Oaklane Dairy Ltd v Flooks
[2023] NZHC 1852
•17 July 2023
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-000013
[2023] NZHC 1852
UNDER Part 19 of the High Court Rules 2016 and under section 109 of the Property Law Act 2007 BETWEEN
OAKLANE DAIRY LIMITED
Applicant
AND
KATHRYN LYNETTE FLOOKS, TRACEY MAY FLOOKS, MANDY LEE ROHRLACH,
TREVOR EDGARD FLOOKS and BARRIE WAYNE PRICE
as Administrators in the Estate of KEVIN STANLEY FLOOKS
First Respondent
TRACEY MAY FLOOKS
Second Respondent
Hearing: 21 June 2023 Appearances:
A A Low and L W Dixon for Applicant
A M Cameron for Second-named First Respondent and Second Respondent
G H J Brant and A K H McManus for First-named First Respondent
Judgment:
17 July 2023
JUDGMENT OF EDWARDS J
This judgment was delivered by me on 17 July 2023 at 4.00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
OAKLANE DAIRY LTD v FLOOKS, [2023] NZHC 1852 [17 July 2023]
[1] The applicant (Oaklane) is the registered proprietor of a property situated at Paeroa Kopu Road, RD 1, Thames (Farm). The Farm comprises six separate titles. Three of these titles have been sold but settlement is deferred pending resolution of this proceeding.
[2] Oaklane is the mortgagor under mortgage 7825636.5 (Mortgage) registered over the Farm. Kathryn (Kay) and Kevin Flooks are the mortgagees. The Mortgage secures a loan from Kay and Kevin Flooks as tenants in common in equal shares to Oaklane.
[3] Kevin Flooks passed away on 10 August 2020. The first respondents are administrators in his estate. Because of the family connection, I will refer to each party by their first name for ease of identification. I mean no disrespect in doing so.
[4] Oaklane says that all the sums owed to Kevin’s estate have now been repaid and that the estate’s share of the Mortgage should be discharged. The second respondent (Tracey) is the only one of the five appointed administrators who does not agree that the outstanding sums have been repaid. She and her sister, Debra Moodie, oppose Oaklane’s application.
[5] The dispute centres on whether there were oral variations to the loan interest rate made in 2015, 2017 and 2019 and whether an extension of the loan expiry date was agreed. Whether these variations were supported by consideration is also an issue in this case. Finally, if the loan and Mortgage were not validly varied, Oaklane relies on an estoppel to support its case.
Relevant facts
[6] The late Kevin Flooks and his wife Kay were farmers from Thames. Kay is now retired. Kevin and Kay have four children: Tracey Flooks; Mandy Rohrlach; Trevor Flooks; and Debra Moodie.
[7] In 2008, Trevor and his wife, Vanessa, agreed to purchase the Farm which was, by that time, owned by Oaklane. The purchase of the Farm was structured as a sale and purchase of shares in Oaklane for $6.770 million.
[8] The purchase price was funded by borrowing $3.3 million from Rabobank which was secured by a first ranking mortgage over the Farm. The balance was funded by a loan from Kay and Kevin in the sum of $3.47 million. The loan was held by Kevin and Kay in equal shares. It was guaranteed by Trevor and Vanessa and secured by the Mortgage.
[9] The terms of the loan and Mortgage are recorded in a standard form mortgage (fixed sum) agreement dated 19 May 2008. The key terms are as follows:
(a)The principal sum is $3.47 million.
(b)The lower interest rate is eight per cent per annum. The higher interest rate is 12 per cent per annum.
(c)The term expiry date is 2 June 2018.
(d)The interest commencement date is 3 June 2008 and interest is payable on the third day of each month commencing 3 July 2008.
(e)The lower interest rate applied to $2 million of the principal sum from the interest commencement date, and to the balance of the principal sum “only if demanded in writing by the mortgagee not less than 14 days prior to the next interest date when the additional interest shall become payable”.
