McGregor-Koch v Barrett and Barrett HC Inv CIV 2007-425-000236
[2008] NZHC 2109
•19 December 2008
IN THE HIGH COURT OF NEW ZEALAND
INVERCARGILL REGISTRY
CIV 2007-425-000236
BETWEEN ANGUS MCGREGOR-KOCH
Plaintiff
ANDZANE BARRETT AND TINA MARIE BARRETT
Defendants
Hearing: 8, 9 and 10 December 2008
Appearances: RGR Eagles for Plaintiff
AS Olney and D J Flinn for Defendants
Judgment: 19 December 2008
JUDGMENT OF FOGARTY J
Introduction
[1] The plaintiff, Angus, is 21. He claims he had a right to repurchase his father’s farm, Blackmount Station, from the defendants, Mr and Mrs Barrett. They have sold the farm. Angus seeks damages.
The narrative
[2] Blackmount Station is a property of a little over 442 hectares, 110 kilometres north-west of Invercargill and 45 kilometres north of Tuatapere. It ranges in altitude from 220-500 metres above sea level. It is a reasonably well known property in Southland. It used to be a much larger station. Much of the station has been sold off
and has been put into plantation forestry. About half of the present property is not
MCGREGOR-KOCH V BARRETT HC INV CIV 2007-425-000236 19 December 2008
effective as grazing country for cattle or sheep or deer. It has about 90 hectares of improved paddocks or grazing and about 150 hectares of rough grazing and
4 hectares of forestry.
[3] The present property is the original home block and has on it a sound homestead and the other usual ancillary buildings.
[4] Angus’ father, Mr John McGregor and his partner, Cynthia Koch, bought the station in 1996 for a little over $690,000. At that time they had a property in the Lakes District which was their principal home and John had an active gold licence near Glenorchy.
[5] In 1998 John’s brother was convicted on drug charges and his farm was forfeited under the Proceeds of Crimes Act 1991.
[6] Some time in 2000 John and Cynthia separated, Cynthia staying at their Wanaka property and John living on Blackmount Station. Angus, who is their oldest boy, tended to live with his father.
[7] John and Cynthia divided up their property by John taking Blackmount
Station and Cynthia taking the Wanaka property in December 2002.
[8] In April/May of 2002 Angus became a friend of Akuhata (known as Aku) Barrett. They were at that time two 14 year old boys. Aku is the son of the defendants, Mr Zane and Mrs Tina Barrett. The two boys became the best of friends.
[9] In October 2002 John tried to sell a block off the farm listing it with Southern
Wide Real Estate for $365,000 plus GST. The block did not sell. At the end of 2002
Angus began working for Zane and Tina. In 2003 both boys were in the 5th form but neither of them wanted to be at school. They were more interested in working as shearers. Both of them left school at the age of 15. When they left school they remained working for Barrett Shearing. At first Angus lived with the Barretts in the main house but soon both boys moved into a cottage about a mile and a half down the road.
[10] It was because of Angus’ friendship with Aku that John increasingly had acquaintanceship with Zane and Tina. He would pick up and drop Angus at the Barrett home from time to time and would be at the rugby grounds watching his son playing, as was Zane. John was obviously happy with Angus becoming part of the Barrett household.
[11] Zane and Tina effectively absorbed Angus into their family. After the two boys moved into their own cottage Tina still checked on them and made sure they were still eating properly and washing their clothes. Barrett Shearing is plainly a substantial business. In the way of things Aku and Angus’ daily life would have been under the direct supervision of Zane and Tina. While Zane was away for Barretts Shearing Tina kept their substantial 1400 hectare farm at Grove Burn going. Both Zane and Tina had fully committed lives running the farm and Barretts Shearing and raising four children. They also managed in the course of their marriage to buy, improve and sell properties, mainly residential properties bought in Nightcaps. They are a very hard working and achieving couple.
[12] Blackmount is not an economic unit if used for running sheep, beef and deer (though it might become viable for wintering dairy cows). In any event, in 2002 and at all material times during this dispute John kept the farm going using revenue from his goldmining licence and possibly revenue from a cannabis growing operation found on the farm.
[13] At the end of 2003 he owed money to a contractor, Southwest Contracting, who had done work on the farm. In early 2003 he came to a deal with the contractors to lease some of the good paddocks, an area of about 75 acres, to be used
by the contractor to grow a cereal grain crop with the sale of both grain and straw from the crop. This was to be for one year from 15 April 2003.
[14] On 1 May the land was formally transferred to John, having been up to that point jointly owned by he and Cynthia.
[15] On 25 June a large number of police arrived at Blackmount Station and John was arrested on several charges arising out of the discovery of cannabis plots on the
farm and in nearby forest. John realised immediately the implications of this for his continued ownership of Blackmount Station.
[16] The date and sequence of the next events are to a degree uncertain. They took place in July and early August. On 27 June Tina’s father had died in the North Island and she and Zane had been away until 4 July attending his tangi.
[17] John began trying to figure some way whereby he could keep the property for
Angus if he ever wanted to go farming. During this time he had a tenant in a house
on the property. Mr Neil Grantham, a contractor, and his partner of 20 years, Ms Robyn Thomas used to come on to the property to visit the tenant. They fell in love with the property. Knowing that John was in trouble they decided to offer to purchase the property. They had sold a property of their own and were in a good position to purchase Blackmount. They downloaded from the internet some kind of offer and purchase agreement, of one page, and filled out their names and put a price
of $1,000,000 on Blackmount. John did not turn it down point blank but said he hoped to make an arrangement where they could end up with the farm back again for Angus or for the children. They did go on to discuss subdividing a block from the property for themselves out of Blackmount Station but that got too complicated and was not pursued. They gained the impression that he was in negotiations with someone else.
[18] The defendants disputed that any of this happened. But I am satisfied that the evidence of Mr Grantham and Ms Thomas was correct. There is no suggestion that this couple were friends of John or had any particular reason to give evidence in this trial against the Barretts. They both gave their evidence as to these circumstances with the sort of circumstantial detail that gave it credibility. For example, it was their daughter who found the form on the internet and downloaded it. Mr Grantham presented himself as a 40ish builder, and straight-forward. His partner, Ms Thomas, is about the same age and gave her evidence frankly.
