name and one in Mr Kemp-Upton’s name.
(d)Para 6: Lists the assets and liabilities of the Trust, being the six properties referred to in Mr O’Neill’s file note with the value ascribed to them in that file note, together with certain tax losses available to carry forward. The Trust assets were:
a.1 Phillip Avenue, Glen Eden;
b.41A Glengarry Road, Glen Eden;
c.41B Glengarry Road, Glen Eden;
d.9 Riserra Drive, Ranui;
e.The proceeds from the sale of 2L/21 St Jude Street;
f.A section located at Koro Island, Fiji;
g.Tax losses available for carry forward in the amount of $91,279.
The Trust liabilities were listed as:
a.A loan of “approximately $1.7 million to Westpac [sic]”;
b.The advance of $15,000 from My Space Architecture;
c.A contingent tax liability of “$31,000 or thereabouts”.
(e)Paras 7 and 10: List the relationship property that Ms Kemp and Mr Kemp-Upton (respectively) would each retain in their own names in settlement of their claims against the other. In terms of relationship liabilities paras 7.h and 10.i provided that Ms Kemp and Mr Kemp- Upton would each be responsible for half the sum outstanding on the credit cards of both parties.
(f)Paras 8 and 11: Each provided that the parties would procure the trustees of the Trust to exercise powers to re-settle certain Trust assets into new trusts to be established for the benefit of Ms Kemp and Mr Kemp-Upton respectively (and their children and grandchildren).
[15] Essentially, the Agreement provided for a division of Trust assets that was in accordance with Mr O’Neill’s file note. However, the Agreement did not expressly provide for the Trust liabilities that had been listed at paragraph 6.
[16] Both parties acknowledged that they had received and understood independent legal advice about the effects and implications of the Agreement. Each of the parties’ legal advisors witnessed their signature on the Agreement and certified that they had explained the effect and implications of Agreement to the relevant party.
Settlement
[17] The parties subsequently proceeded to settle the Agreement, including by re- settlement of Trust assets into two new trusts. During the settlement process two of the three Trust properties to be transferred to Ms Kemp were sold and the sale proceeds paid to Westpac. Part of the remaining debt to Westpac was also refinanced and remained secured over the third Trust property that was transferred to Ms Kemp.
[18] Mr Kemp-Upton says it was an implied term of the Agreement that the parties would be responsible for a half-share of the Trust liabilities. He complains that Ms Kemp failed to repay or assume personal liability for half the Trust’s liability. He claims that Ms Kemp is $136,136.20 short of her half-share, and that despite demand she has failed to make any payment “to equalise her contractual responsibility for a half-share of the liabilities”. He seeks an order that she pay him this amount.
[19] Ms Kemp takes issue with Mr Kemp-Upton’s calculations, but more fundamentally disputes that it was an implied term of the Agreement that each party pay half the Trust liabilities. Ms Kemp seeks for summary judgment. She says Mr Kemp-Upton’s cause of action cannot succeed. In particular, she alleges that:
(a)there is no obligation under the Agreement for her to pay a half share of the liabilities due and owing under the Agreement;10 and
(b)the Agreement failed to include an essential term relating to the division of the liabilities of the relationship or the Trust and the terms of the Agreement are otherwise too uncertain to be enforceable.
[20] In his affidavit in opposition to Ms Kemp’s summary judgment application Mr Kemp-Upton says that the shortfall arose because for various reasons Ms Kemp was unable to raise sufficient finance to meet a half-share of the Trust’s liabilities, as allegedly agreed. Instead, funds were taken from a separate overdraft facility available to Mr Kemp-Upton personally. Mr Kemp-Upton says he is does not know how this came about, but that he was unaware of it at the time and did not agree to it. He says this was “one of the main reasons” he ended up paying more than Ms Kemp to discharge their shared liabilities to Westpac following their separation.
[21] In reply Ms Kemp says that in December 2014 when the parties met with Mr O’Neill they had loan facilities of $1.7 million available, but only $1.5 million had been drawn down. She accepts that their intention at that time was to divide that debt equally, but says the proposed equal division of liabilities was contingent upon there also being an equal division of assets, which she says the file note also records.