(f)Repayment of the principal sum was to be in one lump sum on the expiry date, subject to cl 3 of the Mortgage which provides:
Subject to clause 4, the mortgagor may repay all or part of the principal sum before the term expiry date so long as such payment is made on an interest date, that the mortgagee is given not less than 14 days’ notice in writing of the intended repayment and that such payment is in a multiple of $10,000.1
1 Clause 4 required the mortgagor to repay the GST component of the principal sum of $587,984.26 as soon as it was claimed and obtained from Inland Revenue Department. For reasons which are irrelevant to this judgment, this credit was never claimed nor obtained, and so the clause did not take effect.
[10] In an affidavit sworn in support of the application, Trevor says that while Kay and Kevin were able to demand interest on the balance of the loan, they did not do so. That evidence is confirmed in an affidavit sworn by Kay.
[11] Between 2008 and 2020 Oaklane made repayments which were applied to the interest free portion of the loan. All repayments, bar one, were made prior to the loan expiry date.
[12] Oaklane paid interest on the interest-bearing portion of the loan at the following rates:
(a)From 3 July 2008 to 24 September 2015: eight per cent per annum;
(b)From 24 September 2015 to 26 July 2017: 6.65 per cent per annum;
(c)From 26 July 2017 to 3 October 2019: 5.3 per cent per annum;
(d)From 3 October 2019 until September 2022: 3.5 per cent per annum.
[13] Trevor says the interest rates reflected in (b) to (d) above were the subject of an oral agreement with Kay and Kevin. Kay corroborates that evidence.
[14] In addition, Trevor says there was an agreement to extend the loan beyond its expiry date of 2 June 2018, and the loan simply rolled over. That evidence is also supported by Kay. This evidence, and that concerning the interest rate variations, is discussed in more detail later in this judgment.
[15] Kevin died on 10 August 2020. His wife Kay and three of Kay and Kevin’s children were appointed the administrators of Kevin’s estate. The fifth administrator (and fourth-named first respondent) is the family accountant. Probate was granted on 23 November 2020.
[16] The beneficiaries of Kevin’s estate are in dispute. Tracey and Debra have commenced Family Protection Act 1955 proceedings challenging, amongst other
things, the arrangements in relation to the Farm and the sale of it to Trevor and Vanessa in 2008.
[17] In September 2022, lawyers acting for Oaklane sought a settlement statement from the solicitors for the estate. The settlement statement recorded that the estate was owed the principal sum of $1 million at that time. That sum, plus accrued interest, and fees was paid by Oaklane on 6 September 2022. A registrable discharge of Kevin’s share of the Mortgage was sought from the administrators of the estate. Tracey refused to agree to the discharge of the estate’s share of the Mortgage.
[18] Oaklane has sold three of the six parcels of land secured by the Mortgage. The sale is required to reduce Oaklane’s debt. Settlement was scheduled for 1 June 2023 but has been deferred pending resolution of this proceeding. One of the sections is the subject of a boundary adjustment that must be completed before the sale can proceed and can only be concluded with the consent of the mortgagee.
[19] The first mortgagee has agreed to discharge its mortgage on reduction of its debt. Kay has agreed to discharge her share of the Mortgage subject to separate arrangements being made to secure that part of the loan which is owed to her.
[20] Oaklane seeks the Court’s assistance regarding the determination of the outstanding amounts owed to the estate and secured by the Mortgage (if any), and a discharge of the Mortgage.
Legal framework
[21] Section 85 of the Property Law Act 2007 sets out the requirements for a variation of mortgage. Variations of the interest rate are governed by s 85(2). Variations to the term of a mortgage are governed by s 85(3). In each case the requirements include a mortgage variation instrument executed in the same manner as a deed.
[22] The alleged variations are oral in nature, meaning there was no compliance with the formalities set out in s 85. Nevertheless, it is not in dispute that an agreement to vary may still be binding as between the parties so long as it is legally enforceable.2
[23] For the oral variations to be legally enforceable in this case there must be agreement on certain terms, an intention to create legal relations, and consideration.3 There must also be agreement or means of achieving agreement on every term that is essential in law or is regarded by the parties as essential.4 These requirements (where relevant) are considered below.
Was there agreement to vary the interest rate?
[24] Oaklane says that the interest rate was reduced from eight per cent on three separate occasions:
(a)24 September 2015: 6.65 per cent;
(b)26 July 2017: 5.3 per cent;
(c)3 October 2019: 3.5 per cent.
