Lusty v Thorburn

[2019] NZHC 2610

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-002593

[2019] NZHC 2610

UNDER

the Contract and Commercial Law Act 2017 and the Declaratory Judgments Act 1908

IN THE MATTER

of an application for specific performance

BETWEEN

AILEEN BERYL LUSTY, RONALD HUNT LUSTY and WARWICK JAMES ROLAND

BROWNE as executors of the Estate of Kenneth Richard Lusty

Plaintiffs

AND

CRAIG MAXWELL THORBURN and

CARLY EVE THORBURN as trustees of the THORBURN TRUST

Defendants

Hearing:	12 September 2019
Appearances:	M J Matthew for Plaintiffs A A H Low for Defendants
Judgment:	14 October 2019

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 14 October at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Rennie Cox, Auckland

Alexandra Low & Associates, Auckland

LUSTY and BROWNE as executors of the Estate of Kenneth Richard Lusty v C M THORBURN and C E THORBURN as trustees of the THORBURN TRUST [2019] NZHC 2610 [14 October 2019]

Introduction

[1]                  This action concerns a registered lease of land situated at Duck Creek Road in Stillwater. The land is held in a charitable trust (the Thorburn Trust) preserving it as a burial ground. The plaintiff-lessees seek summary judgment for specific performance requiring the defendant-lessors to grant a renewal of the lease on terms that would allow further renewals, potentially at least, in perpetuity.1 The plaintiffs also seek declarations concerning the validity and interpretation of the lease.

[2]                  The defendants will grant a renewal of the lease but not on terms to allow for any further renewals. They argue that the plaintiffs are not entitled to summary judgment for specific performance (or declarations) because:

a)the plaintiffs were in breach of the lease at the time the lease was to be renewed;

b)the lease was granted in breach of trust and to grant a renewal on the same terms would perpetuate the breach;

c)the original lessee, through whom the plaintiffs hold the lease, knew, or was wilfully blind to, the breach of trust and liable for knowing receipt as a constructive trustee; and

d)there are factual disputes making the case unsuitable for summary judgment.

The position of the Attorney-General

[3]                  The Attorney-General, as the protector of charities, reviewed the claim. His counsel has filed a memorandum that he does not wish to become involved.

1      Damages have not been sought in the alternative to specific performance.

Background and the lease

[4]                  The plaintiffs are the executors of the estate of Kenneth Richard Lusty (Kenneth). The defendants are the trustees of the Thorburn Trust.

[5]                  The history of the Thorburn Trust begins with Andrew Weatherspoon Thorburn (Andrew). He was an early settler at Stillwater, Auckland. He acquired a block of land at Duck Creek Road on the edge of what was known as the Wade River. He established a burial plot overlooking the river. It is thought that the burial plot became the resting place of Andrew, his wife, daughter, and possibly others.

[6]                  By a Conveyance in Trust dated 3 July 1901 (the Conveyance), Andrew transferred the land to his sons in trust as to one rood as a burial ground for the internment of settlers residing in the Lower Wade and such other persons as were approved by the trustees and, as to the remainder, to lease and apply the income towards maintaining the graves and the burial ground in good order.

[7]                  The land is now contained in certificate of title NA584/253 and is subject to a caveat by the District Land Registrar that prevents dealings inconsistent with the terms of the Thorburn Trust.

[8]                  Andrew died in 1901. By 1950, the trustees of the Thorburn Trust had also died without appointing successor trustees. Frederick Owen Thorburn (Frederick), who was Andrew’s great-grandson, had, by 1989, restored the land from an overgrown state, located the graves, and paid rates on the property.

[9]                  Frederick was acquainted with Kenneth. Frederick was interested in selling the land and Kenneth in acquiring it. What follows is largely a chronology of the dealings between these two men, which resulted in the granting of the lease. As neither Frederick nor Kenneth are still living, I have had to rely largely on written agreements and communications between them. There is much about their dealings which is unclear.

[10]              In February 1987, they entered into an agreement for the sale and purchase of the land for $380,000. As Frederick was not the owner of the land, the agreement did not proceed. Kenneth then sought advice from his solicitors, Short & Co. Short & Co advised him, in a letter of 28 April 1987, that it would be necessary to make an application to the court for declarations as to the validity of the Thorburn Trust and that if the Thorburn Trust was held to be valid:

The obvious effect of this is that neither [Frederick] nor any of the other descendants would get any monetary gain and in fact if he were appointed trustee then the general position is that Trustees must not make a profit for themselves out of the trust estate. It would not however prevent a valid lease of the land being given to you at a proper rental.

