Mulholland v Hansen

[2015] NZHC 895

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-3233 [2015] NZHC 895

UNDER	the District Courts Act 1947
IN THE MATTER	of an appeal from a decision of the District Court at North Shore (held at Auckland)
BETWEEN	WILLIAM FREDERICK MULHOLLAND Appellant
AND	PATRICK GRAHAM HANSEN Respondent

Hearing:	23 April 2015
Appearances:	S Barter for the Appellant DMJ Jones for the Respondent
Judgment:	1 May 2015

JUDGMENT OF MUIR J

This judgment was delivered by me on 1 May 2015 at 3:30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:

S Barter, Barter & Co, North Shore City

DMJ Jones, Kumeu-Huapai Law Centre, Kumeu

MULHOLLAND v HANSEN [2015] NZHC 895 [1 May 2015]

Introduction

[1]      This  is  an  appeal  from  a  decision  of  the  District  Court  declining  a counterclaim by the appellant for the sum of $50,000. That claim had been advanced in contract and quantum meruit in response to a claim by the respondent for recovery of monies loaned to him.  The respondent’s claim had been prior resolved with entry of a judgment in his favour.

[2]      A number of points on appeal are advanced with the primary arguments being:

(a)      that  although  the  District  Court  had  correctly  found  a  contract between the appellant and the respondent for the appellant to be paid a sum of $50,000 for services rendered, it had incorrectly identified a variation of that contract which effectively precluded the claim; and

(b)that the District Court was in error in terms of the evidence required to support a quantum meruit claim.

Background

[3]      The respondent, together with his brother and sister had some years earlier inherited a farm property in the Hellensville area owned by their parents for many years.

[4]      The respondent had been the principal occupant of the property although there was a second dwelling occupied from time to time by his brother Mr John Hansen.  The property was in a deteriorated condition with the capacity only to support one person and, even then, an inability to service existing borrowings.   In consequence, interest on outstanding loans had simply capitalised year on year with the  total  outstanding  amount  at  the  beginning  of  2010  being  approximately

$565,000.

[5]      There was, however, still significant equity in the property which was valued in excess of $3 million.

[6]      By the beginning of 2010, Mr John Hansen had become dissatisfied with the status quo.  He was receiving no income from the property and his equity in it was being eroded by accumulating interest.  He was also concerned about the disrepair into which the property had fallen.   As a result he refused consent to a further rollover of the mortgage and a Property Law Act notice was issued.

[7]      The appellant deposed in his principal affidavit that he had been told by the respondent that his brother had an ulterior motive to withholding his consent namely that he wanted to purchase the property himself at mortgagee sale and at a discount. The issue was not advanced in Mr John Hansen’s written evidence and under cross- examination he specifically denied that he was trying to force a mortgagee sale.

[8]      Nevertheless  by  February  2010  the  family  was  facing  the  unsatisfactory prospect of a mortgagee sale of their long-held property and the prospect this could result in a sale at less than market value.

[9]      The appellant and the respondent had been friends for approximately 15 years.  The appellant had also been close to the respondent’s mother and was a frequent visitor at the family farm, sometimes up to twice weekly.   He had a background in cattle trading and other business ventures, one of which included mortgage lending.

[10]     On receipt of the Property Law Act notice the respondent sought the advice and assistance of the appellant.  That culminated in an exchange of emails between the appellant and respondent on 20 April 2010 as follows:

1.34 pm respondent to appellant:

William,  thanks  for  your  help  here.    You  have  my  concent  (sic)  and agreement to go ahead and do whatever is required to aviod (sic) the Peak road property going to a morgagee (sic) sale. Thanks  Pat

1.49 pm appellant to respondent

Thanks Pat

There will be a significant cost possibly $50,000

I would suggest that John will be unwilling to pay his share and you and

Brook would have to deal with it yourself.

