Parbery v Parbery

[2012] NZHC 1319

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2011-409-001678 [2012] NZHC 1319

BETWEEN  JAMES KIRTLAND PARBERY Plaintiff

ANDJULIAN DAVID PARBERY First Defendant

ANDJULIAN DAVID PARBERY AS A TRUSTEE OF THE JULIAN PARBERY FAMILY TRUST

Second Defendant

Hearing:         11 June 2012

Appearances: J M Kirkland and A N Riches for Plaintiff

P A Cowey and C Corlett for Defendants

Judgment:      12 June 2012

ORAL JUDGMENT OF CHISHOLM J

[1]      Three interlocutory applications require determination:   an application by both defendants for summary judgment against the plaintiff; an application by the plaintiff to join an additional second defendant; and an application by the plaintiff for summary  judgment  against  the  first  defendant  (which  was  advanced  orally  by Mr Kirkland during the hearing). All these applications are opposed.

[2]      On 15 March 2012 Judge Matthews dismissed an application by the plaintiff for summary judgment against the first defendant. Although the claim only involves

$40,000 plus interest and the underlying issues are relatively straight forward, this proceeding seems to have taken on a life all of its own.   The litigants are two

brothers who had been in business together.

PARBERY V PARBERY HC CHCH CIV-2011-409-001678 [12 June 2012]

[3]      The plaintiff (James) claims that the first defendant (Julian) received $40,000 on his behalf and failed to account to him for that money.  Julian responds that he has accounted to James for the $40,000 and James is trying to “double dip”.

Background

[4]      In August 2004 Mrs Parbery, the mother of James and Julian, sold a holiday property in Wales.   It is not disputed that each brother was entitled to GB£15,000 from the sale proceeds.  For present purposes that sum can be taken as equating with NZ$40,000.

[5]      By the time the property was sold James and Julian had been in business together in New Zealand for some years.  They had both formed family trusts and their primary business vehicle was a company, Heat Exchanger Services Limited (HESL).  Both brothers were directors of that company.

[6]      A third brother, Giles, remained in the United Kingdom where Mrs Parbery also lives.   Giles arranged the payments in issue on behalf of Mrs Parbery.   It is common ground that two payments were made by Mrs Parbery.

[7]      First, a payment of £37,513 (US$86,840) on 7 September 2004 (the first payment). The payment was by way of part deposit to a Chinese company supplying a  braising  oven  to  HESL.    Secondly,  a  payment  of  £32,486  (NZ$86,631)  on

2 December 2004 (the second payment).  This payment went into the bank account

of Julian’s family trust.[1]   Beyond that there is not a lot of common ground.

[1] James was not a beneficiary under Julian’s trust (nor, I presume, was Julian a beneficiary under

James’ family trust).

[8]      According to James, the first payment is irrelevant to the current dispute.  His case is that the second payment included his share ($40,000) of the sale proceeds of the holiday property; without his knowledge Julian directed that payment be made into the bank account of Julian’s trust; and despite James’ requests, Julian has failed

to account for that money.

[9]      On the other hand, Julian’s case is that James’ $40,000 only passed through the trust bank account on its way into HESL; ultimately it was credited to James’ current account in that company; James has therefore received payment; James knew what was going on; and that is the end of the story.

The proceeding

[10]     James pleads three causes of action against Julian in his personal capacity as first defendant:

(a)      Constructive trust:  it is alleged that this arose when Julian exercised control over James’ $40,000 and directed that it be paid into the bank account of Julian’s trust.

(b)Breach of fiduciary duty:   again it is alleged that the fiduciary duty arose from Julian’s control over James’ $40,000 and his action in having it paid into his trust;

(c)      Equitable fraud:   this is also based on Julian having control over James’ $40,000, directing payment to the trust, failing to account to James, and thereby depriving him of monies to which he was entitled.

[11]     The cause of action against the second defendant (trustees of Julian’s trust) is based on money had and received. At the moment only one trustee (Julian) is named as a second defendant.  On 7 April 2010 the other trustee resigned and was replaced by P F Trust Services 2009 Limited.  The trustee who resigned has been removed as a second defendant and James now seeks to have P F Trust Services added as a second defendant.

Summary judgment principles

[12]     Rule 12.2 of the High Court Rules applies to the applications for summary judgment by both the plaintiff and the defendants.  Summary judgment can be given for the plaintiff if he satisfies the Court that the defendant has no defence to a cause

of action in the statement of claim.  And the Court can give summary judgment to the defendants if they establish that none of the plaintiff’s causes of action against the particular defendant could succeed.

