Marr v Parkin
[2014] NZHC 3269
•17 December 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-5102 [2014] NZHC 3269
UNDER the Declaratory Judgments Act 1908 BETWEEN
BERNADETTE MAKUINI MARR First Plaintiff
KEITH CHARLES BLUETT MARR and
CHARLOTTE RUBY MARR Second Plaintiffs
AND
BARRY IAN PARKIN Defendant
Hearing: 3 to 6 November 2014 Counsel:
EJ Werry for plaintiffs
KT Glover for defendantJudgment:
17 December 2014
JUDGMENT OF FAIRE J
This judgment was delivered by me on 17 December 2014 at 12-noon pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Atmore Lawyers, Auckland (G Atmore) Graham Jones Law, Auckland (G Jones)
Marr v Parkin [2014] NZHC 3269 [17 December 2014]
Table of Contents
Introduction ............................................................................................................[1] The facts and my findings ......................................................................................[4] The causes of action .............................................................................................[41]
(a) Knowing receipt [44] (b) Competing equitable interests [45] (c) Breach of the Credit Contracts and Consumer Finance Act 2003 [46] (d) Credit Contracts and Consumer Finance Act 2003 (reopening of credit
contract) [47]
Knowing receipt ...................................................................................................[49] Elements of knowing receipt [56] Discussion [57]
Competing equitable interests ..............................................................................[70] Breach of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) .......[72]
Submissions [73] Disclosure cause of action [78] Reopening cause of action [84]
Result....................................................................................................................[86] Costs .....................................................................................................................[87]
Introduction
[1] This proceeding was brought to determine who is ultimately entitled to ownership of a residential property at 1/27 Birdwood Crescent, Auckland (“the house”). The house has been the home of the Marr family since 2007. The second plaintiffs are the children of the first plaintiff.
[2] The beneficial interest in the house had been acquired by Ms Guttenbeil pursuant to a contract she entered into with the mortgagee of the house. Ms Guttenbeil did not formally settle her contract with the mortgagee of the house. What she did was nominate the defendant who settled that transaction. That settlement has not been able to be brought to completion because of a caveat which was lodged against the title to the property by the second plaintiffs.
[3] The caveat claimed an estate or interest as follows:
Pursuant to an unconditional agreement for sale and purchase dated 2 August
2013 between Keith Charles Bluett Marr and Charlotte Ruby Marr as purchasers and Merrill Jane Guttenbeil as vendor, Merrill Jane Guttenbeil being purchaser under an unconditional agreement for sale and purchase dated 18 July 2013 under a power of sale exercised by Link Loan Trustees Limited as mortgagee under Memorandum of Mortgage 7667128.3.
The facts and my findings
[4] Ms Marr’s son, Damian Marr, and a family friend, David Askew, purchased the property at 1/27 Birdwood Crescent in December 2007, on behalf of Ms Marr. The house was acquired with assistance provided by Link Loan Trustees Ltd (“the mortgagee”). In November 2012, Ms Marr fell behind on her mortgage payments. On 26 February 2013, the mortgagee served on Damian Marr a notice of default under the mortgage seeking $13,995.25 plus costs of $950 for a total of $14,945.25. The default was required to be remedied by 5 April 2013. The Marr interests were not able to meet that deadline.
[5] Ms Marr obtained a first mortgage loan offer of $380,000 from Cressida Finance Ltd on 11 July 2013. Its purpose was to be the first and major step in refinancing the house.
[6] The mortgagee commenced a mortgagee sale, resulting in an auction being scheduled for 6pm on 17 July 2013. Ms Marr’s finance was not sufficient to stop the sale. A second loan was required. Ms Marr contacted a friend, Ms Guttenbeil, on
16 July 2013. She asked Ms Guttenbeil to bid at the auction on her behalf. This was an effort to get more time to raise finance. Ms Guttenbeil agreed.
[7] Also on 16 July 2013, Ms Marr’s mortgage broker, Ms Shepherd, referred her to a broker, Mr Dave Barton, of North Capital Partners Securities. Ms Marr explained her position to Mr Barton. She said he was encouraging and discussed arranging a deposit of $25,000. Later that day, Ms Marr was advised by Mr Barton that she had spoken to an accountant who was getting the deposit ready. That person was the defendant, Mr Parkin. Mr Barton required a fee of $1,000 from Ms Marr,
and later, a payment of $3,000 which was to cover his, and his associate’s fee of
$500 each, and $2,000 for Mr Parkin as the person providing the deposit funds.
[8] Mr Parkin said that he had received a call from Mr Barton. Mr Barton had told him he had a client who needed help with a mortgagee sale rescue. Mr Parkin said that he had been involved in these sorts of arrangements in the past. He said the basic idea was that someone bids at the auction to buy the property and effectively gives the mortgagor party additional and, hopefully, sufficient time to arrange funding to settle the purchase and reclaim ownership within a family grouping. He said that his role in a mortgagee sale rescue is normally one of providing bridging finance. Before he decides to become involved with a project, he needs to be comfortable that there is a “Plan B” in place so that he can protect his position if the transaction cannot proceed. His concern is to protect his own interests. He said that one is particularly concerned at the risk that arises where a mortgagor is unable to arrange funding in the time between the auction and the settlement. He said that when he was approached he asked for information about members of the Marr family and he gave evidence as to what he was given.