[25] Tracey and Debra say there is insufficient evidence to support the existence of the alleged oral variations to the interest rate. They maintain that interest should have been paid at eight per cent per annum rather than at the reduced interest rates.
[26] Trevor confirmed the existence of an agreement to reduce the interest rate on each of the three occasions. He explained that the issue of the interest rate variations arose when Oaklane was looking at making lump sum payments to reduce the loan. He said there was discussion around bringing the market rates in line with those being paid by Oaklane on the Rabobank loan. Trevor said the reduced interest rates were
2 AGC (NZ) Ltd v Slade, CA 256/91 24 August 1992 at [17]; Shaftspry Ltd (In Liq), Re Horton v Cowley [2012] NZHC 3089 at [65] and [66].
3 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (online ed, LexisNexis) at [3.1].
4 At [3.8].
still higher than those being paid on the Rabobank loan, and this was agreed to give Kevin and Kay a return.
[27] That evidence, at least in relation to the first two variations, is corroborated by entries in Oaklane’s bank statements which show the first two variations to the interest rate followed lump sum payments of $500,000 made to the loan.
[28] Trevor was cross-examined on apparent inconsistencies between his evidence and the 2016–2019 financial statements for Kevin and Kay. I am satisfied that these apparent inconsistencies are adequately explained. Some may be characterised as errors of description rather than of substance (for example, where the loan is recorded by reference to the original interest rate). Other discrepancies are explained by rounding of figures; different end of year reporting dates; and the interest figure including other, non-loan related, interest. Overall, I am satisfied that the financial statements are consistent with the reduced rates that Trevor says were agreed.
[29] Trevor was also cross-examined on a letter he wrote in 2021 which set out interest rates different to those he now says were agreed. Trevor explained that the letter was written to inform his sisters of the effective rate of return that Oaklane was paying on the loan. The interest rates set out in his 2021 letter were therefore calculated over the entire loan, rather than just the interest-bearing component. I accept this explanation.
[30] Importantly, Trevor’s evidence was supported by Kay. She confirmed that she took part in the discussions, and the variations were made to reflect the change in prevailing market rates.
[31] Considered in totality, I am satisfied that there is sufficient evidence to support the oral agreements to vary the interest rates. I find accordingly.
Was there agreement to extend the loan expiry date?
[32] The second issue in dispute concerns the extension of the loan expiry date. The original loan expiry date was 2 June 2018. Oaklane’s case is that there was an oral agreement in 2018 to roll over the loan on the same terms.
[33] Tracey disputes that there was an oral agreement to extend the loan expiry date. In the absence of such an agreement, Tracey says that Oaklane has been in default of its obligation to pay the full amount since 2 June 2018, and the penalty interest rate of 12 per cent applies.
[34] Trevor explained in his evidence that a neighbouring farm had come up for sale in 2018. He said that he and his father had been waiting “probably 18 years” for that farm to become available. Both Kay and Kevin were keen to support the purchase and they agreed to carry on the loan to facilitate it.
[35]That evidence was confirmed by Kay. She put it in the following terms:
The farm next door came up for sale and Kevin and I didn’t need the money and we’d rather have the income, coming in once a month and for Trevor and Vanessa to get on the farm, purchasing the farm.
[36] While it was agreed to roll the loan over, a new loan expiry date was not agreed. Trevor said in evidence that he did not turn his mind to the fact that there was no loan expiry date until recently. He went on to say, however, that if the loan was called up, Oaklane would have repaid it. He said Kevin and Kay were happy to continue receiving interest on the loan and so it was left in place.
[37] Mr Cameron submits that a substitute loan expiry date is an essential term and the failure to agree it is fatal to the claim of a legally enforceable variation.
[38] I do not consider that a loan expiry term was either a legally essential term or one which the parties themselves regarded as essential to their particular bargain.5 The variation was legally certain enough without express agreement on a loan expiry date. That follows from the line of authority establishing that in the absence of a loan expiry date, the loan is repayable on demand.6 That conclusion accords with the parties’ intentions in this case.
5 Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2002] 2 NZLR 433 (CA) at 444.