1.59 pm respondent to appellant

Hi there,

No problem.  just keep us informed of the outcome. Thanks

Pat

Regards to Fred

[11]     The District Court found that the appellant then arranged a meeting with Mr John Hansen for 23 April.   The appellant says that at that meeting he advised Mr John  Hansen  of  an  underwrite  arrangement  which  he  had  brokered  with  a wealthy local identity, Mr Hugh Green (now deceased) whereby, if the farm went to mortgagee sale the plaintiff would himself be able to bid for it.  He says that he did so to dissuade Mr John Hansen from entering the ring and to co-operate in a salvage plan.  There is no discussion of this in Mr John Hansen’s evidence.  In any event the appellant was able to persuade John of the merits of a short term refinancing in order to avoid a mortgagee sale and prepare the property to best advantage for a sale on the open market.

[12]     Mr John Hansen agreed to the refinancing subject to six conditions set out in an email of 23 April 2010.   The farmhouse was to be cleaned up.   It was to be painted.  Money generated from the sale of stock or otherwise attributable to the property would be controlled by an accountant.   The scheduled auction of the property was to proceed but not as a mortgagee sale.  If a satisfactory price was not obtained then it would be sold within 12 months of the refinancing.  What was therefore negotiated was breathing space to represent and market the property to best advantage.

[13]     Subsequently the parties, being the appellant, respondent, respondent’s sister and brother entered into an agreement.  This was prepared by solicitors.  It makes no mention of any fee payable to the appellant for his services but does recognise that the refinancing is to include an additional sum of $50,000 which could be used by the appellant for the purposes for which he was retained, being in particular to arrange   a   new   loan,   communicate   and   negotiate   with   purchasers,   arrange

appointments with solicitors, accountants, and oversee the cleaning, tidying and preparation of the property for sale.

[14]     The appellant then arranged mortgage finance from parties known to him.  It was what might be described as “second tier” lending at a commensurate interest rate.  Each of the Hansen siblings then entered into a loan agreement dated 12 May

2010.  That agreement provided for a grossed up amount sufficient to discharge the existing mortgage, but also an establishment fee of $14,000, lenders solicitors fees of

$3,000, a contingency fund of $15,000 to be held by one of the lenders (against repairs and which appears to have been in substitution for the $50,000 referred to in the earlier deed) and, pursuant to cl 23.2(d), a “$20,000 fee to William Mulholland”.

[15]     In the event, a mortgagee sale was averted and the property proceeded to a vendor auction two days later at which it was keenly bid and sold for $3.2 million to a Mrs Lowndes.  She had earlier made an offer for the property of $2 million but competitive pressure at a well attended auction drove her to the figure paid.

[16]     Subsequent to completion of the sale both appellant and respondent agree that a series of loans were made by the respondent to the appellant.  The first loan was on

28 July 2010 in the amount of $5,000 with $40,000 borrowed by October.  The respondent deposed that the appellant needed the loans to complete the purchase of the property in Albany.  At one stage the total amount outstanding was $100,000 but

$55,000 of that was repaid.  The appellant acknowledges at para 37 of his principal affidavit that the monies paid to him in this context were funds “outstanding by me that Pat had lent me from time to time”.  There was no suggestion in his evidence the various payments he received constituted payment in whole or in part of the $50,000 fee which he sought to recover on his counterclaim. What he says is that he:

… believed that the funds owed to me pursuant to this agreement with Pat of

$50,000 were being offset by the loans.

[17]     Regrettably the appellant and respondent fell out (the appellant says because he refused to give evidence in the context of a Law Society complaint by the respondent) and claims and counterclaims followed.

The District Court’s decision

[18]     The key findings of the District Court in relation to the contract claim were:1

[11]     Clearly, on the exchange of emails, I find that there is a contract whereby  Mr Mulholland  is  going  to  do  what  is  necessary  to  avoid  the mortgagee sale, which would include re-financing, and that there would be a fee involved, possibly up to $50,000.

…

[21]      The  $20,000  mentioned  in  paragraph  23.2  of  the  term  loan agreement is an entirely different arrangement and was payable by the entire family.  It is quite clear that there was an agreement to pay up to $50,000 by way of the email exchange but it does seem to be rather curious that the term loan agreement provides for another fee of $20,000.