10 Defendant’s Notice of Application dated 8 July 2021 at paragraph 8.
Ms Kemp’s evidence is that the context of the Agreement is different from that in which Mr O’Neill recorded in his file note 3 months earlier. Amongst other things she says that the business of My Space Architecture was never valued but was retained by Mr Kemp-Upton. She also says that prior to these proceedings she had understood that the values the parties ascribed to the Trust properties were the CVs in place at that time, but she now understands that was not so. She says the values ascribed to the properties were artificial and skewed in Mr Kemp-Upton’s favour. She also strongly refutes any suggestion by Mr Kemp-Upton that he had a separate $200,000 overdraft facility from which she drew down without his knowledge or instructions, and says this is inconsistent with the parties’ bank statements for the relevant time.
[22] As noted above, Judge Bergseng declined Ms Kemp’s application for summary judgment. The Judge considered it was “clearly arguable” that an implied term of the Agreement was that the Trust liabilities, including the debt to Westpac, would be shared equally between the parties. In reaching that conclusion the Judge took into account Mr O’Neill’s file note, and what the Judge considered the parties appeared to have decided in the course of their meeting with Mr O’Neill.11 On this basis the Judge held that the defendant had failed to meet the onus of proving that Mr Kemp-Upton’s cause of action could not succeed.
The issues
[23] If the matter proceeds to trial the ultimate issue will be whether Mr Kemp- Upton can prove, on the balance of probabilities, that an implied term of the Agreement is that the parties would share the Trust liabilities equally. However, in the context of Ms Kemp’s application for summary judgment the primary issue is whether she has proven on the balance of probabilities that Mr Kemp-Upton’s claim cannot succeed.
11 Judgment at [64].
[24] On appeal Mr Phillipps for Ms Kemp also challenges the admissibility of Mr O’Neill’s file note. He submits that Judge Bergseng erred by:
(a)finding that “the file note of Mr O’Neill is evidence of pre-contractual negotiations which I can properly take into account in ascertaining the meaning of the contract”;12
(b)placing weight on Mr O’Neill’s file note and concluding that the stated intention of the parties is “… that the debt, whatever the specific amount may be, was to be allocated equally between the parties”;13 and
(c)failed to consider whether the file note and evidence concerning the meeting with Mr O’Neill was privileged pursuant to s 57 of the Evidence Act 2006. I understand this issue was raised for the first time on appeal.
Relevant legal principles
Summary judgment
[25] Rule 12.2(2) of the District Court Rules 2014 provides that the Court may give judgment against the plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[26] The relevant principles that apply to a defendant’s application were set out by the Court of Appeal in Westpac Banking Corporation v MM Kembla New Zealand Limited14 and are well established:
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed.15
12 Judgment at [45].
13 Judgment at [59].
14 Westpac Banking Corporation v MM Kembla New Zealand Limited [2001] 2 NZLR 298.
15 Westpac Banking Corporation v MM Kembla at [61].
(b)Summary judgment will be inappropriate where material facts need to be ascertained by the Court but cannot confidently be concluded from affidavits. It may also be inappropriate where the ultimate determination turns on a judgment only able to be properly derived after the evidence is heard in full.16
(c)In an application by a defendant for summary judgment it is inappropriate to determine the sufficiency of the evidence in support of the plaintiff’s claim. It is not enough to show that the plaintiff’s claim has weaknesses; the court must be satisfied that none of the claims can succeed. At an interlocutory stage that assessment is not to be made on a fine balance of the evidence available at that time.17 Summary judgment in favour of a defendant should only be granted where the defendant has a clear answer to the plaintiff which cannot be contradicted.18
Implied contractual terms – Admissibility of extrinsic evidence
[27] In Bathurst Resources Limited v L & M Cole Holdings Limited19 the Supreme Court unanimously agreed on the correct approach to the admissibility of extrinsic evidence in cases of contractual interpretation, and on the test for the implication of contractual terms.20
[28] The admissibility of extrinsic evidence in a contract interpretation case is to be determined in accordance with the law of evidence in light of the substantive law on contractual interpretation.21 The law of contractual interpretation shapes what is relevant and therefore admissible extrinsic evidence.22
16 At [62].
17 At [64].
18 McGechan on Procedure, HR 12.2.07 citing Westpac Banking Corporation v MM Kembla New Zealand Limited and A-G v Jones (2003) 16 PRNZ 715 (PC).
19 Bathurst Resources Limited v L & M Cole Holdings Limited [2021] NZSC 85, [2021] NZLR 696.
20 At [2]. These principles have been summarised and applied in this Court in cases such as
Clearmont (Queenstown) Limited v Redwood Group Limited [2022] NZHC 1567 (Katz J).