[9] Mr Parkin said he requested that the terms of sale be amended to reduce the deposit to $25,000, rather than 10 per cent of the sale price. He wanted to reduce his own exposure. He said that he also asked for the settlement period to be extended from 14 days to 28 days. He said that he made it clear to Mr Barton that the deposit funds would only be paid over by him if the bid price was acceptable to him. He also said that as he was not going to be bidding himself, the final agreement with the mortgagee had to have him named as a specific nominee. He said that was to ensure that he could buy the property if the mortgagor family could not settle and other arrangements could not be made within the 28-day settlement period.
[10] Mr Parkin had been shown a valuation of between $450,000 and $480,000 for mortgage purposes, and an open market valuation of $540,000. He therefore decided he would attend the auction. He expected some post-auction negotiation with the mortgagee’s representative if the property was passed in at auction.
[11] On the morning of the auction, Ms Marr discussed the need for a variation of the deposit requirements with Mr Barton, amongst other things. That evening, Ms Guttenbeil, Ms Marr, Ms Marr’s husband, and Mr Barton and his partner, met to discuss tactics at the auction.
[12] At the auction, the property passed in as it had not met the reserve.
[13] The next day, Ms Guttenbeil offered the mortgagee $435,000. Ms Marr gave Mr Barton written instructions to forward the offer of $435,000 to the mortgagee. The mortgagee accepted the offer. Mr Parkin was asked to agree to this figure by Mr Barton. The terms of the offer were a deposit of $25,000 and a 28-day settlement. Mr Parkin said the offer was to be made on the express basis that he was the nominee of the purchaser, and that that was placed on the agreement.
[14] Ms Guttenbeil signed the contract with the mortgagee. It did not contain a nomination provision in favour of Mr Parkin.
[15] That evening, Mr Barton advised Ms Marr that Mr Parkin would not pay the deposit unless the memorandum of contract that Ms Guttenbeil had signed was altered to include Mr Parkin as a nominee. Ms Marr was distressed about that but she did not speak to Mr Parkin. Ms Guttenbeil signed alongside the description of purchaser and the words which had been added, “and/or nominee Barry Ian Parkin.” Ms Guttenbeil sent this to Ms Marr. Ms Marr sent it to Mr Parkin. He received the front page of the contract by facsimile that evening. It showed him as the nominee and a price of $435,000. The amended contract with nominee provision was never sent to the mortgagee or mortgagee’s agent. It never formed part of the contract between the mortgagee and Ms Guttenbeil.
[16] After receiving the nomination, Mr Parkin paid the deposit to the mortgagee, who no doubt assumed it was being paid by Ms Guttenbeil, the purchaser.
[17] Ms Marr then attempted to get finance. She approached Heather Samu, of the Business Mortgage People. Ms Marr said she was losing confidence in Mr Barton, particularly over the discussion she had had with him about the need to
include Mr Parkin as a nominee. Ms Marr gave Ms Samu a copy of the auction agreement document that Ms Guttenbeil had signed. Ms Marr said she would get confirmation from Ms Guttenbeil that Ms Guttenbeil would nominate her three children to settle the contract. Ms Guttenbeil told Ms Marr that she would nominate Ms Marr’s three children to settle the contract, by email at approximately 8:02 pm on
30 July 2013.
[18] Ms Samu told Ms Marr that the bank would not lend to Ms Marr, because the sale was to Ms Guttenbeil. From the bank’s perspective, there was no provision to nominate. Ms Marr, without legal advice, considered she could meet the problem by having Ms Guttenbeil sign a sale and purchase contract with her children. She said she prepared a sale and purchase agreement on 1 August 2013, and arranged for her children, Damian and Charlotte, to sign that contract. She then said she asked Ms Guttenbeil to meet her on 2 August 2013, and asked her to avoid contact with M Parkin. I can only surmise that she did not want him to know about a new nomination agreement.
[19] She said she met Ms Guttenbeil at Marcellos and that Ms Guttenbeil signed the contract form. The document was allegedly signed on 2 August 2013.
[20] The first plaintiff acknowledges that a number of terms were added to that document, which is the agreement alleged to have been signed on 2 August 2013.
[21] On 13 August 2013 the first plaintiff said she added the settlement date details. Settlement was to be 10 working days after service of a settlement notice. That was to be a reference to Ms Guttenbeil’s contract with the mortgagee.
[22] The first plaintiff said that on 16 August 2013 she added the solicitor details which, from her perspective meant that Mr Graeme Atmore was being shown on the agreement as the purchaser’s solicitor. The first plaintiff further acknowledges that she made additions to the schedules to the agreement. Further, she said that she added cl 18 to the agreement form on 13 August 2013. For completeness sake, I set out that clause because it is clearly inappropriate. It provided:
Settlement of this agreement is conditional upon settlement of the other agreement made between the same parties contemporaneously herewith and affecting the property at 1/27 Birdwood Crescent, Parnell, Auckland and settlement of both agreements shall be deemed completely independent and shall be effected contemporaneously.