[19] An offer of $1,000,000 made some sense at the time. Rural values had been rising steadily in Southland for some years. They had just sold a property. They would have been broadly informed about the market. As it happened the rating
values which came out on 1 September 2003, for the property, put a value of just over $1,000,000.
[20] Their evidence as to what John said to them about trying to keep the farm for Angus fits John’s own evidence and other evidence in the case, as we shall see. The idea of splitting off a block also has some cogency as on 12 August John did sign a listing authority to Southern Wide Real Estate to try to sell separately a 98 hectare block of the property. Though quite what the logic was for John to do this is not clear, looking to sell about 98 hectares something over 200 acres at $1500 an acre which would have produced a sale of about $360,000 if he had got it. This would have been a sum which would have cleared the mortgage over the property.
[21] Some time in early August John had a conversation with Tina at the Barretts’ house when the prospect of purchase of Blackmount Station by the Barretts was raised. There is a dispute as to whether this conversation was outside the house at the rear or in the kitchen. There is also a dispute as to who first suggested the Barretts buy the property. There was a general dispute about the content of the conversation between Tina and John.
[22] There is also an ongoing dispute as to how the terms of sale of Blackmount Station were resolved between John as vendor and Tina and Zane as purchasers. John says that the terms were sorted out at the Barrett home in the kitchen, around the kitchen table, in the presence of himself, his son, Angus, Zane and Tina. He is supported by Angus. Zane and Tina deny this. Tina’s evidence is that the terms were settled in a phone call between Zane and John. Zane said he rang John and was told over the phone that John wanted $350,000. Zane never said in his evidence that there was not such a meeting in the kitchen or that the whole of the terms had been settled in that one telephone call he made following the discussion between John and
his wife. He did, however, emphatically reject the idea that he had inspected the property on his four wheel bike.
[23] I will come back to this conflict of evidence later in this analysis. The most reliable way to resolve the conflict of evidence is against the chronology of undisputed evidence and consideration of the evidence prepared for an earlier trial
between the lessee contractor, Southwest Contracting, and John, including a tape conversation between John and Zane, and also after consideration of the evidence of Robyn Thomas recalling two conversations she had with Tina.
[24] Later in August Tina contacted their solicitor, Ms Knowler, and gave her instructions to draw up an agreement for sale and purchase. This was executed on 20
August. I am satisfied it was executed in the presence of Ms Knowler.
[25] John did not have his own solicitor and Ms Knowler, conscious of the fact that she may possible have been in a position of conflict of interest, took John through the additional conditions of the contract which were standard for an agreement for sale and purchase. They included standard additional clauses used normally for rural sales dealing with Inland Revenue matters, particularly the core acquisition price and GST. The contract was subject to the purchaser arranging suitable finance. The consideration was for $350,000 and the settlement date had originally been drafted as for 29 August, a mere nine days after the execution of the contract, but was amended at the time to 12 September.
[26] The next day Zane and Tina visited Blackmount Station with Mr Jeremy Anderson, their bank account manager. They were looking to borrow $400,000, the extra $50,000 to go into immediate improvements. They already had a first mortgage of about $350,000 on their own farm and the usual current liabilities for that operation. Mr Anderson realised immediately that Blackmount Station was not
an economic unit but had no problems granting the loan having regard to the overall financial position of the Barretts, including a significant income from Barretts Shearing. The Quotable Value Government valuation at Blackmount Station at that time was reported to the Barretts’ solicitors as $600,000.
[27] On 12 September the sale settled, the transfer being signed by the Barretts and John McGregor at the Barretts’ solicitor’s office. This was not much more than
a week before the depositions took place.
[28] The Barretts immediately started to work on the property. It was about 50
kilometres away from their farm at Grove Burn and so involved significant travelling
there and back. This was for a couple who already had a very busy life. Within two months they were thinking of selling the property. In fact, on John’s evidence it was within one month as he said that in October they told him they were thinking of selling the property and buying another one closer to Tuatapere, the area of their farm. But in any event in November 2003 Zane and Tina listed the property with First National Real Estate and a sign was erected at the gate of Blackmount Station calling for tenders by 10 December. There is a dispute between the parties as to the significance of this. John had said that when there was first some discussion about sale of Blackmount Station that Zane had told him that there was a property just down the road from their farm owned by Stephen Eddy and he thought that the price for that farm would be about $1.2 million, that Blackmount would be worth probably about the same and they would do a clean swap and keep that property for Angus. It would involve less travelling and so easier to look after. John then said that later Zane told him they had had a look at the property and that the Eddys wanted $2.2 million for it so the deal was not on. John also told of Zane offering to put $350,000
in trust for John’s children. I will come back to these disputed facts later. But in that context it is some explanation for John not being too surprised by the listing of the property with First National Real Estate although he said he did not like it.
[29] From as early as 8 January the Barretts were writing to John asking him to vacate the property. They had allowed him to stay on and there is a dispute as to the reasons why. John says it was one of three oral conditions of sale. Zane and Tina say it suited them to agree to John staying on as he would be there to keep an eye on the stock. But they rapidly became frustrated because he was not doing that, stock were getting out and the neighbours were complaining.
[30] In January 2004 a dispute had arisen between Southwest Contracting and the
Barretts. Back on 17 October a spraying contractor, Booth AG, had sprayed roundup
on some of the paddocks, including those that had been leased by Southwest
Contracting from John. Southwest had sent an account for $73,000 to the Barretts
for the loss of their crop in those paddocks. Zane and John had a row. Then on 19
May John saw Zane mowing and baling a paddock. It would appear that Zane knew that Southwest Contracting were going to sue him and wanted to be sure as to how
many bales would be taken off the remaining paddock that the contractor had in crop and he was baling it to verify the number of bales.
[31] Fearing that he was going to be caught up in this litigation John went to see Zane and took with him a tape recorder. He secretly taped the conversation. The conversation began with John saying into the dictaphone that he was going down to speak with Zane regarding an eviction notice and baleage that was cut by him that was under contract to Southwest. John had that day received an eviction notice. Zane said the reason he got the eviction notice was because of a bill he had got from Southwest and a row then developed with John saying he had a way out so why did
he go and cut the paddock and Zane saying Southwest was going to sue him regardless. Zane explained his reasoning that it was a way of being sure how many bales he would have got off the paddock. Zane was clearly outraged by the amount
of money that Southwest were claiming. Zane complained that he had never seen the contract with Southwest. Another problem was that one of his obligations was to keep stock off the bottom paddock. He was angry with John for not having given him the contract with Southwest. John said to Zane that he had told him several times that 70 acres did not go with the property until May. Zane said he wished it had been put into the sale and purchase agreement. John said that Zane’s word should be good enough. Zane said: “Yeah I know”.
