McCaw, Forsyth and Independent Trust Company (2006) Limited v McCaw HC Auckland CIV 2010-441-342
[2010] NZHC 1654
•7 September 2010
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2010-441-342
BETWEEN P J MCCAW, A E FORSYTH AND INDEPENDENT TRUST COMPANY (2006) LIMITED AS TRUSTEES OF THE MCSYTH HEAD TRUST
Plaintiffs
ANDM R MCCAW, M J BOWIE AND NAPIER INDEPENDENT TRUSTEES LIMITED AS TRUSTEES OF THE MCCAW FAMILY TRUST
Defendants
Hearing: 25 August 2010
Appearances: T.J. Anderson - Counsel for Plaintiffs
G.A. Paine - Counsel for second-named Defendant
Judgment: 7 September 2010 at 3.30 pm
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment is delivered by Associate Judge Gendall on 7 September 2010 at 3.30 pm under r 11.5 of the High Court Rules.
Solicitors: Gibson Sheat, Solicitors, PO Box 2966, Wellington
Willis Toomey Robinson, Solicitors, Private Bag 6018, Napier
P J MCCAW, A E FORSYTH AND INDEPENDENT TRUST COMPANY (2006) LIMITED V M R MCCAW, M J BOWIE AND NAPIER INDEPENDENT TRUSTEES LIMITED HC NAP CIV-2010-441-342 7 September
2010
Introduction
[1] The plaintiffs apply for summary judgment orders seeking from the defendants repayment of two loans plus interest. The plaintiffs are the trustees of the “McSyth Head Start Trust”, a trust as I understand it set up for the benefit of the first-named plaintiff, Philip John McCaw (“Philip”) and his wider family. The defendants are trustees of the “McCaw Family Trust” a trust set up for the benefit of the first-named defendant, Michael Robert McCaw (“Michael”) and his family. Philip and Michael are brothers. The plaintiffs made the two loan advances in question to the defendants in September 2006 and July 2007 and they totalled
$330,000.00.
[2] The present summary judgment application is opposed but only by the second-named defendant, Marie Joy Bowie (“Marie”), who is the former partner of Michael.
Background Facts
[3] The plaintiffs claim this is a very straight forward loan recovery case. But, there can be no doubt here that this case has significant added dimensions from usual debt recovery cases. First, it involves loans made essentially between members of the wider McCaw family and secondly, it is to an extent mixed up with an acrimonious relationship property split between two of the debtor parties, Michael and Marie. As I have noted above, the first named plaintiff, Philip, is the brother of the first named defendant, Michael. The second-named defendant, Marie, is the former partner of Michael. All parties seem to accept that she and Michael were in a relationship in the nature of marriage from 1996 to 2008 when they separated. There are two children of that relationship who live with Marie.
[4] According to the plaintiffs, the purpose of the McSyth Head Start Trust was to offer financial assistance to family members in the form of loans. That is what occurred here.
[5] Specifically, in September 2006, the plaintiffs advanced $230,000.00 to the defendants which was intended to be used to pay off an existing mortgage over the defendants’ property at 38 Simla Terrace, Napier (“the property”). The property is owned by the McCaw Family Trust but at the time was occupied as a family home by Michael and Marie and their children. The terms of the advance were recorded in a Deed of Acknowledgment of Debt (the “first deed”). It provided that the loan was to be repayable upon the occurrence of one of four specified events. One of the events that would trigger an obligation to repay was if Michael and Marie separated, in which case the advance was to be repaid “within 12 months of Michael and Marie separating”. Other events triggering obligations to repay were a sale of the property or the death of Michael. Finally, if no earlier repayment events had occurred, the loan was to be repayable on 1 February 2032. The first deed also provided for payment of interest on the principal sum at a rate not exceeding 8.5% per annum but only if demand was made for this interest by 1 March in each year. If no demand was made, the loan was to be interest free for the preceding 12 months. Any failure to pay interest if demanded and any default in repaying the principal sum would attract penalty interest at the rate of 10 per cent per annum from the due date for such payment/s until the date of actual payment.