No doubt the first plaintiff had in mind tying Ms Guttenbeil’s contract with the mortgagee and its settlement with a transaction between Ms Guttenbeil and Ms Marr’s children. However, that is clearly not what the clause provides for.
[23] The first plaintiff’s description of the events on the 2 August 2013 is not
accepted by Ms Guttenbeil. She acknowledges that she did meet the first plaintiff on
2 August 2013 but says there was no agreement. She acknowledges that she signed a signature page in the standard form of sale and purchase contract on 9 August 2013. She says that the document which she signed, which she is convinced she signed on
9 August 2013, had on the front page a price of $560,000 and that the deposit was approximately $125,000.
[24] The document which was produced and which bears the date 2 August 2013, was examined by Nicola Kay Walker who is a document examiner for the New Zealand Police. She outlined her training and experience. In her report she recorded a number of tests and examinations she had carried out on the contract. Her conclusion was the agreement could not be relied upon as a genuine document. In particular, she concluded that Ms Guttenbeil’s signature on the document was the result of an attempt to simulate, or copy, Ms Guttenbeil’s natural signature style. In her opinion it was not genuine.
[25] There is other evidence available to suggest, however, that the 2 August 2013 document is not genuine. In the first place, Ms Marr did not send the document to any third party following its execution on 2 August 2013. This is surprising as she was looking for finance. Instead, she used Ms Guttenbeil’s email of 30 July 2013, nominating her children. I can understand a reference would be made to 30 July
2013 in respect of any approaches to financiers, if they were made before execution of the so-called 2 August 2013 agreement. However, I would expect any approaches after 2 August 2013 to refer to that agreement. The 2 August 2013 agreement was not the basis put forward for the first plaintiff’s interests claiming a right to an
assignment of Ms Guttenbeil’s contract until very much later. Mr Glover drew attention to a number of other differences, which I need not recount.
[26] When I weigh up the matters I have mentioned, and the circumstances surrounding that document, I conclude that it was not a genuine document and it was certainly not signed by Ms Guttenbeil on 2 August 2013.
[27] The first plaintiff refers to the next development, which she said followed a discussion which she had with Ms Samu. She said that Ms Samu had suggested that she speak to a solicitor about a scenario to present a contract with the purchase price at the valuation of $560,000 and a deposit of $125,000. The clear object of that subterfuge was to make the finding of funding of $435,000 more obtainable because of the additional equity which the valuation suggested would exist in the house.
[28] The first plaintiff said that she drew up such a contract. She says she contacted Ms Guttenbeil and asked to meet her the following day, 9 August 2013. She said that they met at a BP Service Station and that Ms Guttenbeil initialled the front page showing the price of $560,000. Arrangements were then made to meet Ms Guttenbeil’s solicitor, Mr Phillips. Mr Phillips, who was called to give evidence, advised very strongly and properly against using what was clearly a device to raise mortgage finance. The first plaintiff said that as a result of that advice, she destroyed the page that had been signed by Ms Guttenbeil. This particular incident, again, rather reinforces the desperate measures that were being taken at the time by the first plaintiff.
[29] The first plaintiff said she was still continuing with Mr Barton to see if he could arrange finance. She says she received, on 10 August 2013, a second mortgage loan offer from Mr Barton of $50,000. The proposed lender was Nimrod Nominees Ltd, which was Mr Parkin’s company. It was proposed that the $25,000 deposit plus fees would be deducted from the loan, leaving a net of $18,500 available. It is significant that that surplus, added to the first mortgage loan that Mrs Shepherd had obtained from Cressida Finance Ltd of $380,000 was insufficient to enable ultimate settlement with the mortgagee. It would account for $423,500 and
therefore was significantly below what was required to settle. There were other developments which I need not record.
[30] Suffice to say, the time for settlement, ie 15 August 2013, passed without settlement. Ms Guttenbeil was now in breach of the sale and purchase contract she had entered into with the mortgagee. A settlement notice was served, the effect of which was to require settlement by 30 August 2013 failing which the mortgagee vendor could exercise all rights under the contract. Understandably, Ms Guttenbeil was becoming concerned at developments which left her exposed.
[31] The first plaintiff then instructed a new solicitor, Mr Atmore. He contacted Mr Phillips. He sought documents with a view to knowing what was required for settlement. Mr Phillips did not provide those documents. There was further interchange between the parties, including emails between the first plaintiff and Mr Parkin. The first plaintiff was then made aware that Ms Guttenbeil was discussing the nomination of Mr Parkin with him as the purchaser. On 22 August
2013 Mr Parkin sent a text to the first plaintiff asking if there was any news about finance. The first plaintiff responded saying she would be in touch in the next week.
[32] At 3:30 pm on 26 August 2013, the first plaintiff called Ms Guttenbeil to say that her finance had come together and that loans were going through to her solicitor so that Mr Paul Phillips, Ms Guttenbeil’s solicitor, could settle contemporaneously with the settlement with the mortgagee. She said Ms Guttenbeil’s response was “awesome”.
[33] However, at 4:42 pm that day, Ms Guttenbeil emailed the first plaintiff
advising that she had signed papers at her solicitor’s office at 2:30 pm on 26 August
2013, which nominated and assigned the contract to Mr Parkin. Mr Parkin proceeded to settle the contract pursuant to that assignment.