[22]      I do not think it can be suggested by Mr Patrick Hansen that there was no agreement.  I am satisfied on the basis of my findings that there was. Nor can it be claimed that there was no fee owing.  The question is whether or not the fee that was payable was payable by him and was in addition to the fee that was payable under the term loan agreement.

[23]      It seems to me that the conduct of all of the parties in the preparation of the term loan agreement indicates that the final fee due to Mr Mulholland was $20,000 plus his various out of pocket expenses.  Also, it seems to me that Mr Mulholland was prepared to vary his initial fee of $50,000 downwards and I would suggest that he could possibly even be estopped from claiming anything more and he was paid that and acknowledged payment.

[24]      I am not satisfied that there was a separate independent agreement between Mr Mulholland and Mr Pat Hansen.  I think the subsequent conduct of the parties speaks against that particularly having regard to the deed that was entered into, the agreement of 4 May and the subsequent term loan agreement.  So on the basis of the contract I would find for Mr Pat Hansen.

[19]     In relation to the alternative quantum meruit claim the key finding is as follows:

[28]      I do  not  have  any  idea  of  what  charge-out  rates  are  normal  by merchant bankers in an act acquiring funds for other people.   Banks for example charge a percentage of the loan.  Merchant bankers also have their own arrangements as far as acquisition fees and success fees are concerned because that is pretty much what it was going to be.  I do not have any evidence that allows me to actually work out mathematically what the value of the services to Mr Pat Hansen or other members of his family might be. Therefore I would not be prepared to find that the counter-claim had been established and it would have to fail.

1      Mulholland   v   Hansen   DC   Auckland   CIV-2014-044-000623,  10   November   2014   per

Judge D J Harvey.

[20]    On the contract claim, therefore, the Court was prepared to accept, on the exchange of emails, that there would be a fee payable to Mr Mulholland, “possibly up to $50,000”.  Its conclusions are based upon the correspondence.  Although the appellant has deposed in his principal affidavit dated 6 September 2013 that there had been a telephone discussion on the evening of 20 April 2010 during which he confirmed that “I require to be paid $50,000 for my assistance (which Pat again

agreed to)”2 and that “Pat verbally agreed (on more than one occasion) that he would

pay me the $50,000 in respect of the provision of the services”,3 the respondent specifically denied any agreement to pay $50,000 for his work.  Neither party was cross-examined on this aspect of their evidence and it is clear from the judgment that the learned  District  Court  Judge considered  himself  better assisted  by what  the parties had reduced to writing.

[21]    The Court found, however, that the appellant had agreed to vary his fee downwards to $20,000 plus his various out of pocket expenses as reflected in the allowance made in his favour in the loan agreement.

[22]     The  judgment  also  suggests  that  the  appellant  might  be  estopped  from claiming a greater sum than $20,000.

[23]     In relation to the quantum meruit claim, it is clear that the Court regarded there as being inadequate evidence to support a claim in the amount sought.

Appellant’s case

[24]     In his 38 page submission in support of the appeal (which eclipses by a factor of six the decision under appeal) the appellant comprehensively attacks the variation finding.  Principal among his arguments is that the contract he says was formed on

20 April was, on its face, between the appellant and the respondent and independent of later arrangements between all of the siblings whereby it was acknowledged Mr Mulholland would be paid a broker fee of $20,000.  The appellant says that the purported  variation  is  unsupported  by  consideration,  was  never  pleaded  by  the

respondent and never advanced by the respondent in submissions.  Even allowing for

2 At [21].

3 At [24].

the informality and narrative quality of pleading before the District Court at the time, that submission appears to be correct.   The respondent’s case before the District Court, repeated in its written submission on appeal and in oral argument was that the exchange of emails of 20 April did not constitute a contract to pay the appellant a fee of $50,000 but was simply an approval for him to take such steps as are necessary to avoid a mortgagee sale at a cost of up to $50,000.