[6] The loan was not secured by any registered mortgage, but cl 5 of the first deed stated that “[i]n consideration of the loan made ... the Borrowers will on written demand being made to the Borrowers sign a registrable Mortgage in favour of the Lender ... to secure payment of all monies owed ... .” Under cl 6, the mortgage was to be “over any land in which the Borrower has an interest that can be mortgaged”. Clause 7 of the first deed went on to provide specifically that “[t]he Lender may caveat the land in clause 6 to protect the Lender’s interest under this Agreement”. And, pursuant to cl 10 of the first deed and accepted by the plaintiffs here, the liability of the defendants as trustees was limited to the assets and funds of the McCaw Family Trust.
[7] The first deed was signed by all three plaintiffs and all three defendants. The defendants’ signatures were witnessed by a solicitor, a Mr Stuart McLauchlan of Langley Twigg in Napier.
[8] In July 2007, the plaintiffs made a further advance to the defendants of
$100,000.00. As I understand it, this was put towards renovation and redecoration of the property. The terms of this advance were again recorded in a Deed of Acknowledgement of Debt (“the second deed”), signed by the plaintiffs and the defendants. Michael’s signature was witnessed by Mr Stuart McLauchlan. Marie’s signature however was not witnessed by a solicitor but rather by a partner in Michael’s dental practice. The second deed contained identical repayment, interest and penalty interest provisions to the first deed.
[9] It seems to be accepted by all parties to this litigation that, on 12 April 2008, Michael and Marie separated. In terms of the first deed and the second deed this triggered an obligation to repay the two advances by 13 April 2009. Nothing occurred immediately however, and it was not until 19 October 2009 that the plaintiffs’ solicitors made demand for repayment of the entire loan amounts.
[10] Rather surprisingly it might seem, given that he is one of the defendants, Michael has filed an affidavit dated 14 May 2010 in support of the present application for summary judgment, confirming that the defendants owe the claimed amounts and stating specifically at para 13:
“..... I support the sale of the property to repay these loans.”
He has also filed in this Court a formal admission of the plaintiffs’ claim.
[11] On 24 June 2010, the third named defendant, Napier Independent Trustees Limited, sought confirmation that the plaintiffs would only seek judgment against the independent trustees in terms of the limitation of liability clause contained in the first deed and the second deed. The plaintiffs have confirmed that this is the case. On that basis, Napier Independent Trustees also does not oppose the application here.
[12] Marie does oppose the application however. She currently resides rent-free at the property together with the children of the relationship. The property is subject to a mortgage to the Bank of New Zealand, and Marie has been making all
repayments on the mortgage and paying rates and insurance on the property since
Michael’s departure.
[13] A short time ago, Marie apparently placed the property on the market for sale with the intention that, after repayment of the BNZ mortgage, the sale proceeds would be held by her solicitors pending resolution of the dispute. It appears that a current offer of $595,000.00 was made on the property, but no sale could be effected due to a caveat that was placed on the title for the plaintiffs by Philip. His position seems to be that the plaintiffs would only lift the caveat if the purchase price was sufficient to cover repayment of all claimed amounts and legal costs. Marie states that, as a result, this purchase offer will now fall through.
Counsel’s Arguments and My Decision
[14] The plaintiffs seek repayment of the total principal amount under the loans of
$330,000.00 plus interest on each loan at the penalty rate of 10 per cent per annum from 14 April 2009 until the date of repayment. As at 25 August 2010, the total interest claimed is $45,205.00.
[15] Marie’s grounds of defence, as set out in her notice of opposition, are first, that the plaintiffs have never made any advances to her; secondly, that Philip and Michael are family members and arranged a transfer of funds between themselves without reference to her; thirdly, that she was advised by Philip and Michael that the advances were intended to be a gift; fourthly, that she was unaware of the arrangements between Philip and Michael, fifthly, that she did not receive independent legal advice and sixthly, that she is entitled to a complete indemnity from Michael.