[34] The first plaintiff then sought legal advice. As a result, a caveat in the name of her two children claiming an interest in the house as purchaser pursuant to the
2 August 2013 agreement was registered against the title.
[35] On 27 August 2013, the first plaintiff said she received another offer of finance from Cressida Capital, this time for $390,000 at 7.5 per cent. She said that she then received a loan from a friend of $65,000. The documentation relating to these offers were produced, but were not signed.
[36] The next step appears to have been a written communication between the first plaintiff’s new solicitor, Mr Atmore, and Mr Phillips who was acting for Ms Guttenbeil. It commences:
Attached is a sale and purchase agreement in respect of the above property that our client has sent us (this is not the same agreement for $565,000 which was not pursued after a meeting of Makuini Marr, your client and you in your office – as referred to in our discussion this morning). We anticipate settling on Friday. We have copies of letter of offer documents sufficient to allow settlement to take place.
[37] The reference in this written communication is to the alleged agreement of
2 August 2013.
[38] There then followed in the same document reference as to how the $25,000 loan from Mr Parkin would be satisfied. On the face of it, with nothing more, the two unsigned loan offers were sufficient for Mr Atmore to make the statements he did to Mr Phillips in his communication of 28 August 2013.
[39] It is significant however, that Mr Atmore was not unequivocally saying that settlement would occur on Friday, which was the 30th. He simply said: “We anticipate settling on Friday”. Mr Phillips then replied to Mr Atmore on 28 August
2013 denying that a contract had been signed in the form which accompanied
Mr Atmore’s correspondence, that is the 2 August 2013 agreement.
[40] There was next telephone contact between the first plaintiff and Mr Parkin in which she said she was able to settle on Friday, 30 August 2013. On 29 August
2013, Cressida Capital sent documents for signing in respect of the first mortgage advance to the first plaintiff’s solicitor, who was also acting for her children. The second mortgage finance offer of $65,000 was also emailed through on 29 August
2013. There was further contact between the first plaintiff and Mr Parkin in which the first plaintiff had hoped to convince Mr Parkin that she could in fact settle with
him. Mr Parkin declined those approaches. His position, as clarified in his evidence, is that he had lost any confidence that previously had existed that the first plaintiff’s family might have been able to settle and that the action he took was designed primarily to protect the advance that he had made in respect of the contract to secure the property at mortgagee sale.
The causes of action
[41] Mr Werry advised that the plaintiffs advance the case based on four causes of action.
[42] The causes of action pleaded in the second amended statement of claim as:
(a) Accessory liability, paragraphs 18 to 20 and relief sought in respect of same; and
(b)Inducing breach of contract, paragraphs 24 to 29 and relief sought in respect of same;
were abandoned.
[43] The remaining causes of action which require determination in this judgment are as follows
(a) Knowing receipt
[44] Here the plaintiffs plead:
(a) That Ms Guttenbeil breached her fiduciary duty to the first plaintiff and, as a result, the defendant has received a benefit; and
(b)The defendant had sufficient knowledge of the circumstances that ought to have put him on inquiry, or which would have indicated to him that Ms Guttenbeil was holding her interest in the property on trust for the plaintiffs with the result that the 26 August 2013 deed of nomination to him was in breach of that trust; and
(c) In the circumstances it is just and equitable that the defendant holds whatever interest he had in the house on trust for the plaintiffs.
(b) Competing equitable interests
[45] The plaintiffs plead:
(a) that the second plaintiffs hold an equitable interest in the house by virtue of the agreement of 2 August 2013 which is prior to the defendant acquiring any equitable interest in the property;
(b)if the defendant acquired an equitable interest in the property, it is pleaded that it did not arise until the deed of nomination was executed by Ms Guttenbeil and the defendant on 26 August 2013;
(c) because the second plaintiffs’ equitable interest under the 2 August
2013 agreement was first in time, it is just and equitable that the
second plaintiffs’ interests prevail over that of the defendant.
(c) Breach of the Credit Contracts and Consumer Finance Act 2003
[46] The plaintiffs plead:
(a) That on 19 August 2013 the defendant advanced the deposit of
$25,000 to either the first plaintiff or Merrill Guttenbeil, who paid it
directly to the mortgagee’s real estate agent;
(b)The payment was an advance and was a consumer credit contract for the purposes of ss 7 and 11 of the Credit Contracts and Consumer Finance Act;
(c) The defendant requested that the memorandum of contract with the mortgagee be altered to include, after purchaser, the words and/or nominee – Barry Ian Parkin;
(d)The alteration is a security interest as defined in the Act, in that it was obtained to secure payment of the advance;
(e) Pursuant to s 17 of the Act the defendant, as a creditor of consumer credit, was obliged to provide the first plaintiff, or Ms Guttenbeil as her agent, with initial disclosure of key information set out in the First Schedule to the Act within five working days of the contract, together with a copy of the terms of the contract. The defendant failed to do this;
(f) By requiring Ms Guttenbeil to execute the deed of nomination on
26 August 2013, the defendant was either: (i) Enforcing the credit contract; or
(ii)Enforcing what right he may have had to recover the property to which the contract related; or
(iii)Enforcing the security interest taken in connection with the contract.