…

If the Trust is valid then the land can be disposed of by the Trustee to you under a Lease, the terms of which are basically up to the parties for negotiation. It would certainly be conceivable that a long term or perpetual Lease could be created subject to sufficient income to care for the burial ground.

[11]              In June 1987, Frederick and Kenneth gave written instructions to Short & Co to prepare a “right to lease agreement.” Frederick was to be appointed trustee of the Thorburn Trust and to lease the land to Kenneth for 99 years (with rights of renewal), in return for $380,000, payable by instalments over five years without interest. There is no evidence that an agreement was ever prepared.

[12]              In August 1988, Frederick filed proceedings in the High Court seeking a declaration as to the validity of the Thorburn Trust, orders appointing him trustee and vesting the land in him. He was represented by the firm Hesketh Henry.

[13]              On 26 May 1989, prior to a ruling by the High Court, Frederick and Kenneth signed a record of agreement that contemplated that Frederick would be appointed trustee of the Thorburn Trust. Frederick would grant a lease of the land for which Kenneth would pay a “one-time lease fee” of $70,000 and would allow Frederick to reside on the land “on a holiday basis” during his life-time. It was also stipulated that the grave site would not be built on and would be maintained as an historical site.

[14]              On 10 November 1989, Sinclair J issued a decision in the High Court confirming the validity of the Thorburn Trust and its charitable purposes, appointing Frederick as trustee and vesting the land in him.

[15]              On 9 February 1990, Frederick and Kenneth made another written agreement which provided for a much larger payment to Frederick. In consideration for a lease of the land, Kenneth agreed to pay Frederick $250,000 for his “expenses directly connected with the development and future maintenance” of the land. This sum was payable by instalments and was paid in full by 24 December 1993. The plaintiffs consider this agreement significant and I shall refer to it as the “side agreement.”

[16]              Short & Co prepared a draft-lease. This draft is not in evidence. It was reviewed by Hesketh Henry. Hesketh Henry were concerned that the lease was to be renewable  in  perpetuity  at  a  below  market  rent.  They  wrote  to  Frederick  on 12 February 1990 that he was required to enter into a lease, not on his own behalf, but on behalf of the beneficiaries of the Thorburn Trust and ought to endeavour to obtain a market rental for the land. They stated that “any profit the trust may make can then be distributed to such of the beneficiaries who claim an entitlement.” Hesketh Henry also enclosed a draft of a letter to Short & Co with comments on the draft-lease. It is likely that both Frederick and Kenneth reviewed this letter. Reflecting their concern, Hesketh Henry wrote:

While we appreciate that our respective clients are endeavouring to enter into an amicable lease arrangement…we should not lose sight of the  fact that  Mr Thorburn is entering into the lease as trustee and not on his own behalf and that he is required to act prudently particularly in this case where the lease is to be for a period of 21 years in perpetuity. It should also be borne in mind that Mr Lusty will not always be the lessee and may choose to assign or transfer the lease.

[17]              Hesketh Henry wrote to Frederick on 15 February 1990 again expressing its concern in the following terms:

As discussed, we advise that we are still concerned that you are entering into a lease on behalf of the trust in perpetuity at a rental which cannot increase by more than 500% each 21 years.

Should you wish to proceed on this basis we would be grateful if you would sign and return the enclosed acknowledgement that we have advised you accordingly.

[18]              It is not clear to what extent Hesketh Henry had any further involvement in negotiations over the lease. However, on the matter of most concern to Hesketh Henry, their advice was put aside. On 24 March 1990, Frederick and Kenneth signed the lease. It was registered on 10 May 1990. The initial term was for 21 years, commencing 20 December 1989 at a rent of $1,000 plus GST per annum. The lease was renewable every 21 years in perpetuity. The rent for the first renewed term was to be $1,500 plus GST per annum. For each subsequent renewal, the rent would be no more than the rent for the previous term increased by 500%. In addition to rent, the lessee would pay the rates and outgoings and maintain the burial ground.

[19]              As they relate to the matters in issue, I set out clauses 4, 6(b) and 13 – 20 of the lease below:

4.  The Lessee will fence and keep fenced the said piece of land with a   good and substantial legal fence without making any claim for any contribution therefor [sic] from the Lessor. Any surplus rental is to be used by the parties in maintaining the foreshore area, walls and jetty.