21 Bathurst Resources at [57] per Winkelmann CJ and Ellen France J.
22 At [55].
[29] Contractual interpretation is objective. The Court’s task is to determine the meaning the contract would convey to a reasonable person having all the background knowledge reasonably available to the parties in their situation at the time of the contract.23
[30] With that in mind, the admissibility of extrinsic evidence is to be determined in accordance with the Evidence Act 2006, and in particular ss 7 and 8 of the Act. All relevant evidence is admissible unless it is inadmissible or excluded under the Evidence Act or any other Act. Irrelevant evidence is inadmissible. Evidence is relevant if it tends to prove or disprove anything that is of consequence to the determination of the proceeding.24 The probative value of the evidence must not be outweighed by the risk that the evidence will unfairly prejudice or needlessly prolong the proceeding.25
[31] Pre-contractual negotiations may assist if it was communicated between the parties and tends to show a common mutual understanding as to the meaning of the contract.26
[32] Concerning the implication of terms, the Supreme Court agreed that the principal points are as follows (footnotes omitted):27
(a)The legal test for the implication of a term is a standard of strict necessity, a high hurdle to overcome.
(b)The starting point is the words of the contract. If a contract does not provide for an eventuality, the usual inference is that no contractual provision was made for it.
(c)While the task of implication only begins when the court finds that the text of the contract does not provide for the eventuality, the implication of a term is nevertheless part of construction of the written contract as a whole. An unexpressed term can only be implied if the court finds that the term would spell out what the contract, read against the relevant background, must be understood to mean.
23 At [62].
24 Evidence Act 2006, s 7(3).
25 Evidence Act 2006, s 8.
26 Bathurst Resourcesat [76] – [77].
27 Bathurst Resources at [116] per Winkelmann CJ and Ellen France J and [232](b) per Glazebrook, O-Regan and Williams JJ.
(d)As with the task of interpreting a contract, the inquiry for the court when considering the implication of a term is an objective inquiry – it is the understanding of the notional reasonable person with all of the background knowledge reasonably available to the parties at the time of contract that is the focus of this assessment. The court is tasked with the role of constructing the understanding of that reasonable person.
(e)Thus, the implication of a term does not depend upon proof of the parties’ actual intentions, nor does it require the court to speculate on how the actual parties would have wanted the contract to regulate the eventuality if confronted with it prior to contracting.
(f)The BP Refinery conditions are a useful tool to test whether the proposed implied term is strictly necessary to spell out what the contract, read against the relevant background, must be understood to mean. Whilst conditions (4) and (5) must always be met before a term will be implied, conditions (1)-(3) can be viewed as analytical tools which overlap and are not cumulative. The business efficacy and the “so obvious that ‘it goes without saying’” conditions are both ways, useful in their own right, of testing whether the implication of a term is strictly necessary to give effect to what the contract, objectively interpreted by the court, must be understood to mean.
[33] The BP Refinery conditions for the implication of contractual terms are well known. An implied term:
(a)must be reasonable and equitable;
(b)must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it,
(c)must be so obvious that “it goes without saying”;
(d)must be capable of clear expressions; and
(e)must not contradict any expressed term of the contract.
Is Mr O’Neill’s file note admissible?
[34] As noted, Judge Bergseng considered that Mr O’Neill’s file note detailing pre- contractual negotiations was evidence which he could take into account in ascertaining
the meaning of the Agreement.28 The Judge took into account the “apparent decisions reached in the course of the meeting with Mr O’Neill” when he concluded that it was “clearly arguable” that the court should imply into the contract a term that the Trust liabilities would be shared equally between the parties.29
[35] Mr Phillipps submits that Judge Bergseng erred by admitting Mr O’Neill’s file note into evidence and taking it into account. He submits that Judge Bergseng failed to consider the low probative value of Mr O’Neill’s evidence in circumstances where his meeting with the parties took place three months before they signed the Agreement and before they received independent legal advice. Mr Phillipps says that the probative value of this evidence must also be tested against the strict requirements of s 21F of the PRA, which require the parties to be independently advised before signing an agreement pursuant to s 21 of the PRA. Mr Phillipps refers to the Court of Appeal’s decision in Coxhead v Coxhead:30
The requirement under subs (5) of independent legal advice is no mere formalism. Each party must receive professional opinion as to the fairness and appropriateness of the agreement at least as it affects the party’s interests. The touchstone will be the entitlement that the Act gives, and the requisite advice will involve an assessment of that entitlement, and a weighing of it against any other circumstances that are said to justify a departure from it. Advice is thus more than an explanation of the meaning of the terms of the agreement. There implications must be explained as well.