[32] There follows this passage. Expletives have been deleted and square brackets substituted.
JMI’ve given you, I’ve given you a […] farm and I only two put […] conditions on it, two verbal conditions on… well… actually three. Well, one was the 70 acres the other was that I live in the […] house until I go to court.
ZB Yeah.
JM And the other one was the deal with Angus. ZB Yeah.
JM and with the rest of my kids… it’s not just Angus… it’s with… ZB Yeah you said that.
JMYeah but, well, I can’t expect, you know, like that farm was for the kids.
ZB Yeah but… yeah, yeah, you did say.
JMThere was only three, three […] things, you know, and like, Tina rings up going […] stink, wanting us out of the […] house all the time and […], you know like […]… all I said to you was that I just want to live in the house so there’s no stress on the kids, no stress, no more stress on me until such time as I go to court. You agreed to that. You agreed that you wouldn’t touch the 70 acres. […], you done that, then Tina’s all the time saying we gotta get out of the […] house. And I just don’t know what the hell you’re gonna do in 10 years’ time.
ZB I’ll stick to my word. That’s what I […]… I said that to Angus you know but it’s […] awkward, what’s, you know, what’s happening. I mean we should have been… we haven’t actually had […] had a conversation for quite a while.
JM Yeah I know.
ZB I did ring up there a while ago and asked if we could have a talk.
That was after, no before, Brendan come. Umm.
JMWell, I just got word from […] all around everywhere that you weren’t.. yous weren’t talking to me anymore. So, I thought what’s the […] point?
ZB Yeah, that was […], you know just come and […] talk. I mean, I’ve been flat out […] shearing. That’s what’s making things worse.
JMYeah, well I’ve been flat out […] working myself. I’ve been working […] 12 hours a day down at Carlton’s.
ZB Fair enough.
JM But […]… I actually think you got a […] good deal.
ZB Oh. Well. But it is, it’s starting to turn into a […] nightmare. I wish we’d never […] done anything in the first place.
JM Well, do you want paid out?
ZB How would you […] do that though?
JMWell, I’ll just buy it back for what you’ve spent on it, plus you know interest. Everything that you’ve spent on the place.
ZB Umm… But yeah… the way things are gonna go here… what’s gonna happen is that they… if they go to court all I can do is, […] try and defend it, really, isn’t it?
JM Yeah.
ZB That’s basically about it. Umm. JM If you want out, just […] say.
ZB Well, […], it’s a bit late for that. JM Why?
ZB Well that’ll look even […] worse, if you come along and bought the
[…] thing back, wouldn’t it?
JM No, no, I won’t buy it back. I’ll just get my family to buy it back.
ZB Well, I’ve got to… I’ve got to talk to Tina. She’s got her […] name on there too. So I can’t just […] do what I like.
JMWell, that’s another […] thing, she keeps, she came up there, and she […] goes on and she says “well Zane and John had the […] agreement but my name’s on it, and I, I didn’t […] agree to any of this so we don’t have to […] worry about it”.
ZB But the other side of it is to get the […] loan I had to put her name on there anyway. Yeah, I know there’s a lot of […] like you know with Kristy and Tina. They had an argument the other day didn’t they.
JMBut, she, she shouldn’t even be talking to […] Kirsty. It’s me that… yeah, if she rung up she should ask to speak to me. If I wasn’t there she should have “oh well, I’ll ring back later”. That argument didn’t even need to happen.
ZB Well, why didn’t you – when I left that message there you could have rung me too.
JM Well, I rung here twice and all I got was your […] answer phone and
I just…
ZB Well you know this time of the year, I’m not […] here very often. JM Yeah.
ZB That phone at night rings for probably two hours non-stop and all I
do is take the […] thing that come off our answer machine.
JM [Indistinguishable] this is silly, I mean there is (indistinguishable
20?) people working at the moment.
ZB When if you court case? [Indistinguishable]
JM I have no idea. That’s what I said to you ages ago.
[And thereafter they got back on to the lease litigation]
[Kirsty is John’s partner]
[33] Some time during the main shear in 2004, which Tina said may have gone into early April, Tina bought a cow and calf from Neil Grantham and his partner, Robyn Thomas. She came to the property with a trailer and a friend, Jeff Drain, to pick up the cow and calf. Zane was not able to do it because he was away. Both Tina and Ms Thomas agree that they had a lot of difficulty getting the cow and calf into the trailer. Thereafter they disagree on what happened.
[34] Ms Thomas says that Tina came in to have a cup of tea while her friend was still trying to get the cow and calf into the trailer and over a cup of tea she, Robyn, raised with Tina how they had managed to buy Blackmount Station. Robyn said she brought it up giving her a little bit of cheek because the Barretts got the property and they did not. Ms Thomas said that Tina said:
That the deal was that they paid 350 and the property would end up either going back or somehow going back to Dallas [Ms Thomas’ nickname for Angus] and the children would end up with either the money or the place back.
[35] Ms Thomas also said a short time after that she had a similar conversation with Tina at the time when she was visiting Deborah Drain on their property at Tuatapere.
[36] This evidence of Ms Thomas was challenged. The defence had not expected her to have been a witness. Ms Thomas had been sitting in Court during the opening statement of Mr Eagles. She said that that was the first time that she heard the whole story. She was not directly challenged that she was making it up. In closing submissions Mr Olney submitted that she was and that she had picked up the idea of giving such evidence from hearing the opening, before the order was made excluding witnesses. Tina disputed both conversations and said that once they finally got the cow and calf loaded they left and there was no cup of tea conversation. I will return
to this conflict of evidence later.
[37] On 17 March Tina wrote another letter to John and Kirsty asking them to leave the property by 30 March saying that they had no choice but to ask them to vacate. In April the Barretts listed the property for sale with CRT Real Estate. On
1 May there was an article in the Southland Times saying the property was for sale
and on 6 May Tina and Zane sent another letter to John confirming the property was
on the market, that there had been a good response to the advertisements and that they would have to find another place to live very soon.