[16] The application before me is one for summary judgment. Rule 12.2 of the High Court Rules provides that the Court may grant summary judgment if it is satisfied that the defendant has no arguable defence to the plaintiff’s claim. The principles of summary judgment were summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187; [2010] NZAR 307 in the following way:
[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; (1986) 1 PRNZ 183 (CA), at p 3; p 185. 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; [1979] 3 WLR 373 (PC), at p 341; p 381. 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 Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[17] This passage was affirmed again by the Court of Appeal in Cockburn v CS Development No 2 Limited [2010] NZCA 373 at [26].
[18] As I have noted, the plaintiffs contend that this is a straight forward debt recovery matter, on which there can be no dispute as to the essential elements of their claim. They note that two of the defendant trustees, Michael and Napier Independent Trustees Ltd do not oppose their application and indeed Michael has filed an admission of claim. They submit that none of the matters raised by Marie, the only defendant who opposes the application, can pass the threshold of credibility required to establish a fairly arguable defence. In my view, there are essentially three matters that require detailed consideration here. They are Marie’s assertion that the advances were intended to be a gift; the alleged lack of independent legal advice; and, if liability is established and the question of quantum is to be considered, a calculation of the period for which interest can be properly claimed.
[19] But, turning first to Marie’s first two claims noted above that the advances were never actually made to her and that they were solely a private arrangement between Michael and Philip, these claims are quite untenable and were not pursued in submissions before me. All parties here now acknowledge the defendants received the payments in their capacity as trustees and they were then applied to trust property. The plaintiffs do not allege that the defendant has assumed personal liability for the loan. Similarly, the defendant’s reliance on an alleged right of indemnity against Michael can be of no moment for the purposes of the present proceeding. Not only is there no evidence before the Court of any right of indemnity,
but Marie’s liability as a trustee to the plaintiffs could not be affected by a right of recovery as between the defendants.
Gift
[20] Before me, Marie argued that the $330,000.00 advances were always intended to be gifts, “in line with gifts [Philip and his Trust] had made to other family members with no expectation or requirements of repayment”. She contends that they were structured in the form of deeds of debt for the purposes of avoiding gift duty, and to ensure that parties in similar positions to the partners of siblings of Philip’s wife/partner Anne Forsyth did not “end up with the money”. She believes that given her changed circumstances, Michael and Philip are attempting now to force her and the children out of the house on the property, and that the property or the “loans” will then be re-gifted in some way to Michael.
[21] The plaintiffs, on the other hand, point to the terms of the first deed and the second deed acknowledging the loans, and submit that Marie’s assertion that the advances were a gift is contrary to the meaning and effect of the written documents. Philip and the plaintiffs claim that the advances never took the form of gifts, and that the loans were structured on an arm’s length basis. Indeed, in his 28 July 2010 affidavit, Phillip deposes at para 4:
“At all times our trust has wanted to help out family members through what I call
“hands-up” not “hand-outs”.
[22] In N v N [Relationship property: loan] [2010] NZFLR 161, Wylie J was required to determine whether the Family Court had erred in holding that advances of about $100,000.00 by the appellants to their son and daughter-in-law constituted a gift. The parties had signed what was described as an “irrevokeable document”, stating that the advance was a loan and specifying certain conditions. On appeal, it was successfully argued that the Family Court Judge had given insufficient weight to the evidence in favour of the advance being a loan.
[23] Wylie J first described the legal nature of gifts, setting out the requirements of a valid gift inter vivos. He then noted that there is a presumption that the transfer
of property from parents to their children is a gift, but that the presumption of advancement can be rebutted by evidence showing that there was no intention to benefit the alleged donee by way of gift. In that case, there was direct evidence establishing the donors’ intention in the form of the “irrevokeable document”. The Judge accepted that the Court could in appropriate cases look at the totality of the transaction, but found that there was no need in that case to go behind the description of the document, which clearly recorded the advance as a loan:
[51] Mr and Mrs N senior’s description of the transaction is not conclusive as to gift or no gift. The Court can in appropriate cases look at the totality of the transaction (see Esso Petroleum Co Ltd v Customs & Excise Commissioners [1973] 1 WLR 1240 at pp 1246 – 1247, reversed on another point, [1975] 1 WLR 406, and further appeal dismissed, [1976] 1 WLR 1). Nevertheless in my judgment, there is no need to go behind the description of the transaction recorded in the “irrevokeable document”. It clearly recorded that as between Mr and Mrs N senior and VN, the $100,000 advance was a loan, and not a gift. The document is clear evidence of Mr and Mrs N senior’s intentions at the time the advance was made.