[25]     I agree with the appellant that there are difficulties with the District Court’s variation analysis.   I do not, in light of the Court of Appeal’s decision in Teat v Wilcocks4 regard the absence of consideration for the suggested variation as fatal. However, here the suggested variation contract (the loan agreement) is not between the same parties as the contract allegedly varied.  It is between the lenders and the Hansen siblings only. Although it identifies $20,000 of the loan money as payable to the appellant and although he can be assumed to have knowledge of that fact by virtue of his execution of the document in his capacity as attorney for Brook Hansen,

it does not in my view constitute a variation of the alleged independent contract.

[26]     I accept that a potential analysis was available on the basis of discharge of the alleged initial contract and substitution of a new oral agreement, evidenced by the loan document, to pay the appellant $20,000 for his services, but in my view there is inadequate evidential support for such analysis.

[27]     However, it is at a more fundamental level that I depart from the District

Court’s reasoning, as I do not consider the exchange of email correspondence on

20 April 2010 is capable of supporting a contract for the payment of a fee to the appellant of $50,000 in the event a mortgagee sale was avoided.  That conclusion means that the District Court’s rejection of the contract claim stands albeit for different reasons.

[28]     I base that conclusion on the following considerations:

(1)       The exchange of correspondence is initiated with a request “to do

whatever is required to avoid the Peak Road property going to a

mortgagee sale”.  Absent a private treaty sale on terms satisfactory to the mortgagee, that objective was only ever going to be attained by refinancing.  The District Court held that refinancing was integral to that request and I agree.5

(2)Any  refinancing  so  close  to  an  intended  mortgagee  sale  was inevitably going to attract multiple fees/costs and disbursements. Among those readily anticipated (and reflected in what actually occurred in the present case) were likely to be:

(i)       penalty interest payments to the existing mortgagee;

(ii)loan establishment fees for the replacement loan (frequently imposed even by banks and almost invariably by the second tier lenders which serviceability problems necessitated be involved in this case – the ultimate fee being $14,000);

(iii)     mortgagee solicitors’ costs;

(iv)      solicitors’ costs of the new lender and of the borrowers;

(v)costs    committed    by    the    mortgagees    to    real    estate agents/auctioneers (in this case the evidence was of a commitment for half the commission irrespective of whether the mortgagee sale took place or not);

(vi)      advertising costs on the sale;

(vii)broker’s  fees  on  the  refinancing  which,  even  if  not  paid directly by the borrowers, would be inevitably reflected in the overall cost of the transaction – here the sum of $20,000 was referred to as payable to the appellant in the loan documents.

(3)The response from the appellant was that “[t]here will be a significant cost, possibly $50,000”.  He does not identify that as his fee and the use of the word “possibly” clearly connotes an uncertainty as to ultimate cost, consistent only with the fact that at that stage there were multiple components to achieving the desired outcome of the sort identified in sub-paragraph [27(2)] above.

(4)All, or at least most, of those components would have been known to the appellant having regard to his business background.  If what was contemplated by his response was that he was to receive a fee of

$50,000  then  the  total  cost  was  clearly  going  to  exceed  by  a substantial margin the upper limits of what had been identified as necessary to achieve the desired result.  I say “upper limits” because I agree with the learned District Court Judge that, in context, the phrase “possibly  $50,000”  is  equivalent  to  the  phrase  “possibly  up  to

$50,000”  used  by  him  in  the  judgment6   and  the  phrase  “up  to

$50,000” which he employed in a number of the questions which he directed to witnesses.7

(5)Assuming  a  fee  of  $50,000  to  the  appellant,  his  advice  to  the respondent  as  to  the  total  cost  would  have  been  misleading  and known to the appellant as such.   There is no reason why he would have wished to mislead.  He was dealing with a long-term friend who he was seeking to forewarn as to the total possible cost he (or he and his sister) might face.

(6)If what was contemplated was a fee to the appellant of $50,000, not only is that word more logically used rather than cost but there would be no r at all to qualify it with the word “possibly”.   It would be a known and finite sum.  The following instructive exchange took place between the Judge and the appellant at the conclusion of the cross-

examination:

6      Mulholland v Hansen, above n 1, at [11].

7      See for example, NOE at 21, line 23.

Q.       Well why didn’t you say $50,000 success fee instead of up to

$50,000?