6 See DFC New Zealand Limited v McKenzie, HC Christchurch, CP No 177/92, 23 October 1992; Garnham v Garnham [2018] NZHC 2937; Zhou v Armadale Ninteen Ltd [2016] NZHC 2191; Aorangi Securities Ltd (in Stat Man) v Emerald Shores Ltd [2012] NZHC 1491; Lauder v Lauder HC Rotorua CIV 2003-463-107, 23 April 2004.
[39] On this issue too, I am satisfied that there is sufficient evidence from which to infer an oral agreement to vary the loan expiry date, with the loan becoming repayable on demand.
Was there consideration to support the variations?
[40] Tracey challenges the interest rate and loan expiry date variations on the basis that there was no consideration to support them.
Legal principles
[41] Consideration has been described as “the act or promise offered by one party and accepted by the other as the price of that other’s promise”.7 It may consist of promising to perform an act in the future, and to forebear, or promise to forebear, from doing something the person is otherwise at liberty to do.8 Consideration is based on the idea of reciprocity: something must be given in return for the promise in order for it to be binding.9
[42] Whether consideration is (or should be) required for a variation to a contract is a question which has attracted considerable academic and judicial interest. There are three different approaches:
(a)The first, and oldest, is the “pre-existing duty rule”. This rule derives from Stilk v Myrick.10 That case stands for the proposition that consideration does not consist of promising to do something one is already bound to do. Fresh consideration will be required.
(b)The second approach is the “practical benefit” approach outlined in the English Court of Appeal’s decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd.11 The Court found that a practical benefit
7 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (online ed, LexisNexis) at [4.5].
8 At 4.5.1.
9 Beale HG (ed) Chitty on Contracts (33rd ed, Thomson Reuters, London, 2018) at 4-002.
10 Stilk v Myrick (1809) 170 ER 1168.
11 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA).
(or factual benefit), absent economic duress or fraud, will be sufficient consideration for variations to existing agreements.
(c)The third approach is the “no consideration” approach, where no consideration is required at all.
[43] The “practical benefit” approach has been approved by the New Zealand Court of Appeal. In Attorney-General for England and Wales v R, Tipping J stated that this approach to consideration “appropriately pays attention to the practical realities of the parties’ circumstances rather than to legal niceties”.12
[44] The “no consideration” approach has also found favour in at least two New Zealand Court of Appeal cases. In Antons Trawling Co Ltd v Smith, the Court of Appeal said:13
[92] The reasoning in Roffey Bros, accepted by this Court in Attorney- General for England and Wales, has been trenchantly criticised by Professor Coote in (1990) 3 JCL 23. He argues with force that mere performance of a duty already owed to the promisee under a contract cannot constitute consideration and that the only principled way to such a result is to decide that consideration should not be necessary for the variation of contract. That is the approach of the Uniform Commercial Code, s.2-209(1) and it is vigorously supported by Reiter in “Courts, Consideration and Common- Sense” (1977) 27 U. Toronto L. J. 439 especially at 507, observing that a rigid requirement of consideration in the context of modern commercial contract modifications fails to recognise:
The illogicality of equating modifying with originating promises or to see that, insofar as consideration serves to exclude gratuitous promise, it is of little assistance in the context of on-going, arms-length, commercial transactions where it is utterly fictional to describe what is being conceded as a gift, and which there ought to be a strong presumption that good commercial ‘consideration’ underlie any seemingly detrimental modifications.
(see also Cheng-Wishart The Enforceability of Additional Contractual Promises: A Question of Consideration? (1991) 14 NZULR 270; Chitty on Contracts Vol 1 (1999) Para 3-062 - 3-
064.)
As Professor Coote observes, such approach is not too dissimilar from that adopted by the High Court of Australia in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107.
12 Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA) at [51].
13 Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA) at [92] and [93].
[93] We are satisfied that Stilk v Myrick can no longer be taken to control such cases as Roffey Bros, Attorney-General for England and Wales and the present case where there is no element of duress or other policy factor suggesting that an agreement, duly performed, should not attract the legal consequences that each party must reasonably be taken to have expected. On the contrary, a result that deprived Mr Smith of the benefit of what Antons promised he should receive would be inconsistent with the essential principle underlying the law of contract, that the law will seek to give effect to freely accepted reciprocal undertakings. The importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself. Where the parties who have already made such intention clear by entering legal relations have acted upon an agreement to a variation, in the absence of policy reasons to the contrary they should be bound by their agreement. Whichever option is adopted, whether that of Roffey Bros or that suggested by Professor Coote and other authorities, the result is in this case the same.