[52] The “irrevokeable document” made between Mr and Mrs N senior and VN cannot be ignored. I refer to the decision of the Court of Appeal in Mills v Dowdall [1983] NZLR 154, and in particular to the observations of Richardson J at p 159. I also refer to NZI Bank Ltd v Euro-National Corporation Ltd [1992] 3 NZLR 528 at p 539 where Richardson J observed as follows:
The legal principles are well settled. First the true nature of a transaction can only be ascertained by careful consideration of the legal arrangements actually entered into and carried out. It is not to be determined by an assessment of the broad substance of the transaction measured by the overall economic consequences to the participants. The forms adopted cannot be dismissed as mere machinery for effecting other purposes. At common law there is no half-way house between sham and characterisation of the transaction according to the true nature of the legal arrangements actually entered into and carried out. A document may be brushed aside if and to the extent that it is a sham in two situations. The first is where the document does not reflect the true agreement between the parties in which case the cloak is removed and recognition is given to their common intentions. The second is where the document was bona fide in inception but the parties have departed from their initial agreement while leaving the original documentation to stand unaltered. Once it is established that a transaction is not a sham its legal effect will be respected. For recent discussions in this Court it is sufficient to refer to Re Securitibank Ltd (No 2) [1978] 2 NZLR 136; Buckley & Young Ltd v Commissioner of Inland Revenue [1978] 2 NZLR 485; Marac Finance Ltd v Virtue [1981] 1 NZLR 586; Mills v Dowdall [1983] NZLR 154; and Marac Life Assurance Ltd v Commissioner of Inland Revenue [1986] 1
NZLR 694.
[53] Unless the “irrevokeable document” can be set aside as a sham, it cannot be dismissed as mere machinery for effecting another purpose. As was noted by Richardson J in NZI Bank, a document may be set aside as a sham in two situations. The first is where the document does not reflect the true agreement between the parties, in which case the cloak is removed and recognition is given to their common intention. The second is where the document was bona fide in inception, but the
parties have departed from their initial agreement while leaving the original document to stand unaltered.
[24] Applying Richardson J’s statement of the law as to shams in NZI Bank Ltd v Euro-National Corporation Ltd [1992] 3 NZLR 528, Wylie J concluded that there was no proper basis for the contention that the “irrevokeable document” was a sham. He observed that “[a]n allegation of sham, being akin to an allegation of fraud, should not be lightly made”, and that “[t]hose engaging in a sham are in reality seeking to deceive others as to the true nature of what they have agreed and are intending to achieve” (at [57]).
[25] Importantly for present purposes, the Judge noted also that:
[55] .... Frequently those advancing moneys to those close to them take an acknowledgement of debt. Otherwise they render themselves liable to pay gift duty. The debt remains a loan, even if the lender gifts off either interest or principal over time, until the total sum lent has been extinguished by gifts or it has been forgiven by the lender in his or her will.
[26] Accordingly, the Judge concluded that the donors’ intention was “patently clear”, and that the legal effect of the document should be respected (at [58], [63]).
[27] As in N v N, there is nothing in the present case to suggest that the plaintiffs intended the advances to be gifts. The terms of the first deed and the second debt are clear in recording the advances as loans to the defendant trustees, and Marie has provided no real evidence to support an allegation that the deeds were effectively “shams”. As noted by Wylie J at [55], a mere intention to avoid gift duty is not sufficient to turn a loan transaction into a gift.
[28] It is further submitted for Marie that, as one of the defendant trustees, she was induced to sign the deeds of debt on the basis of misrepresentations by Michael. It is submitted that these misrepresentations are permissible extrinsic evidence that discloses the “real nature” of the transactions. In my view, this argument, however, does not advance Marie’s case. There is no direct evidence of such representations having been made, and, in any case, representations by Michael as to the true meaning of the transaction could hardly be held against or establish an inappropriate intention on the part of the plaintiffs.