A.       I don’t know why I didn’t say that, I should have.8

That reinforces the conclusion referred to in [27(3)] above that what was contemplated in the sentence was total costs, as yet unquantified, but possibly up to $50,000.

(7)In my view, all that the exchange of emails therefore establishes is an authority on the part of the respondent to the appellant as agent to take such steps as were required to avert a mortgagee sale at a maximum total cost of $50,000, but falls significantly short of establishing  a  contract  to  pay  a  success  fee  of  $50,000  to  the appellant.

(8)       I agree with  the District  Court  Judge that  the  coincidence of the

$50,000 referred to in the email exchange and the same sum referred to as a “contingency fund” in the agreement of 4 May 2010 cannot be ignored.   Although the appellant gave evidence that the two sums were discrete, clause 4(ii) of the agreement identified the contingency fund as being “for William to use for the purposes of carrying out the matters   on   which   he   is   retained”.      Those   matters   included “arrang[ing] a new loan”, which was a function also contemplated in the  email  exchange.    Therefore,  to  read  the  email  exchange  as referring to the totality of costs necessary to avoid a mortgagee sale aligns with the later agreement.

[29]     In  coming  to  this  conclusion  I  do  not  overlook  the  following  exchange between the Judge and the respondent which was emphasised by the appellant in oral argument:

Q.       And he was going to, he suggested in that email exchange that he would try and get some refinancing for you, correct?

A.       Correct.

8      NOE page 21, lines 23-24.

Q.       And he also said there would be a fee involved of up to $50,000, correct?

A.        Correct.

Q.       and in that email exchange you indicated that he should go ahead, correct?

A.        I did.9

[30]     There  are  several  problems  with  the  way  the  questions  were  put.    The appellant does not in fact specifically refer to refinancing although, as I have indicated, it is implicit in the respondent’s request to do “whatever is required”. More significantly, the appellant’s email does not refer to a fee.  In later questions

the Judge uses the correct word “cost” in propositions accepted by the respondent.10

In my assessment, the appellant makes too much of the exchange referred to above.11

It must be considered against the interchangeability which the Judge unfortunately deploys in terms of the words ‘cost’ and ‘fee’ and in light of the respondent’s sworn position in terms: 12

14.      That in response to paragraph 24 of the Affidavit I refer to his email which stated “There will be a significant cost, possibly $50,000”.  In none of my emails did I say that I would be paying the defendant $50,000 as a fee. The actual cost was approximately $149,219.75 as set out in paragraph 41.

[31]     I consider my conclusions in relation to the email exchange are significantly reinforced by the subsequent conduct of the parties which, from both perspectives, is inconsistent with a contract of the type the appellant alleges.  I refer to the loan arrangements acknowledged by both parties in their affidavits.  If, as the appellant alleges, he was entitled to a success fee of $50,000, the success had, by the time of the first requested loan, been well and truly secured – as a result of the refinancing the mortgagee sale had been avoided and the property sold by private treaty for a sum closely approximating the open market valuation which had been received.

[32]     On the appellant’s evidence, therefore, he was contractually entitled to be

paid his fee of $50,000 by the respondent. To have borrowed from him, as he did the

9      NOE at 43, lines 16-24.

10     NOE at 45, lines 30-33.

11 At [28].

12 Affidavit of Patrick Graham Hansen, 25 September 2013 at [14].

sum of $40,000 in three tranches between July and October 2010,13 makes no commercial sense in the context of the alleged liability owing to him.   He would have simply asked to be paid what he was due.  The fact that he did not to me speaks either of an understanding that there was no such fee payable or a desire to set up a situation where he had leverage in respect of a claim which he knew would be contested.  Only at the point when the respondent has asked for his loan to be repaid is a claim made to the alleged fee payable.  I find that compelling evidence against the existence of a contract in the terms alleged.

[33]     If I am wrong in respect of these conclusions I would, however, have held against the existence of the contract on uncertainty grounds.  Inclusion of the word “possibly” gives rise to a level of imprecision which, in my view, is impossible to bridge by orthodox means.   There is even uncertainty as to parties, with the appellant’s email suggestive but not definitive in terms that the liability be that of the respondent  and his sister.