[45] The issue was considered again in Teat v Willcocks.14 That case involved an agreement to transfer shares in a business. The issue was whether there was a subsequent variation to the agreement such that the shares would only be transferred if the two parties were able to work together. On the issue of consideration, the Court of Appeal said:
[54] Turning to the legal effect of the new term, we do not propose to discuss each of the alternatives identified by the Judge. On the basis that the term was that the parties would work together to see whether or not they could get on, as found by the Judge, the original agreement was, in our view, varied to include it. Although the position is not yet settled, we consider that consideration in the form of a benefit “in practice” is sufficient to support a binding variation. Further, we are attracted to the alternative view expressed by this Court in Antons Trawling Co Ltd v Smith that no consideration at all may be required provided the variation is agreed voluntarily and without illegitimate pressure. This seems to us to reflect the reality of what happened in the present case – a variation was proposed and willingly accepted, and the parties proceeded on that basis. In the context of an existing agreement supported by consideration, that seems to us to be sufficient to constitute a binding variation.
(footnotes omitted)
[46] The most recent judgment to consider the issue is Gloria Jean’s Coffees International Pty Ltd v Daboko Ltd.15 Gault J considered that while it was clear that the “no consideration” approach had been endorsed by the Court of Appeal, the findings in both Antons Trawling and Teat were obiter, and so the law remained
14 Teat v Willcocks [2013] NZCA 162, [2014] 3 NZLR 129.
15 Gloria Jean’s Coffees International Pty Ltd v Daboko Ltd [2020] NZHC 29.
unsettled.16 The “practical benefit” approach was applied in that case and consideration was found to support the variation of the agreement.17
[47] The “no consideration” approach has been followed in Canada. In Rosas v Toca, the Court of Appeal of British Columbia held that a promise to extend the date for repayment of an interest-free loan was enforceable “without fresh consideration, absent duress, unconscionability, or other public policy concerns”.18 The Court found that even though nothing was given in exchange, the variation was binding and the loan, as varied, was enforced.19
[48] Case law and academic authority were comprehensively canvassed in that case. This included the judgment of Robertson JA in Greater Fredericton Airport Authority Inc v NAV Canada in which he held that he was “prepared to accept that a post- contractual modification unsupported by consideration may be enforceable so long as it is established that the variation was not procured under economic duress”.20 In reaching that view, Robertson JA outlined some reasons for abandoning the requirement of consideration for contractual variations:
[29] … I agree with Professor Waddams’ exhortation that courts should avoid “fictional” attempts to find consideration where none exists. We should not be seduced into adhering to a hunt and peck theory in an effort to find consideration where none exists, nor should we manipulate the consideration doctrine in such a way that is no longer recognizable. Frankly, law professors spend far too much time trying to explain to law students what qualifies as valid consideration and why the cases seem to be irreconcilable, except in result, while judges spend more time avoiding the rule in Stilk v Myrick than they do in applying it. Parties to a contact and to litigation are entitled to expect that there is some certainty in the law and that it is not dependent on the length of the chancellor’s foot. For courts to find consideration by holding, for example, that the parties implicitly agreed to a mutual rescission of the original contract or that they implicitly agree to a new term is to weaken the law of contract, not strengthen it.
[30] My third reason for refining the tenets of the consideration doctrine is tied to the reality that it developed centuries before the recognition of the modern and evolving doctrine of economic duress. The doctrine of consideration and the concept of bargain and exchange should not be frozen
16 At [32].
17 Gloria Jeans at [40]. See also academic articles approving this approach – Marcus Roberts “Gloria Jean’s Coffee: The State of Consideration for Variation Contracts in New Zealand” (2020) NZLJ 241; and Francis Dawson “Variation without Consideration” (2021) 29(4) NZULR 743.
18 Rosas v Toca 2018 BCCA 191 at [183].
19 At [186].20 Greater Fredericton Airport Authority Inc v NAV Canada [2008] N.B.J. No. 108.
in time so as to reflect only the commercial realities of another era. If the courts are willing to formulate and adopt new contractual doctrines, they are equally capable of modifying the old. To the extent that the old doctrines interfere with the policy objectives underscoring the new, change is warranted. In my view, this is precisely what the English Court of Appeal did in Williams v Roffey Bros & Nicholls.