[29] For these reasons, I conclude that the advances as documented in the deeds of debt constituted repayable loans rather than gifts.
Legal advice
[30] Marie’s next claim is that she never received independent legal advice, and that she thought that the solicitors who were acting for the plaintiffs were also acting for the defendants. She maintains that she relied on Gibson Sheat to protect her interests, and that she only went to Langley Twigg to have her signature witnessed, not to obtain legal advice. She says that no advice was ever given as to the structure of the first deed or its implications (and thus also the second deed) and she asserts that she would never have entered into the transactions if they had been explained to her properly.
[31] The plaintiffs dispute that their solicitors were also acting for the defendants, and submit that, if there was a need for independent legal advice, this matter should have been raised with Langley Twigg. Reliance is also placed on the affidavit by Michael, who, contrary to Marie’s assertion, claims that he and Marie visited Mr McLauchlan of Langley Twigg to get legal advice, and that Mr McLauchlan explained in general terms the effect of the loan documents. Michael states also that he confirmed to his brother Philip that he and Marie “would get legal advice to put our minds at rest concerning the details of the loan”.
[32] Regardless of whether Marie did receive independent legal advice here, it is clear that the validity of the deeds of debt cannot be impugned on that basis alone. In other words, a failure to receive independent legal advice is not in itself sufficient ground for invalidating a loan agreement. Instead, the “subject of independent legal advice usually emerges as a subset in the context of discussions about whether the consent of a party to a transaction was obtained as a result of undue influence or unconscionable bargains”: Dorchester Finance Ltd v Ngahuia Ltd HC Auckland CIV-2009-404-2529, 8 February 2010 at [93].
[33] It has not been argued here that Marie entered into the loan arrangements under undue influence, or that the transactions were unconscionable bargains. In
National Westminster Bank Plc v Morgan [1985] 1 AC 686, Scarman LJ described the doctrine of undue influence as being “concerned with transactions ‘not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary men act’”. It is necessary, therefore, to show that the transaction constituted a manifest disadvantage to the party seeking to avoid it, explicable only on the basis that undue influence has been used to procure it: Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA) at 166. In terms of unconscionable bargains, equity will intervene where parties would be acting unconscientiously in receiving or retaining a bargain at the expense of a weaker party who is at a disability or disadvantage.
[34] It is submitted for Marie that she was advised that the advances were to be a gift, and that there was therefore a “misrepresentation”. The only evidence to this effect is Marie’s statement in her affidavit that she recalls “discussing with Mike Phil giving us the money rather than borrowing it”. This is not evidence of a “misrepresentation”. The mere fact that Marie may have been operating under a misunderstanding as to the nature of the legal transaction that she entered into is not sufficient to amount to evidence of undue influence or unconscionability. Moreover, there is nothing to suggest that the plaintiffs were aware of Marie’s misapprehension, and the transaction clearly did not constitute a “manifest disadvantage” to the defendants generally. The loans of $230,000.00 and $100,000.00 were advanced and the evidence before me is that the defendant trust used the first advance to repay an existing mortgage (thus substituting a likely interest free loan for an interest bearing mortgage loan), and the second advance to improve the property as a home for Marie, Michael and their children.
[35] In these circumstances, I find that the plaintiffs have satisfied the onus on them here to show there can be no arguable defence to the claim that the deeds of debt are enforceable against both Marie and the other defendants in their capacity as trustees although all parties do acknowledge this liability is limited to the assets of the defendant trust. The present summary judgment application therefore succeeds as to liability.
Quantum
[36] On the issue of quantum, there can be no argument that the loan principal sums of $230,000.00 and $100,000.00 are now due.
[37] Some doubts must remain, however, concerning the plaintiffs’ entire claim for interest here. I say this particularly bearing in mind that the application before me is one for summary judgment and on this interest question also I need to be satisfied that there is no arguable defence to the plaintiffs’ claim.
[38] In the present case the plaintiffs claim interest on the principal amounts totalling $330,000.00 at the penalty rate of 10 per cent per annum from 14 April
2009 (being 12 months after Michael and Marie separated) until the date of repayment. As at 25 August 2010, the total interest claimed is said to be $45,205.00.