[38] On 6 May the Barretts signed an agreement for the sale of the property to
Mr and Mrs Coveney for $1,115,000.
[39] John said that he had been told directly by Zane that they had a good offer on the property. He also said that he was told by Zane that after he paid the bank off for the debt on this property and what he owed on his other property and the stock firm
he would be right out of debt and he was going to put the remainder into a trust account. John said he told Zane that he wasn’t happy with 350 and that he wanted the 650 he would have got had he sold it to Neil Grantham for a million.
[40] John said that after he received the 6 May letter he took some legal advice as
to whether he could stop the sale of the farm asking if a caveat could be put in place.
He took advice from the firm who were representing him in the criminal trial. But nothing was done after taking that advice.
[41] John McGregor went to trial on 28 June, was found guilty on various accounts and on 15 July was sent to prison for four years.
[42] In January 2007 the Barretts were getting ready for a trial in the District Court defending the claim by Southwest for loss of their crop. They asked Angus to give evidence in their support.
[43] Angus impressed me at the trial as a good fair witness who was reasonably intelligent. He clearly had at the time a good relationship with the Barretts and I think has still managed to keep that relationship going notwithstanding this litigation. He has become a good shearer. He shears around the world. However, he cannot read.
[44] Prior to the trial Tina typed first an affidavit and then, retyped it as a brief of evidence of Angus. This followed a discussion they had had around the kitchen table.
[45] In that affidavit/brief she has Angus saying:
7)I met Tina and Zane then and stayed with them most Thursdays and weekends, some times my dad would come up to get me but never meet the Barrett’s,
8)It wasn’t until mid 2003, my dad meets the Barrett’s probably, before that they just said hello as dad picked me up or dropped me off. They are not nor have been close friends with my dad.
9) My dad and the Barretts only made one deal, only that he could stay
in the house, but the Barrett’s ended up asking him to leave the property in January.
[46] Angus said that he could recall his evidence being read back to him by Mrs Barrett early one morning before he went off shearing. However, in short it was Angus’ evidence that there was more than one deal and that included the property being offered back to him should he seek that at some time in the future. Again, I will come back to the detail of this dispute in the analysis resolving the conflicts in the evidence.
[47] These statements in Angus’ brief were in contradiction with a brief of evidence of his father that had been exchanged which said, among other things:
I had a long and close relationship with Zane and Tina Marie Barrett over the years, dipping sheep and killing pigs together.
And where he said:
8.I offered Zane and Tina Barrett the opportunity to purchase this property with an estimated value of $1.1M for $350,000, subject to three verbal agreements, that were the basis of the discounted price.
· That my family and I be allowed to remain in the dwelling house until the date of my upcoming appearance in Court.
· That the property be available for me to repurchase at any time
in the next 10 years from the date of sale at the price of
$350,000 plus any improvements made by the Barrett’s.
· That the Barrett’s agree to recognize and respect the lease held over around 70 Acres of the property by Southwest Contracting (2002) Ltd.
9.Within days of our discussions at the Barrett’s house, Zane Barrett came to the farm to look over the property, specifically to view the leased paddocks. At this stage the agreement for sale and purchase had yet to be signed. The purpose of the visit was to look at the leased ground. I took Zane around the farm on my 4-wheeler motorbike to each of the paddocks covered by the lease with Southwest Contracting (2002) Ltd and specifically pointed them out
to him. I told him that he could not touch these paddocks until after the lease expired in April 2004. Again, I re-iterate this happened
prior to the signing of any sale and purchase agreement and he agreed at the time that he would be happy to abide by the terms of
the lease and the other two verbal agreements we had reached.
10.The Barrett’s presented me with a sale and purchase agreement prepared by their solicitor Maxine Knowler of McKenzie Associates
of Invercargill. I signed the sale and purchase agreement.
11.At the time of signing the sale and purchase agreement I didn’t think that it was necessary to go to the expense of obtaining my own lawyer. The purpose of the sale had been specifically to remove the property from my name and I had a close relationship with Zane and Tina Marie Barrett. I was sure that their lawyer would consider my interests as well as theirs. In my mind, it was a simple straightforward verbal contractual arrangement between friends.
12.At the time of signing the sale and purchase agreement I did not give any thought to noting the lease on the agreement as the lease agreement was only one of three verbal agreements that I had made with Zane prior to the sale of the property. He had agreed that he would abide by these agreements and had indicated to me that he understood he was not allowed to to9uch the 70 acres covered by the lease until after April 2004.
…
Reliable inferences from incontrovertible facts
[48] John would have known that his property was worth a lot more than
$350,000 in 2003. That sum was about half what he had paid for it in 1996. It was common knowledge among rural property owners in Southland that rural values were rising. He would have known that the Government valuation was $600,000. The $350,000 figure broadly equated with the secured indebtedness over the farm.
[49] Tina and Zane had no particular reason for doing John a favour. They were acquaintances only. That was because of Angus. Angus, however, was in a different position. He had become part of their household. He was their son, Aku’s, close mate. They thought highly of him. They would likely have had considerable sympathy for the predicament he was in as a young boy, his parents separated, and
his father about to go to jail.
Resolution of conflicts of evidence
Who proposed looking after Angus?
[50] There is a conflict here between John and Tina. John says Tina raised the question of buying Blackmount Station in the context of looking after Angus. Tina says it was John. They agree there was a conversation. They disagree as to where
on the Barrett property it occurred. Angus said that the first time the subject of a possible sale came up was in a conversation between he and Tina.
[51] Plainly, after the police had found the cannabis on the property and John had been arrested, the Barretts would have known about it and the future of Angus would have been an issue. It is also natural enough to question the future of Blackmount Station. Both questions would likely be in the mind of Tina at the time of the conversation. They certainly were in the mind of John. It is more probable than not they discussed Angus, given that John was likely to go to jail. It does not matter who raised the subject of the welfare of Angus. His future may have been discussed amidst discussion of the possible sale of the farm.
Was there a kitchen table discussion?
[52] At the end of the trial I found neither version of events convincing. John’s version is that the three oral agreements were reached around the kitchen table in the Barrett house after his conversation with Tina and in the presence of Angus. Tina’s version is that there were no terms agreed, except at some stage that John could stay
on after the sale. The sale price was agreed over the phone between her husband and
John. Tina denied vigorously that there was ever a kitchen table discussion.