[49] These reasons add to those expounded in Anton Trawlers and endorsed in Teat. They apply equally to the requirement of consideration for the formation of a contract, as they do to contract variations. This raises one of the issues canvassed in academic debate on the topic: if consideration is to be abandoned for variations, then why should it be retained for other forms of contract?21
[50] Whether consideration should be abandoned altogether falls outside the scope of this judgment. But it seems to me that the existence of a legally enforceable agreement distinguishes variations from other forms of contracts. Consideration is already backed into a pre-existing agreement and legal enforceability has been established. Later variation of the agreement does not alter that fact. And, in cases where the issue is whether the variation is in fact a new agreement, a prior agreement provides important context from which inferences as to enforceability may be drawn. By the time a variation is agreed, consideration has already done much of its work and its purposes have been more or less served. Legal enforceability may be assessed by reference to the parties’ intentions at this stage, with the law of duress and other public policy factors shouldering the load.
[51] This case exemplifies the point. Given the family context, an issue could have arisen as to the nature of the variations agreed, and whether they were gifts or morally (as opposed to legally) binding agreements. The fact that the relationship was already governed by a legally enforceable agreement, supported by consideration, provides reasonable assurance that the variation falls into the same category. There is no evidence in this case to suggest otherwise. Absent duress or other policy reasons, the parties should be bound by the variation they agreed. There is no need for consideration to be proved.
21 Marcus Roberts “Gloria Jean’s Coffee: The State of Consideration for Variation Contracts in New Zealand” (2020) NZLJ 241; Francis Dawson “Variation without Consideration” (2021) 29(4) NZULR 743; and Elle M Wintle “Unilateral Contractual Variations and Estoppel” (2022) 27 NZBLQ 35.
[52] However, the question remains whether it can be confidently said that this is the law in New Zealand. The result and reasoning in Teat suggest that the appeal was determined on the “no consideration” approach. The Canadian cases mentioned above also proceed on the basis that this is the position in New Zealand.
[53] Nevertheless, I agree with Gault J that it is not entirely clear, and it is for the higher appellate courts or Parliament to provide the requisite certainty.22 Furthermore, when there is an issue about the interpretation of binding appellate authority, it is preferable that the High Court speaks with one voice. For that reason, I have determined the question of consideration by reference to the “practical benefit” approach.
Was there a practical benefit?
[54] There are several benefits which could be put forward to support the interest rate variations and expiry date agreements. I start with the benefit identified by the parties themselves.
[55] Both Trevor and Kay said in evidence that they agreed to vary the interest rates because the market rates had dropped at those times.
[56] While the benefit of this drop to Oaklane is clear, Mr Cameron submits there was no corresponding benefit to Kay and Kevin in agreeing to the reduced rates. He stresses that there is no evidence that Oaklane was looking to refinance at this time or was about to default on the loan. In the absence of such evidence, Mr Cameron submits that there was no consideration to support the variation.
[57] I do not consider evidence of refinancing or possible default is necessary to meet the practical benefit requirement. It is enough that refinancing or default was a possibility in the commercial circumstances that existed at the time. The benefit to Kay and Kevin was that they would continue to receive a rate of return on their loan which, while lower than what they were otherwise entitled to claim, was nevertheless
22 Gloria Jean’s Coffees International Pty Ltd v Daboko Ltd [2020] NZHC 29 at [38].
greater than what they would have received had the interest rate been set at market. This is sufficient consideration to support the interest rate variations.
[58] To the extent it is required, however, there are other forms of consideration to support the first two interest rate variations. On each occasion, Oaklane made a lump sum payment of $500,000 towards the debt. There was no obligation to make any payment at that time or in that amount; none of these payments were due.23 Each of the payments were made voluntarily and each were credited to that part of the loan which was not interest bearing. Again, there was no requirement that repayments be credited this way. It was clearly to Kay and Kevin’s benefit to receive lump sums at this time, and the repayments did not reduce the principal sum on which they continued to receive a return.