…

6(b) The Lessee will during the said term keep and maintain the burial ground that is situated upon the said land and marked approximately in red on the attached plan in good substantial order condition and repair and will keep regularly mown trimmed clipped weeded and tidy any lawns and lawn edges on or adjacent to or about the burial ground and will carefully water tend and cultivate any trees shrubs and gardens in or about the burial ground and replace any trees or shrubs which may require replacement with trees or shrubs of similar quality.

13.     This lease is a lease for a term of Twenty-One (21) years with one right of renewal for the same period.

14.     On the expiry by effluxion of time of the term hereby granted, the Lessee shall have a right to obtain, in accordance with the provisions hereinafter contained, a renewal lease of the said land, at a rent for the term of twenty-one years computed from the expiration of the lease hereby granted, and subject to the same covenants and provisions as this lease, excluding this present provision for the renewal thereof, and all provisions ancillary or in relation thereto.

15.     The rental for the renewed term of this lease is fixed at a yearly rental of ONE THOUSAND FIVE HUNDRED DOLLARS ($1,500.00) per annum together with any goods and services taxes and other taxes pertaining to the said land.

It is also intended the Lease will continue in perpetuity with provision for each rent review (21 yrs) to be arbitrated and to be no more than the rent for the previous term, increased by 500%.

16.Within Two (2) calendar months of the expiry of the term herein the Lessee shall give notice in writing to the Lessor stating:-

(a)      that he desires to accept a renewal lease at the aforesaid rent; or

(b)      that he does not wish to accept a renewal lease.

17.If the Lessee fails to give to the Lessor within the time specified in Clause 16 hereof the notice referred to in that clause, he shall be deemed to have agreed to accept a renewal lease at the aforesaid rent.

18Any notice by the Lessee under Clause 16 of his desire to accept  renewal lease shall be deemed to constitute a contract between the Lessor and the Lessee for the granting and acceptance of a renewal lease at the aforesaid rent and for the term and subject to the covenants and provisions referred to in Clause 14 of these presents.

19.The term of any renewal lease shall run from the date of the expiry of the prior lease, and the rent thereunder shall accrue as from the said date instead of the rent reserved in the prior lease, notwithstanding the fact that the renewal lease may not be executed until after that date.

20.At the expiration of the renewed lease, the Lessor shall first offer a new lease to the Lessee upon similar terms as herein contained and at a rental to be determined by arbitration as herein provided but in no case is the rental to be in excess of 500% of the rental for the prior term. If the Lessee does not accept such offer within 20 working days the Lessor will be free to lease the property on the open market upon terms no less favourable to the Lessor than those offered to the said Lessee.

[20]              Differences developed between Frederick and Kenneth. On 21 March 1995, Kenneth wrote to Frederick stating that Frederick had “established a factor” to reimburse him for his costs and labour on the land amounting to $250,000 and that Kenneth had purchased the leasehold rights “granting my family use of the land in perpetuity.” He referred to the rent as “a nominal fee on an annual basis (in perpetuity) to cover the maintenance of the property – foreshore and gravesite.” Frederick made handwritten notes in the margin of this letter indicating his disagreement with aspects of it.

[21]              To similar effect, on 20 July 2001, Short & Co wrote to the law firm Draffin Agnew & Snow (then acting for Frederick) and asserted that Frederick had received market value for the land and Kenneth had acquired rights like those of “absolute ownership.” In response, on 13 August 2001, Frederick wrote to Short & Co pointing out that Kenneth had first offered $380,000 for the land but that:

When he could not get it freehold he took out a lease for 21 years with rights of renewal for 21 years and paid me $250,000 and he would build me a small cottage on the land, for use on weekends and holidays for the rest of my life, which I have not received.

[22]Frederick died in 2004. Kenneth died in 2010.