[53] Zane does not help either way. I find that significant, as I shall explain. The least convincing version is that of Tina. As she would have it, there were no negotiations. She said she learned John wanted to sell when he visited her home. She said she laughed at the idea and said they did not have a million dollars. She said that John said: “It is not for a million. Just get Zane to ring me”. She said after her husband’s telephone discussion with John she learned that he wanted
$350,000 plus GST, that she argued the question with her husband because they already had borrowed money to purchase their farm off his father. The mortgage was high enough and she did not want to double it up. She also said her husband discussed it with his father.
[54] As I have already narrated, Zane had nothing to contribute on this issue. Most of his brief was reduced to writing. In the introduction he said:
I want to say from the beginning that my recollection of all events relating to this case is not complete.
[55] As to conditions he said:
3.7I am certain that John did not say anything about putting conditions on the sale of Blackmount Station at any time during our conversation about the sale or anytime before we bought Blackmount Station. We never discussed selling the property back
to John or Angus and John did not say anything about a lease to
Southwest.
3.8At some point John did say that he wanted to stay living in the house. This seemed like a good idea because John could keep an eye on Blackmount Station while Tina and I lived at Grove Burn farm.
[56] Zane denied inspecting the property on his four wheel bike before signing the agreement. He said that happened after he had bought the property. It had been John’s evidence that he came to have a look at the property within a week of the meeting mainly to see which blocks were leased by Southwest Contracting.
[57] There were two witnesses who gave evidence that there was a meeting around the kitchen table, John and Angus. Tina said that Angus would lie for his father. That was not my impression from the way he gave his evidence.
[58] During the District Court trial Zane was cross-examined on the basis that he had learned of the lease in a discussion with John at the Barrett kitchen table. This was against the evidence of John. The relevant question and answers were as follows:
Q. Well okay, in that first discussion when he came to your place and you were in the kitchen of your house at Groveburn, did he tell you that he wanted to be able to stay in the house until he went to Court?
A. No I agreed with him later that he could stay there because I had no one, there was no presence of anybody up there.
…
Q. So at the time of that first meeting in Groveburn in the kitchen what was in your head about the value of that property?
A. I talked to Wayne Ingram about it, he reckoned it was probably somewhere around $500,000.
…
Q. But you’re saying you thought $400,000-$500,000 at that time, when you were sitting in the kitchen talking?
A. Well yeah I thought maybe it could be that.
Q. So you must have been surprised when he was offering to you for
$350,000?
A. Well I thought it was a bargain.
Q. However you’d want to inspect it wouldn’t you before you committed yourself to anything?
A. Not at $350,000 no.
Q. So you were ready to take it then?
A. Yeah well if I could get finance I would.
…
[59] The reference to “in the kitchen” is a reference to the brief of evidence from
John which has already been set out above.
[60] At the time he was being cross-examined Zane knew from John’s brief that
he was alleging that the three other agreements were reached around that table. Elsewhere in that cross-examination he denied that. But he never disputed in the cross-examination that there had been a meeting in the kitchen.
[61] That denial appears in his written evidence-in-chief:
3.3In their briefs, John and Angus both say that John came to our house and discussed his offer with Tina, Angus and me. This is not true. As far as I know, apart from the day John visited Tina and the time he taped our conversation, John had never been inside our house before we bought Blackmount Station.
[62] John’s evidence also has to be set against his taped conversation, the relevant extracts of which are set out above. In his evidence at this trial he said he was simply saying “yeah” as a polite acknowledgment of what was being said, not as agreement to it. Such “yeahs” are very common in ordinary conversation. But as can be seen from the transcript some of his answers were not confined to “yeah” but clearly were acknowledgments. He also referred to keeping his word.
[63] There is no doubt in my mind that at some stage in the history of this matter Zane gave his word to John to look after Angus. His counsel, Mr Onley, submitted that they may just have meant looking after Angus within Barrett Shearing. But Zane had every opportunity to explain the context of that assurance, and did not.
[64] In the transcript of that taped interview, there is the hearsay statement from
John telling Zane about Tina coming up to the station and saying:
Well Zane and John had the […] agreement but my name’s on it, and I, I
didn’t … agree to any of this so we don’t have to … worry about it.
Zane replies:
But on the other side of it is to get the […] loan I had to put her name on there anyway.
[65] Even before I saw this passage in the trial I had been forming the impression, from the sequence of events, that Tina either did not know or had never bought into
an oral agreement that John stay on the property or an oral agreement which would have the effect of preventing them from selling.
[66] They were talking about selling off a block the day after signing the agreement with their financier. They were considering selling the whole property two months after they bought the agreement. They listed it before Christmas.
[67] There was no detail in the evidence which enables me to be sure as to who made these decisions. But in the course of the trial the nature of the partnership between Zane and Tina was clear. She was a very active participant in their business affairs. It was Tina who instructed their solicitor as to the terms of the agreement. The letters of eviction sent to John were all written by Tina. Zane said that she attended to the details of their business affairs.
[68] Those events have to be put against the evidence of Ms Thomas and against the evidence of John as to the explanations that were being given to him about the resale of the property, essentially on the basis that there had been continuing obligation to Angus.
[69] I think they can all be reconciled if one takes a middle way between the two conflicting versions of events presented to the Court by each side. There was a discussion around the kitchen table. It did include both sale of the property, John staying on, and the need for Angus to be looked after. The sale at a bargain price was with some kind of quid pro quo for looking after Angus. There would also have been a mention of the lease interest either in the intervening telephone conversation
or at that meeting or when Zane came up to look at the property. Remember he had never been there before. Tina had rousied with a shearing gang on Blackmount Station in her youth, before the Station had been cut up.
[70] It is probable that the two men carried on the discussion during the inspection
of the farm. In a taped conversation Zane does not say: “we will keep our word”.
He promises to keep his word. That is completely consistent with the report of what
Tina was saying that Zane and John had the agreement. She is essentially saying the
terms of the deal were struck between the two men but she is legally a party to it, and that seems to be confirmed in the immediate following comment from Zane.