[59] Turning now to the agreement regarding the loan expiry date, I am satisfied that there was a practical benefit here too. For Oaklane, the benefit of continuing the loan was that it facilitated the purchase of the new farm. For Kay and Kevin, the extension to the loan expiry date meant that they continued to receive a return on their investment at a rate which was above market.
[60] Applying the practical benefit approach, I am satisfied that there was sufficient consideration to support each of the variations agreed.
[61] These findings make it unnecessary to address the estoppel claim raised in the alternative. The consequence is that the challenge to the enforceability of the variations cannot succeed.
23 In Pinnel’s Case (1601) 5 Co Rep 117a, the Court found that payment before the day it fell due was good consideration to support a variation. This principle was upheld in Foakes v Beer [1884] UKHL 1. Lord Blackburn held that Pinnel’s case resolved two things. The first was “… that where a matter paid and accepted in satisfaction of a debt certain might by any possibility be more beneficial to the creditor than his debt, the court will not inquire into the adequacy of consideration. If the creditor, without fraud, accepted it in satisfaction when it was not a sufficient satisfaction, it was his own fault; and that payment before the day might be more beneficial, and consequently that the plea was in substance good …”. The second was the principle that payment of a lesser sum on the day cannot be any satisfaction of the whole, because there was no possibility that a lesser sum can be a satisfaction to the plaintiff for a greater sum.
What (if anything) does the estate’s share of the Mortgage secure?
[62] The respondents accept that if the variations were agreed and legally enforceable (as I have found), then the calculation of the outstanding sum owing to the estate is correct.
[63] Oaklane repaid all outstanding sums on 6 September 2022 in discharge of the estate’s share of the Mortgage. A declaration that the estate’s share of the Mortgage has been discharged is set out at the end of this judgment.
Should an order discharging the Mortgage be made?
[64] In addition to declaratory relief, Oaklane seeks an order discharging the Mortgage insofar as it relates to the estate’s share.
[65] The Court has a statutory power to discharge the Mortgage under ss 109–111 of the Property Law Act. The parties are in dispute about whether those provisions are engaged in this case. In some cases, an order has been made directing the mortgagee to execute a mortgage discharge instrument under s 83 of the Act, with the Registrar of the High Court authorised to execute the discharge mortgage instrument in the event of default.24 In two other cases, the inherent jurisdiction of the Court has been employed to order the discharge of a mortgage.25
[66] The reason a discharge instrument was not executed in this case is because Tracey disputed whether monies were still owed. That dispute is now resolved. Having made a declaration that the estate’s share of the Mortgage does not secure a debt, the administrators (including Tracey) should now take all reasonable steps to discharge the estate’s share of the Mortgage under s 83 of the Property Law Act. I consider it preferable that a short period of time be afforded to the administrators to allow them to do that. If the estate’s share of the Mortgage is not discharged within five working days of delivery of this judgment, then the Registrar of this Court shall
24 See Tietjens v Lake Terrace Opportunities Ltd HC Rotorua, CIV-2008-463-000443, 24 December 2008.
25 Country Hospitality Management (NZ) Ltd v McCullough [2012] NZHC 818; Re Far North District Council [2021] NZHC 329.
be directed to execute all necessary documents to effect discharge of the Mortgage to give effect to this order.
Relief
[67]The application is allowed.
[68] I make a declaration that the estate’s share of Mortgage 7825636.5 (Mortgage) has been repaid in full.
[69] The administrators shall take all reasonable steps to register a discharge of the estate’s share of the Mortgage pursuant to s 83 of the Property Law Act.
[70] If the administrators have not taken steps to register the discharge within five working days of delivery of this judgment, the Registrar of this Court shall be authorised to sign all documents or take all steps to effect the discharge on behalf of the administrators.
[71] Leave is reserved to the parties to seek further direction from this Court on the execution of the discharge instrument if required.
[72] Oaklane is the successful party in this proceeding and is entitled to an award of costs. If costs cannot be agreed, then memoranda of no more than five pages in length may be filed in support of a claim for costs 10 working days from receipt of this judgment, with a memorandum in response filed five working days thereafter.
Edwards J
Counsel/Solicitors:
A A H Low, Auckland
Patterson Hopkins, Auckland A M Cameron, Auckland Asco Legal, Auckland
Stace Hammond, Hamilton
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