[13]     The party seeking summary judgment carries the onus on the balance of probabilities.  Where the outcome is dependent on disputed facts it is inappropriate to give summary judgment:   Jones v The Attorney-General.[2]    However, the Court should resolve conflicts that can be reasonably resolved on the evidence before it.

[2] Jones v The Attorney-General [2004] 1 NZLR 433

Defendants’ application for summary judgment

[14]     Two primary grounds are advanced: (a)           Limitation Act 1950;

(b)      The evidence discloses that James has already received payment.

In this summary judgment context and on the information before the Court, (b) has no prospect of success.  The fundamental dispute between the parties about whether James has been reimbursed cannot be resolved until all the evidence is before the Court.

[15]     The defendants’ application therefore stands or falls on the limitation issue.

Defendants’ argument

[16]     James was aware that the Wales property was sold in August 2004 and that in time he would receive some monies from the sale; he made no enquiries; the breach relied on by James arises from the transfer of the funds on 2 December 2004; the six year period began to run at that time; the limitation period therefore expired on

2 December 2010; and the proceedings were well out of time when they were issued

on 25 August 2011.

Plaintiff ’s response

[17]     The first and second causes of action are saved by s 21 of the Limitation Act which excludes actions by beneficiaries under trusts from the operation of the Act. The definitions contained in s 4 of the Limitation Act and s 2 of the Trustee Act 1956 include “constructive trusts”, and both the first and second causes of action fall within that definition.

[18]     The third cause of action is saved by s 28 of the Limitation Act which postpones limitation periods in the case of fraud until the fraud is discovered or could have been discovered with reasonable diligence.  In this case the fraud could not have been reasonably discovered until 2007 which means that the proceeding was issued within time.

Discussion

[19]     Section 21 of the Limitation Act relevantly provides:

21       Limitation of actions in respect of trust property

(1)       No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a)       In respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b)      To recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2)       Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

...

The issue is whether subs (1) applies to the first and second causes of action.

[20]     Under s 4 of the Limitation Act the words “trust” and “trustee” have the same meanings as in the Trustee Act.   Under s 2 of the Trustee Act the word “trust...extends to implied and constructive trusts...” and the word “trustee has a corresponding meaning...”

[21]     Mr Cowey and Ms Corlett argued that these definitions cannot apply because the constructive trust and breach of fiduciary duty causes of action rely on a remedial constructive trust, not an institutional constructive trust.  Relying on Paki v Attorney General[3]  and Garmonsway v Raglan Development Limited[4]  they contend that a remedial constructive trust is not in reality a constructive trust.   Therefore, they submit, it cannot come within the definitions quoted above and s 21 cannot apply.

[3] Paki v the Attorney General HC Ham CIV-2004-419-17 [30 July 2008].

[4] Garmonsway v Raglan Developments Limited & Anr, HC Hamilton, 5 May 2009, CIV-2006-419-001066 at [27].

[22]     In response, Mr Kirkland submitted that the Court should rely on the plain wording of the Trustee Act definition.   He also contended that the two decisions relied on by counsel for the defendants were wrongly decided.   Mr Kirkland submitted that the law in New Zealand is as stated by the Court of Appeal in Fortex Group Limited (In Receivership and Liquidation) v MacIntosh[5] which, he noted, was not referred to in either Paki or Garmonsway.

[5] Fortex Group Limited (In Receivership and Liquidation) v MacIntosh, [1998] 3 NZLR 171.

[23]     I now consider those competing submissions.

[24]     In Fortex the Court of Appeal left open whether there was any value in the distinction between an institutional constructive trust and a remedial constructive trust.  But for the purposes of that decision it assumed “that the distinction is valid and that both types of constructive trust exist”.[6]     Given that neither Paki or Garmonsway referred to Fortex, I approach both of those decisions with caution.

[6] At 173.

[25]     In the end result, however, I do not need to reach any final decision about whether a remedial constructive trust is a “constructive trust” for the purposes of the Trustee Act definition.  This is because the pleadings and evidence currently before

the Court are capable of supporting the proposition that the first cause of action

relies on an institutional constructive trust, not a remedial constructive trust.   In particular the pleading relies on receipt of the money into the bank account of Julian’s  trust,  which  is  consistent  with  an  institutional  constructive  trust  having arisen at the outset.  At the very least it would be extremely bold to rule out at this interlocutory   stage   the   possibility   that   James   could   prove   an   institutional constructive trust.

[26]     Arguably the second cause of action is closer to a remedial constructive trust. But given the pleadings, and the evidence as it stands, I am again in a position where I cannot confidently rule out the possibility that an institutional constructive trust could be proved.  That issue can only be satisfactorily resolved once all the evidence is before the Court.