[71] All that is consistent with Tina in an informal social context talking to Ms Thomas, talking loosely about looking after Angus. Yet her evidence is consistent with Tina and Zane putting the farm up for sale and Zane talking about setting aside $350,000 for Angus. It supports the conclusion that Zane had given John his word to look after Angus, but that exactly how had not been made certain. For her evidence to be rejected it has to be found to be false. I found her reliable. I
do not think that she gave evidence based on what she may have picked up hearing the opening address. She had no motive to do so.
[72] This interpretation of the evidence is also consistent with the lack of detail to Tina’s version of events. Her narration of the formation of the agreement is too simple when we know the reasons for John wanting to sell.
[73] This interpretation of events is also consistent with the lack of a forthright oral denial by Zane of the kitchen meeting both in the trial with the lessee and in this trial.
[74] It is also consistent with both John and Zane not giving any evidence of what they talked about during the inspection of the property. They both had an interest in not presenting the deal as done just between themselves leaving Tina out of it. John’s natural interest was to tie Tina to the side agreements. Zane’s natural interest was to deny any side agreements.
[75] This third interpretation is also in my mind consistent with John’s evidence about the explanations being offered by the Barretts when they immediately started putting the property up for sale. The probability is that Zane had given some general assurance of looking after Angus and giving him an opportunity to buy the property back at some future time. Tina learned about and was not entirely hostile to it, not realising from the start as to the financial implications. The notion of buying another property as a substitute and still looking after Angus makes sense. In that sense they may well have gone into the deal not intending to take full advantage of the cheap
price for which they got the property. But they quickly discovered that running the property was a nightmare, an enormous drain on their personal energies, for no foreseeable financial reward. One problem after another surfaced. The fences were
in very bad condition. Stock was escaping. John was not helping. They faced a law suit for a surprisingly large sum of money from the lessee. They may well have taken legal advice when confronting these problems and been given some assurance that they were not bound. In any event, their behaviour hardened up against the interests of John and Angus over time to the point that in the 17 March letter from Tina to John and Kirsty she ends it with:
We have no choice but to ask you’s to vacant.
[76] By contrast, John’s views hardened up the other way. Originally he had general assurances that he could stay on the property and that Angus would be given
a chance to buy the property back at a price which reflected what they had paid for it plus improvements. That hardened into the position he formulated more than a year later for the evidence for the District Court trial.
[77] As he finally formulates the deal it is simply not rational. Zane and Tina buy the property but commit themselves not to sell it for ten years. When they sell it back to Angus they will sell it for the original price of $350,000 (subject to an addition for improvements) should Angus want to purchase it. This was all agreed, according to John, very early on in the negotiations, at the kitchen table, and before Zane, a farmer, had even inspected the farm.
[78] Zane and Tina are very practical people. That came through in a myriad of ways in the narrative of their evidence. They would not have committed themselves
to such a deal in one conversation around the kitchen table. They certainly would not have committed themselves to such a deal once they had inspected the property and realised in what a run-down condition it was. The fences were very poor. The pasture had not been top dressed for a long time. The available pasture was at best only about half of the total area of the property. They found that it took about 40 minutes to get there by road.
[79] In sum, I think the probabilities are that Zane and Tina did agree almost immediately to buy it for $350,000. It was a bargain at that price. They also discussed in loose terms giving Angus an opportunity at some time in the future, as a young adult, to buy back the property. In one or more later conversations just between Zane and John, Zane gave his word. But at no stage did these three persons nut out the practical terms of looking after Angus. They may have agreed a ten year time frame for looking after Angus. But they did not address definitively the buy back price. They did not address the commitment of having to hold and look after the property when it turned out to be a nightmare. There was an understanding, but it was vague. There was a commitment by Zane to look after Angus. It was a commitment which was centred around the bargain price, and led to the later alternative consideration by Zane and Tina of setting up a trust fund for Angus.
Does Angus have a remedy at law on these facts?
Legal issues
[80] Counsel addressed a number of issues arising from the facts. I raised issue number 3. The issues are:
1. Was there an agreement?
2. Was the agreement uncertain?
3.Was the agreement unenforceable by reason of being contrary to public policy and/or an illegal contract?
4.Did the equitable doctrine of part performance apply, to displace the application of s 2 of the Contracts Enforcement Act 1956?
5.Is it a fraud on the part of the defendants to plead non-compliance with the Contracts Enforcement Act, whether or not there has been part performance?
Was there an agreement?
[81] On these findings of fact there was an agreement for the benefit of Angus between his father and Zane. I do not think that the plaintiff has proved there was an agreement between his father and Tina. In the latter respect the plaintiff has proved
on the probabilities that the question of Angus being looked after was discussed in the presence of Tina, at least once. But the final agreement, such as it was, was between her husband and John.
Was the agreement uncertain?
[82] For promises made in informal contracts to be enforceable at common law they must be certain or capable of being made certain. Counsel in this case focussed
on three potential problems of uncertainty. They were:
(i) Whether the agreement enabled Angus to repurchase in ten years time
(when he would be 25) or whether he had the option to purchase over
a ten year period.
(ii) Whether the option was to be for Angus or for the children generally. (iii) Whether Zane and Tina would be compensated for the cost of
improvements they made to the property or for the added value of the property because of the improvements.
[83] Apart from whether the option was to be for Angus or for the children generally the other issues are significant. They go directly to the enforceability of the contract by way of damages upon identified breach or by way of the availability
of the remedy of specific performance.
[84] I am satisfied the reason why these issues were identified was because they had not been made certain at the time in the discussions between John and the Barretts, particularly with Zane, before the agreement for sale and purchase of the land was executed.
[85] There is no objective mechanism whereby they can be made certain. At the hearing there was an attempt via the cross-examination of the valuer, Mr Ure, to explore whether expenditure made by the Barretts on Blackmount Station was maintenance or improvements. This exploration was done partly by reference to the Barretts’ financial statements and partly by reference to valuation principle. Neither references are reliable in this context.
[86] Whether or not expenditure on a farm can be wholly written off in the financial year it occurs is essentially a question of income tax law. The agricultural sector has always had special provisions and policies for this subject.
[87] It is quite possible for an expenditure to be capable of being written off in one financial year yet generate a medium to long term increase in the stock carrying capacity of a farm. There is frequently a correlation between the stock carrying capacity of land and the value of land. So from a valuer’s perspective expenditure
on land is an improvement if it contributes to the market value of the land.