[23]              In May 2010, the firm Rennie Cox, acting for the plaintiffs, prepared a notice to renew the lease. The defendants instructed Short & Co (formerly Kenneth’s solicitors) to act for them. On 15 February 2011, Rennie Cox wrote to Short & Co asking for a deed of renewal to be provided but on 11 November 2011, Short & Co wrote to Rennie Cox advising that the defendants were refusing to “sign off the documentation” as they were adamant that the lease was for 21 years with one right of renewal. Further correspondence passed between the solicitors. In a letter of 15 November 2011, Rennie Cox proposed that the parties “at least” register a first renewal and the “lessee will in due course do what is necessary to obtain its right for renewals.” On 21 December 2011, Short & Co confirmed acceptance of this proposal, noting the defendants would be reserving their rights in respect of any further renewals. The defendants subsequently executed an authority and instruction form to register a renewal of the lease for another term of 21 years but when Rennie Cox presented the variation instrument for registration, it was rejected because the original term of the lease had already expired.

[24]              Since then, the plaintiffs have required the defendants to sign a new lease on the same terms as the lease. The defendants will not do so. The defendants were referred for advice to Alexandra Low & Associates, who, on 23 August 2013, wrote to Rennie Cox. The letter expressed concern that the lease was “in practical effect perpetual” and the lease payments agreed did not provide for a market return to the Thorburn Trust and asserted that Frederick could not have entered a lease on those terms. Much correspondence has passed between solicitors, but no resolution was reached.

Summary judgment principles

[25]              The plaintiffs must satisfy the court that the defendants have no defence to their claims. In Krukziener v Hanover Finance Ltd, the Court of Appeal stated the following principles which I adopt:2

[26]       The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at

341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).

Specific Performance

[26]      In Perkins v Purea, Asher J emphasised the discretionary nature of the equitable remedy of specific performance where he said:³

Specific performance is equitable in origin. The normal remedy for breach of contract is recovery of damages. It has been described as an exceptional remedy, which is available to ensure that justice is done (Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at p 11; Attorney-General for England and Wales v R [2002] 2 NZLR at p 120). It has been emphasised that specific performance is not available as of right. The judicial discretion to award the remedy must be exercised in a principled way. It has also been held that the effect of a remedy on a third party can be a relevant factor in relation to the granting of specific performance (Butler v Countrywide Finance Ltd [1993] 3 NZLR 623).

[27]      Agreements for the acquisition of interests in land are generally specifically enforceable because damages are not regarded as an adequate remedy for breach. An order for specific performance will not be granted if a defendant can rely on one of the established equitable defences and that even outside the establishment of an equitable defence, the court retains a discretion to withhold making an order where there are

2      Krukziener v Hanover Finance Ltd [2008] NZCA 187; [2010] NZAR 307.

3      Perkins v Purea (2008) 9 NZCPR 266 at [114].

“sufficient reasons of conscience or expediency against it.”4 In deciding whether to grant specific performance, the court may also consider hardship to third parties.5 Only in exceptional circumstances will the court grant specific performance where in specie performance would result in the commission of a breach of trust or fiduciary duty. An objection to specific performance on this ground gives rise to a discretionary consideration, usually of decisive weight.6

[28]      In Jacobs v Bills, the defendant was the registered proprietor of land which she held on trust.7 She entered into a contract to sell the property to the plaintiff at under- value and after the intervention of her solicitors she refused to complete the transaction. The plaintiff brought an action for specific performance of the contract or, in the alternative, damages. McGregor J found that the contract was not one which could be avoided in equity but refused to order specific performance. He said:8

The consideration was grossly inadequate and, in my opinion, the plaintiff appreciated the gross inadequacy. The defendant as trustee had power to sell, but as trustee it was her duty to act reasonably, to obtain advice as to the real value of her property, and to procure an adequate price. In my view this contract amounted to a breach of trust, although through ignorance on the part of the defendant an innocent breach of trust. …

The objections to specific performance

[29]      It is not the defendants’ case that the lease can be set aside in equity as unconscionable. Rather, they argue that specific performance should not be ordered because the plaintiffs were in breach of the lease (as rent was in arrears) and because the lease was granted in breach of trust and to order its renewal would perpetuate the breach. I will deal with each matter in turn.

4      Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thomson Reuters, Wellington, 2011) at 360.

5      Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [24.4.5] and [24.4.5].

6      Briggs v Parsloe [1937] 3 All ER 831.

7      Jacobs v Bills [1967] NZLR 249.

8      At 253.

Non-payment of rent

[30]      There is a dispute as to whether rent was in arrears at the renewal date which I do not have to resolve. I do not accept that it is a relevant matter as the defendants have agreed to renew the lease for one further term. They must therefore be taken to have waived objection on the basis that rent was outstanding. Furthermore, this issue was not raised in the defendants’ notice of opposition and the affidavit of Craig Thorburn gives the impression that the arrears of rent were not being relied upon.