It was submitted that all of the above was undertaken before any disclosure had been made and was therefore in breach of s 99 of the Act;
(g)As a result of that conduct the plaintiffs claim they have suffered loss or damage and seek relief by way of an order that the interest in the house is held in trust for them.
(d) Credit Contracts and Consumer Finance Act 2003 (reopening of credit contract)
[47] Here the plaintiffs plead:
(a) Oppressive conduct on part of the defendant towards the plaintiffs by:
(i)Procuring or inducing Ms Guttenbeil to execute the deed of nomination of 26 August 2013;
(ii)Doing so knowing the plaintiffs were endeavouring to raise finance to settle the purchase of the property;
(iii)The settlement notice issued by the mortgagee was not due to expire until 30 August 2013;
(iv)Settling with the mortgagee on 29 August 2013 after being advised by the first plaintiff that the plaintiffs would be able to settle on 30 August 2013;
(v)The defendant was intending to exercise the right or power conferred on him by the deed of nomination to acquire the property in his own name and for his own benefit; and
(vi) The defendant refusing to accept the plaintiffs’ request to
repay the advance or redeem the security.
[48] Based on the above, an order was sought reopening the contract pursuant to s 120 of the Act.
Knowing receipt
[49] The plaintiff submitted that Ms Guttenbeil was an agent of Ms Marr, and as a consequence of that relationship, a fiduciary relationship arose between the two women.1 The plaintiff submitted the agency relationship arose on 18 July 2013 when Ms Guttenbeil entered into the unconditional contract with the mortgagee. The plaintiff submitted this conclusion is reached on the basis of Ms Marr having asked Ms Guttenbeil to bid on her behalf; Ms Guttenbeil’s acknowledgment that Ms Marr was depending on her; and Ms Guttenbeil following Ms Marr’s instructions to increase her bid and add the words “and/or nominee Barry Parkin” to the contract.
The duties Ms Guttenbeil is said to have owed Ms Marr are to act in her best
1 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 (SC) at [73].
interests, and not to advantage herself or any other person without the express consent of Ms Marr.
[50] The plaintiff submitted that if the addition of the words “and/or nominee Barry Parkin” allowed Ms Guttenbeil to nominate Mr Parkin at some time, the point at which that right arose was never agreed on. The plaintiff further submitted that the addition of the nominee words did not derogate from the relationship of principal and agent, that is, it did not allow Ms Guttenbeil to freely nominate Mr Parkin without Ms Marr’s consent and without notice. The inclusion of the words did not diminish the fiduciary obligation owed by Ms Guttenbeil to Ms Marr.
[51] The plaintiff submitted that there is evidence that Mr Parkin had actual knowledge of the fiduciary duty Ms Guttenbeil owed to Ms Marr and knew that he was receiving trust property in breach of that fiduciary duty, or at least shut his eyes to the obvious. This is because Mr Parkin knew the proposal was for him to help with a mortgagee sale rescue for Ms Marr. In evidence, Mr Parkin said that he knew Ms Marr had “a right of first refusal or an option to purchase from [Ms Guttenbeil]”. He said that Ms Guttenbeil had the legal obligation to settle with the mortgagee, and the only way that could change was if someone else took over as nominee. He admitted that if another party were to “come in” then “obviously out of courtesy the Marrs would have been first cab off the rank.” Additionally, Mr Parkin never replied to Ms Marr when on 28 August 2013 Ms Marr asked to meet to “discuss settling my debt with you”.
[52] The defendant disputes that there was an agency relationship. His evidence was that these types of arrangements proceed by way of an option to purchase rather than agency. Ms Guttenbeil did not consider that she was acting as an agent, she was not remunerated, and she took instructions from both Mr Parkin and Ms Marr. The defendant submitted that any agency relationship whereby Ms Guttenbeil was to transfer the property to Ms Marr or her children must have been contingent on the Marr interests coming up with appropriate funding. If Ms Guttenbeil had not nominated Mr Parkin and the plaintiffs had been unable to come up with the funds, Ms Guttenbeil was in danger of being made bankrupt. If there was an agency relationship, it was not absolute.
[53] The defendant further submitted that if there was an agency relationship, it was not in existence after 14 August 2013 on Ms Marr’s evidence, or 12 August
2013 on Ms Guttenbeil’s evidence. At that time, Ms Guttenbeil told Ms Marr that she could continue to seek funding and whoever was ready to purchase first could have the property because she was worried about Ms Marr’s funding not coming through. The defendant submitted this cancelled any agency relationship. Ms Guttenbeil could not have been expected to risk her own financial position for no reward, and at least from that point was entitled to act in her own interest.
[54] The defendant submitted that his conduct did not amount to knowing receipt. He insisted on being specifically listed as nominee before he would release the deposit. Nomination was clearly within the parties’ contemplation. In acting in accordance with the contemplated nomination provision, the defendant was acting in good faith. Ms Marr never told Mr Parkin that she disagreed with him being nominated as purchaser, and never put him on notice that he could not buy the property. By the time of the nomination, he had lost confidence in Ms Marr’s ability to raise finance.