[88] If improvements are to be compensated for it is very material to distinguish between the cost of improvements and the effect the improvements have on the value
of the property.
[89] The longer the option to purchase, the more reasonable it would be that the value captured in improvements would be the measure rather than the cost of improvements.
[90] However, it is speculation to know which way parties in the position of John and Zane would respond were this matter to be the subject of discussion. They might have chosen to use the classifications occasioned by income tax law as the means of identifying costs or values to be recovered, or they might not.
[91] To my mind these considerations directly raise the question of whether or not the parties’ negotiations got to the point where they intended Zane’s “word” to be an enforceable contract. It is not uncommon for the two issues to merge on the facts.
See Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd
[2002] 2 NZLR 433 at 443-4.
Intention to create contractual relations
[92] The taped discussion between John and Zane has John referring to Zane having given his “word”. In the factual circumstances of the case this is significant. After all, the agreement for sale and purchase was done under the threat of forfeiture
of the farm under the Proceeds of Crime Act. The existence of a written contract enabling John’s son to purchase the farm back for himself and/or for the children would clearly have raised the interest of the police and the Crown.
[93] It was in John’s interests, viewed as including his family’s interests to appear
to sell the land cleanly to a third party.
[94] Secondly, the mechanism by which the farm could be returned to his family had to be optimistic, even from John’s point of view. I have just covered some of the issues that need to be addressed while the Barretts are on the land and upon what
terms they would resell it back into the McGregor family.
[95] There would have been no doubt to both John and Zane that the property was being sold at a significant discount to market value. Zane himself said at the lessee trial that once he heard the price he did not need to get a valuation or check the Government valuation. He knew he could safely proceed on that price. The sale at that low value and in the context of the threat over John, coupled with the Barrett family’s attachment to Angus, might well, and on the probabilities did, engender a readiness on the part of Zane to entertain Angus buying the farm back. In that context he gave his word to look after Angus. But that word falls a long way short from expressing an intention to be contractually bound to sell back to Angus.
[96] On the facts it is unlikely that anybody in the position of Zane and Tina would commit to a contract to sell back without very clearly defined terms. This is
for a number of reasons. Firstly, farming in New Zealand has been conducted for many generations, if not always, for lifestyle and capital gain as much as for income.
It is notorious that the market value of farm land may not be the net present value of the foreseeable income stream. There is often a basic dislocation between what a property can earn and what it will sell for. This is particularly the case with smaller “uneconomic” parcels of land.
[97] Blackmount Station is the home block of what was originally a much larger station. It was bought by John who had plans for some kind of safari operation on the property. Neil Grantham and Robyn Thomas wanted to buy it because they had “fallen in love with it”. Sometimes these properties are bought by rural contractors
or persons living in nearby towns, who either way have an independent stream of income, and wish to have either a country retreat or to live in the country.
[98] In this context expenditure on the property may not in fact increase its market value. Yet if a property is purchased it needs to be maintained if not to become an unpleasant environment to live in with weeds such as gorse taking over. Stock need
to be cared for. It takes commitment and expenditure. Holding the land would generate annual expenditure which might well not be covered by revenue. That raises a basic question as to the justice to agreeing to sell back at $350,000 after a number of years, without any adjustment. And if there is to be an adjustment, how is that to be defined?
[99] It is also appropriate to bring into the context the fact that John was selling the land to avoid its forfeiture to the Government. For that reason there would be a natural reluctance for any purchaser to be party to an arrangement to defeat the Government. This proposition can be tested in the following way. How comfortable would the purchasers be entering into an agreement in writing of the sort being advanced by the plaintiff?
[100] For these reasons I do not think that the plaintiff has proved that the agreement, such as it was between John and Zane, included an intention that Zane be contractually bound to sell back to Angus, so that he could be sued in a court of law
for failing to do so.
Was the agreement unenforceable by reason of being contrary to public policy and/or an illegal contract?
[101] Common law enforces reasonable obligations. The law of contract is subordinated to this principle. Contracts contrary to the public interest will not be enforced.
[102] There is no doubt that John was minded to enter into this agreement with
Zane and Tina in order to preserve for his family, if not just for Angus, the equity in
his property which might otherwise be forfeited to the Crown under the Proceeds of
Crime Act.
[103] Mr Eagles argued that such a contract is not void against public policy or in any way illegal. He took as an analogy a taxpayer structuring his affairs in order to mitigate tax. I do not think this is a sound analogy. The right to order affairs to mitigate tax is a subject addressed in the law of tax and bounded by prohibitions against tax avoidance and tax evasion. The statutes make provision for transactions entered into to avoid tax to be unenforceable or of no effect against the Commissioner of Inland Revenue. This transaction with Blackmount Station was, on any view of it, a transaction to avoid the impact of the Proceeds of Crime Act.
[104] To be sure, this agreement has not directly affected an existing judicial process. In this case a judicial process has not started. It is an agreement to pre-empt the judicial process by removing the subject matter. Such an agreement was not an offence. (Section 84 of the Act makes it an offence to dispose of forfeited property before the Crown’s interest has been registered.) Furthermore, there was no certainty at the time either that an application for forfeiture would be made, or, if made, be successful. These uncertainties were emphasised by Mr Eagles.
[105] Nonetheless, I think that the agreement falls within the general principle enunciated by Lord Lindhurst in Egerton v Brownlow (1853) ER 359 at 424:
It is admitted, that any contract or engagement having a tendency, however slight, to affect the administration of justice, is illegal and void.
[106] Naturally enough common law Judges would never seek to define in advance the characteristics of such contracts. The text books categorise the cases into classes. These include agreements prejudicial to the administration of justice and agreements to oust the jurisdiction of the Courts. Section 11 of the Illegal Contracts Act 1970 leaves this latter particular aspect of the common law unaffected.
[107] This agreement, such as it is, was intended by John to pre-empt the jurisdiction of the Court to forfeit the land under the Proceeds of Crime Act from being exercised. Were it to be an effective contract, and not treated as contrary to public policy, it effectively spirits away the equity in the property by a secret agreement enabling such equity to be recovered by the family at a later date. The agreement can also be argued to fall within another recognised category of tending to defraud the revenue. The statute addresses the problem of persons dealing with forfeited property. It also enables restraining orders. The common law is not constrained by the limits or gaps in the statute. A contract does not have to be in breach of a statute before it can be found to be unenforceable. For all these reasons
I am of the view that this is an agreement which is unenforceable as contrary to public policy.