[39] The penalty interest provision in the first deed and the second deed states:
4. If the Borrowers fail to pay interest upon demand from the Lender in accordance with clause 3, or fails to pay any instalment of Principal in accordance with clause 1, the Borrowers agree to pay penalty interest to the Lender at the rate of 10.0% per annum on the sum outstanding from the due date until the date of payment.
[40] And the relevant principal instalment/payment provision set out in clause 1 provides:
1. The borrowers agree to repay the principal sum then outstanding to the lender:
.........................................
(c) Within 12 months of Michael and Marie separating ......
[41] But, as I have noted at [8] above, it was not until 19 October 2009 that the plaintiffs through their solicitors made demand on the defendants for repayment of the two loan documents. That letter of demand stated in part:
3. The Trustees now demand payment of the sum of $330,000 within seven days of this letter. Please note penalty interest at the rate of 10% pa. is payable from the “due date until the date of payment”. At this point the trustees reserve their position with regard to the date from which penalty interest will be payable.
4. In the event the McCaw Family Trust is unable to repay the advances within seven days, the Trustees require a written proposal with regard to repayment of the loans such proposal to be received within 14 days of this letter.
[42] Does the absence of a demand for interest until 19 October 2009 make any difference here? In my view the answer to this question must be no. The provisions of clause 4 of the loan deeds noted at [39] above make clear that, whereas demand is required if the defendants as lenders are insisting upon the 8.5% per annum annual interest payments on the continuing loan during its term, default interest (at 10% per annum) is payable simply upon the occurrence of a default event such as has happened here being non-payment of the principal sums when due.
[43] Although at para 3 of their 19 October 2009 letter of demand (noted at [41] above) the plaintiff trustees “reserve their position with regard to the date from which penalty interest will be payable”, that letter also notes that “penalty interest
..... is payable from the ‘due date until the date of payment’.”
[44] Clearly with the claims for interest made in the present proceedings, the plaintiff trustees have decided to seek judgment for all interest to which they are entitled under the loan deeds. What steps they might then take against the property or the defendant trustees, given that the property is a home for Philip’s former “sister-in-law” and two of his nephews/nieces, is another matter.
[45] One other matter on this interest question needs consideration here. This is a complaint by Marie that Philip has placed a caveat for the plaintiffs on the trust property and is thereby unreasonably preventing the property from being sold thus freeing up funds to repay all or part of the loans. She makes reference to hearsay evidence of a statement by Michael that he is “prepared to wait two to three years before selling the house” until the property market has improved. I leave this to one side however. But, Marie is concerned that she will be required to continue to make payments for rates, insurance and on the BNZ mortgage, and that interest on the plaintiffs’ loans will continue to accrue, until in her words Philip feels that it is “an opportune time to sell”. The only evidence relating to Marie’s attempt to sell the house appears to be contained in her second affidavit sworn 19 August 2010, shortly before this hearing. At the hearing, the plaintiffs submitted that the affidavit was
filed out of time and thus should not be read. I ruled, however, that it was appropriate to take the affidavit into account but noted their objection and concerns. Certainly, the plaintiffs had no time to provide any response to this affidavit and I take that into account here.
[46] In my view, however, Marie has raised an evidential foundation that the plaintiffs may not be entitled to interest for the entire period from the due date claimed being 14 April 2009 until the date of this judgment (or, for that matter, the date of payment). In essence, I consider that when all the proper evidence is to hand, it may be reasonably arguable that the plaintiffs were under an obligation to mitigate their losses, and that they failed to do so in allegedly preventing what Marie maintains was a market sale of the property from going ahead. In Clasper v Lawrence [1990] 3 NZLR 231, Tipping J stated that a defence of mitigation must show that the plaintiff “failed to take reasonable steps to mitigate his loss, or putting the matter conversely took steps which unreasonably increased the loss” (at 240).