[36] He submits that documents created before the parties receiving independent legal advice should rarely (if ever) be admitted as evidence as to the meaning of such an agreement.
[37] Mr Phillipps submits that Judge Bergseng failed to consider whether the file note and other evidence of the parties’ meeting with Mr O’Neill was privileged under s 57 of the Evidence Act 2006. Section 57 provides that a person who is a party to a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and another person who is party to
28 Judgment at [45].
29 Judgment at [59] and [63].
30 Coxhead v Coxhead [1993] 2 NZLR 397, 403.
the dispute if the communication was intended to be confidential, and was made in connection with an attempt to settle or mediate the dispute.31
Discussion
[38] Like the learned District Court Judge, I am satisfied that Mr O’Neill’s file note is admissible.
[39] Mr O’Neill made the file note following a meeting with both parties, at a time when he was an advisor to them both. The file note records the parties’ mutual intention that they wished to equalise assets so that neither would need to make a payment to the other. It noted the total approximate debt of $1,508,000.00, “which allocated equally is $750,000.00 per spouse”. It noted further that upon receiving confirmation of each party’s ability to service independent loan obligations the Agreement would be prepared “incorporating the provisions contained herein and may be modified by further negotiation and discussion”.
[40] In those circumstances I am satisfied that Mr O’Neill’s file note has a tendency to prove a matter that is of consequence in the proceeding, namely the understanding of the notional reasonable person with all of the background knowledge reasonably available to the parties at the time of the contract.32 It tends to show a common mutual understanding as to the meaning of the Agreement. As such it is relevant in this proceeding. This is not to say that the file note itself is necessarily sufficient to prove that it is strictly necessary to imply the term alleged, but it is relevant to the Court’s enquiry.
[41] I do not accept Mr Phillipps’ submission that in a case concerning the interpretation of a s 21 Agreement the court should not admit into evidence documents created prior to the parties receiving independent legal advice about the agreement. Aside from anything else, the independent adviser may well have been aware of the evidence in question. In any event, such evidence will either be relevant in accordance with the principles set out in Bathurst Resources or it will not. The relevance of
31 Evidence Act 2006, s 57(1).
32 Bathurst Resources at [116](d).
evidence to the interpretation and implication of terms in a s 21 Agreement will not turn on the adequacy of the independent advice about the agreement. They are separate issues.
[42] Nor do I accept Mr Phillipps’ broader submission that terms should not be implied into s 21 Agreements because the parties will not have had the opportunity to receive independent legal advice about the implied term. The nature of the s 21 Agreement and the statutory requirement that the parties receive independent legal advice may well be factors that are relevant when assessing whether it is strictly necessary to imply a term into a s 21 Agreement. But in my view those factors do not necessarily preclude the implication of terms if the “high hurdle” of strict necessity is otherwise overcome.33
[43] Finally, I do not consider that the privilege set out at s 57 of the Evidence Act 2006 applies to Mr O’Neill’s file note. That privilege applies in respect of communications between parties to a dispute if the communication (a) was intended to be confidential; and (b) was made in connection with an attempt to settle the dispute. I do not consider there was a dispute between the parties when they met with Mr O’Neill. They had agreed to separate and were in negotiations, rather than dispute. The file note records the state of those negotiations. It contemplated “modifications” and further “negotiation and discussion” before entry into a formal Agreement. It does not record concessions or the compromise of legal rights for the purpose of resolving a dispute.
Has the appellant shown the respondent’s claim cannot succeed?
[44] There is an obvious gap in the Agreement. It does not provide for the division of the parties’ most significant liabilities which are those they shared as trustees of the Trust. This included the significant debt to Westpac secured over five residential properties which the parties owned as trustees.
[45] Mr Phillipps makes a number of arguments as to why it is not strictly necessary to imply a term into the Agreement that the trust liabilities would be shared equally
33 Bathurst Resources at [116](a).
between the parties. He says there are no express terms from which any inferences can be drawn regarding the Trust liabilities. He rightly points out that the Agreement expressly records equal responsibility for the personal credit card debts, but is otherwise silent as to the division of liabilities including the Trust liabilities.