[108] It is not necessary to examine the provisions of the Illegal Contracts Act. The common law distinguishes between contracts which are unenforceable as contrary to public policy from those which are illegal. Sometimes, however, the categories overlap. The Illegal Contracts Act addresses the policy need to grant relief in certain circumstances to persons affected by illegal contracts. There is no such need for relief here. The only person seeking relief is Angus, who is the intended beneficiary of his father’s desire to frustrate the legal processes.
Did the equitable doctrine of part performance apply to displace the application
of s 2 of the Contracts Enforcement Act 1956?
[109] Counsel proceeded on the basis that if there were enforceable promises as contended for by the plaintiff, then s 2(1)(a) and (b) would apply. This section provides:
2. Proof of contracts relating to land and to guarantees
(1) This section applies to—
(a) Every contract for the sale of land:
(b) Every contract to enter into any disposition of land, being a disposition that is required by any enactment to be made by deed or instrument or in writing or to be proved by writing:
…
[110] Accordingly, counsel have proceeded on the basis that if the oral agreements are proved then s 2(2) of the Contracts Enforcement Act applies which provides:
(2)No contract to which this section applies shall be enforceable by action unless the contract or some memorandum or note thereof is in writing and is signed by the party to be charged therewith or by some other person lawfully authorised by him.
[111] However, both counsel acknowledge that equity has for a long time intervened where that provision of the statute was used for the wrong purpose, indeed to prevent the enforcement of an oral contract.
[112] The plaintiff relied on the principle that where the party seeking to enforce an oral agreement has done one or more acts of part performance of the contract then the Court in equity will prevent the defendant from taking advantage of s 2(2). This remedy is recognised in subsection (3)(c) which provides:
(3) Nothing in this section shall—
…
(c) Affect the operation of the law relating to part performance.
[113] In that regard Mr Eagles argued that the first act in part performance was to sell Blackmount Station at an obvious under value. Second, he relied on the fact that John remained in occupation of the house and thirdly the fact that John vehemently protested to Zane about breach of the lease, is consistent with it being a negotiated condition. Mr Eagles argued that the correct perspective to take to this case was that there was a composite agreement consisting both of the sale of the land to the Barretts as well as including the three oral terms. Finally, Mr Eagles submitted that if the Court finds that there has been no part performance it will nonetheless not
allow non-compliance with the Contracts Enforcement Act to be used as an instrument of fraud.
[114] Mr Olney submitted that the doctrine of part performance is tightly circumscribed so as not to undermine the purpose and standards of the statute. Its only function is as a substitute for compliance with s 2.
[115] He invited the Court to apply the test enunciated in T A Dellaca Ltd v PDL Industries [1992] 3 NZLR 88 and adopted by the Court of Appeal in Fleming v Beevers [1994] 1 NZLR 385, at 392 as follows [Clause 2(b) was amended in Fleming]:
1. Was there a sufficient oral agreement such as would have been enforceable but for the Act?
2. Has there been part performance of that oral agreement by the doing
of something which:
(a) clearly amounts to a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract; and
(b) when viewed independently of the oral contract was, on the probabilities, done on the footing that a contract relating to the land and [consistent with] that alleged was in existence.
3. Do the circumstances in which that part performance took place make it unconscionable (fraudulent in equity) for the defendant to rely on the Act?
[116] The crucial distinction is between proof of an act done in performance of the oral contract, which is required, as against an insufficient proof of an act done in reliance on the oral contract. See the test 2(a).
[117] Mr Olney submitted that the neither the execution of the sale and purchase agreement by John, nor the settlement, were acts of part performance.
[118] Mr Olney relied on the normal inference that parties do not intend to be bound prior to the signing of a formal contract is to apply. While that is the normal inference, it is not a necessary inference. Indeed in Dellaca at 95 it was not applied.
[119] If Mr Olney’s argument is right. There could be no part performance of the oral contract by John in respect of the right to reacquire the property, for its implementation required Zane and Tina to agree to sell it back.
[120] In Dellaca the part performance relied upon was the conduct by Dellaca of moving into the premises as a sub-tenant of the tenant of the vendor and the expenditure by Dellaca presuming it would ultimately obtain legal ownership. Those were acts in reliance on the contract, not in part performance of it. They were not direct dealings with the vendor.
[121] Had I found an oral contract, whether separate or composite, with the written agreement for sale and purchase, I would have found that both the execution of the written agreement and the acceptance of $350,000 for the land was part performance.
[122] I need to add a word on equivocality. See the test 2(b). Mr Olney argued that for part performance to be effective it must be sufficiently probative. He argued that acceptance of $350,000 was not significantly probative because they did not indicate anything other than John completing the sale for $350,000. However, that argument has no merit on the facts of this case. Plainly, John and Zane knew and believed that $350,000 was a discount price for the property.
[123] It is not necessary to deal with the final argument of the plaintiff that Courts will not permit non-compliance with the Contracts Enforcement Act to be used as an instrument of fraud. The defendants are not using it this way. Their principal argument is that there was no enforceable oral contract. They have succeeded on that argument.
Damages
[124] Because the plaintiff has not established liability on the part of the defendants there is no need to get into the issues that were raised on the subject of damages, principally the application of the loss of chance measure.
Conclusion
[125] The plaintiff has proved that Zane Barrett “gave his word” to John, to look after him as consideration in part for his father selling the farm at a discount price to Zane and Tina. However, the plaintiff has not proved that his word had sufficient particularity to be enforceable as a contract. The terms of looking after Angus were not finalised. Nor has the plaintiff provided that Zane intended to enter into contractual relations with John in respect of the giving of his word. The plaintiff has not proved that such agreement bound Tina Barrett. She never adopted the agreement between her husband and John. Had there been such a contract it would have been unenforceable in breach of public policy.
[126] The plaintiff’s action has failed. The defendants are entitled to costs on a 2B basis. I certify for extra counsel. If the parties cannot agree on costs I will hear submissions limited to five pages to be filed by Wednesday, 4 February.
Solicitors:
Eagles, Eagles and Redpath, Invercargill, for Plaintiff
Russell McVeagh, Wellington, for Defendants
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