Breach of trust

[31]      Before considering the submissions on this aspect of the case, I note the following fundamental principles. Trustees must adhere to the terms in the trust instrument. They must also act in the beneficiaries’ best interests. They cannot profit from their trusteeship. The duty not to profit from a trusteeship is a fundamental obligation imposed on a trustee to ensure a trustee’s loyalty to the beneficiaries. The duty is applied strictly.

[32]      Ms Low argues that the terms of the lease do not adhere to the terms of the Conveyance on several grounds. First, because the lease did not “carve out” the burial ground, and the lessee’s obligation to maintain the burial ground (cl 6(b) of the lease) was inadequate as there was no requirement to maintain the graves. I am unable to accept these arguments. The Conveyance does not prohibit the lease of the burial ground and the lease requires that it be kept and maintained as a burial ground. I also consider that as a matter of interpretation the lessee’s obligations extend to maintaining the graves.

[33]      Second, because under cl 4 of the lease rent can be used “by the parties” for purposes other than maintaining the burial ground and graves whereas the Conveyance requires that the net annual rent or income be applied to keep and maintain the graves and burial ground. I agree with Ms Low’s submission. The mischief of cl 4 is that “surplus rental” (however defined) may be used, not for the purposes of the Thorburn Trust, but to benefit the lessee to maintain the foreshore and jetty. Any surplus rent

should not benefit the lessee but should accumulate in trust until it is required for the purposes of the Thorburn Trust.

[34]      Third, the defendants’ principal objection to the lease is the potential for renewals in perpetuity at what Ms Low described as a “peppercorn rent.” She argues that the Thorburn Trust will never receive anything near to market rent because the rent was fixed at a discounted rate for the first two terms, and thereafter was capped. The difference between the rent payable under the lease and market rent was significant at the commencement of the lease and can only increase over time. Ms Low illustrated the point by noting that the capital valuation of the land is presently

$1,725,000 but the Thorburn Trust is entitled to rent of just $1,500 plus GST per annum. By granting the lease on such imprudent terms Frederick had, she submitted, given away the future value of the land to Kenneth and his successors in breach of his obligations as trustee.

[35]      The plaintiffs’ position is that the lease was a careful and considered delegation of the performance of the Thorburn Trust’s care, maintenance and rates paying obligations for as long as the leased endured. Ms Matthews argues that the lease is a straightforward Glasgow lease and the defendants’ complaint is that Frederick made a bad bargain. The terms of the lease were fair at the time it was granted because Frederick had independent legal advice, Kenneth made an up-front payment of

$250,000 under the side agreement which was the market value of the land, and he assumed the obligations to pay rent and rates and to maintain the burial ground. Good reasons existed for the “front-loading” of the consideration for the lease as Frederick had incurred expenses for which he was entitled to be reimbursed, but the Thorburn Trust could not pay, and the rates were in arrears. Alternatively, the plaintiffs argue, the $250,000 was a fair sum to acquire the lease given the onerous obligation to maintain the burial grounds.

[36]      As an additional matter, the plaintiffs argue that independently of the lease they are entitled to an order for specific performance because the defendants provided a registrable authority and instruction form renewing the lease, which is enforceable as a deed.

Discussion

[37]      The lease is not a straightforward Glasgow lease. In delivering the judgment of the majority in Mandic v Cornwall Park Trust Board Inc, William Young J noted that what are known as Glasgow leases are long-term ground leases renewable in perpetuity with rent calculated either by an assessment of fair market rent (or some similar concept) or as a percentage of a sum established pursuant to stipulated valuation exercises.9 Such leases were seen as generating secure endowment income for charities and public bodies which income was expected to increase over time as the value of the land increased. This was because:10

Glasgow leases proceed on the basis that:

(a)increases in the value of the land due to extrinsic factors are for

thelessor’s benefit; but

(b)the rent should not be fixed in relation to value due to improvements made by the lessee.

[38]      The rent payable under the lease is a nominal sum for the first two terms (in total, 42 years) and bears no relationship to the value of the land. Upon subsequent renewals, the rent is to be capped, not by reference to the value of the land but to the rent for the previous term. The Thorburn Trust will never receive anything like a market rent and it cannot be said that upon renewal of the lease it will receive the benefit of the increased value of the land. The difference between the rent payable under the lease and market rent will increase exponentially over time. From a lessor’s perspective the lease is, on its face, grossly imprudent.