[27]     It follows that, at least in the context of the summary judgment application, the  first  and  second  causes  of  action  come  within  s  21  of  the  Limitation Act. Therefore, the first defendant’s application for summary judgment in relation to those causes of action must fail.

Section 28 of the Limitation Act

[28]     Section 28 relevantly provides:

28       Postponement of limitation period in case of fraud or mistake

Where,  in  the  case  of  any  action  for  which  a  period  of  limitation  is prescribed by this Act, either—

(a)       The action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or

(b)       The right of action is concealed by the fraud of any such person as aforesaid; or

(c)       The  action  is  for  relief  from  the  consequences  of  a mistake,—

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it:

...

James relies on s 28(a) to support the third cause of action alleging equitable fraud.

[29]     The issue is whether if James had exercised reasonable diligence he should have discovered the alleged fraud when the funds were received by the trust on

2 December 2004, or soon after that time.  If that conclusion can be properly reached on the evidence as it stands, the third cause of action will be out of time.

[30]   In support of his proposition that the alleged fraud was reasonable discoverability in this case Julian relies on various matters, including:  James knew the Wales property had been sold; he was also aware that furniture (which I assume was from the property) was being distributed; he knew that he would get something from the proceeds of sale; he was a trustee of Julian’s trust which received the funds; the funds were then paid to a company of which James was one of the two directors; James signed company accounts which recorded the transactions in question; as a matter of law James should have known what was going on; and the truth of the matter is that James simply made no enquiry.

[31]     Countering that approach are James’ contentions; he had no knowledge of the instructions that Julian had given to Giles in relation to the remittance of funds or instructions to money agency involved; he had nothing to do with the day to day running of the trust or its bank account; he was in “the workshop” of the company while  Julian  handled  financial  matters;  Gail  Lord  confirms  that  James  had  no dealings with the money agency and that James simply signed the company accounts where he was told to and had little interest or understanding of the company’s operation; and Giles confirms that all his financial dealings were with Julian.

[32]     I cannot confidently resolve these disputed issues of fact.  Clearly there is a major divergence between the parties.   Final resolution will have to await a substantive hearing where all the evidence is available. To the extent that counsel for the defendants relied on Garmonsway, I am of the view that decision is distinguishable.   It involved an application for joinder, not summary judgment. Entirely different principles apply.

[33]     Thus the first defendant’s application for summary judgment in relation to the

third cause of action must also fail.

Cause of action against the second defendant

[34]     As already mentioned, this cause of action relies on money had and received. As Mr Kirkland responsibly conceded, neither s 21 or s 28 of the Limitation Act can avail  the  plaintiff  and  this  cause  of  action  is  clearly time  barred.    The  second defendant is entitled to summary judgment accordingly.

Plaintiff ’s application for summary judgment against the first defendant

[35]     As  already  mentioned  the  plaintiff  recently  failed  on  an  application  for summary judgment.   In essence, Judge Matthews found that there were gaps that precluded summary judgment.   Mr Kirkland mounted his oral application for summary judgment on the basis that those gaps have been filled by the further affidavits that are now before the Court.

[36]     For reasons similar to those applying to the first defendant’s application, I decline to grant summary judgment.   The parties are still poles apart on factual issues, especially whether there is “double dipping”.  I cannot resolve that issue at this stage.

Joinder of additional party as second defendant

[37]     Given that the second cause of action will be struck out, this application is now academic.  It is dismissed.

Result

[38]     The first defendant’s application for summary judgment on the three causes of action involving him is dismissed.   The second defendant’s application for summary judgment on the claim against the trustees of the trust is granted and that

cause of action is struck out.  The plaintiff’s application for joinder of an additional

second defendant is also dismissed.

[39]     A concluding word.   It is remarkable that this litigation has generated such intensity.  The brothers seem to have lost sight of the amount involved.  A good deal of Court time has already been utilised and I am sure the legal costs have been high. It is about time that James and Julian came to their senses.

[40]     To the extent that the underlying issue seems to be whether there is “double dipping” it should be possible to find a solution along the lines that James receives his $40,000 plus interest and the journal entry crediting his current account in the company is reversed.

Costs

[41]     Both sides seek costs.  Each claim a victory.   I am not prepared to reserve costs in relation to the applications that I have just determined.   The bulk of the hearing time yesterday was taken on the summary judgment issue.  While I accept that the defendants have had a measure of success, I have decided that justice would be served if the first defendant pays the plaintiff half 2B scale costs.  There will be an order accordingly.

[42]     The issue of costs on the previous summary judgment by the plaintiff was raised.  Those costs were reserved.   If the parties agreed that they should now be determined a request should be made to Judge Matthews.

Solicitors:

Saunders & Co, Christchurch,  [email protected]

Parry Field Lawyers, Christchurch,  [email protected]