[46] Mr Phillipps says that the Agreement was fully performed immediately following its execution, and there is no need to imply a term of equal division of Trust liabilities in order to make the Agreement work. The Trust has transferred the Trust’s properties in accordance with the terms of the Agreement and each party retained those assets as agreed. He says the Westpac liabilities were sufficiently discharged to effect settlement, which could only have occurred with the agreement of both parties. At clause 35 of the Agreement there is an acknowledgement by each party that valuations of the assets are not required and an acceptance that settlement in accordance with the Agreement achieves appropriate equal sharing.
[47] Somewhat in the alternative, Mr Phillipps submits that because the Agreement does not expressly provide for a division of the Trust liabilities it is missing an essential term and fails for uncertainty. He says this is not merely a case of ambiguity but is an essential gap in a s 21 Agreement that cannot be filled by the implication of a term.
He cites Fletcher Challenge Energy Limited v ECNZ Ltd:34
[63] However, if essential matters (ie legally essential or regarded as essential by the parties) have not been agreed upon and are not determinable by recourse to a mechanism or to a formula or agreed standard, it may be beyond the ability of the Court to fill the gap in the express terms, even with the assistance of expert evidence…It will be a matter of fact and degree in each case whether the gap left by the parties is simply too wide to be filed. The Court can supplement, enlarge or clarify the express terms but it cannot properly engage in an exercise of effectively making the contract for the parties by imposing terms which they have not themselves agreed to and for which there are no reliable objective criteria.
[64] Where the intention to contract is found to have existed the Court may supply an omission by implying a term. … Gaps can be filled by implication, but only if there is such a skeleton of express terms combined with an intention to contract.
[48] Mr Phillipps says further that in the context of the PRA the Agreement cannot be saved by voiding some provisions and retaining others.35 He submits that the
34 Fletcher Challenge Energy Ltd v ECNZ Ltd [2002] 2 NZLR 433.
35 Citing Harrison v Harrison [1996] NZFLR 699 and Sloss v Sloss [1989] 3 NZLR 31.
Agreement has failed, and Mr Kemp-Upton must seek leave to commence proceedings for orders for division of property under the PRA if he wishes to pursue the matter.
Discussion
[49] I am not satisfied at this interlocutory stage that Mr Kemp-Upton’s claim cannot succeed. The affidavits and Mr O’Neill’s file note together indicate there may be an evidential basis for the Court to conclude that a reasonable person with all the background knowledge reasonably available to the parties at the time of the Agreement would have understood the Agreement to require the equal division of Trust liabilities, as alleged. In which case, the Court may determine that it is strictly necessary to imply a term into the Agreement to this effect.
[50] Ms Kemp disputes that Mr Kemp-Upton in fact refinanced the balance of the Westpac debt. She challenges the accuracy of Mr Kemp-Upton’s calculations and raises other issues as to quantum. She says that the initial intention to divide Trust liabilities equally was contingent on an equal division of assets which did not occur. Mr Phillipps relies on this evidence in support of his submission that it is not strictly necessary to imply into the Agreement a term of equal division of Trust liabilities, and that it is either void or has been fully performed.
[51] There may well prove to be merit in Mr Phillipps’ arguments. However, the test for present purposes is not whether Mr Kemp-Upton’s claim will succeed, but whether Ms Kemp has shown it cannot. It is not enough at this stage to show the weaknesses in Mr Kemp-Upton’s claim. There must be a clear answer to it that cannot be contradicted.
[52] I agree with Mr Donkin for Mr Kemp-Upton that the evidence needs to be heard in full. Discovery of relevant documents relating to the negotiation and settlement process will assist the Court to determine whether Mr Kemp-Upton can overcome the high hurdle of establishing that it is strictly necessary to imply the term alleged, or whether the Agreement is either void for uncertainty or has been fully performed. Mr Kemp-Upton will, of course, bear the onus of proving that an implied term is strictly necessary, and that his calculations of Ms Kemp’s alleged shortfall are correct.
Result
[53]The appeal is dismissed.
Costs
[54] Mr Kemp-Upton is entitled to costs. My preliminary view is that these should be calculated on a 2B basis. Mr Donkin should file any memorandum within 10 working days of this judgment. Mr Phillipps should file any memorandum in response within 10 working days after that. I will then deal with costs on the papers unless I require further assistance. Memoranda should be not more than five pages in length.
Robinson J
2
2
1