The Quantum Meruit Claim

[34]     In  support  of  his  alternative  cause  of  action  and  grounds  of  appeal  the appellant relied substantially on the decision of Miller J in Cassels v Body Corporate Number 86975 and, in particular, his observation that: 14

The Court should always be influenced by a price that the person receiving the services has agreed to pay for them. … only in exceptional circumstances should a Court ignore the terms of an agreement that has been held ineffective.   Such a price is compelling evidence of what the parties themselves thought reasonable.

[35]     That approach is predicated, however, on an agreement which has failed for one or more technical reasons.   It is not, on my primary reasoning in the present case, applicable given that the sum “possibly $50,000” identified in the email exchange was identified as the cost of avoiding a mortgagee sale in all its various

incidents, perhaps including but certainly not exclusively the appellant’s services.

13     Further advances followed later that month taking the total as at 26 October 2010 to $100,000.

14     Cassels v Body Corporate Number 86975, HC Wellington CIV-2006-485-701, 13 June 2007 at

[52], per Miller J.

[36]     Alternatively, the appellant advances his claim on the basis of a stated benefit to the respondent of $40,000.  That sum is calculated by reference to the pre-auction offer made by the successful bidder and the price ultimately paid by her, adjusted to reflect the plaintiff’s one-third share in the property.

[37]     I consider that approach speculative.  The evidence of the real estate agent, Mr Hall,  both  by  affidavit  and  at  trial15   was  that  the  property  was  extensively marketed and attracted a keen and well resourced under-bidder who drove the ultimate purchase to the level she happily paid to acquire a property which perfectly met her intended equestrian development.  There is no adequately demonstrated link between the appellant’s efforts in securing the refinancing and the price paid which,

given the particular circumstances of the bidder and under-bidder, may have been equally attainable if the mortgagee sale had proceeded.  There is no suggestion that the under-bidder was introduced by the appellant.  His interest derived directly from the marketing campaign.

[38]     Like the learned District Court Judge, I am therefore left with an inadequate evidential foundation for the quantum meruit claim.  There was no evidence as to the hours for which the appellant was engaged, or the specific attendances undertaken by him.  Likewise, there was no expert or even comparative evidence from anyone in the merchant banking or mortgage broking industries.   It was said that the late Mr Hugh  Green  had  indicated  to  the  appellant  that  a  sum  of  $100,000  was appropriate for his services but that has no evidential status.

[39]     A further complicating factor is the fact that the assistance was by one long- standing friend for another.  I would not, even if a commercial rate for the services had been established, have considered that an appropriate basis for the quantum meruit claim in any event.

[40]   Moreover, the services, beyond organisation of mortgage finance (and consequent  cancellation  of  the  mortgagee  sale),  were  comparatively  limited involving discussions with Mr Green and the respondent’s brother and instructions

for preparation of the agreement of 4 May.  Many of the identified functions in that

15     NOE at 54-62.

agreement were never in fact called upon as a result of the successful sale. Significantly, even the arrangements for the appellant to administer a $50,000 contingency fund appear to have been superseded by the new term loan, clause 23(c) which set up a $15,000 repair and maintenance fund to be administered by one of the lenders.

[41]     Against  that  background,  I  am  not  persuaded  that  any  sum  is  properly payable on a quantum meruit basis.  Organisation of the mortgage finance was to be otherwise remunerated and is reflected in the $20,000 provision in the appellant’s favour in  the term  loan.   While  the appellant  denied that  he had  received that

payment, 16  he later said that the amount “wasn’t paid directly to me”17  suggesting

payment to some third party at his instruction.  In any event, if the fee remains outstanding a claim can be made in respect of it from the lenders.

Result

[42]     The appeal is dismissed.

[43]     The stay in respect of the respondent’s judgment against the appellant ordered by consent on 3 February 2015 is lifted.

[44]     Costs are awarded to the respondent on a 1B basis.

Muir J

16     NOE at 17, line 1.

17     NOE at 17, line 24.