[47] The particular basis on which the plaintiffs lodged the caveat over the property here is unclear, although it seems that there were sufficient grounds under the deeds of debt. I have already noted that the deeds provided for a right of mortgage on request, and for a right to caveat the property to protect the plaintiffs’ interests. It is unclear whether a demand to execute a mortgage was ever made. However, it appears to be accepted now that, although an effective request to grant a mortgage over the property is necessary to create an equitable mortgage, an agreement to caveat may create an interest sufficient to sustain a caveat: see Kilmartin v Monk (2005) 5 NZ ConvC 194,122 at [10], [19]; Ross Bindon Ltd v PB
& CS Properties Ltd (in liquidation) (2006) 7 NZCPR 850 at [39].
[48] It follows that, although there may have been a valid basis for the plaintiffs’ caveat here, I consider that it is still arguable that the plaintiffs may not now continue to claim interest on the loans which, but for their actions, may in whole or in part have been easily repayable by the defendants. There is insufficient evidence to determine whether the proceeds from the sale which Marie was negotiating might have been sufficient to fully cover the defendants’ obligations. It appears that an offer was made to purchase the property for $595,000,00. The terms of that offer,
settlement date and the like have not been disclosed. The debt to the plaintiffs is
$330,000.00 plus interest, and there is an existing mortgage over the property for an unspecified amount. That mortgage, as I understand the position, was obtained to secure a loan of about $230,000.00, which is still being repaid.
[49] Based on these figures, it is impossible to determine in this context whether the proceeds of the proposed sale would have been enough to extinguish the defendants’ liabilities. There is a possible argument that may need exploration at substantive hearing that the plaintiffs prevented a sale of the trust property proceeding although the proceeds of sale may have been sufficient to put an end to the defendants’ liability. Pending resolution of any dispute on this, the sale proceeds could have been placed in a solicitors’ trust account, earning at least some interest until the loan would finally be repaid. Even if the funds were not sufficient to fully cover the defendants’ liabilities, there may be some doubt whether a higher sale price could have ultimately been obtained that would have extinguished the defendants’ liabilities, including interest that would have accrued in the meantime. And, in any event, clause 2 of the Deeds provided:
2. Subject to the provisions of clause 1, the Borrower may make part repayments of Principal at any time.
[50] In these circumstances, and given the lack of evidence before me, I consider that it would not be appropriate to determine finally the quantum of the plaintiffs’ total claim for interest on the present application. It is well established that the Court may give summary judgment on part of a claim if there is no defence relating to the whole of the plaintiff’s claim: Australian Guarantee Corp (NZ) Ltd v McBeth [1992]
3 NZLR 54. In that case, the Court of Appeal noted that the rules on summary judgment “would seem to permit the giving of judgment on a particular part of a claim both as to liability and as to quantum” (at 59).
[51] Based on the information presently available to me, it seems that the earliest time at which a sale of the property could have occurred is the beginning of August
2010. Marie in her latest affidavit states that she placed the property on the market after the matter was first called in Napier, which was in July 2010. Accordingly, although it is appropriate here to grant summary judgment to the plaintiffs for
penalty interest from 14 April 2009, this is to be only up to 1 August 2010. From that date I refuse summary judgment for interest sought by the plaintiffs. That is a matter for further evidence and testing at trial.
Conclusion
[52] Subject to [53] following, the plaintiffs’ application for summary judgment is granted to the extent that the defendants Michael, Marie and Napier Independent Trustees Limited are liable to repay to the plaintiffs:
(a) The principal loan amounts of $330,000.00;
(b) Interest on these amounts at 10% per annum from 14 April 2009 to 1
August 2010 amounting to $42,945.20.
The application fails on the question of penalty interest payable from 1 August 2010. [53] The liability of the defendants Michael, Marie and Napier Independent
Trustees Limited to the plaintiffs for the summary judgment amounts noted at [52] above is not personal and is limited in terms of para 10 of the first deed and the second deed to the funds belonging to the McCaw Family Trust and coming into the hands of the defendant trustees in the proper course of the administration of the McCaw Family Trust.
Costs
[54] This case essentially involves a family matter. Costs are reserved. If counsel are unable to agree on any issue of costs that arises they may file memoranda (sequentially) and in the absence of either party wishing to be heard on the matter, I will decide the question on the material before the Court.
‘Associate Judge D.I. Gendall ’
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