[39]      It is correct that Frederick received legal advice from Hesketh Henry, although the extent to which Hesketh Henry was involved in the negotiations over the terms of the lease is not clear. What is important is that Hesketh Henry’s advice was that Frederick should not, consistent with his obligations as trustee, grant a lease on the proposed terms. Notwithstanding that advice, Frederick granted the lease.

9      Mandic v Cornwell Park Trust Board (Inc) [2011] NZSC 135; [2012] 2 NZLR 194 at [25].

10 At [26].

[40]      I do not accept the plaintiffs’ argument that the $250,000 paid under the side agreement was the market value of the land. There is insufficient evidence to make such a finding. The best evidence of market value that I have before me is what Kenneth agreed to pay for the land, which was $380,000.11 Similarly, there is insufficient evidence for any finding that the $250,000 was a fair sum for the lease.

[41]      The force in the argument that the Thorburn Trust received fair value for the lease is lost when it is recognised that the $250,000 payment was to reimburse Frederick not only for expenses but for “future maintenance” of the land. To what extent the payment was a genuine reimbursement of his expenses is unknown. In addition to the $250,000 payment, it appears that Frederick was, upon granting the lease, to receive other benefits, namely the right to holiday on the land during his lifetime and, possibly, to be built a house on the land. Such an understanding might explain cl 4 of the lease as the use of rent to maintain the jetty would benefit Frederick personally.

[42]      The plaintiffs have not established that the defendants have no arguable defence. I am satisfied that it is arguable the lease was granted in breach of Frederick’s obligations as trustee to perform his duties for the benefit of the beneficiaries of the Thorburn Trust and not to profit from his trusteeship. The terms of the lease provided for a grossly inadequate rent, potentially in perpetuity. The degree of the inadequacy will grow over time. I am not satisfied that this can be reasonably explained (or justified) by the consideration paid for the lease or the maintenance obligations Kenneth assumed under it. It appears that Frederick dealt with the land as if it was his own, albeit constrained by his trusteeship to the extent that he could not sell the land outright. I am also satisfied that it is arguable that Kenneth knew of Frederick’s breach of trust. Kenneth had been advised by his own solicitors of Frederick’s obligations as trustee. He knew Frederick was not entitled to profit from his position as trustee. He may also have seen Hesketh Henry’s advice to Frederick that the terms of the lease were imprudent.

11     Westpac New Zealand Ltd v Lamb [2012] NZHC 319 at [61].

[43]      I do not accept Ms Matthew’s submission that there are no disputed questions of fact or that as Frederick and Kenneth have both died, there is no one who can give evidence on any disputed factual matters arising. There is a great deal about the circumstances under which the lease was granted and the arrangements that were made between Frederick and Kenneth that are unknown. These issues can only be explored at trial. Whilst Frederick and Kenneth have both died, I understand that the solicitors who acted for them are still alive and may have relevant evidence to give. Members of the Thorburn and Lusty families may also be useful witnesses.

[44]      The plaintiffs’ additional argument that they are entitled to enforce the registrable authority and instruction form as a deed does not advance matters. The form was given for a renewal of one term only and the defendants reserved their position in respect of any further renewals. The form is no basis for the plaintiffs’ claim to further rights of renewal in perpetuity.

The declarations

[45]      The plaintiffs seek three declarations. It is not necessary for me to set them out. They are all predicated upon the plaintiffs’ entitlement to specific performance of the lease. It is inappropriate for me to make any of the declarations when the defendants have an arguable basis to oppose the granting of specific performance.

Knowing receipt

[46]      Liability for knowing receipt will arise where it is unconscionable for the recipient to retain property because of that recipient’s knowledge that the transfer of the property involved a breach of fiduciary obligations owed by the transferor. 12 I am satisfied that the defendants have an arguable cause of action on this basis. Given my findings above, I do not need to consider it further however.

Result

[47]The plaintiffs’ application for summary judgment is dismissed.

12     McLennan v Livaja [2017] NZCA 446 at [38].

[48]      My preliminary view is that costs should be reserved. If either party seeks costs I will receive memoranda within 14 days with 7 days for any reply.

[49]      The Registrar should allocate the case a first case management telephone conference on the first available date.

O G Paulsen Associate Judge