[55] The defendant further submitted that he was under no duty to make inquiries as to Ms Marr’s position, because he had already spoken with her and she had lost all credibility in his eyes. The defendant submitted even if Ms Marr had been told about the possible nomination before it occurred, it is not clear what she would have said. After the nomination, she did not tell Mr Parkin that she did not consider that he was entitled to receive the nomination because Ms Guttenbeil held the right to buy the property on trust. That argument was not put forward until after the caveat proceeding. Instead, she advanced the position that she would buy under the
2 August 2013 agreement.
Elements of knowing receipt
[56] A defendant who receives property obtained by fraud may be liable as a constructive trustee.2 There are three elements of a cause of action in knowing
receipt. The plaintiff must show:3
2 Wordtel NZ Ltd v Kim HC Auckland CIV-2009-404-1158, 30 September 2011.
3 El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 (CA).
(a) A disposal of assets in breach of fiduciary duty;
(b)The beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff;
(c) Knowledge on the part of the defendant that the assets he received are traceable to the breach of fiduciary duty.
Discussion
[57] The first issue is whether a fiduciary duty existed.
[58] The fiduciary relationship relied on by the plaintiff is one of agency. An agency relationship arises by agreement where the principal, by express agreement, appoints the agent.4 Implied agency arises from the conduct of the parties.5 From their actions, they are taken to have agreed to an agency relationship. An agency relationship requires consent of both principal and agent, and authority given by the principal to the agent to act on the principal’s behalf.6 It is not necessary for there to be a contract between principal and agent, “but it is necessary that there should be an instruction or request from the [principal] and an undertaking of the duty or task by the agent.”7 Consent to agency is to be determined objectively.8 According to Dal Pont:9
…the principal must intend that the agent will act for him or her and the agent must intend to accept the authority and act on it. Hence, the existence of agency is, with the exception of agency by necessity, grounded in intention, not imposed by the law without regard for intention.
I consider that an agency arose when Ms Marr asked Ms Guttenbeil to bid on her behalf at the auction. Ms Marr intended that Ms Guttenbeil would act on her behalf, and Ms Guttenbeil accepted authority to act on Ms Marr’s behalf. I reach this
conclusion even though in cross examination Ms Guttenbeil said:
4 G E Dal Pont Law of Agency (3rd ed, LexisNexis, Australia, 2014) at [4.1].
5 At [4.1].
6 At [4.3].
7 Morgans v Launchbury [1973] AC 127 at 140, cited in Law of Agency at [4.4].
8 Law of Agency, above n 4, at [4.5].
I didn’t think I was an agent, I wasn’t meaning to be an agent, I was being a friend. That’s not what I call an agent, I was just, I’m helping her out that’s all, I wasn’t, I didn’t even think of myself as an agent because I know what it’s like to be a real estate agent and an agent, that’s not, that wasn’t the capacity that I was working at.
[59] I reach the conclusion that Ms Guttenbeil was Ms Marr’s agent because she accepted the instruction to bid on Ms Marr’s behalf, and she knew that Ms Marr was depending on her to bid on her behalf.
[60] It is necessary to define the scope of the agency. The scope of the authority conferred upon the agent by the principal is critical to the agency relationship.10 The scope of the actual authority is to be ascertained as if construing a contract, taking into account course of dealings, trade usages and the intention between the parties.11
[61] In this case, the scope of the agency was for Ms Guttenbeil to bid on Ms Marr’s behalf. It was never intended that Ms Guttenbeil be at risk of having to find funds to settle the purchase herself, either by Ms Marr or Ms Guttenbeil. Ms Guttenbeil did not have the authority to decide on the amount to bid, as explained in cross examination:
…I kind of looked at it as three of us participating in the mortgage rescue as you put it, yeah, not just me alone, ‘cos I had no authority. Makuini didn’t really have authority on price either, it was really on the day. It turned out that Barry was there, Dave was there, I was there, and there wasn’t a finalised figure that we were going to so I had to listen to the other two…
[62] The scope of her agency was therefore to bid and to settle the contract, with
Ms Marr’s funds.
[63] Dal Pont states:12
The continuation of an agency relationship is … premised on a consensual relationship, albeit one governed by the terms of the relationship established at the time of its creation, as varied or amended from time to time pursuant to the agreement of the parties.
[64] As to termination of agency, Dal Pont states:13
10 GE Dal Pont Law of Agency (2nd ed, Butterworths, Sydney, 2008) at [7.3].
11 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.
12 Law of Agency, above n 4, at [4.6].
In each case, whether an agency relationship is to continue for a specified period, or can be brought to an end without any liability for breach of contract for whatever reason, depends in the first instance on the express terms of the agency agreement. That its terms do not address the issue requires the court to ascertain what it considers the parties would have intended in that situation. The court will not, however, imply a term merely because it thinks it a reasonable term, but only if the court thinks it necessarily implied so as to make the agency contract effective in a business sense, that is, to secure business efficacy otherwise lacking. The issue concerns whether there is an implied condition ‘that the contract is to remain in force only so long as a certain state of things continues to exist’ or, in the alternative case, can be terminated in a manner that is not prescribed by the contract.
[65] Applying this to the present facts, I consider that the agency relationship was only to remain in force so long as it was viable that Ms Marr would raise her finance. Once it was clear that Ms Marr would not be able to attain finance in time, it was outside the scope of the agency for Ms Guttenbeil to have to complete the purchase in her own name on Ms Marr’s behalf. I consider Ms Guttenbeil was entitled to take steps, from 12 August 2013 onwards, or at least 15 August 2013 at the latest, to find another person who would raise funds and take under the contract. As recorded in Ms Guttenbeil’s evidence, after she met with Ms Marr and her lawyer on 12 August
2013, she informed Ms Marr that she was going to try raise her own finance:
I did also inform her, after having that conversation with Paul after we had our lunch … I said to her that, “I might have to go and try and get my son to buy it and we are going to have to go and do all the loan process.” Like her, and I said, “If you are successful that’s great but you know, I’m going to try and get it as well because I don’t want to be left holding the baby,” you know, get stuck with the property and not have the finances in order. So I did tell her that and she really wasn’t happy with me for a while but I said, “look if you don’t come up with the money,” because I was really wanting her to come up with the money and for her to buy it, “I’m stuck, and so I’m going to have to take necessary steps to try and and, you know, buy the house and so I talked to my son and that was all done after that meeting with Paul, yeah, to get, otherwise, so I had 10 days like her, and I told her that, that was going to happen and if I did get the money before her fine, if you don’t, if she didn’t get the money then she misses out.
[66] The knowing receipt cause of action fails on the first element. Ms Guttenbeil was not acting in breach of fiduciary duty when she nominated Mr Parkin. In fact, she was doing what had been contemplated from the beginning. Mr Parkin only agreed to provide the $25,000 deposit on the condition that he be nominated.
Ms Marr did not agree with the nomination, but she did get Ms Guttenbeil to sign such an amendment, and used it to get Mr Parkin to release the deposit.
[67] However, in the event that I am wrong about that, I consider that the cause of action would also fail on the third element. Mr Parkin did not receive the nomination with knowledge that it was given to him in breach of fiduciary duty.
[68] In Wordtel NZ Ltd v Kim, Courtney J settled the approach to knowledge, which her Honour considered should be taken in New Zealand. That approach had not previously been decided. She said:14
… In determining the type of knowledge required to render a person liable as a constructive trustee as a result of the receipt of funds acquired through fraud (and which they may no longer have control over) it is the effect on that person’s conscience that should be the determinative factor. That effect could not safely be found to exist without a court being satisfied that the receiver knew, when in receipt of the funds, that they were impressed with a trust. I therefore proceed on the basis that the test in New Zealand is that articulated by Nourse LJ in Westdeutsche Landesbank Girozentrale, namely knowledge that would make it unconscionable for the receipient to retain the benefit of the money received.
[Citation omitted]
[69] Mr Parkin had always understood that the “back up” plan if Ms Marr failed to raise her finance and Ms Guttenbeil was legally obligated to settle, was that Mr Parkin was nominated as purchaser. Mr Parkin had no knowledge “that would make it unconscionable” to retain the benefit of the nomination. This is not a situation where in any way it could be said that Mr Parkin was acting dishonestly. He was simply exercising the right which he insisted on when he agreed to advance the deposit. He did that at a time when Ms Marr was already in breach in respect of the sale and purchase with the mortgagee. The cause of action must fail on this head also.
Competing equitable interests
[70] The next cause of action that requires consideration is that pleaded as competing equitable interests. This cause of action can be disposed of quite quickly.
[71] For the plaintiffs to succeed it must be shown that the plaintiffs had an equitable interest prior in time to that of the defendant.15 The plaintiffs’ cause under this head fails because I have found that there was no agreement between Ms Guttenbeil and the second plaintiffs, dated 2 August 2013. The premise upon which this cause of action was based does not exist and therefore it fails.
Breach of the Credit Contracts and Consumer Finance Act 2003 (CCCFA)
[72] The following discussion covers both the disclosure cause of action and the oppression cause of action.
Submissions
[73] The plaintiff submitted that on or about 19 August 2013, Mr Parkin advanced
$25,000 to the mortgagee’s real estate agent, and “on the construction of events – the payment of the $2,000 by Ms Marr to the defendant’s bank account, the payment of
$500 to the broker, Mr Barton – the advance was to Ms Marr.” The inference is that the payment was to Ms Marr, who authorised Ms Guttenbeil to use the money. The plaintiff submitted the advance was a consumer credit contract. With reference to the various definitions in the CCCFA, the plaintiff submitted that as a “consumer credit contract” is a “credit contract” in which the borrowers are “natural persons” and enter into the contract “primarily for personal, domestic or household purposes”, the advance was a consumer credit contract. The alteration of the contract to name Mr Parkin as nominee was a security interest in the plaintiff’s submission.
[74] The plaintiff submitted that the defendant did not meet the disclosure requirements under s 17, and by procuring Ms Guttenbeil to execute the deed of nomination on 26 August 2013, the defendant was either enforcing the credit contract, or enforcing what right he may have had to recover the property to which the contract related, or enforcing the security interest taken in connection with the contract before disclosure had been made. The plaintiff submitted where s 17 has
been breached the court can make any order it sees fit.
15 Perkins v Purea [2009] NZCA 541, (2010) NZCPR 851, citing Mercury Geotherm Ltd (in receivership) v McLachlan [2006] 1 NZLR 258 (HC).
[75] In relation to the oppression cause of action, the plaintiff submitted that the consumer credit contract entered into between Mr Parkin and the first and/or second plaintiffs was oppressive within the meaning of s 118 of the CCCFA. The plaintiff submitted Mr Parkin extended finance to the first plaintiff to pay the deposit on the property, failed to provide any document notifying when the advance was to be repaid, obtained a transfer by way of security of the equitable interest on the execution of the deed, enforced that security by settling with the mortgagee, and refused to accept the plaintiffs’ repayment of the advance in order to redeem the security. The plaintiff submitted placing a clog on a debtor’s right to redeem their security is oppressive.
[76] The defendant submitted that the CCCFA does not apply. The advance was made on behalf of Ms Guttenbeil, and any arrangement was between the defendant and Ms Guttenbeil. Ms Marr was not a debtor in terms of the CCCFA. The nomination clause cannot amount to a security interest, as it never formed part of the contract with Link Loan Trustees. Additionally, the defendant submitted that the nomination clause was permissive rather than mandatory, and as such he could not insist on Ms Guttenbeil nominating him against his wishes.
[77] In relation to the reopening cause of action, the defendant submitted that only a party to the alleged credit contract can seek reopening, that is either Ms Guttenbeil or Mr Parkin.
Disclosure cause of action
[78] Section 7 of the CCCFA provides:
7 Meaning of credit contract
(1) In this Act, unless the context otherwise requires, credit contract means a contract under which credit is or may be provided.
(2) If, because of any contract or contracts (none of which by itself constitutes a credit contract) or any arrangement, there is a transaction that is in substance or effect a credit contract, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a credit contract made at the time when the contract, or the last of those contracts, or the arrangement, was made, as the case may be.
[79] Section 6 defines credit:
6 Meaning of credit
In this Act, unless the context otherwise requires, credit is provided under a contract if a right is granted by a person to another person to—
(a) defer payment of a debt; or
(b) incur a debt and defer its payment; or
(c) purchase property or services and defer payment for that purchase
(in whole or in part).
[80] Ms Marr claims that the credit contract was a consumer credit contract. Section 11 provides:
11 Meaning of consumer credit contract
(1) A credit contract is a consumer credit contract if—
(a) the debtor is a natural person; and
(b) the debtor enters into the contract primarily for personal, domestic, or household purposes; and
(c) 1 or more of the following applies:
(i) interest charges are or may be payable under the contract:
(ii) credit fees are or may be payable under the contract: (iii) a security interest is or may be taken under the
contract; and
(d) when the contract is entered into, 1 or more of the following applies:
(i) the creditor, or one of the creditors, carries on a business of providing credit (whether or not the business is the creditor's only business or the creditor's principal business):
(ii) the creditor, or one of the creditors, makes a practice of providing credit in the course of a business carried on by the creditor:
(iii) the creditor, or one of the creditors, makes a practice of entering into credit contracts in the creditor's own name as creditor on behalf of, or as trustee or nominee for, any other person:
(iv) the contract results from an introduction of one party to another party by a paid adviser or broker.
(2) This section is subject to sections 14 and 15.
[81] The plaintiff relies on s 11(1)(c)(iii) which requires reference to the meaning
of “security interest” in s 5:
security interest means an interest in property created or provided for by a transaction that, in substance, secures payment or performance of an obligation under a credit contract, consumer lease, or buy-back transaction, without regard to—
(a) the form of the transaction; and
(b) the identity of the person who has title to the property that is subject to the security
[82] I do not accept that a credit contract existed between Ms Marr and Mr Parkin and as such there could not be a consumer credit contract between them either. The advance of $25,000 was to Ms Guttenbeil, as the person with the contractual obligation to settle.
[83] There was no consumer credit contract as no security was given. The security suggested in counsel’s submissions is the right of nomination in favour of Mr Parkin. The evidence is clear that no such right was in fact given, because the mortgagee at no time endorsed a contract showing the purchaser as being Ms Guttenbeil or nominee Mr Parkin. The alleged security was a fraud, given by Ms Marr to Mr Parkin but never given to the mortgagee. It follows that there can be no security interest and therefore no consumer credit contract.
Reopening cause of action
[84] The defendant is correct that to seek reopening of a credit contract, the plaintiff must be a party to that contract. That is made clear by s 125(1):
125 When reopening proceedings may be commenced
(1) Proceedings seeking the reopening of a credit contract, consumer lease, or buy-back transaction may be commenced in the court by the Commission, any party to the contract, lease, or transaction, or any guarantor under a guarantee relating to the credit contract, …
[85] This cause of action must fail as I have found that Ms Marr was not a party to a credit contract. Neither were the second plaintiffs.
Result
[86] Judgment is entered for the defendant.
Costs
[87] I reserve costs. If counsel are unable to agree, memoranda shall be filed at 7 working day intervals in support, opposition and reply.
JA Faire J
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